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HANCOCK FABRICS INC S-1/A Filing

VIEWS: 33 PAGES: 249

									Table of Contents




                                          As filed with the Securities and Exchange Commission on June 19, 2008
                                                                                                              Registration No. 333-150979

                        UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                                                                          Washington, DC 20549

                                                                             Amendment No. 1
                                                                                  to
                                                                                Form S-1
                                                                  REGISTRATION STATEMENT
                                                                           UNDER
                                                                  THE SECURITIES ACT OF 1933




                                                     HANCOCK FABRICS, INC.
                                                                 (Exact name of registrant as specified in its charter)


                            Delaware                                                       5940                                                  64-0740905
                  (State or other jurisdiction of                             (Primary Standard Industrial                                     (IRS Employer
                 incorporation or organization)                               Classification Code Number)                                  Identification Number)

                                                            One Fashion Way, Baldwyn, MS 38824 (662) 365-6000
                               (Address, including zip code, and telephone number, including area code of registrant’s principal executive offices)

                                                                               Robert W. Driskell
                                                              Senior Vice President and Chief Financial Officer
                                                                                One Fashion Way
                                                                              Baldwyn, MS 38824
                                                                                 (662) 365-6000
                                       (Name, address, including zip code, and telephone number, including area code, of agent for service)


                                                                                    With copies to:

                                                                             Sam D. Chafetz, Esq.
                                                              Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
                                                                              165 Madison Avenue
                                                                              Memphis, TN 38103
                                                                                 (901) 577-2148


       Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

       If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
    the following box: 

       If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the
    Securities Act registration statement number of the earlier effective registration statement for the same offering. 

        If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration
    statement number of the earlier effective registration statement for the same offering. 

        If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration
    statement number of the earlier effective registration statement for the same offering. 

       Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
    definitions of ―large accelerated filer,‖ ―accelerated filer‖ and ―smaller reporting company‖ in Rule 12b-2 of the Exchange Act. (Check one):


      Large accelerated filer                      Accelerated filer                         Non-accelerated filer                                     Smaller reporting
                                                                                     (Do not check if a smaller reporting company)                         company 
                                                        CALCULATION OF REGISTRATION FEE



                                                                                                  Proposed Maximum         Proposed Maximum            Amount of
                        Title of Each Class of                               Amount to be           Offering Price             Aggregate              Registration
                      Securities to be Registered                             Registered               per Unit              Offering Price               Fee
Subscription Rights                                                              N/A(1)                   N/A                    N/A                     N/A
Floating Rate Secured notes                                                 $20,000,000(2)             $1,000.00            $20,000,000(2)              $786(3)
Floating Rate Secured in-kind notes                                          $2,000,000(4)             $1,000.00              $2,000,000                $79(3)
Warrants to purchase Common Stock                                             9,500,000(5)                N/A                    N/A                    N/A(6)
Common Stock, par value $0.01 per share, issuable upon exercise of
  Warrants                                                                   10,450,000(7)             $1.24(8)               $12,958,000               $509(9)
Total Registration Fee                                                                                                                                 $1,374(10)

 (1) We are granting at no cost to holders of our outstanding common stock transferable subscription rights to purchase an aggregate of $20,000,000 of our floating
     rate secured notes and accompanying warrants.
 (2) Represents the aggregate principal amount of the notes being registered.
 (3) Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the ―Securities Act‖).
 (4) Represents additional floating rate secured notes that may be issued by our company to noteholders in lieu of cash payments of interest for the initial four
     quarterly interest payments due on the notes.
 (5) Represents 9,500,000 warrants, each of which is exercisable for one share of common stock.
 (6) Pursuant to Rule 457(g) under the Securities Act, no registration fee is required with respect to the warrants.
 (7) Pursuant to Rule 416(a) under the Securities Act, the registrant is also registering hereunder an indeterminate number of shares that may be issued and resold
     resulting from stock splits, stock dividends or similar transactions. Represents 110% of the shares currently issuable upon exercise of the warrants.
 (8) The per share exercise price of the warrants is equal to the greater of (i) $1.00 per share and (ii) the volume weighted average trading price per share for the
     30 days prior to issuance. For purposes of the calculation of the registration fee, we have based the exercise price on the last sale reported on the
     Over-the-Counter Bulletin Board quotation service on May 12, 2008.
 (9) Calculated pursuant to Rule 457(g) under the Securities Act based on the last sale reported on the Over-the-Counter Bulletin Board quotation service on May 12,
     2008.

(10)   Previously paid.


   The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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                                            Hancock Fabrics, Inc.
                 Transferable Rights to Purchase $20,000,000 Floating Rate Secured Notes &
                         Warrants to Purchase 9,500,000 Shares of Common Stock
               We are offering to holders of shares of our common stock as of June 17, 2008, and other persons as described below,
         the transferable right to purchase an aggregate of up to $20,000,000 principal amount of our floating rate secured notes and
         warrants to purchase up to 9,500,000 shares of our common stock.

              Every 970 shares of our common stock entitles the holder to receive one right to purchase a note in the principal amount
         of $1,000 and receive a warrant to purchase 400 shares of our common stock at no additional cost. Stockholders who own
         fewer than 970 shares do not have the right to participate in this rights offering.


         Notes                                                                                        Warrants


         • $1,000 Purchase Price                                           • Warrant to purchase 400 shares of common stock per
                                                                            each $1,000 note
         • Interest at LIBOR plus 4.50%, payable quarterly
                                                                           • Exercisable at a price per share equal to the greater of (i)
         • Interest for the first four quarters may be paid by the          $1.00 and (ii) the volume weighted average trading price
          issuance of additional notes. If we elect to issue additional     for 30 days prior to the 3rd business day before issuance
          notes the interest for the period will be equal to LIBOR plus
          5.50% rather than LIBOR plus 4.50%                               • Exercisable upon the date of issuance

         • Matures 5 years from date of issuance                           • Terminates 5 years from date of issuance

         • Secured by a junior lien on all of our assets

         • Subordinated to senior credit facility

         • Not convertible

              We have an agreement with Sopris Capital Partners, LP, Berg & Berg Enterprises, LLC and Trellus Management that
         provides in the event stockholders do not subscribe for 100% of the notes being offered in this prospectus, such persons will
         purchase all remaining notes for $1,000 per note. In consideration of this commitment, we have agreed to issue these persons
         warrants to purchase an aggregate of 1,500,000 shares of common stock on the same terms and conditions as the warrants
         issued in connection with the notes.

               Shares of our common stock are quoted on the Over-the-Counter Bulletin Board quotation service under the symbol
         HKFIQ.PK. The last reported sale price of our common stock on June 13, 2008 was $1.30 per share. We do not plan to list
         the rights, the notes, or the warrants on any stock exchange, and we have no way of knowing whether a market will develop
         or be maintained for the rights, the notes, or the warrants.

               This offering begins on the date of this prospectus and ends at 5:00 p.m., eastern time, on July 18, 2008. If you want to
         purchase the securities offered under this offering, you must submit the attached subscription certificate in accordance with
         the instructions on page 2.

             Investing in these securities involves a high degree of risk. See “Risk Factors” beginning on
         page 5 of this prospectus.
     Neither the Securities and Exchange Commission nor any state securities commission has approved or
disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.

                                      The date of this prospectus is June 19, 2008.
                                                TABLE OF CONTENTS


PROSPECTUS SUMMARY                                                                                                       1
RISK FACTORS                                                                                                             5
FORWARD-LOOKING STATEMENTS                                                                                               7
USE OF PROCEEDS                                                                                                          8
THE RIGHTS OFFERING                                                                                                      8
DESCRIPTION OF AGREEMENT TO PURCHASE NOTES                                                                              10
DESCRIPTION OF FLOATING RATE SECURED NOTES                                                                              10
DESCRIPTION OF WARRANTS                                                                                                 20
DESCRIPTION OF OUR CAPITAL STOCK                                                                                        22
FEDERAL INCOME TAX CONSEQUENCES                                                                                         25
PLAN OF DISTRIBUTION                                                                                                    31
EXPERTS                                                                                                                 31
LEGAL MATTERS                                                                                                           31
WHERE YOU CAN FIND MORE INFORMATION ABOUT US                                                                            31
 EX-4.3 SPECIMEN STOCK CERTIFICATE
 EX-4.4 Indenture between Hancock Fabrics, Inc. and Deutsche Bank National Trust Company.
 EX-4.5 Master Warrant Agreement between Hancock Fabrics, Inc. and Continental Stock Transfer & Trust Company.
 EX-4.6 Specimen representing the Floating Rate Secured notes of Hancock Fabrics, Inc.
 EX-4.7 Specimen representing the Warrants of Hancock Fabrics, Inc.
 EX-4.8 Form of Subscription Certificate for Rights.
 EX-5.1 Opinion of Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C. as to leality of securities being registered.
 EX-10.45 Subscription Agent Agreement.
 EX-23.1 CONSENT OF BURR, PILGER & MAYER LLP
 EX-99.1 Form letter to stockholders.
 EX-99.2 Form of letter to brokers.

      We have not authorized anyone to provide information different from that contained in this prospectus. When
you make a decision about whether to invest in these securities, you should not rely upon any information other than
the information in this prospectus. Neither the delivery of this prospectus nor sale of the securities means that
information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to
sell or solicitation of an offer to buy these securities in any circumstances under which the offer or solicitation is
unlawful.
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                                                               PROSPECTUS SUMMARY

                   This summary highlights information contained elsewhere in this prospectus and does not contain all of the information
             that you should consider in making your investment decision. Before exercising your rights under this offering, you should
             carefully read this entire prospectus, including ―Risk Factors‖ beginning on page 5 and the information incorporated by
             reference into this prospectus.


             Our Company

                  Hancock Fabrics, Inc., a Delaware corporation, was incorporated in 1987 as a successor to the retail and wholesale
             fabric business of Hancock Textile Co., Inc., a Mississippi corporation and a wholly owned subsidiary of Lucky Stores, Inc.,
             a Delaware corporation (―Lucky‖). Founded in 1957, we operated as a private company until 1972 when we were acquired
             by Lucky. We became a publicly owned company as a result of the distribution of shares of common stock to the
             stockholders of Lucky on May 4, 1987.

                  We are a specialty retailer committed to serving creative enthusiasts with a complete selection of fashion and home
             decorating textiles, sewing accessories, needlecraft supplies and sewing machines. We are one of the largest fabric retailers
             in the United States, operating 269 stores in 37 states as of February 2, 2008.

                 Our executive offices are located at One Fashion Way, Baldwyn, Mississippi 38824, and our telephone number is
             (662) 365-6000.

                  On March 21, 2007, we filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy
             Code in the United States Bankruptcy Court for the District of Delaware. We filed our plan of reorganization with the
             bankruptcy court on June 10, 2008. The sale of the securities being offered in this prospectus is a component of our plan of
             reorganization and the securities must be sold in order for our company to emerge from bankruptcy.


             Our Website

                  Our internet address is www.hancockfabrics.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q,
             current reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities
             Exchange Act of 1934, as amended, (―Exchange Act‖) are made available free of charge on our website as soon as
             practicable after these documents are filed with or furnished to the Securities and Exchange Commission (―SEC‖).
             Information contained on our website, however, is not part of this prospectus.


             The Offering

                Description of Rights

                   The ―rights,‖ which are offered at no cost, allow our stockholders who owned at least 970 shares of our common stock
             on June 17, 2008 to buy floating rate secured notes with detachable warrants. Stockholders with at least 970 shares are
             receiving one right for every 970 shares of our common stock they owned on June 17, 2008. If you hold shares of our
             common stock in different accounts, your shares will not be aggregated for purposes of determining whether you own at
             least 970 shares on the record date or for purposes of calculating the number of rights you will receive in the offering. Each
             right entitles the holder to purchase one $1,000 principal amount note at a purchase price equal to the face amount of the
             note. Each note is accompanied by a warrant to purchase 400 shares of our common stock for an exercise price per share
             equal to the greater of (i) $1.00 and (ii) the volume weighted average trading price for 30 days prior to the 3rd business day
             before the issuance of the warrants.

                  For example, if you own 9,700 shares of our common stock, you have received ten rights in this rights offering. You
             can exercise your rights and purchase up to ten $1,000 notes with warrants exercisable for 4,000 shares of our common
             stock. The purchase price for your ten $1,000 notes will be $10,000, which is equal to the face amount of the notes.

                    Stockholders who hold fewer than 970 shares do not have a right to participate in this offering.
1
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                  If you ―exercise‖ your rights, that means you have offered to purchase at least some of the notes and warrants that the
             rights entitle you to purchase. If you exercise your rights ―in full,‖ that means you have offered to purchase all of the notes
             and warrants available to you in this rights offering. There is no minimum number of rights that must be exercised in order
             for us to complete the rights offering.

                   A total of 20,000 rights are being offered. The rights entitle existing stockholders to purchase up to $20,000,000 of the
             floating rate secured notes. Warrants to purchase 8,000,000 shares of common stock will be issued in connection with the
             issuance of the $20,000,000 of notes.

                   The rights offering is contingent upon the effectiveness of our plan of reorganization and our entry into the senior credit
             facility.


                How to Exercise or Transfer Your Rights

                    Upon receiving this prospectus, you can do the following:

                    • EXERCISE your rights and buy the notes and warrants to which you are entitled;

                    • TRANSFER your rights to someone else, so that person can buy the notes and warrants to which you would
                      otherwise be entitled; or

                    • do nothing with the rights, and let them LAPSE.

                  To EXERCISE some or all of your rights, you must complete and submit, and the subscription agent must receive, the
             attached subscription certificate before July 18, 2008. At the same time, you must provide payment for the principal amount
             of the notes. You should read the instructions under the heading ―The Rights Offering — When and how you can exercise
             your rights‖ for more information about how to exercise your rights. Once the subscription materials have been submitted,
             you cannot revoke your decision to exercise your rights.

                  To TRANSFER some or all of your rights, you must properly endorse the subscription certificate and follow the
             instructions on the certificate.

                 Your rights will LAPSE if you do not exercise or transfer your rights before 5:00 p.m., Eastern Time, on July 18, 2008.
             Your rights have no use or value after they lapse.


                Description of Agreement to Purchase Notes

                   We have entered into an agreement with Sopris Capital Partners, LP, Berg & Berg Enterprises, LLC and Trellus
             Management, who we refer to as the backstop purchasers, in which the backstop purchasers have agreed to purchase any of
             the notes being offered pursuant to this prospectus that are not sold to other stockholders. The purchase price for the notes
             and the other terms and conditions described in this prospectus would apply to such purchases. The backstop purchasers are
             currently stockholders of our company, and are members of the Official Committee of Equity Holders of Hancock Fabrics,
             Inc., which was formed in connection with the filing of our voluntary petition for reorganization under Chapter 11 of the
             United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware on March 21, 2007. In
             consideration of their commitment to purchase any of the notes that are not purchased by the other stockholders, we have
             agreed to issue warrants to purchase an aggregate of 1,500,000 shares of our common stock. The terms and conditions of
             these warrants are the same terms and conditions that apply to the warrants that are being issued in connection with the sale
             of the notes.


                Description of the notes

                  Our $20,000,000 principal amount floating rate secured notes will be issued in denominations of $1,000 per note. The
             notes are not convertible. The notes will bear interest at an annual rate equal to LIBOR plus 4.50%, with the rate reset
             quarterly. Interest is payable quarterly and principal is due at maturity. The notes mature 5 years from the date of issuance.


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                   We may elect to pay any or all of the first four quarterly interest payments by issuing additional notes, which we refer
             to as ―in-kind notes.‖ If we elect to issue in-kind notes in lieu of part or all of the interest owed, the interest due will be equal
             to LIBOR plus 5.50% accrued on the outstanding principal during the interest accrual period. The in-kind notes may be
             issued in denominations of $1,000 or higher. The terms of these notes will be the same as the terms of our $20,000,000
             notes, except that no warrants will be issued in connection with the issuance of such in-kind notes. These in-kind notes will
             mature at the same time as our $20,000,000 notes. Unless otherwise indicated, when we refer to the ―notes‖ we mean both
             the $20,000,000 notes and the in-kind notes.

                    If there is a change in control of our company, we are required to offer to purchase the notes at 101% of the principal
             amount, plus accrued and unpaid interest to the date of purchase. We may redeem the notes, in whole and not in part, in the
             first two years at 102% and 101% of the principal amount plus accrued and unpaid interest, respectively. Thereafter, we may
             redeem the notes, in whole but not in part, at the face amount.

                   The notes will be secured by a junior lien on all of our assets. The notes will be subordinated in right of payment to our
             senior credit facility. We may make regularly scheduled payments of interest on the notes so long as there is no event of
             default under the senior credit facility, but may not repay principal due on the notes until our senior credit facility is paid in
             full.

                  Deutsche Bank National Trust Company serves as indenture trustee with respect to the notes pursuant to the terms of
             the Indenture, a copy of which is filed as an exhibit to our registration statement.


                Description of the Warrants

                  A detachable warrant will be issued with each $1,000 note that is purchased. Warrants to purchase an aggregate of
             8,000,000 shares of our common stock will be issued upon the sale of an aggregate of $20,000,000 principal amount of
             notes. Each warrant will entitle the holder to purchase 400 shares of our common stock at an exercise price per share equal to
             the greater of (i) $1.00 and (ii) the volume weighted average trading price for the 30 days prior to the 3rd business day
             before the date of issuance of the warrants. The exercise price is subject to adjustment to reflect dividends paid on common
             stock and upon the occurrence of certain events. The warrants expire 5 years after the issuance date. The warrants are
             detachable from the notes and may be freely transferred by the holder to another party.

                  Warrants to purchase an aggregate of 1,500,000 shares of our common stock will be issued to the backstop purchasers
             in consideration of their commitment to purchase any notes that are not purchased by the other stockholders of our company.
             The terms of these warrants will be the same as the warrants issued in connection with the purchase of the notes.

                  In the event of a change in control, if the change in control results in the warrants being converted into a right to receive
             cash, then the acquirer is required to purchase the warrants at a price equal to the greater of (i) the amount of the
             consideration to be received in the change of control less the exercise price and (ii) the Black-Scholes valuation of the
             warrants, assuming a risk free interest rate of 3.50% and 50% stock volatility. If the change in control results in the warrants
             being converted into a right to receive securities or cash and securities, the warrants will remain outstanding on the same
             terms and conditions as before the change in control.

                  Continental Stock Transfer & Trust Company serves as warrant agent with respect to the warrants pursuant to the terms
             of the Master Warrant Agreement, a copy of which is filed as an exhibit to our registration statement.


                Description of the Common Stock

                  The holders of our common stock are entitled to one vote for each share on all matters voted on by stockholders.
             Subject to any preferential rights of any outstanding series of preferred stock, the holders of common stock are entitled to
             such dividends as may be declared from time to time by our board of directors.


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                Use of Proceeds

                  We intend to use all of the net proceeds we receive from this offering, combined with our senior credit facility together
             with available cash, to fund all required payments to enable us to emerge from bankruptcy.


                Impact of this Offering on a Stockholder’s Ownership in Our Company

                  If you do not exercise any of your rights, the number of shares of our common stock you own will not change.
             However, your ownership percentage of our common stock will decline following the exercise of the warrants attached to
             the notes and the warrants issued in connection with our agreement with the backstop purchasers to purchase any notes that
             are not sold to the other stockholders.


                No Listing on a Stock Exchange

                 The shares of our common stock are quoted on the Over-the-Counter Bulletin Board quotation service under the symbol
             HKFIQ.PK. We do not plan to list the rights, the notes, or the warrants on any stock exchange, and we have no way of
             knowing whether a market will develop or be maintained for the rights, the notes, or the warrants.


                Tax Consequences

                  The rights provided in this offering will not cause you to recognize any taxable income. You also will not recognize
             taxable income upon the exercise of your rights. For a more complete discussion of tax consequences related to the rights,
             see ―Federal Income Tax Consequences.‖


                Subscription Agent

                  We have appointed Wunderlich Securities, Inc. as our subscription agent for this offering. If you have any questions
             about this offering, including questions about how to exercise your rights, or if you would like extra copies of this prospectus
             or other documents, please call Jim Harwood with Wunderlich Securities, Inc. at (901) 251-2233. You may also contact
             Robert W. Driskell, Chief Financial Officer at our company by calling (662) 365-6000.



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                                                                RISK FACTORS

               Investing in the securities offered in this prospectus involves a high degree of risk. Before exercising your rights in this
         offering, you should carefully consider the risk factors set forth below, as well as the information set forth under the heading
         “Risk Factors” in our Annual Report on Form 10-K on file with the SEC incorporated by reference into this prospectus. The
         risks described in this prospectus and in our Annual Report are not the only ones facing our company. Additional risks not
         presently known to us or that we currently deem immaterial may also impair our business operations.


         Risks Relating to this Offering

            No market currently exists for the rights, notes or warrants, and an active trading market for these securities may not
            develop.

                The rights, notes and warrants are each a new issue of securities with no established trading market. We do not intend to
         list the rights, notes or warrants on any stock exchange. We cannot assure you that a market will develop or that you will be
         able to sell your rights, notes or warrants easily. An inactive or illiquid trading market could adversely affect the price of the
         rights, notes and warrants.


            Stockholders who do not exercise their rights may suffer substantial dilution in ownership interest and voting power.

               Each of the warrants that accompany the notes is exercisable for 400 shares of our common stock. In addition, in
         consideration of the agreement by our backstop purchasers to purchase all notes not sold to the other stockholders, we have
         agreed to issue warrants to them to purchase an additional 1,500,000 shares of common stock. If you choose not to exercise
         your rights in full to purchase the notes and warrants, and if other stockholders exercise their rights and subsequently elect to
         exercise their warrants for common stock, your relative ownership interest in our company will be further diluted. The
         stockholders who exercise their rights and subsequently exercise their warrants to purchase our common stock will receive
         common stock that has full voting rights. If you choose not to exercise your rights and other stockholders elect to exercise
         their rights and exercise their warrants, then your voting power will be diluted.


            The IRS may not agree with the company’s allocation of purchase price between the notes and warrants.

              For U.S. federal income tax purposes, the notes and warrants will be treated as investment units, and the issue price of a
         unit must be allocated between the note and warrant in order to determine the holder‘s tax consequences. For each unit, we
         intend to allocate approximately $680 to each note and $320 to each warrant. Each holder will be bound by such allocation
         unless the holder properly discloses a different allocation on its tax return for the year the unit is acquired. We have not
         obtained a formal appraisal of the relative values of each note and warrant, and there is no assurance the IRS will accept our
         allocation. If the IRS challenges our allocation, the holder‘s tax consequences of holding and disposing of the notes and
         warrants may differ from the consequences determined under our allocation. See ―Federal Income Tax Consequences‖
         beginning on page 25 for more information.


            You will be required to pay U.S. federal income tax on the secured notes even if we do not pay cash interest.

              None of the interest payments on the notes will be qualified stated interest for U.S. federal income tax purposes, even if
         we never exercise the option to pay interest by issuing the in-kind notes, because the notes provide us with the option to pay
         interest with either cash or the issuance of in-kind interest for any interest payment due during the first four quarters after
         issuance. Consequently, the notes will be treated as issued with original issue discount for U.S. federal income tax purposes,
         and U.S. holders will be required to include the original issue discount in gross income on a constant yield to maturity basis,
         regardless of whether interest is paid currently in cash. See ―Federal Income Tax Consequences.‖


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            You may not revoke your decision to exercise your rights after you send us your subscription certificate.

              If you change your mind about exercising your rights, you may not revoke or change the amount of your exercise after
         you send in your subscription forms and payment.


         Risks Relating to Our Securities

            The notes are subordinate to our senior credit facility.

              The notes will be expressly subordinated to our senior credit facility. We may make payments of scheduled interest on
         the notes so long as there is no event of default with respect to the senior credit facility, but may not make any principal
         payments on the notes until the senior credit facility is paid in full. The notes will have a junior lien security interest on
         substantially all of our assets. The notes will rank senior in right of payment to all of our future subordinated indebtedness
         and equal in right of payment with all of our existing and future senior indebtedness (other than the senior credit facility). In
         the event of our bankruptcy, liquidation or reorganization or upon acceleration of the notes due to an event of default, there
         may not be sufficient assets remaining to pay amounts due on any or all of the outstanding notes.


            We may not have sufficient funds to pay our debt and other obligations.

              Our cash, cash equivalents, short-term investments and operating cash flows may be inadequate to meet our obligations
         under the notes or our other obligations. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary
         to make required payments on the notes, we will be in default under the notes, which could cause defaults under any other of
         our indebtedness then outstanding. Any such default would have a material adverse effect on our business, prospects,
         financial condition and operating results. In addition, we cannot be sure that we would be able to repay amounts due in
         respect of the notes if payment of those notes were to be accelerated following the occurrence of a ―change in control‖ as
         described in the indenture. There may be other events that could hurt our financial condition that would not entitle you to
         have your notes repurchased by us.


            The restrictive covenants in our debt instruments may limit our operating flexibility. If we fail to comply with these
            covenants, our lenders could declare a default under our indebtedness even though we may be able to meet our debt
            service obligations.

               The instruments governing our indebtedness, including the notes, will impose significant operating and financial
         restrictions on us. These restrictions significantly limit, among other things, our ability to incur additional indebtedness, pay
         dividends, repay junior indebtedness, sell assets, make investments, engage in transactions with affiliates, create liens and
         engage in mergers or acquisitions. Substantially all of our assets will be subject to liens securing our senior credit facility and
         the notes. These restrictions could limit our ability to obtain future financings, make needed capital expenditures, withstand a
         future downturn in our business or the economy in general, or otherwise take advantage of business opportunities that may
         arise. If we fail to comply with these restrictions, the noteholders could declare a default under the terms of the relevant
         indebtedness even though we are able to meet debt service obligations and, because our indebtedness has cross-default and
         cross-acceleration provisions, could cause all of our debt to become immediately due and payable. As a result, any event of
         default could have a material adverse effect on our business and financial condition, and could prevent us from paying
         amounts due under the notes.


            We may be unable to repurchase the notes upon a change of control or upon receipt of excess proceeds from an asset
            sale.

              If a change of control under the indenture occurs, we will be required to make an offer to purchase all the outstanding
         notes at a price equal to 101% of the principal amount of the notes, together with any accrued and unpaid interest and
         additional amounts, if any, to the date of repurchase. In such a situation we may not have sufficient funds to pay for all of the
         notes that are tendered under the offer to purchase. If a significant amount of notes are tendered, we will almost certainly
         have to obtain financing to pay for the tendered notes; however, we may be unable to obtain such financing on acceptable
         terms, if at all. In addition, our senior


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         credit facility will restrict our ability to repurchase notes. Our failure to repay holders tendering notes upon a change of
         control or upon receipt of excess proceeds from an asset sale will result in an event of default under the notes. A change of
         control, or an event of default under the notes, may also result in an event of default under our other indebtedness, which
         may result in the acceleration of that indebtedness, requiring us to repay that indebtedness immediately. Any indebtedness
         we incur in the future may also prohibit certain events or transactions that would constitute a change of control under the
         indenture governing the notes.


            The notes do not require us to achieve or maintain minimum financial results, the lack of which could negatively
            impact holders of the notes.

              The notes do not require us to achieve or maintain any minimum financial results relating to our financial condition or
         results of operations. Our ability to recapitalize and take a number of other actions that are not limited by the terms of the
         indenture and the notes could have the effect of diminishing our ability to make payments on the notes when due.


            The trading prices for the notes will be directly affected by many factors, including our credit rating.

               Credit rating agencies continually revise their ratings for companies they follow. The condition of the financial and
         credit markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future. Any such
         fluctuation may impact the trading price of the notes. In addition, developments in our business and operations could lead to
         a ratings downgrade which could adversely affect the trading price of the notes, or the trading market for the notes, to the
         extent a trading market for the notes develops.


            If you hold warrants, you will not be entitled to any rights as a holder of our common stock, but you will be subject to
            all changes made with respect to our common stock.

              If you hold the warrants, other than the right to adjustments in the exercise price of the warrants upon certain events,
         you will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and
         rights to receive any dividends or other distributions on our common stock), but you will be subject to all changes affecting
         the common stock. You will only be entitled to rights as a holder of common stock if and when we deliver shares of
         common stock to you upon exercise of your warrants. For example, in the event that an amendment is proposed to our
         charter or bylaws requiring stockholder approval and the record date for determining stockholders of record entitled to vote
         on the amendment occurs prior to exercise of your warrants, you will not be entitled to vote on the amendment, although the
         common stock you receive upon exercise of your warrants will nevertheless be subject to any changes in the powers,
         preferences or special rights of our common stock or other classes of capital stock.


                                                  FORWARD-LOOKING STATEMENTS

              This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
         as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are not historical facts
         and reflect our current views regarding matters such as operations and financial performance. In general, forward-looking
         statements are identified by such words or phrases as ―anticipates,‖ ―believes,‖ ―could,‖ ―approximates,‖ ―estimates,‖
         ―expects,‖ ―may,‖ ―intends,‖ ―predicts,‖ ―projects,‖ ―plans,‖ or ―will‖ or the negative of those words or other terminology.
         Forward-looking statements involve inherent risks and uncertainties; our actual results could differ materially from those
         expressed in our forward-looking statements. The risks and uncertainties, either alone or in combination, that could cause
         our actual results to differ from those expressed in our forward-looking statements include, but are not limited to, those that
         are discussed above. Other risks not presently known to us, or that we currently believe are immaterial, could also adversely
         affect our business, financial condition or results of operations. Forward-looking statements speak only as of the date made,
         and we undertake no obligation to update or revise any forward-looking statement.


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                                                             USE OF PROCEEDS

              We estimate our net proceeds from the sale of notes and warrants will be approximately $19,900,000, after deducting
         estimated offering expenses payable by us. We intend to use all of the net proceeds we receive from this offering, combined
         with our senior credit facility together with available cash to fund all required payments to enable us to emerge from
         bankruptcy.


                                                          THE RIGHTS OFFERING

         About the Rights

              We are giving our stockholders, at no cost to them, rights that let them buy an aggregate of up to $20,000,000 principal
         amount of secured notes accompanied by warrants to purchase 8,000,000 shares of our common stock at an exercise price
         per share equal to the greater of (i) $1.00 and (ii) the volume weighted average trading price for the 30 days prior to the
         3rd business day before the date of issuance of the warrants. Stockholders who own at least 970 shares of our common stock
         as of June 17, 2008, the record date, will receive one right to purchase a $1,000 secured note accompanied by a warrant to
         purchase 400 shares of common stock for each 970 shares of our common stock that they owned on the record date. If you
         hold shares of our common stock in different accounts, your shares will not be aggregated for purposes of determining
         whether you own at least 970 shares on the record date or for purposes of calculating the number of rights you will receive in
         the offering.

              Stockholders who own fewer than 970 of our shares on the record date do not have the right to participate in this rights
         offering.

               The rights offering is contingent upon the effectiveness of our plan of reorganization and our entry into the senior credit
         facility.


         When and how you can exercise your Rights

              This rights offering terminates on July 18, 2008. After the termination date, any rights still held by stockholders or their
         transferees will be void. Your rights are not considered exercised until July 18, 2008, the closing date of the rights offering,
         at which time our subscription agent must have received and accepted your subscription documents. You cannot revoke the
         exercise of your rights after the subscription agent receives your subscription documents.

             Wunderlich Securities, Inc. will act as our subscription agent with respect to this offering. To exercise your rights, you
         must deliver the following to our subscription agent:

               • The completed subscription certificate that is attached to this prospectus;

               • Any required signature guarantees; and

               • Payment in full for the principal amount of the desired amount of notes.

             You should send the attached subscription certificate and any notice of guaranteed delivery with payment for the notes
         and warrants you want to buy to our subscription agent.


         Paying for your notes and warrants

               The purchase price for each of the notes with a warrant attached is $1,000. You may only pay for the notes and warrants
         by:

               • money order, certified check or bank draft drawn upon a United States bank, each payable to our subscription
                 agent, or

               • wire transfer of funds to the account maintained by our subscription agent.
     The subscription agent will be deemed to have received your payment only upon receipt of any money order, certified
check or bank draft or receipt of good funds in the subscription agent‘s account. Any wire transfer of funds should clearly
identify the stockholder exercising his or her rights.


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         Signature Guarantees

              Signatures on the subscription certificate must be guaranteed by an eligible guarantor institution, such as a bank, broker,
         dealer, credit union, national securities exchange or savings association. Signature guarantees are also subject to the
         standards and procedures adopted by our subscription agent.

              Signatures on the subscription certificate do not need to be guaranteed if the subscription certificate provides that the
         securities being purchased are to be delivered directly to the record owner of the rights or if the subscription certificate is
         submitted for the account of a member firm of a registered national securities exchange, a member of the National
         Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the
         United States.


         Shares held for others

              Brokers, trustees, depositories or others holding common stock for another party should provide a copy of this
         prospectus to the beneficial owners of the shares as soon as possible. You must ascertain each beneficial owners‘ intentions
         and obtain instructions with respect to the rights. If the beneficial owner wants to exercise his or her rights, you should
         complete the necessary subscription certificates and send them to the subscription agent with the proper payment.

              If you are a beneficial owner of our common stock held by a holder of record, you should contact the holder of record
         and request that transactions be carried out in accordance with your instructions. Please note that brokers or other record
         holders may establish early deadlines for receiving instructions from beneficial holders that may be well in advance of the
         rights offering deadline.


         Method of transferring rights

              The rights are freely transferable; however, we do not intend to list the rights on any stock exchange and we cannot
         assure you that a market for the rights will develop or that any market which does develop will be active or can be sustained.
         We also do not know the prices at which the rights will trade.

               All of the rights represented by one subscription certificate may be transferred by endorsing the subscription certificate
         for transfer. The endorsement must be made in accordance with the instructions attached to the certificate. Less than all of
         the rights represented by a subscription certificate (but not fractional rights) may be transferred by delivering the properly
         endorsed subscription certificate to the subscription agent with instructions to register the number of rights being transferred
         in the name of the transferee and to issue a new subscription certificate for that number of shares to the transferee. Then, a
         new subscription certificate representing the remaining rights will be issued to the original holder, or, if the rights holder so
         instructs, the new certificate may be issued to another transferee. Holders wishing to transfer all or a portion of their rights
         should allow enough time prior to the rights offering deadline.

            BECAUSE THE RIGHTS OFFERING PERIOD IS LIMITED, ANY ATTEMPT TO TRANSFER YOUR RIGHTS
         MAY RESULT IN A DELAY THAT COULD CAUSE YOUR RIGHTS TO LAPSE BEFORE THEY ARE EXERCISED.

              To transfer rights to any person other than a bank or broker, signatures on the subscription certificate must be
         guaranteed by an eligible guarantor institution.

              Except for the fees charged by the subscription agent (which we will pay), all commissions, fees and other expenses
         (including brokerage commissions and transfer taxes) incurred in connection with the purchase, sale or exercise of rights will
         be paid for by the person incurring such fees. None of such commissions, fees or expenses will be paid by us or the
         subscription agent.


         Our decisions are binding

              All questions concerning the timeliness, validity, form and eligibility of any exercise of rights will be determined by us.
         Our determinations will be final and binding. We reserve the right, in our sole discretion, to waive any defect or irregularity,
         or permit a defect or irregularity to be corrected within the time that we may
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         determine. We may also, in our sole discretion, reject the attempt to exercise any right. Subscriptions will not be deemed to
         have been received or accepted until all irregularities have been waived or cured within the time that we determine. Neither
         we nor the subscription agent will be under any duty to give notice of any defect or irregularity in connection with the
         submission of subscription certificates.

              You should carefully read and follow the instructions accompanying the subscription certificate. Do not send
         subscription certificates to us. You may choose the method of delivery of subscription certificates and payment of the
         subscription price to the subscription agent, however, you must assume the risk associated with the delivery method you
         choose. If sent by mail, it is recommended that the certificates and payments be sent by registered mail, properly insured,
         with return receipt requested. You should also allow a sufficient number of days to ensure delivery to the subscription agent
         and clearance of payment at or prior to 5:00 p.m., Eastern Time, on July 18, 2008.


                                       DESCRIPTION OF AGREEMENT TO PURCHASE NOTES

               We have entered into an agreement with Sopris Capital Partners, LP, Berg & Berg Enterprises, LLC, and Trellus
         Management, who we refer to as the backstop purchasers, in which the backstop purchasers have agreed to purchase any of
         the notes being offered pursuant to this prospectus that are not sold to other stockholders. The purchase price for the notes
         and the other terms and conditions described in this prospectus would apply to such purchases. The backstop purchasers are
         currently stockholders of our company, and are members of the Official Committee of Equity Holders of Hancock Fabrics,
         Inc. In consideration of their commitment to purchase any of the notes that are not purchased by the other stockholders, we
         have agreed to issue warrants to purchase an aggregate of 1,500,000 shares of our common stock. The terms and conditions
         of these warrants are the same terms and conditions that apply to the warrants that are being issued in connection with the
         sale of the notes.


                                        DESCRIPTION OF FLOATING RATE SECURED NOTES

              The notes will be issued under an indenture dated as of June 17, 2008, between us and Deutsche Bank National
         Trust Company as trustee. The notes are not convertible. We have summarized the material terms and provisions of the
         indenture in this section.

               The indenture is qualified under the Trust Indenture Act of 1939, as amended. The terms of the notes include those
         stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act. A copy of the indenture
         is filed as an exhibit to the registration statement of which this prospectus is a part. You should read the indenture for
         additional information before you exercise your rights and buy any of the notes.

              The notes are secured by a junior security interest in our assets, including, but not limited to our accounts, equipment,
         general intangibles, inventory and all of our additional property whether tangible or intangible, personal or mixed and
         proceeds and products thereof or therefrom.


         Priority and subordination

              The notes represent our senior obligations, ranking pari passu in right and priority of payment with all our existing and
         future senior indebtedness, except for our senior credit facility to which the notes are subordinate, and senior in right and
         priority of payment to all our indebtedness that is expressly subordinated to the notes. The notes and our other secured
         indebtedness will be effectively senior to our unsecured indebtedness to the extent of the value of the assets securing the
         secured indebtedness.

              We have entered into a commitment letter for a senior credit facility to consist of revolving loans and letters of credit,
         with a maximum commitment of $100,000,000. General Electric Capital Corporation will act as agent, an issuing bank, and
         the syndication agent with respect to the facility. We will grant a senior lien on substantially all of our assets and those of our
         subsidiaries including without limitation all accounts, general intangibles, all goods such as inventory and equipment, all real
         property and fixtures, all chattel paper, all


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         instruments such as promissory notes, all documents, all deposit accounts, all letters of credit, all present and future liens on
         assets, all investment property, all commercial tort claims, all other receivables, all records, and all products and proceeds of
         the foregoing. We refer to these items collectively as the ―collateral‖. Our senior credit facility will contain numerous
         covenants, including a covenant that restricts our ability to pay interest on the notes unless we meet certain financial
         covenants and are not otherwise in default under the senior credit facility, and a covenant that generally prohibits us from
         redeeming the notes. Our senior credit facility may be amended, supplemented, modified or restated from time to time
         including such as would increase the maximum commitment amount. All of our subsidiaries will be subject to many of the
         restrictive covenants set forth in the senior credit facility and indenture.

               The notes are secured by a junior lien on the collateral. The indenture provides that the notes will be expressly
         subordinated to our senior credit facility. We may make regularly scheduled payments of interest on the notes so long as
         there is no event of default with respect to the senior credit facility, but may not make any principal payments on the notes
         until the senior credit facility is paid in full.

              The notes are limited to $20,000,000 aggregate principal amount. The notes are issuable only in denominations and
         multiples of $1,000, and are scheduled to mature 5 years from the date of issuance. The notes will be issued with original
         issue discount for United States federal income tax purposes. See ―Federal Income Tax Consequences — Original Issue
         Discount‖ for more information.

              Interest on the notes will accrue at the rate of LIBOR plus 4.50% per annum, with the rate reset quarterly. Interest is
         payable quarterly. Interest will be computed on the basis of a 360-day year comprising twelve 30-day months. For the initial
         four quarterly payments, we may elect to issue in-kind notes in lieu of paying some or all cash interest that is owed for a
         principal amount. If we elect to issue in-kind notes in lieu of part or all of the interest owed, the interest due will be equal to
         LIBOR plus 5.50% accrued on the outstanding principal during the interest accrual period. No warrants will be attached to
         these notes, but otherwise the terms and conditions will be the same as the $20,000,000 notes, including the interest rate and
         the maturity date.

               All payments of principal, interest and additional amounts, if any, made in connection with the notes will be made at the
         trustee‘s office, unless we designate otherwise. The notes may be presented for transfer or exchange at the trustee‘s office.
         We may change the payment office and the office where notes can be presented for transfer or exchange without prior
         notice, in which event we will notify the trustee of the location of the newly-designated offices.


         Redemption and repurchase of the notes

            Redemption of notes at our option

               We may redeem the notes in whole or in part, for cash at any time after they are issued. If we redeem the notes within
         the first year after issuance, we must pay 102% of the principal amount of the notes, if we redeem the notes within the
         second year after issuance, we must pay 101% of the principal amount of the notes. For any redemptions made after the
         second year of issuance, we must pay 100% of the principal amount of the notes. In addition to paying the principal amount
         of the notes, we must also pay all accrued and unpaid interest and additional amounts, if any, on those notes.

              If less than all of the notes are redeemed, the trustee will select which notes to redeem in compliance with the
         national securities exchange or market on which the notes are listed, or if not listed, as it deems fair and appropriate.

              Notices of redemption will be mailed by first class mail to holders of the notes called for redemption at least 30 but not
         more than 60 days before the redemption date. If only a portion of the notes are called for redemption, the notice of
         redemption will state the amount of notes to be redeemed. On the redemption date, interest will stop accruing on the notes
         called for redemption unless we default in the payment of those notes.


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            Repurchase at the option of noteholders — change of control

              The indenture and our senior credit facility generally prohibits us and our subsidiaries from engaging in any merger,
         consolidation or other business combination, except for business combinations between us and our wholly-owned, restricted
         subsidiaries, as well as selling substantially all of our assets. However, if we experience a change of control at any time, the
         noteholders will have the right to require us to repurchase some or all of their notes for 101% of the principal amount of their
         notes, plus accrued and unpaid interest and additional amounts, if any. A change of control means:

               • the transfer, in one transaction or a series of transactions, of all or substantially all of our assets to any person or
                 group;

               • our liquidation or dissolution or the adoption of a plan by our stockholders relating to our liquidation or dissolution;

               • the acquisition by any person or group, other than the backstop purchasers, of more than 50% of beneficial
                 ownership, directly or indirectly, of the voting power of our total outstanding voting stock;

               • a change in the majority of incumbent members of our board of directors within a two year period; or

               • our failure to own and control 100% of the voting power of the total outstanding voting stock of our subsidiaries.

             Any action taken in accordance with the terms of our plan of reorganization, the issuance of the warrants or the
         conversion of the warrants into common stock will not constitute a change in control.

               If a change of control occurs, we will mail by first class mail a change of control notice to each note holder, offering to
         repurchase their notes. The offer to repurchase the notes will remain open for at least 20 days, but will not be open for more
         than 40 days unless required by law. Within five business days of the end of the offer period, we will purchase the notes held
         by any note holder who accepted our repurchase offer. Payment for the repurchased notes will be made in the same manner
         as interest payments are made on the notes.

               As discussed above, our senior credit facility prohibits the redemption of the notes for so long as the facility is
         outstanding. Therefore, we may not be permitted to redeem the notes in the event of a change in control, which could result
         in a default under the terms of the indenture.


            Mandatory Redemption

              Except in connection with the mandatory offer to repurchase the notes in the event of a change of control or a sale of all
         or substantially all of our assets, we are not required to make any mandatory redemption, purchase or sinking fund payments
         with respect to the notes before the maturity date.


         Transfer and Exchange

              A holder may transfer or exchange notes in accordance with the indenture. The trustee may require a holder, among
         other things, to furnish appropriate endorsements and transfer documents and we may require a holder to pay any taxes and
         fees required by law or permitted by the indenture. We are not required to transfer or exchange any note selected for
         redemption. Also, we are not required to transfer or exchange any note for a period of 15 days before a selection of notes to
         be redeemed.


         Covenants

              We will make certain affirmative and negative covenants in our senior credit facility that will require us to take certain
         actions and limit or prohibit us from taking certain other actions. The indenture contains substantially the same covenants.
         Set forth below is a summary of the covenants we have made in the indenture.


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              We have agreed to keep in full force and effect our existence and maintain in full force and effect all approvals
         necessary to carry on our business. We will not make certain corporate changes, such as changing our name, our mailing
         address, the locations of our business, or type of legal structure unless we give prior notice to the indenture trustee. We will
         not engage in any business other than our business as of the date of the issuance of the notes and any other business that is
         reasonably related to our existing business.

              We covenant that we will comply in all material respects with all applicable laws, including laws regarding employee
         benefits, and will promptly pay all material taxes and assessments, unless such taxes are being contested in good faith. We
         covenant that we will maintain insurance with respect to the collateral against loss or damage and all other insurance of the
         kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the
         same or similar businesses and similarly situated. We also agree to keep proper books and records in accordance with
         GAAP.

              We will promptly notify the indenture trustee in writing of the details of (i) the occurrence of any default or event of
         default; (ii) any proposed name change or change in our principal office; and (iii) the opening of any new location. We will
         also provide annual financial information to the indenture trustee and the holders of the notes.

               We covenant that we will not merge into or with or consolidate with any other person, except that any of our
         wholly-owned subsidiaries may merge with and into or consolidate with any other of our wholly-owned subsidiaries. We
         covenant not to liquidate or dissolve our business, unless such liquidation is in accordance with law, our assets will be
         distributed to our stockholders, and certain other conditions are met. We agree not to sell, issue, or dispose of any capital
         stock, indebtedness, or assets to any other person, except for the following:

               • dispositions of assets in the ordinary course of business;

               • the issuance of capital stock in connection with employee stock option or other equity plans;

               • the sublease of any real property that is leased by us;

               • granting licenses and sublicenses of intellectual property to one of our affiliates in the ordinary course of business;

               • any sale, issuance, assignment, lease, license, transfer, abandonment or other disposition of any capital stock or
                 indebtedness or any assets to the extent permitted under the senior credit facility; and

               • the issuance of the 9,500,000 warrants and the shares of common stock issuable upon exercise of the warrants.

               We covenant that we will not allow any security interest or lien on any of our assets, except for the following:

               • the security interests and liens granted in connection with our senior credit facility and in connection with the notes;

               • liens for taxes that are not yet due or are being contested in good faith;

               • non-consensual statutory liens arising in the ordinary course of our business to the extent such claims are with
                 respect to debt that is not overdue or such claims are fully insured;

               • zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of real property which do
                 not interfere in any material respect with our business;

               • capitalized leases and purchase money security interests in equipment and purchase money mortgages on real
                 property;

               • pledges and deposits of cash in the ordinary course of business;

               • liens arising from operating leases, equipment or other materials which are not owned by us in the ordinary course
                 of business;


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               • liens or rights of setoff against credit balances with credit card issuers or processors in the ordinary course of
                 business;

               • statutory or common law liens or rights of setoff of depository banks with respect to our funds at such banks to
                 secure fees and charges in connection with returned items or the standard fees and charges of such banks in
                 connection with our deposit accounts;

               • judgments and other similar liens arising in connection with court proceedings that do not constitute an event of
                 default;

               • security interests and liens that are permitted under our senior credit facility; and

               • non-consensual security interests and liens which are not permitted by the other provisions of the indenture to secure
                 debt in an amount not to exceed $115,000 in the aggregate.

               We covenant that we will not incur any debt, except for the following:

               • our senior credit facility and the notes;

               • purchase money debt with respect to equipment and real estate not to exceed $2,875,000 in the aggregate at any
                 time outstanding;

               • intercompany indebtedness;

               • debt entered into in the ordinary course of business pursuant to a hedge agreement;

               • unsecured guarantees by us of the obligations of one of our affiliates arising pursuant to a lease from a third party in
                 a bona fide arm‘s length transaction of real property for use as a retail store location in the ordinary course of the
                 business;

               • debt arising after the issuance of the notes not to exceed $20,000,000, so long as such debt is expressly subordinated
                 to the notes and on the date of incurrence of such debt the pro forma interest coverage ratio is greater than 2.0; and

               • certain debt specifically premissible under the senior credit facility.

               We covenant that we will not invest in or purchase the assets of another company, except for the following:

               • investments in cash and cash equivalents;

               • investments existing as of the date of the issuance of the notes;

               • loans to employees not to exceed $287,500

               • investments received in satisfaction of prior debts of another person;

               • acquisitions of businesses that meet certain criteria so long as all acquisitions in the aggregate do not exceed
                 $34,500,000

               • investments in an affiliate;

               • loans by the company to one of its subsidiaries; and

               • certain other loans and advances that are specifically permitted under the senior credit facility.

              We covenant that we will not make any cash dividends or distributions on our capital stock, or redeem any shares of our
         capital stock or warrants or options, make any payment in satisfaction of any of our subordinated debt, or make any
         payments to our affiliates, except as permitted in the indenture. These
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         payments are referred to collectively as ―restricted payments.‖ We may make the following restricted payments:

               • with respect to our capital stock, we may make distributions payable solely in additional shares of our capital stock;

               • our subsidiaries may make restricted payments to us;

               • we may repurchase capital stock consisting of common stock held by employees pursuant to any employee stock
                 ownership plan upon the termination, retirement or death of any such employee in accordance with the provisions of
                 such plan or upon the vesting of restricted stock in any such employee in accordance with the provisions of the
                 restricted stock plan, provided, that certain conditions are met;

               • we may make restricted payments for the purpose of paying dividends and paying other distributions in respect of
                 our capital stock or the repurchase of our capital stock in an amount not to exceed $1,150,000 in the aggregate in
                 any calendar year and not to exceed $3,450,000 in the aggregate for so long as the notes are outstanding; and

               • we may make scheduled payments of principal and interest on all indebtedness that is permissible under the
                 indenture.

              We covenant to only enter into transactions with our affiliates in the ordinary course of business and upon terms no less
         favorable us than we would obtain in a comparable arm‘s length transaction with an unaffiliated person, or as otherwise
         expressly permitted in the indenture.

              We covenant not to prohibit or limit the ability of our subsidiaries to pay dividends or debt or make loans or advances
         or incur liens, except under certain circumstances.


         Events of Default

               The indenture provides that each of the following is an event of default:

               • default for 30 days in the payment of interest on, or additional amounts with respect to, the notes;

               • default in payment of the principal of the notes when due;

               • failure for 60 days to comply with any other provisions of the indenture or the notes after notice has been given to us
                 by the trustee or to us and the trustee by holders of at least 50.1% in principal amount of the outstanding notes;

               • default under any mortgage, indenture or instrument under which there may be issued or by which there may be
                 secured or evidenced any indebtedness for money borrowed by us or any of our subsidiaries (or the payment of
                 which is guaranteed by us or any of our subsidiaries), which default (a) is caused by a failure to pay principal of, or
                 interest on such indebtedness prior to the expiration of any applicable grace period provided in such indebtedness on
                 the date of such default or (b) results in the acceleration of such indebtedness prior to its express maturity and, in
                 each case, the principal amount of any such indebtedness, together with the principal amount of any other such
                 indebtedness under which there has been a payment default or the maturity of which has been so accelerated,
                 aggregates $5,750,000 or more;

               • failure to pay final judgments against us or any of our subsidiaries totaling more than $5,750,000, which judgments
                 are not paid, discharged or stayed for a period of 60 days;

               • Hancock or any of its significant subsidiaries declares bankruptcy; and

               • the security interest in the collateral is no longer in full force and effect or enforceable in accordance with its terms.

              If any event of default occurs and is continuing, the trustee or the holders of at least 50.1% in principal amount of the
         then outstanding notes may declare all the notes to be due and payable immediately, including


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         unpaid principal, accrued interest and additional amounts, if any. The trustee may withhold from holders of the notes notice
         of any continuing default or event of default (except a default or event of default relating to the payment of principal or
         interest) if it determines that withholding notice is in accordance with applicable law and the noteholders‘ interest.

              Except as provided below, holders of at least a majority in principal amount of the outstanding notes may waive any
         existing default or event of default on behalf of all of the noteholders. This provision does not apply to a continuing default
         or event of default in paying the notes‘ principal amount, additional amounts and interest, if any. Holders of a majority of the
         principal amount of the outstanding notes may also direct the time, method and place of conducting any proceeding for
         exercising any remedy available to the trustee, or exercising any trust or power conferred on it.

              We are required to deliver to the trustee annually an officers‘ certificate regarding compliance with the indenture, and
         we are required, upon becoming aware of any default or event of default, to deliver to the trustee an officers‘ certificate
         statement specifying such default or event of default.

              Subject to the subordination provisions of the indenture, a holder of our notes may only pursue a remedy under the
         indenture if:

               • the noteholder gives the trustee notice of a continuing event of default;

               • the holders of at least 50.1% in principal amount of the outstanding notes make a written request to the trustee to
                 pursue the remedy;

               • such noteholder offers and, if requested, indemnifies the trustee against any loss, liability or expense;

               • the trustee does not comply with the request to pursue the remedy within 60 days after receipt of such request; and

               • during the 60-day period after receipt of the request to pursue the remedy, the holders of a majority in aggregate
                 principal amount of the notes then outstanding do not give the trustee a direction inconsistent with the request.


         No Personal Liability of Directors, Officers, Employees and Stockholders

              None of our directors, officers, employees, incorporators or stockholders, as such, will have any liability for any of our
         obligations under the notes, the indenture or for any claim based on, in respect of, or by reason of, such obligations or their
         creation. Each holder by accepting a note waives and releases all such liability. The waiver and release are part of the
         consideration for issuance of the notes. Such waiver may not be effective to waive liabilities under the federal securities laws
         and it is the view of the Securities and Exchange Commission that such a waiver is against public policy.


         Indemnification of the Trustee

              We will indemnify the trustee against any and all losses, liabilities or expenses (including reasonable attorneys‘ fees)
         incurred by it arising out of or in connection with the acceptance or administration of its duties under the indenture and the
         security agreements, including the costs and expenses of enforcing the indenture and the security agreements against us and
         defending itself against any claim (whether asserted by us or any noteholder or any other person) or liability in connection
         with the exercise or performance of any of its powers or duties under the indenture or the security agreements, except to the
         extent any such loss, liability or expense may be attributable to its negligence or bad faith.


         Legal Defeasance

              In order to exercise legal defeasance, in addition to satisfying certain conditions specifically set forth in the indenture,
         we must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the notes, cash or government
         securities, or a combination of both, in amounts sufficient to pay the principal of, and any interest and additional amounts on,
         the outstanding notes on the stated maturity or on the applicable


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         redemption date, as the case may be. In addition, we must deliver to the trustee an opinion of counsel confirming that the
         noteholders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the legal defeasance
         and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as if such
         legal defeasance had not occurred.

               Legal defeasance means that we will be deemed to have paid and discharged the entire indebtedness represented by the
         outstanding notes. At our option, upon satisfying certain conditions, we may elect to have our obligations discharged with
         respect to the outstanding notes, except for (i) the rights of holders of outstanding notes to receive payments of the principal
         of, any interest and any additional amounts, on the notes when the payments are due, (ii) our obligations with respect to the
         notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the
         maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts,
         duties and immunities of the trustee, and our obligations in connection therewith and (iv) the legal defeasance provisions of
         the indenture.


         Amendment, Supplement and Waiver under the Indenture

            Amendment and supplement of indenture without consent of the noteholders.

              We and the trustee may amend or supplement the indenture, the notes or the security agreements without the consent of
         any noteholders to:

               • cure any ambiguity, defect or inconsistency;

               • provide for certificated notes in addition to or in place of uncertificated notes;

               • provide for the assumption of our obligations to the noteholders following a consolidation, merger or sale of assets;

               • make any change that would provide additional rights or benefits to the noteholders, to further secure the notes, to
                 add to our covenants for the benefit of the noteholders or to surrender any right or power conferred upon us, or to
                 make any change that does not adversely affect the legal rights of any noteholders under the indenture;

               • comply with requirements of the Securities and Exchange Commission in order to effect or maintain the
                 qualification of the indenture under the Trust Indenture Act; or

               • add any additional guarantor or to release any guarantor from its subsidiary guaranty in accordance with the
                 indenture.


            Amendment and supplement of the indenture with consent of the noteholders

              We and the trustee may amend or supplement the indenture, the notes and the security agreements with the consent of
         the holders of at least a majority in aggregate of the principal amount of notes then outstanding. However, we may not
         amend any provision of Article XI of the indenture that addresses subordination of the notes to the senior credit facility
         without the prior approval of the credit facility agent for so long as the senior credit facility remains outstanding. After the
         amendment, supplement or waiver becomes effective, we will mail to the holders of notes effected thereby a notice briefly
         describing the amendment, supplement or waiver.

              The holders of a majority in aggregate principal amount of the notes then outstanding may waive any existing event of
         default or compliance in a particular incidence by us with any provision of the indenture, the notes or the security
         agreements. However, without the consent of each holder affected, an amendment or waiver may not (with respect to any
         notes held by a non-consenting holder):

               • reduce the principal amount of the notes whose holders must consent to an amendment, supplement or waiver;


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               • reduce the principal of or additional amounts payable with respect to any note, change the fixed maturity of any note
                 or alter or waive any of the provisions with respect to the redemption or repurchase of the notes;

               • reduce the rate of or change the time for payment of interest, including default interest, on any note;

               • waive an event of default in the payment of principal of or interest on the notes (except a waiver of acceleration of
                 the notes by the holders of a majority in aggregate principal amount of the outstanding notes and a waiver of a
                 payment default that resulted from such acceleration);

               • make any note payable in money other than as stated in the notes;

               • make any change in the indenture relating to waivers of past defaults or the rights of holders of notes to receive
                 payments of principal of or interest, or additional amounts on the note;

               • waive a redemption payment with respect to any note;

               • make a change in any of the amendment and waiver provisions of the indenture;

               • except as provided in the indenture, or in accordance with the terms of any subsidiary guaranty, release a guarantor
                 from its obligations under its subsidiary guaranty or make any changes in the notes or the subsidiary guaranty that
                 would change the ranking thereof to anything other than pari passu and right of payment to pari passu or senior
                 indebtedness of us or the applicable guarantor;

               • release any collateral from the lien under the indenture or the security agreements except in accordance with the
                 terms of the indenture; or

               • make any modification to the provisions in the indenture that would adversely affect the right to the holders to
                 receive additional amounts as described thereunder.


         Book-entry; Delivery; Form and Transfer

              The notes initially will be in the form of a registered global note without interest coupons. Upon issuance, the global
         note will be deposited with the trustee, as custodian for The Depository Trust Company, or DTC, in New York, New York,
         and registered in the name of DTC or its nominee for credit to the accounts of DTC‘s direct and indirect participants.

              Transfer of beneficial interests in any global note will be subject to the applicable rules and procedures of DTC and its
         direct or indirect participants, which may change from time to time.

               The global note may be transferred in whole and not in part, only to another nominee of DTC or to a successor of DTC
         or its nominee in certain limited circumstances. Beneficial interests in the global note may be exchanged for note in
         certificated form in certain limited circumstances. See ―— Transfer of Interests in the Global note for Certificated notes.‖


         Depository Procedures

              DTC has advised us that DTC is a limited-purpose trust company created to hold securities for its participating
         organizations (collectively, the ―direct participants‖) and to facilitate the clearance and settlement of transactions in those
         securities between direct participants through electronic book-entry changes in accounts of participants. The direct
         participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other
         organizations. Access to DTC‘s system is also available to other entities that clear through, or maintain, a direct or indirect
         custodial relationship with a direct participant (collectively, the ―indirect participants‖).

              DTC has advised us that, pursuant to DTC‘s procedures, DTC will maintain records of the ownership interests of its
         direct participants in the global note and the transfer of ownership interests by and between direct participants. DTC will not
         maintain records of the ownership interests of, or the transfer of ownership interests by and between, indirect participants or
         other owners of beneficial interests in the global note. Direct participants and indirect participants must maintain their own
         records of the ownership interests of, and the
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         transfer of ownership interests by and between, indirect participants and other owners of beneficial interests in the global
         note.

              The laws of some states in the United States require that certain persons take physical delivery in definitive, certificated
         form, of securities that they own. This may limit or curtail the ability to transfer beneficial interests in a global note to such
         persons. Because DTC can act only on behalf of direct participants, which in turn act on behalf of indirect participants and
         others, the ability of a person having a beneficial interest in a global note to pledge such interest to persons or entities that
         are not direct participants in DTC, or to otherwise take actions in respect of such interests, may be affected by the lack of
         physical certificates evidencing such interests. For certain other restrictions on the transferability of the notes see
         ―— Transfers of Interests in the Global note for Certificated notes.‖

            EXCEPT AS DESCRIBED IN ―— TRANSFERS OF INTERESTS IN THE GLOBAL NOTE FOR CERTIFICATED
         NOTES,‖ OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTE WILL NOT HAVE
         NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN
         CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF
         UNDER THE INDENTURE FOR ANY PURPOSE.

               Under the terms of the indenture, we, our subsidiaries that guarantee our obligations under the notes, if any, and the
         trustee will treat the persons in whose names the notes are registered, including notes represented by the global note) as the
         owners thereof for the purpose of receiving payments and for any and all other purposes whatsoever. Payments in respect of
         the principal, interest and additional amounts, if any, on global note registered in the name of DTC or its nominee as the
         registered holder under the indenture.

               Consequently, neither the trustee, our agents nor we has or will have any responsibility or liability for:

               • any aspect of DTC‘s records or any direct participant‘s or indirect participant‘s records relating to or payments
                 made on account of beneficial ownership interests in the global note or for maintaining, supervising or reviewing
                 any of DTC‘s records or any direct participant‘s or indirect participant‘s records relating to the beneficial ownership
                 interests in any global note; or

               • any other matter relating to the actions and practices of DTC or any of its direct participants or indirect participants.

              DTC has advised us that its current payment practice (for payments of principal, interest and the like) with respect to
         securities such as the notes is to credit the accounts of the relevant direct participants with such payment on the payment date
         in amounts proportionate to such direct participant‘s respective ownership interests in the global note as shown on DTC‘s
         records. Payments by direct participants and indirect participants to the beneficial owners of the notes will be governed by
         standing instructions and customary practices between them and will not be the responsibility of DTC, the trustee, us or our
         subsidiaries that guarantee our obligations under the notes. Neither us, our subsidiaries that guarantee our obligations under
         the notes, if any, nor the trustee will be liable for any delay by DTC or its direct participants or indirect participants in
         identifying the beneficial owners of the notes, and we and the trustee may conclusively rely on and will be protected in
         relying on instructions from DTC or its nominee as the registered owner of the notes for all purposes.

              Transfers of beneficial interests in the global note between direct participants in DTC will be effected in accordance
         with DTC‘s procedures, and will be settled in immediately available funds. Transfers between indirect participants who hold
         an interest through a direct participant will be effected in accordance with the procedures of such direct participant but
         generally will settle in immediately available funds.

              DTC has advised us that it will take any action permitted to be taken by a holder of notes only at the direction of one or
         more direct participants to whose account interests in the global note are credited and only in respect of such portion of the
         aggregate principal amount of the notes to which such direct participant or direct participants has or have given direction.
         However, if there is an event of default under the indenture, DTC reserves the right to exchange global note, without the
         direction of one or more of its direct participants,


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         for notes in certificated form, and to distribute such certificated forms of notes to its direct participants. See ―— Transfers of
         Interests in the Global note for Certificated notes.

               Although DTC has agreed to the foregoing procedures to facilitate transfers of interests in the global note among direct
         participants, DTC is under no obligation to perform or to continue to perform such procedures, and such procedures may be
         discontinued at any time. None of us, the subsidiaries that guarantee our obligations under the notes, if any, or the trustee
         shall have any responsibility for the performance by DTC or its direct and indirect participants of their respective obligations
         under the rules and procedures governing any of their operations.

              The information in this section concerning DTC and its book-entry systems has been obtained from sources that we
         believe to be reliable, but we take no responsibility for the accuracy thereof.


         Transfers of Interests in the Global Note for Certificated Notes

              The entire global note may be exchanged for definitive notes in registered, certificated form without interest coupons,
         or certificated notes, if:

               • DTC notifies us that it is unwilling or unable to continue as depositary for the global note and we fail to appoint a
                 successor depositary within 90 days; or

               • we, at our option, notify the trustee in writing that we elect to cause the issuance of certificated notes. In either such
                 case, we will notify the trustee in writing that, upon surrender by the direct and indirect participants of their interests
                 in such global note, certificated notes will be issued to each person that such direct and indirect participants and
                 DTC identify as being the beneficial owner of the related notes.

              Beneficial interests in global note held by any direct or indirect participant may be exchanged for certificated notes
         upon request to DTC by such direct participant, for itself or on behalf of an indirect participant, to the trustee in accordance
         with customary DTC procedures. Certificated notes delivered in exchange for any beneficial interest in the global note will
         be registered in the names, and issued in any approved denominations, requested by DTC on behalf of such direct or indirect
         participants, in accordance with DTC‘s customary procedures.

              Neither we, the subsidiaries that guarantee our obligations under the notes, if any, nor the trustee will be liable for any
         delay by the holder of the global note or DTC in identifying the beneficial owners of notes, and we and the trustee may
         conclusively rely on, and will be protected in relying on, instructions from the holder of the global note or DTC for all
         purposes.


         Same Day Settlement and Payment

              The indenture requires that payments in respect of the notes represented by the global note, including principal, interest
         and additional amounts, if any, be made by wire transfer of immediately available same day funds to the accounts specified
         by the holder of the global note. With respect to certificated notes, we will make all payments of principal, interest and
         additional amounts, if any, wire transfer of immediately available same day funds to the accounts specified by the holders
         thereof or, if no such account is specified, by mailing a check to each such holder‘s registered address.


                                                       DESCRIPTION OF WARRANTS


         General

               Each $1,000 secured note will be accompanied by a warrant to purchase 400 shares of our common stock. Because no
         fractional shares will be issued, 8,000,000 shares may be issued if all of the notes offered in this rights offering are
         purchased and all of the attached warrants are exercised. In addition, we will issue warrants to Sopris Capital Partners, LP,
         Berg & Berg Enterprises, LLC, and Trellus Management to purchase an


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         aggregate of 1,500,000 shares of our common stock in consideration of their agreement to purchase all notes that are not
         otherwise purchased by the stockholders.

              The warrants are exercisable for a price equal to the greater of (i) $1.00 per share and (ii) the volume weighted average
         trading price for the 30 days prior to the 3rd business day before the date of issuance. The warrants may be exercised any
         time after the effective date of the registration statement for the underlying shares until 5 years from the date of issuance of
         the warrants, at which time they terminate and may no longer be exercised.

              The warrants will be issued pursuant to a Master Warrant Agreement between us and Continental Stock Transfer &
         Trust Company, the warrant agent. The warrants are represented by warrant certificates, which are detachable and may be
         traded separately from the notes. The warrants are subject to the terms of the Master Warrant Agreement and may only be
         exercised or transferred in accordance with the terms thereof. A copy of the Master Warrant Agreement is filed as an exhibit
         to the registration statement of which this prospectus is a part. You should read the Master Warrant Agreement for a more
         complete discussion of the terms of the warrants. We cannot assure you that a market will develop for the warrants.


         Exercising the Warrants

              The warrants may be exercised at any time after the effective date of the registration statement for the underlying
         shares, but before 5 years from the date of issuance of the warrants. The warrants have net exercise provisions under which
         the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares
         based on the fair market value of our common stock at the time of exercise of the warrant after deduction of the aggregate
         exercise price.

              To exercise some or all of your warrants, you must deliver the following items to Continental Stock Transfer and
         Trust Company, as the warrant agent:

               • notice of election to exercise;

               • the warrant certificate representing the warrants you wish to exercise; and

               • funds in the amount of the exercise price.

              If fewer than all of the warrants represented by a warrant certificate are exercised, the original warrant certificate will
         be surrendered and the warrant agent will issue a new warrant certificate for the number of unexercised warrants.


         Change in Control

              In the event of a change in control, if the change in control results in the warrants being converted into a right to receive
         cash, then the acquirer is required to purchase the warrants at a price equal to the greater of (i) the amount of the
         consideration to be received in the change of control less the exercise price and (ii) the Black-Scholes valuation of the
         warrants, assuming a risk free interest rate of 3.50% and 50% stock volatility. If the change in control results in the warrants
         being converted into a right to receive securities or cash and securities, the warrants will remain outstanding on the same
         terms and conditions as before the change in control.


         Anti-Dilution Provisions

              The Master Warrant Agreement provides that the exercise price may be adjusted or the warrants may entitle a holder to
         purchase additional shares of our common stock in the event of certain events that would have the effect of diluting the
         interests of the holders of the warrants, including:

               • dividends or distributions payable on our common stock;

               • issuance or sale of common stock for consideration less than the exercise price of the warrants;


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               • grants or sales of any rights, options or common stock equivalents for which common stock is issuable upon
                 exercise, conversion or exchange at a price which is less than the exercise price of the warrants; and

               • subdivisions, combinations, reclassifications, recapitalizations, mergers and dispositions of all or substantially all of
                 our assets.


                                                 DESCRIPTION OF OUR CAPITAL STOCK


         Capital Stock

              Our present authorized capital stock consists of 80 million shares of common stock, $0.01 par value per share, and
         5 million shares of preferred stock, $0.01 par value per share (―preferred stock‖). As of May 3, 2008, 19,400,012 shares of
         our common stock were outstanding. No shares of preferred stock are presently outstanding.


         Common Stock

              The holders of common stock will be entitled to one vote for each share on all matters voted on by stockholders,
         including elections of directors, and, except as otherwise required by law or provided in any resolution adopted by our board
         of directors with respect to any series of preferred stock, the holders of common stock will exclusively possess all voting
         power. Our Certificate of Incorporation does not provide for cumulative voting for the election of directors. Subject to any
         preferential rights of any outstanding series of preferred stock designated by our board of directors from time to time, the
         holders of common stock will be entitled to such dividends as may be declared from time to time by our board of directors
         from funds legally available therefor, and upon liquidation will be entitled to receive pro rata all assets of our company
         available for distribution to such holders. No holder of common stock will have any pre-emptive right to subscribe to any
         kind or class of our securities.


         Preferred Stock

               Our board of directors is authorized to provide for the issuance of shares of preferred stock, in one or more series, and
         to fix for each such series the number of shares to be included in the series and such voting powers, designations, preferences
         and relative, participating, optional and other special rights, and such qualifications, limitations or restrictions, as are stated
         in the resolution adopted by our board of directors providing for the issuance of such series and as are permitted by the
         Delaware General Corporation Law.


         Common Stock Purchase Rights

              We have entered into a Common Stock Purchase Rights Agreement with Citizens and Southern Trust Company
         (Georgia), National Association, as Rights Agent (the ―Rights Agreement‖), intended to discourage accumulations of large
         blocks of our shares by persons intending to effect a merger with us or to engage in certain self-dealing transactions, in either
         case without obtaining the prior approval of our board of directors. Pursuant to the Rights Agreement, each share of common
         stock will also represent one common stock purchase right (a ―Right‖). The Rights expire in accordance with their terms in
         March 2011 and will not be exercisable or transferable apart from the shares of common stock until the earlier of (i) the tenth
         day after an announcement that a person or group has acquired beneficial ownership of 20% or more of our shares of
         common stock (such person or group being referred to as an ―Acquiring Person‖), or (ii) the tenth day after a person or group
         commences, or announces an intention to commence, a tender or exchange offer the consummation of which would result in
         beneficial ownership of 80% or more of our shares of common stock. Should the Rights become exercisable, the holder
         thereof may buy one share of our common stock at an exercise price of $24 per share, subject to adjustment.

               If we were acquired in certain mergers or other business combinations, each Right would entitle its holder to purchase,
         at the exercise price of the Right, that number of shares of the common stock of the surviving


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         corporation which at the time of such combination would have a market value of two times the exercise price of the Right.
         Alternatively, if an Acquiring Person were to acquire us by means of a reverse merger in which we and our shares of
         common stock survive, or to engage in certain self-dealing transactions, each Right not owned by the Acquiring Person
         would become exercisable for the number of our shares of common stock that, at that time, would have a market value of
         two times the exercise price of the Right.

              The Rights are redeemable at $0.01 per Right prior to the time that a person or group has acquired beneficial ownership
         of 20% or more of our shares of common stock.


         Stock Options

             As of February 2, 2008, we had options which were granted under our various stock option plans to purchase
         approximately 1,137,300 shares of our common stock at a weighted-average exercise price of $10.68 per share.


         Anti-Takeover Effects of Provisions of Our Amended and Restated Certificate of Incorporation, Our Bylaws and
         Delaware Law

              Some provisions of Delaware law, our certificate of incorporation and our bylaws contain provisions that could make
         the following transactions more difficult: acquisition of us by means of a tender offer; acquisition of us by means of a proxy
         contest or otherwise; or removal of our incumbent officers and directors.

              These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover
         bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our
         board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the
         proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging
         these proposals because negotiation of these proposals could result in an improvement of their terms.

               We are subject to Section 203 of the Delaware General Corporation Law which prohibits persons deemed ―interested
         stockholders‖ from engaging in a ―business combination‖ with a Delaware corporation for three years following the date
         these persons become interested stockholders. Generally, an ―interested stockholder‖ is a person who, together with affiliates
         and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more
         of a corporation‘s voting stock. Generally, a ―business combination‖ includes a merger, asset or stock sale, or other
         transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an
         anti-takeover effect with respect to transactions not approved in advance by the board of directors.

              The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred
         stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These
         and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our
         company.

              Our bylaws provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate
         candidates for election as directors at a meeting of stockholders must provide timely notice in writing and also specify
         requirements as to the form and content of a stockholder‘s notice. These provisions may delay or preclude stockholders from
         bringing matters before a meeting of stockholders or from making nominations for directors at a meeting of stockholders,
         which could delay or deter takeover attempts or changes in management.

              Our bylaws provide that special meetings of the stockholders may be called only by a majority of the whole board or by
         the Chief Executive Officer.

              Our board of directors is divided into three classes, with each class serving a staggered three-year term. The
         classification of our board of directors has the effect of requiring at least two annual stockholder meetings, instead of one, to
         replace a majority of our authorized directors, which could have the effect of delaying or preventing a change in our control
         or management.


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               Our bylaws provide that all vacancies, including newly created directorships, may, except as otherwise required by law,
         be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum. In addition, our bylaws
         provide that our board of directors may fix the number of directors by resolution.

             Our articles of incorporation do not provide for cumulative voting for directors. The absence of cumulative voting may
         make it more difficult for stockholders who own an aggregate of less than a majority of our stock to elect any directors to our
         board.

              Our board of directors is expressly authorized to make, alter, amend or repeal our bylaws, subject to the right of our
         stockholders entitled to vote thereon, who also may adopt, amend or repeal our bylaws in accordance with Delaware law.

              These and other provisions contained in our articles of incorporation and bylaws could delay or discourage transactions
         involving an actual or potential change in control of us or our management, including transactions in which our stockholders
         might otherwise receive a premium for their shares over then current prices, and may limit the ability of stockholders to
         remove our current management or approve transactions that our stockholders may deem to be in their best interests and,
         therefore, could adversely affect the price of our common stock.


         Limitations of Liability and Indemnification Matters

              Section 145 of the Delaware General Corporation Law provides that, among other things, a corporation may indemnify
         directors and officers as well as other employees and agents of the corporation against expenses (including attorneys‘ fees),
         judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil,
         criminal, administrative or investigative (other than action by or in the right of the corporation, a ―derivative action‖), if they
         acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation
         and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A
         similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses
         (including attorneys‘ fees) incurred in connection with the defense or settlement of such actions, and the statute requires
         court approval before there can be any indemnification where the person seeking indemnification has been found liable to
         the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation‘s
         bylaws, disinterested director vote, stockholder vote, agreement or otherwise.

               Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of
         incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for
         monetary damages for breach of fiduciary duties as a director, except for liability (i) for any transaction from which the
         director derives an improper personal benefit, (ii) for acts or omissions not in good faith or that involve intentional
         misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law (certain illegal
         distributions) or (iv) for any breach of a director‘s duty of loyalty to the company or its stockholders. Article Eleven of the
         company‘s certificate of incorporation includes such a provision.

               Article Ninth of the company‘s Certificate of Incorporation (the ―Certificate‖) provides for indemnification, to the
         fullest extent authorized by Delaware law (as currently in effect or, to the extent indemnification is broadened, as it may be
         amended), for each person who was or is made a party to, or is involved in, any action, suit or proceeding by reason of the
         fact that such person is or was a director or officer of the company (or was serving at the request of the company as a
         director, officer, partner, member or trustee of another entity). Such indemnification extends to all expense, liability or loss
         (including attorneys‘ fees, judgments, fines, ERISA excise taxes or penalties, and amounts to be paid in settlement)
         reasonably incurred by such person in connection therewith. Article Ninth provides that rights conferred thereby are contract
         rights and are not exclusive of any other rights that the indemnitee may acquire under any statute, provision of the Certificate
         or By-Laws of the company, agreement, vote of stockholders or disinterested directors, or otherwise.


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         Transfer Agent and Registrar

              The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust Company, located at 17
         Battery Place, New York, NY 10004-1123.


         Market Listing

            Shares of our common stock are quoted on the Over-the-Counter Bulletin Board quotation service under the symbol
         HKFIQ.PK.


                                               FEDERAL INCOME TAX CONSEQUENCES

              The following discussion is a summary of the principal United States federal income tax considerations of acquiring,
         owning, and disposing of notes or warrants that may be relevant to prospective investors. This summary is of a general
         nature and is not intended to be, nor should it be construed to be, legal or tax advice to any person purchasing and holding
         notes or warrants pursuant to this prospectus. The following discussion applies only to persons that hold the notes or
         warrants as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
         ―Code‖). This discussion does not purport to deal with all aspects of United States federal income taxation that may be
         relevant to a prospective investor or to certain classes of persons who are subject to special treatment under the United States
         federal income tax law, including, but not limited to, dealers in securities or currencies, banks, insurance companies,
         tax-exempt organizations, persons that hold the notes or warrants as a ―hedge‖ against currency risks, as part of a ―straddle‖
         with other investments, or as part of a ―conversion transaction,‖ persons that have a ―functional currency‖ other than the
         U.S. dollar, and persons who have ceased to be United States citizens or to be taxed as resident aliens. In addition, except as
         expressly indicated, the discussion is limited to the United States federal income tax consequences to initial holders of the
         notes and warrants. It does not consider the tax treatment of holders of an interest in pass-through entities that hold the notes
         or warrants nor does it include any description of the tax laws of any state, local, or foreign governments that may be
         applicable to the notes or warrants or holders thereof.

              This summary is based upon the United States federal tax laws as in effect on the date of this prospectus. However,
         legislative, judicial or administrative changes or interpretations may occur that could repeal, overrule, or modify any of these
         authorities. Any such changes could be retroactive and, accordingly, could alter or modify the statements and conclusions set
         forth herein.

            THIS DISCUSSION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY
         INVESTOR FOR THE PURPOSE OF AVOIDING PENALTIES UNDER THE CODE AND IS PRESENTED IN
         CONNECTION WITH THE PROMOTION AND MARKETING OF THE TRANSACTIONS ADDRESSED HEREIN.
         EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT WITH ITS OWN TAX ADVISOR AS TO THE TAX
         CONSEQUENCES TO SUCH INVESTOR, BASED ON THE INVESTOR‘S PARTICULAR CIRCUMSTANCES, OF
         ACQUIRING, OWNING, AND DISPOSING OF THE NOTES OR WARRANTS, INCLUDING THE APPLICABILITY
         AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN INCOME TAX LAWS, AND OF CHANGES IN APPLICABLE
         TAX LAWS. THE FOREGOING LANGUAGE IS INTENDED TO SATISFY THE REQUIREMENTS OF
         SECTION 10.35 OF TREASURY DEPARTMENT CIRCULAR 230.


         Allocation of purchase price between notes and warrants

               For U.S. federal income tax purposes, the notes and the warrants will be treated as investment units. The issue price of a
         unit for U.S. federal income tax purposes will be the first price at which a substantial amount of units is sold (excluding sales
         to bond houses, brokers or similar persons acting as underwriters, placement agents or wholesalers). In our case, the issue
         price will be equal to the principal amount of the note purchased. The issue price of a unit must be allocated between the
         notes and the warrants based on the company‘s best judgment of the relative fair market values of each such component of
         the unit on the issue date. The company intends to allocate approximately $680 to each note and $320 to each warrant.
         Pursuant to Treasury


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         Regulations issued under provisions of the Code relating to original issue discount, referred to as the OID Regulations, each
         holder will be bound by such allocation for U.S. federal income tax purposes unless such holder discloses on a statement
         attached to its tax return for the taxable year that includes the acquisition date of such unit that its allocation differs from that
         of the company. No assurance can be given that the Internal Revenue Service will accept the company‘s allocation. If the
         company‘s allocation were successfully challenged by the IRS, the issue price, original issue discount accrual on the note
         and gain or loss on the sale or disposition of a note or warrant would be different from that resulting under the allocation
         determined by the company.


         Notes

            U.S. Holders

                The following discussion is limited to the United States federal income tax consequences relevant to a holder of a note
         that is (i) a citizen or resident of the United States, (ii) a corporation organized under the laws of the United States or any
         political subdivision thereof or therein, (iii) an estate, the income of which is subject to United States federal income tax
         regardless of the source, or (iv) a trust if a court within the United States is able to exercise primary supervision over the
         administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust,
         i.e., a U.S. Holder.

             In general (pursuant to the original issue discount rules described below), interest on a note will be taxable to a
         beneficial owner who is a U.S. Holder as ordinary interest income at the time it accrues.


            Original Issue Discount

              The notes will be issued with original issue discount, or OID, for United States federal income tax purposes. The
         following summary is a general discussion of the United States federal income tax consequences to U.S. Holders of the
         purchase, ownership, and disposition of notes issued with OID and that mature more than one year from the date of issuance.

               For United States federal income tax purposes, OID is the excess of the stated redemption price at maturity of a note
         over its issue price, if such excess equals or exceeds a de minimis amount (generally 1/4 of 1% of the note‘s stated
         redemption price at maturity multiplied by the number of complete years to its maturity from its issue date). Generally, the
         issue price of a note will equal the first price at which a substantial amount of such notes has been sold (ignoring sales to
         bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or
         wholesalers). The stated redemption price at maturity of a note is the sum of all payments provided by the note other than
         qualified stated interest payments. The term ―qualified stated interest‖ generally means stated interest that is unconditionally
         payable in cash or property (other than debt instruments of the issuer) at least annually at a single fixed rate. Because we
         have the option to pay interest by issuing in-kind notes during the first four quarters after issuance, the notes do not provide
         for the payment of qualified stated interest throughout their term. Therefore the stated redemption price at maturity will be
         the sum of the face amount of the notes and the total amount of interest provided for under the terms of the notes.
         Accordingly, the difference between the first price at which a substantial amount of the notes are sold and the total amount
         payable under those notes (principal and interest) will be OID that is includible in the gross income of a U.S. Holder of the
         notes on an annual basis. For purposes of the calculation of OID each year, the notes and the in-kind notes may be
         aggregated and treated as one debt instrument.

              A U.S. Holder of a note with a maturity date more than one year from the date of issue must include OID in income as
         ordinary interest for United States federal income tax purposes as it accrues under a constant yield method in advance of the
         cash payments attributable to such income, regardless of the U.S. Holder‘s regular method of tax accounting. In general, the
         amount of OID included in income by the initial U.S. Holder will be the sum of the daily portions of OID for each day
         during the taxable year (or portion of the taxable year) on which the U.S. Holder held the note. The daily portion of OID is
         determined by allocating to each day in any accrual period (i.e., the interval between compounding dates) a ratable portion of
         the OID allocable to that accrual period. The amount of OID allocable to each accrual period generally is equal to the
         difference


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         between the product of the note‘s adjusted issue price at the beginning of the accrual period and its yield to maturity
         (determined on the basis of compounding at the close of each accrual period and appropriately adjusted to take into account
         the length of the particular accrual period). The adjusted issue price of a note at the beginning of any accrual period is the
         sum of the issue price of the note plus the amount of OID allocable to all prior accrual periods minus the amount of any prior
         payments on the note that were not qualified stated interest payments.

              A U.S. Holder who purchases a note for an amount that is greater than its adjusted issue price but less than or equal to
         the sum of all amounts payable on the note after the purchase date (other than payments of qualified stated interest), will be
         considered to have purchased the note at an acquisition premium. Under the acquisition premium rules, the amount of
         original issue discount that such U.S. Holder must include in its gross income with respect to the note for any taxable year
         will be reduced by the portion of the acquisition premium properly allocable to the period.


            Market Discount

               If a U.S. Holder purchases a note for an amount that is less than its revised issue price, the U.S. Holder will be treated
         as having purchased such note at a market discount, unless such market discount is less than a specified de minimis amount.
         The revised issue price is the sum of the note‘s issue price and the total amount of the OID includible in gross income for all
         holders of the note for periods before it was acquired by the U.S. Holder, determined without the reductions for acquisition
         premiums paid by earlier holders. Under the market discount rules, a U.S. Holder will be required to treat any principal
         payment, or any gain realized on the sale, exchange, retirement or other disposition of a note as ordinary income to the
         extent of the market discount that has not previously been included in income and is treated as having accrued on such note
         at the time of such principal payment or disposition. Market discount will be considered to accrue ratably during the period
         from the date of acquisition to the maturity date of the note, unless the U.S. Holder elects to accrue market discount on a
         constant yield basis. Once made, such an election may be revoked only with the consent of the IRS and, therefore, should
         only be made in consultation with a tax advisor.

               A U.S. Holder may be required to defer the deduction of all or a portion of the interest paid or accrued on any
         indebtedness incurred or maintained to purchase or carry a note with market discount until the maturity of the note or certain
         earlier dispositions because a current deduction is only allowed to the extent the interest expense exceeds an allocable
         portion of market discount. A U.S. Holder may elect to include market discount in income currently as it accrues, in which
         case the rules described above regarding the treatment as ordinary income of gain upon the disposition of the note and upon
         the receipt of certain cash payments and regarding the deferral of interest deductions will not apply. Generally, such
         currently included market discount is treated as ordinary interest for United States federal income tax purposes. Such an
         election will apply to all debt instruments acquired by the U.S. Holder on or after the first day of the taxable year to which
         such election applies and may be revoked only with the consent of the IRS. Therefore, the election should only be made in
         consultation with a tax advisor.


            Premium

               If a U.S. Holder purchases a note for an amount in excess of the sum of all amounts payable on the note after the
         purchase date (other than payments of qualified stated interest), the U.S. Holder may elect to treat such excess as amortizable
         bond premium. A U.S. Holder may elect to amortize bond premium on a debt instrument. Once made, the election applies to
         all taxable debt instruments then owned and thereafter acquired by the U.S. Holder on or after the first day of the taxable
         year to which such election applies, and may be revoked only with the consent of the IRS. The election, therefore, should
         only be made in consultation with a tax advisor. In general, a U.S. Holder amortizes bond premium by offsetting the
         qualified stated interest allocable to an accrual period with the bond premium allocable to the accrual period, which is
         determined under a constant yield method pursuant to the applicable Treasury Regulations. If the bond premium allocable to
         an accrual period exceeds the qualified stated interest allocable to such period, the excess is treated by the U.S. Hold as a
         bond premium deduction. The bond premium deduction for each accrual period is limited to the amount by which the
         U.S. Holder‘s total interest inclusions on the debt instrument in prior accrual period


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         exceed the total amount treated by such U.S. Holder as a bond premium deduction on the debt instrument in prior accrual
         periods. Any amounts not deductible in an accrual period may be carried forward to the next accrual period and treated as
         bond premium allocable to that period.


            Election to Treat All Interest as OID

              U.S. Holders generally may, upon election, include in income all interest (including stated interest, acquisition discount,
         OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable
         bond premium or acquisition premium) that accrues on a debt instrument by using the constant yield method applicable to
         OID, subject to certain limitations and exceptions. Because this election will affect how the U.S. Holder treats debt
         instruments other than the notes, it should be made only in consultation with a tax advisor.


            Payments of Interest

              For United States federal income tax purposes, any cash payment of interest will be treated first as a payment of OID to
         the extent of the OID that has accrued as of the date the payment is due and has not been allocated to prior payments, and
         second as a payment of principal. No portion of any payment is treated as prepaid interest.


            Sale, Exchange, Redemption, Repayment, or Other Disposition of the notes

              Upon the disposition of a note by sale, exchange, redemption, or repayment, a U.S. Holder generally will recognize
         gain or loss equal to the difference between the amount realized on such disposition and the U.S. Holder‘s tax basis in the
         note. A U.S. Holder‘s tax basis in a note generally will equal the cost of the note to the U.S. Holder, increased by amounts
         includible in income as OID or market discount (if the U.S. Holder elects to include market discount in income on a current
         basis), and reduced by any amortized bond premium and any payments (other than payments of qualified stated interest)
         made on such note. Because the note is held as a capital asset, such gain or loss (except to the extent that the market discount
         rules otherwise provide) will constitute capital gain or loss. In the case of an individual, generally the maximum federal
         income tax rate applicable to capital gains is 15% if the property was held for more than one (1) year. Capital gains are
         subject to ordinary income tax rates if the property was not held for more than one year. Capital losses may only be deducted
         to the extent of a taxpayer‘s capital gains, except that an individual may deduct an amount of capital losses equal to his
         capital gains plus $3,000. Unused capital losses may be carried to subsequent years.


            Non-U.S. Holders

                The following is a brief summary of the United States federal income tax consequences that may be applicable to a
         holder of a note other than a U.S. Holder, i.e., a Non-U.S. Holder. For purposes of the following discussion, interest
         (including OID) and gain on the sale, exchange, or other disposition of a note will be considered ―U.S. trade or business
         income‖ if such income or gain is (i) effectively connected with the conduct of a trade or business in the United States, or
         (ii) if a tax treaty applies, attributable to a permanent establishment in the United States.


            Interest and OID

             In general, any interest paid or OID accrued to a Non-U.S. Holder of a note will not be subject to United States federal
         income tax if the interest or OID is not U.S. trade or business income.


            Sale, Exchange, Repayment, Retirement, or Other Disposition of the notes

                Any gain realized by a Non-U.S. Holder on the sale, exchange, repayment, retirement, or other disposition of a note will
         not be subject to United States federal income or withholding taxes unless (i) such gain is U.S. trade or business income, or
         (ii) in the case of an individual, such Non-U.S. Holder is or is treated as being present in the United States for 183 days or
         more during the year and certain other conditions are met.


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         Warrants

            U.S. Holders

             The following discussion is limited to the United States federal income tax consequences relevant to a holder of a
         warrant that is a U.S. Holder (see ‗‗— notes — U.S. Holders‖).


            Basis and Holding Period

              The basis of each warrant acquired through purchase of a unit will equal its pro rata (based on the relative values of the
         notes and warrants acquired) portion of the issue price of the unit, as described above. The holding period of the warrant will
         generally begin at the time the unit is purchased.


            Exercise of Warrants

              No gain or loss will be recognized by a holder of warrants upon the exercise of the warrants. The holding period of
         common stock acquired by a holder upon exercise of warrants will begin upon the exercise of the warrants. The tax basis of
         common stock acquired upon the exercise of the warrants will be equal to the sum of the basis of the warrants exercised and
         the exercise price paid for such shares of common stock.


            Sale or Exchange

              Upon the sale or taxable exchange of warrants, the holder will recognize gain or loss equal to the difference between the
         amount realized from such sale or exchange and the holder‘s adjusted tax basis in the warrants. Assuming that common
         stock which would have been acquired by the holder if he or she had exercised the warrants would be a capital asset in the
         hands of the holder, the resulting gain or loss will be a capital gain or loss. Any such capital gain or loss will be subject to
         the same rules described above with respect to a sale or other disposition of notes.


            Expiration of Warrants

              A holder who allows warrants to expire without being exercised will be treated as having disposed of the warrants in a
         taxable exchange on the date of expiration. Accordingly, such a holder will recognize loss equal to the holder‘s basis in the
         warrants. If the shares of common stock which would have been acquired by the holder upon exercise of the warrants would
         have been a capital asset in the hands of the holder, the loss recognized upon expiration of the warrants will be a capital loss.


            Adjustments to Conversion Ratio or Exercise Price

               Section 305 of the Code requires that certain actual or constructive distributions of a company‘s stock to holders of the
         company‘s stock, convertible securities or warrants be recognized as a taxable dividend. Regulations promulgated under
         Section 305 provide that an adjustment in the conversion ratio or exercise price of warrants made pursuant to a bona fide,
         reasonable formula which has the effect of preventing dilution of the interest of the holders of such stock will not be
         considered to result in a taxable dividend. However, the regulations further provide that an adjustment to the conversion ratio
         or exercise price to compensate warrant holders for a taxable distribution to the stockholders will not be considered as made
         pursuant to such a formula. Any adjustment in the exercise price or conversion ratio of the warrants to reflect taxable
         distributions on the common stock would be treated as a constructive distribution of stock to the holders of the warrants and
         would be taxable as a dividend to the extent of current or accumulated earnings and profits of the company. The amount of
         the dividend to a holder of the warrants resulting from such an adjustment would be measured by the fair market value of the
         additional common stock (or fraction thereof) that would be obtainable as a result of the adjustment. There can be no
         assurance and none is hereby given that an adjustment to the conversion ratio or exercise price of the warrants will not result
         in a taxable dividend.


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            Non-U.S. Holders

            If U.S. Trade or Business Income

              If income or gain from a warrant would be ―U.S. trade or business income‖ (see, ―— notes — Non-U.S. Holders‖) to a
         holder of a warrant that is a Non- U.S. Holder, the U.S. federal income tax consequences to such Non-U.S. Holder of
         acquiring, holding and disposing of the warrants will be substantially the same as to a U.S. Holder.


            If Not U.S. Trade or Business Income

              If income or gain from a warrant would not be ―U.S. trade or business income‖ to a holder of a warrant that is a
         Non-U.S. Holder: (a) the Non-U.S. Holder will not recognize any gain on the exercise of the warrants; and (b) income or
         gain recognized by the Non-U.S. Holder on a taxable sale or exchange will not be subject to United States federal income or
         withholding taxes unless, in the case of an individual, such Non-U.S. Holder is or is treated as being present in the United
         States for 183 or more days during the year and certain other conditions are met.


         Information Reporting And Backup Withholding

            U.S. Holders

              The company may be required to report annually to the IRS and to each U.S. Holder the amount of OID and any
         payments of interest made in respect of the notes to a U.S. Holder who is not an exempt recipient, or who does not establish
         an exemption. Generally, individuals are not exempt recipients, whereas corporations and certain other entities generally are
         exempt recipients. In addition, backup withholding of United States federal income tax at a rate of 28% may apply to OID
         and interest payments made in respect of the notes to U.S. Holders who are not exempt recipients and who fail to provide
         certain identifying information (such as the registered owner‘s taxpayer identification number) in the required manner.


            Non-U.S. Holders

              The company may be required to report annually to the IRS and to each Non-U.S. Holder of a note the amount of
         interest paid or OID accruing to, and any amount of tax withheld with respect to, each Non-U.S. Holder. This information
         also may be made available to tax authorities in the country in which the Non-U.S. Holder resides in accordance with the
         provisions of an applicable income tax treaty.

             Information reporting and backup withholding will not apply to interest payments or OID on the notes if the
         Non-U.S. Holder has provided the required certification that it is not a United States person or has otherwise established an
         exemption, provided that the company does not have actual knowledge that the holder is a United States person or that the
         conditions of any exemption are not in fact satisfied.


            Sale of Note or Warrant

              Payment of the proceeds from a sale of a note or warrant to or through a broker generally will be subject to information
         reporting unless the holder is an exempt recipient (for instance, a Non-U.S. Holder can certify under penalties of perjury its
         non-U.S. status) or otherwise establishes an exemption from information reporting. In addition, backup withholding of
         United States federal income tax at a rate discussed above may apply to proceeds from a sale of a note or warrant by holders
         who are not exempt recipients, and who fail to provide certain identifying information (such as the registered owner‘s
         taxpayer identification number) in the required manner.

               Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment
         to a beneficial owner would be allowed as a refund or a credit against such beneficial owner‘s United States federal income
         tax provided the required information is furnished to the IRS.


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                                                          PLAN OF DISTRIBUTION

               On or after June 19, 2008, we will distribute copies of this prospectus to holders of record of at least 970 shares of our
         common stock. If you want to exercise some or all of your rights, you must complete and submit the subscription certificate
         attached to this prospectus and provide payments for the notes and accompanying warrants before July 18, 2008. Please read
         the instructions on page 2 for more information on how to exercise your rights. We do not plan to list the rights, notes or
         warrants on any stock exchange, and we have no way of knowing whether a market will develop or be maintained for these
         securities.


                                                                   EXPERTS

              Our financial statements for the years ended February 2, 2008 and February 3, 2007, as well as the financial statement
         schedules listed in the Index to the Annual Report on Form 10-K at Part IV, Item 15(a) 2 as of and for the years ended
         February 2, 2008 and February 3, 2007, are incorporated within this prospectus by reference to the Company‘s Annual
         Report on Form 10-K for the year ended February 2, 2008 in reliance upon the report of Burr, Pilger & Mayer LLP, an
         independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as
         experts in accounting and auditing.


                                                              LEGAL MATTERS

             The validity of the issuance of the securities offered hereby will be passed upon by Baker Donelson Bearman
         Caldwell & Berkowitz, P.C., 165 Madison Suite 2000, Memphis, Tennessee 38103.


                                      WHERE YOU CAN FIND MORE INFORMATION ABOUT US

               We file annual, quarterly and other reports, proxy statements and other information with the SEC under the Exchange
         Act. You may read and copy any materials we file with the SEC at the SEC‘s public reference room at 100 F Street, N.E.,
         Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our
         SEC filings are also available to the public through the SEC‘s website at http://www.sec.gov. General information about us,
         including our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any
         amendments and exhibits to those reports, are available free of charge through our website at
         http://www.hancockfabrics.com as soon as reasonably practicable after we file them with, or furnish them to, the SEC.
         Information on our website is not incorporated into this prospectus or our other securities filings and is not a part of this
         prospectus.

              The SEC allows us to incorporate by reference certain information we file with it, which means that we can disclose
         important information to you by referring you to those documents. The information incorporated by reference is considered
         to be part of this prospectus. The following documents we filed with the SEC under the Exchange Act are incorporated
         herein by reference:

                    (1) Our Annual Report on Form 10-K for our fiscal year ended February 2, 2008, as filed with the SEC on
               April 17, 2008.

                    (2) All other reports filed pursuant to Section 13(a) or Section 15(d) of the Exchange Act or proxy or information
               statements filed pursuant to Section 14 of the Exchange Act since the end of the fiscal year covered by our annual
               report on Form 10-K for our fiscal year ended February 2, 2008.

               We will provide without charge to each person, including a beneficial owner, to whom a prospectus is delivered, upon
         written or oral request a copy of any or all of the reports or documents that have been incorporated by reference in this
         prospectus. Requests for these reports or documents should be directed to Secretary, One Fashion Way, Baldwyn, MS
         38824. We will not send exhibits to these filings unless we have specifically incorporated the exhibit by reference into the
         filing.

              We have filed a registration statement with the SEC under the Securities Act that registers the issuance and sale of the
         securities offered by this prospectus. The registration statement, including the attached exhibits, contains additional relevant
         information about us. The rules and regulations of the SEC allow us to omit some information about us. The rules and
         regulations of the SEC allow us to omit some information included in the registration statement from this prospectus.
31
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                                     Hancock Fabrics, Inc.
                    Transferable Rights to Purchase $20,000,000 Floating Rate Secured Notes
                          &Warrants to Purchase 9,500,000 Shares of Common Stock

                                                 PROSPECTUS



                                                  June 19, 2008
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                                                                     PART II

                                           INFORMATION NOT REQUIRED IN PROSPECTUS


         Item 13.    Other Expenses of Issuance and Distribution.

             The estimated expenses in connection with this offering are as set forth in the following table. All amounts except the
         Securities and Exchange Commission (―SEC‖) registration fee are estimated.


         SEC Registration Fee                                                                                                  $    1,374
         Blue Sky Fees and Expenses                                                                                                 5,000
         Indenture Trustee Fees                                                                                                     8,000
         Subscription Agent Fees                                                                                                   25,000
         Printing and Engraving Expenses                                                                                            5,000
         Accounting Fees and Expenses                                                                                              15,000
         Legal Fees and Expenses                                                                                                   35,000
         Miscellaneous Expenses                                                                                                     5,000
         Total                                                                                                                 $ 99,374


         Item 14.    Indemnification of Officers and Directors.

              Section 145 of the Delaware General Corporation Law provides that, among other things, a corporation may indemnify
         directors and officers as well as other employees and agents of the corporation against expenses (including attorneys‘ fees),
         judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil,
         criminal, administrative or investigative (other than action by or in the right of the corporation, a ―derivative action‖), if they
         acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation
         and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A
         similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses
         (including attorneys‘ fees) incurred in connection with the defense or settlement of such actions, and the statute requires
         court approval before there can be any indemnification where the person seeking indemnification has been found liable to
         the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation‘s
         bylaws, disinterested director vote, stockholder vote, agreement or otherwise.

               Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of
         incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for
         monetary damages for breach of fiduciary duties as a director, except for liability (i) for any transaction from which the
         director derives an improper personal benefit, (ii) for acts or omissions not in good faith or that involve intentional
         misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law (certain illegal
         distributions) or (iv) for any breach of a director‘s duty of loyalty to the company or its stockholders. Article Eleven of the
         company‘s certificate of incorporation includes such a provision.

               Article Ninth of the company‘s Certificate of Incorporation (the ―Certificate‖) provides for indemnification, to the
         fullest extent authorized by Delaware law (as currently in effect or, to the extent indemnification is broadened, as it may be
         amended), for each person who was or is made a party to, or is involved in, any action, suit or proceeding by reason of the
         fact that such person is or was a director or officer of the company (or was serving at the request of the company as a
         director, officer, partner, member or trustee of another entity). Such indemnification extends to all expense, liability or loss
         (including attorneys‘ fees, judgments, fines, ERISA excise taxes or penalties, and amounts to be paid in settlement)
         reasonably incurred by such person in connection therewith. Article Ninth provides that rights conferred thereby are contract
         rights and are not exclusive of any other rights that the indemnitee may acquire under any statute, provision of the Certificate
         or By-Laws of the company, agreement, vote of stockholders or disinterested directors, or otherwise.


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         Item 15.      Recent Sales of Unregistered Securities.

               None.


         Item 16.      Exhibits.

               The Exhibits to this Registration Statement are listed in the Exhibit Index.


         Item 17.      Undertakings.

              Insofar as indemnification by the Registrant for liabilities arising under the Securities Act of 1933, as amended, may be
         permitted to our directors, officers and controlling persons of the Registrant, we have been advised that in the opinion of the
         Securities and Exchange Commission, this indemnification is against public policy as expressed in the Securities Act of
         1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against these liabilities
         (other than the payment by the Registrant of expenses incurred or paid by any of our directors, officers or controlling persons
         in the successful defense of any action, suit or proceeding) is asserted by a director, officer or controlling person in
         connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by
         controlling precedent, submit to a court of appropriate jurisdiction the question of whether this indemnification is against
         public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of this
         issue.

               We hereby undertake:

              (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration
         Statement:

                    (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933.

                    (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or
               the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental
               change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or
               decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was
               registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in
               the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
               and price represent no more than a 20% change in the maximum aggregate offering price set forth in the ―Calculation of
               Registration Fee‖ table in the effective Registration Statement;

                   (iii) To include any material information with respect to the plan of distribution not previously disclosed in the
               Registration Statement or any material change to such information in the Registration Statement.

              (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective
         amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of
         such securities at that time shall be deemed to be the initial bona fide offering thereof.

             (3) To remove from registration by means of a post-effective amendment any of the securities being registered which
         remain unsold at the termination of the offering.

               (4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

                    (i) If the registrant is relying on Rule 430B:

                         (A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the
                    registration statement as of the date the filed prospectus was deemed part of and included in the registration
                    statement; and


                                                                        II-2
Table of Contents




                          (B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as part of a registration
                    statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the
                    purpose of providing the information required by Section 10(a) of the Securities Act of 1933 shall be deemed to be
                    part of and included in the registration statement as of the earlier of the date such form of prospectus is first used
                    after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus.
                    As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter,
                    such date shall be deemed to be a new effective date of the registration statement relating to the securities in the
                    registration statement to which that prospectus relates, and the offering of such securities at that time shall be
                    deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration
                    statement or prospectus that is part of the registration statement or made in a document incorporated or deemed
                    incorporated by reference into the registration statement or prospectus that is part of the registration statement will,
                    as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that
                    was made in the registration statement or prospectus that was part of the registration statement or made in any such

                     (ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration
               statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses
               filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it
               is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that
               is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the
               registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of
               contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or
               prospectus that was part of the registration statement or made in any such document immediately prior to such date of
               first use.

              (5) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant‘s annual
         report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the
         registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the
         offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.


                                                                         II-3
Table of Contents

                                                                SIGNATURES

              Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to
         be signed on its behalf by the undersigned, thereunto duly authorized in the City of Baldwyn, State of Mississippi, on
         June 19, 2008.



                                                                       HANCOCK FABRICS, INC.




                                                                       By: /s/ Robert W. Driskell
                                                                              Robert W. Driskell
                                                                              Chief Financial Officer
                                                                              (Principal Financial and Accounting Officer)

              Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by
         the following persons in the capacities indicated on June 19, 2008:




         /s/ Jane F. Aggers*                                                  /s/ Wellford L. Sanders*
         Jane F. Aggers                                                       Wellford L. Sanders
         President, Director and Chief ExecutiveOfficer                       Director
         (Principal Executive Officer)

         /s/ Robert W. Driskell                                               /s/ Donna L. Weaver*
         Robert W. Driskell                                                   Donna L. Weaver
         Chief Financial Officer                                              Director
         (Principal Financial and Accounting Officer)

         /s/ Don L. Frugé*                                                    /s/ Bernard J. Wein*
         Don L. Frugé                                                         Bernard J. Wein
         Director                                                             Director

         /s/ Roger T. Knox*
         Roger T. Knox
         Director

           *By:     /s/ Robert W. Driskell
                    Robert W. Driskell
                    Attorney-in-Fact


                                                                       II-4
Table of Contents

                                                         EXHIBIT INDEX


         Exhibit
         Numbe
         r                                                              Description


               3 .1    a   Certificate of Incorporation.
               3 .2    d   By-Laws.
               3 .3    s   Amended and Restated By-Laws, effective July 3, 2007.
               4 .1    g   Amended and Restated Rights Agreement with Continental Stock and Transfer Company, dated
                           March 23, 1987, and amended and restated most recently on March 4, 2001.
               4 .2    b   Agreement with Continental Stock and Transfer Company (as Rights Agent) dated July 16, 1992.
               4 .3    *   Specimen representing the Common Stock, par value $0.01 per share, of Hancock Fabrics, Inc.
               4 .4    *   Indenture between Hancock Fabrics, Inc. and Deutsche Bank National Trust Company.
               4 .5    *   Master Warrant Agreement between Hancock Fabrics, Inc. and Continental Stock Transfer &
                           Trust Company.
               4 .6    *   Specimen representing the Floating Rate Secured notes of Hancock Fabrics, Inc.
               4 .7    *   Specimen representing the Warrants of Hancock Fabrics, Inc.
               4 .8    *   Form of Subscription Certificate for Rights.
               5 .1    *   Opinion of Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C. as to legality of securities being
                           registered.
              10 .1    d   Form of Indemnification Agreement, dated June 8, 1995, for each of Don L. Frugé and Donna L.
                           Weaver.
              10 .2    e   Form of Indemnification Agreements for Bruce D. Smith dated December 10, 1996, Larry D. Fair
                           dated June 8, 1995, William A. Sheffield, Jr. dated June 13, 1996, and William D. Smothers dated
                           July 8, 1995.
              10 .3    e   Form of Agreements (deferred compensation) with Bruce D. Smith dated December 10, 1996, Larry
                           D. Fair dated June 13, 1996, William A. Sheffield, Jr. dated June 13, 1996, and William D. Smothers
                           dated June 9, 1988.
              10 .4    e   Form of Severance Agreements with Bruce D. Smith dated December 10, 1996 and Larry D. Fair,
                           William A. Sheffield, Jr., and William D. Smothers dated May 4, 2002.
              10 .5    e   Form of Agreements to Secure Certain Contingent Payments with Bruce D. Smith dated December 10,
                           1996.
              10 .6    c   Supplemental Retirement Plan, as amended.
              10 .7    e   1996 Stock Option Plan.
              10 .8    e   Extra Compensation Plan.
              10 .9    f   Indemnification Agreement for Roger T. Knox dated June 21, 1999.
              10 .10   f   Form of Agreement and Renewal of Severance Agreement for Bruce D. Smith dated May 4, 1999.
              10 .11   h   2001 Stock Incentive Plan.
              10 .12   i   Officer Incentive Compensation Plan as amended.
              10 .13   i   Amended and Restated 1995 Restricted Stock Plan and Deferred Stock Unit Plan.
              10 .14   j   Employment Agreement with Jane F. Aggers, dated as of December 15, 2004.
              10 .15   k   2004 Special Stock Plan.
              10 .16   j   Amendment to Agreement and Agreement to secure Certain Contingent Payments with Bruce D.
                           Smith, dated as of March 15, 2005.
              10 .17   j   Form of Indemnification Agreement, dated September 23, 2004 for Wellford L. Sanders, Jr. and
                           June 10, 2004 for Bernard J. Wein.
              10 .18   l   Loan and Security Agreement (―Wachovia Credit Facility‖), dated June 29, 2005, by and among
                           Hancock Fabrics, Inc., HF Merchandising Inc., Hancock Fabrics of MI, Inc., hancockfabrics.com, Inc.,
                           Hancock Fabrics, LLC, HF Enterprises, Inc., HF Resources, Inc. and Wachovia Bank, National
                           Association, in its capacity as agent.
Table of Contents




         Exhibit
         Numbe
         r                                                             Description


              10 .19   l   Pledge and Security Agreement, dated June 29, 2005, by Hancock Fabrics, Inc., to and in favor of
                           Wachovia Bank, National Association, in its capacity as agent.
              10 .20   l   Pledge and Security Agreement, dated June 29, 2005, by HF Resources, Inc., to and in favor of
                           Wachovia Bank, National Association, in its capacity as agent.
              10 .21   l   Pledge and Security Agreement, dated June 29, 2005, by HF Enterprises, Inc., to and in favor of
                           Wachovia Bank, National Association, in its capacity as agent.
              10 .22   l   Trademark Collateral Assignment and Security Agreement, dated June 29, 2005, by and among HF
                           Enterprises, Inc. and Wachovia Bank, National Association, in its capacity as agent.
              10 .23   l   Guarantee, dated June 29, 2005, by Hancock Fabrics, Inc., HF Merchandising Inc., Hancock Fabrics of
                           MI, Inc., hancockfabrics.com, Inc., Hancock Fabrics, LLC, HF Enterprises, Inc. and HF Resources,
                           Inc. in favor of Wachovia Bank, National Association, in its capacity as agent.
              10 .24   l   Deposit Account Control Agreement, dated June 29, 2005, by and among BancorpSouth Bank,
                           Hancock Fabrics, Inc. and Wachovia Bank, National Association, in its capacity as agent.
              10 .24   l   Deposit Account Control Agreement, dated June 29, 2005, by and among BancorpSouth Bank,
                           Hancock Fabrics, Inc. and Wachovia Bank, National Association, in its capacity as agent.
              10 .25   l   Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixtures, dated June 29,
                           2005, by and from Hancock Fabrics, Inc. to Donald G. Ogden for the benefit of Wachovia Bank,
                           National Association, in its capacity as agent.
              10 .26   l   Affiliate Subordination Agreement, dated June 29, 2005, by and among Wachovia Bank, National
                           Association, in its capacity as agent, HF Resources, Inc. and HF Enterprise, Inc.
              10 .27   m   First Amendment to Wachovia Credit Facility dated July 26, 2005.
              10 .28   n   2005 Stock Compensation Plan for Non-Employee Directors.
              10 .29   o   Amendment to Employment Agreement with Jane F. Aggers, dated December 15, 2004.
              10 .30   o   Amendment No. 1, dated December 9, 2005, to the Amended and Restated Rights Agreement.
              10 .31   u   Severance agreement with Kathleen Kennedy, dated March 15, 2006.
              10 .32   p   Amendment No. 2, dated March 20, 2006, to the Amended and Restated Rights Agreement.
              10 .33   p   Amended and Restated Rights Agreement with Continental Stock Transfer and Trust Company.
              10 .34   u   2001 Stock Incentive Plan, as amended.
              10 .35   u   Severance agreement with Gail Moore, dated June 12, 2006 Fifth Amendment to Wachovia Credit
                           Facility dated October 31, 2006.
              10 .36   q   Fifth Amendment to Wachovia Credit Facility dated October 31, 2006.
              10 .37   u   Fifth Amendment to Wachovia Credit Facility dated October 31, 2006 Fifth Amendment to Wachovia
                           Credit Facility dated October 31, 2006.
              10 .38   u   Amendment No. 1 to Ratification and Amendment Agreement, and Amendment No. 7 to Wachovia
                           Credit Facility, dated April 19, 2007.
              10 .39   u   Severance agreement with Kathleen Kennedy, dated May 9, 2007.
              10 .40   u   Amended and restated, Deposit Account Control Agreement, dated May 24, 2007, by and among
                           BancorpSouth Bank, Hancock Fabrics, Inc. and Wachovia Bank, National Association, in its capacity
                           as agent.
              10 .41   r   Loan and Security Agreement (Ableco Facility), dated June 15, 2007.
              10 .42   u   Form of Amendments and Renewals of Severance Agreements for Larry D. Fair, William A. Sheffield
                           and William D. Smothers, Jr. dated March 16, 2005.
              10 .43   u   Form of Amendments to the Deferred Compensation Agreements for Larry D. Fair, William A.
                           Sheffield, Jr. and William D. Smothers dated December 22, 2005.
              10 .44   t   GE Capital Commitment letter, dated April 9, 2008.
Table of Contents




         Exhibit
         Numbe
         r                                                                 Description


              10 .45   *      Subscription Agent Agreement.
              10 .46   v      Commitment Letter with Backstop Purchasers.
              10 .47   v      Fee Letter with Backstop Purchasers.
              21 .1    u      Subsidiaries of the Registrant.
              23 .1    *      Consent of Burr, Pilger & Mayer LLP.
              23 .2    *      Consent of Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C. (included in Exhibit 5.1).
              24 .1    *      Powers of attorney (included on signature page of the Registrant‘s Form S-1 filed with the
                              Commission on May 16, 2008).
              99 .1    *      Form of letter to stockholders.
              99 .2    *      Form of letter to brokers.


         * Filed herewith.

            Incorporated by reference to (Commission file number for Section 13 reports is 001-9482):

            a Form 10-K dated April 27, 1992.

            b Form 10-K dated April 26, 1993.

            c Form 10-K dated April 24, 1995.

            d Form 10-K dated April 22, 1996.

            e Form 10-K dated April 22, 1997.

            f Form 10-K dated April 25, 2000.

            g Form 8-K dated April 6, 2001.

            h Form S-8 dated September 7, 2001.

             i Form 10-K dated April 28, 2003.

             j Form 10-K dated April 15, 2005.

            k Form S-8 dated April 14, 2005.

             l Form 8-K dated July 6, 2005.

           m Form 10-Q dated September 8, 2005.

            n Form S-8 (File No. 333-128432) dated September 20, 2005.

            o Form 8-K dated December 9, 2005.

            p Form 8-K dated March 20, 2006.

            q Form 8-K dated November 1, 2006.

            r Form 8-K dated June 20, 2007.
s Form 8-K dated July 5, 2007.

t Form 8-K dated April 10, 2008.

u Form 10-K dated April 17, 2008.

v Form 8-K dated May 30, 2008.

  Denotes management contract or compensatory plan or arrangement.
                                                                                                                                                                                                                                                                             EXHIBIT 4.3




COMMON STOCK $.01 PAR VALUE THIS CERTIFICATE IS TRANSFERABLE IN JERSEY CITY. N.J. OR IN NEW YORK. N.Y. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN
DEFINITIONS cusip 409900 10 FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
Hancock fabrics,inc.,a delaware corporation herein after referred to as the corporation tranferable on the books of the corporation in person or by duely authorised attorney upon surrender of this certificater properly endorsed. this certificate is not valid. unless
countersigned by the transfer agent and registered by the registrar. witness the fascimile real of the corporation and the fascimile signatures of its duley authorised officers. COUNTERSIGNED AND REGISTERED: CONTINENTAL STOCK TRANSFER &
TRUST COMPANY (Jersey City, NJ) TRANSFER AGENT AND REGISTRAR BY AUTHORSZED SIGNATURE SECRETARY CHAIRMAN OF THE BOARD
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS SET FORTH IN A
RIGHTS AGREEMENT BETWEEN HANCOCK FABRICS, INC. AND CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
DATED AS OF MARCH 23, 1987 AND AS AMENDED AND RESTATED MOST RECENTLY ON MARCH 4, 2001 (THE ―RIGHTS
AGREEMENT‖), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS
ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF HANCOCK FABRICS, INC. UNDER CERTAIN CIRCUMSTANCES, AS SET
FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO
LONGER BE EVIDENCED BY THIS CERTIFICATE HANCOCK FABRICS, INC. WILL MAIL TO THE HOLDER OF THIS
CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN REQUEST
THEREFOR. UNDER CERTAIN CIRCUMSTANCES, RIGHTS ISSUED TO ACQUIRING PERSONS OR ASSOCIATES OR
AFFILIATES THEREOF (AS DEFINED IN THE RIGHTS AGREEMENT) MAY BECOME NULL AND VOID.


                                                          HANCOCK FABRICS, INC.
The Corporation will furnish without charge to each stockholder who so requests a copy of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
    The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out
in full according to applicable laws or regulations:

TEN         – as tenants in common                                          UNIF GIFT MIN ACT–Uniform Gifts to Minors Act
COM
TEN         – as tenants by the entireties                                  UNIF TRAN MIN ACT–Uniform Transfers to Minors Act
ENT
JT TEN      – as joint tenants with right of survivorship and not as        CUST-Custodian
               tenants in common


                                      Additional abbreviations may also be used though not in the above list.
For Value Received,                                                                hereby sell, assign and transfer unto



 PLEASE INSERT SOCIAL SECURITY OR OTHER
    IDENTIFYING NUMBER OF ASSIGNEE




                                                                                                                                         Shares
of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

                                                                                                                                         Attorney
to transfer such stock on the Books of the within-named Corporation with full power of substitution in the premises.
Dated


                                             NOTICE THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
                                             :      NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
                                                    PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
                                                    CHANGE WHATEVER.

                SIGNATURE(S)
                GUARANTEED:
                                                        THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C.
RULE 17Ad-15.
                                                   Exhibit 4.4


          HANCOCK FABRICS, INC.
                     as Issuer
   Floating Rate Series A Secured Notes Due 2013
                  INDENTURE
             Dated as of June 17, 2008
DEUTSCHE BANK NATIONAL TRUST COMPANY
               as Trustee
                              CROSS-REFERENCE TABLE *

Trust Indenture Act Section                             Indenture Section
310 (a)(1)                                                     7.10
   (a) (2)                                                     7.10
   (a) (3)                                                     N/A
   (a) (4)                                                     N/A
   (a) (5)                                                     7.10
   (b)                                                         7.10
   (c)                                                         N/A

311 (a)                                                        7.11
   (b)                                                         7.11
   (c)                                                         N/A

312 (a)                                                         2.5
   (b)                                                         12.3
   (c)                                                         12.3

313 (a)                                                         7.6
   (b) (1)                                                      7.6
                                                               7.6,
    (b) (2)                                                     7.7
                                                               7.6,
    (c)                                                        12.2
    (d)                                                         7.6

314 (a)                                                        N/A
                                                               4.6,
    (b)                                                       10.10
    (c) (1)                                                    N/A
    (c) (2)                                                    N/A
    (c) (3)                                                    N/A
    (d)                                                        N/A
    (e)                                                        N/A
    (f)                                                        N/A

315 (a)                                                        N/A
   (b)                                                         N/A
   (c)                                                         N/A
   (d)                                                         N/A
   (e)                                                         N/A

316 (a) (last sentence)                                        N/A
   (a)(1)(A)                                                   N/A
   (a)(1)(B)                                                   N/A
   (a)(2)                                                      N/A
   (b)                                                         N/A
   (c)                                                         2.13

317 (a)(1)                                                     N/A
   (a)(2)                                                      N/A
   (b)                                                         N/A

318 (a)                                                        N/A
   (b)                                                         N/A
   (c)                                                         12.1
N/A means not applicable.

*                           This Cross-Reference Table is not part of the Indenture.
                                        TABLE OF CONTENTS

                                                                 Page
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE                    1

 SECTION 1.1 DEFINITIONS                                                 1
 SECTION 1.2 OTHER DEFINITIONS                                          16
 SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT          17
 SECTION 1.4 RULES OF CONSTRUCTION                                      18

ARTICLE II THE NOTES                                                    18

 SECTION 2.1 FORM AND DATING                                            18
 SECTION 2.2 EXECUTION AND AUTHENTICATION                               19
 SECTION 2.3 REGISTRAR AND PAYING AGENT                                 20
 SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST                        20
 SECTION 2.5 HOLDER LISTS                                               21
 SECTION 2.6 TRANSFER AND EXCHANGE                                      21
 SECTION 2.7 REPLACEMENT OF NOTES                                       25
 SECTION 2.8 OUTSTANDING NOTES                                          25
 SECTION 2.9 TREASURY NOTES                                             25
 SECTION 2.10 TEMPORARY NOTES                                           26
 SECTION 2.11 CANCELLATION                                              26
 SECTION 2.12 DEFAULTED INTEREST                                        26
 SECTION 2.13 RECORD DATE                                               26
 SECTION 2.14 COMPUTATION OF INTEREST                                   27
 SECTION 2.15 CUSIP NUMBER                                              27

ARTICLE III REDEMPTION AND REPURCHASE                                   27

 SECTION 3.1 NOTICES TO TRUSTEE                                         27
 SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED                          27
 SECTION 3.3 NOTICE OF REDEMPTION                                       28
 SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION                             29
 SECTION 3.5 DEPOSIT OF REDEMPTION PRICE                                29
 SECTION 3.6 NOTES REDEEMED IN PART                                     29

                                                   i
                                          TABLE OF CONTENTS
                                               (continued)

                                                                         Page
 SECTION 3.7 OPTIONAL REDEMPTION                                                29
 SECTION 3.8 MANDATORY REDEMPTION                                               30

ARTICLE IV COVENANTS                                                            31

 SECTION 4.1 PAYMENT OF NOTES                                                   31
 SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY                                    32
 SECTION 4.3 ADDITIONAL AMOUNTS                                                 32
 SECTION 4.4 PAYMENT CERTIFICATIONS                                             34
 SECTION 4.5 COMPLIANCE CERTIFICATE                                             34
 SECTION 4.6 COMPLIANCE WITH TIA                                                34
 SECTION 4.7 MAINTENANCE OF EXISTENCE                                           35
 SECTION 4.8 NEW COLLATERAL LOCATIONS                                           35
 SECTION 4.9 COMPLIANCE WITH LAWS, REGULATIONS, ETC.                            35
 SECTION 4.10 PAYMENT OF TAXES AND CLAIMS                                       36
 SECTION 4.11 INSURANCE                                                         36
 SECTION 4.12 FINANCIAL STATEMENTS AND OTHER INFORMATION                        36
 SECTION 4.13 SALE OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ETC.          37
 SECTION 4.14 ENCUMBRANCES                                                      38
 SECTION 4.15 INDEBTEDNESS                                                      40
 SECTION 4.16 LOANS, INVESTMENTS, ETC.                                          41
 SECTION 4.17 RESTRICTED PAYMENTS                                               41
 SECTION 4.18 TRANSACTIONS WITH AFFILIATES                                      42
 SECTION 4.19 COMPLIANCE WITH ERISA                                             43
 SECTION 4.20 END OF FISCAL YEARS; FISCAL QUARTERS                              43
 SECTION 4.21 CHANGE IN BUSINESS                                                43
 SECTION 4.2 2LIMITATION OF RESTRICTIONS AFFECTING SUBSIDIARIES                 43
 SECTION 4.23 CREDIT CARD AGREEMENTS                                            44
 SECTION 4.24 AFTER ACQUIRED REAL PROPERTY                                      44
 SECTION 4.25 FOREIGN ASSETS CONTROL REGULATIONS, ETC.                          44

                                                   ii
                                        TABLE OF CONTENTS
                                             (continued)

                                                                  Page
 SECTION 4.26 FURTHER ASSURANCES                                         45
 SECTION 4.27 LEASEHOLD ESTATES                                          45

ARTICLE V SUCCESSORS                                                     46

 SECTION 5.1 MERGER, CONSOLIDATION OR SALE OF ASSETS OF HANCOCK          46
 SECTION 5.2 SUCCESSOR CORPORATION OF HANCOCK SUBSTITUTED                46

ARTICLE VI DEFAULTS AND REMEDIES                                         47

 SECTION 6.1 EVENTS OF DEFAULT                                           47
 SECTION 6.2 ACCELERATION                                                48
 SECTION 6.3 OTHER REMEDIES                                              49
 SECTION 6.4 WAIVER OF EXISTING DEFAULTS                                 49
 SECTION 6.5 CONTROL BY MAJORITY                                         49
 SECTION 6.6 LIMITATION ON SUITS                                         50
 SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT               50
 SECTION 6.8 COLLECTION SUIT BY TRUSTEE                                  50
 SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM                            50
 SECTION 6.10 PRIORITIES                                                 51
 SECTION 6.11 UNDERTAKING FOR COSTS                                      51

ARTICLE VII TRUSTEE                                                      52

 SECTION 7.1 DUTIES OF TRUSTEE                                           52
 SECTION 7.2 RIGHTS OF TRUSTEE                                           53
 SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE                                54
 SECTION 7.4 TRUSTEE‘S DISCLAIMER                                        54
 SECTION 7.5 NOTICE OF DEFAULTS                                          54
 SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES                  54
 SECTION 7.7 COMPENSATION AND INDEMNITY                                  55
 SECTION 7.8 REPLACEMENT OF TRUSTEE                                      55
 SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.                           56

                                                 iii
                                        TABLE OF CONTENTS
                                             (continued)

                                                                                    Page
 SECTION 7.10 ELIGIBILITY; DISQUALIFICATION                                                57
 SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST HANCOCK                            57

ARTICLE VIII LEGAL DEFEASANCE                                                              57

 SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE                                             57
 SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE                                                57
 SECTION 8.3 CONDITIONS TO LEGAL DEFEASANCE                                                58
 SECTION 8.4 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER
             MISCELLANEOUS PROVISIONS                                                      59
 SECTION 8.5 REPAYMENT TO HANCOCK                                                          59
 SECTION 8.6 REINSTATEMENT                                                                 60

ARTICLE IX AMENDMENT, SUPPLEMENT AND WAIVER                                                60

 SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES                                           60
 SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES                                              61
 SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT                                           62
 SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS                                             62
 SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES                                              63
 SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.                                              63

ARTICLE X SECURITY AND PLEDGE OF COLLATERAL                                                63

 SECTION 10.1 GRANT OF SECURITY INTEREST                                                   63
 SECTION 10.2 REPRESENTATIONS AND WARRANTIES                                               64
 SECTION 10.3 FURTHER ASSURANCES                                                           64
 SECTION 10.4 TRUSTEE APPOINTED ATTORNEY-IN-FACT                                           64
 SECTION 10.5 TRUSTEE MAY PERFORM                                                          64
 SECTION 10.6 TRUSTEE‘S DUTIES                                                             64
 SECTION 10.7 APPLICATION OF PROCEEDS                                                      65
 SECTION 10.8 CONTINUING LIEN                                                              65
 SECTION 10.9 CERTIFICATES AND OPINIONS                                                    65

                                                   iv
                                        TABLE OF CONTENTS
                                             (continued)

                                                                                         Page
ARTICLE XI SUBORDINATION OF INDENTURE DEBT AND INDENTURE DOCUMENTS                              65

 SECTION 11.1 GENERAL                                                                           65
 SECTION 11.2 ENFORCEMENT                                                                       66
 SECTION 11.3 PAYMENTS HELD IN TRUST                                                            66
 SECTION 11.4 DEFENSE TO ENFORCEMENT                                                            66
 SECTION 11.5 BANKRUPTCY, ETC.                                                                  67
 SECTION 11.6 LIEN SUBORDINATION                                                                70
 SECTION 11.7 CREDIT FACILITY LENDERS‘ FREEDOM OF DEALING                                       71
 SECTION 11.8 HANCOCK‘S OBLIGATIONS ABSOLUTE                                                    72
 SECTION 11.9 TERMINATION OF SUBORDINATION                                                      72
 SECTION 11.10 THIRD PARTY BENEFICIARY STATUS AND AMENDMENTS AND OTHER MODIFICATIONS
              TO INDENTURE DOCUMENTS                                                            73

ARTICLE XII MISCELLANEOUS                                                                       73

 SECTION 12.1 TRUST INDENTURE ACT CONTROLS                                                      73
 SECTION 12.2 NOTICES                                                                           74
 SECTION 12.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES                     75
 SECTION 12.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT                                75
 SECTION 12.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION                                     75
 SECTION 12.6 GOVERNING LAW                                                                     75
 SECTION 12.7 LEGAL HOLIDAYS                                                                    76
 SECTION 12.8 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS          76
 SECTION 12.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS                                     76
 SECTION 12.10 SUCCESSORS                                                                       76
 SECTION 12.11 SEVERABILITY                                                                     76
 SECTION 12.12 COUNTERPART ORIGINALS                                                            76

                                                 v
                                                 TABLE OF CONTENTS
                                                      (continued)

                                                                     Page
  SECTION 12.13 TABLE OF CONTENTS, HEADINGS, ETC.                           76

EXHIBITS:

Exhibit A     Form of Note

Exhibit B     Form of Supplemental Indenture and Guarantee

                                                             vi
     This INDENTURE, dated as of June 17, 2008, between Hancock Fabrics, Inc., a Delaware corporation (―Hancock‖ or the ―Company‖),
and Deutsche Bank National Trust Company as the Trustee (as hereinafter defined).
      Each party agrees as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the Notes (as hereinafter
defined):


                                                                   ARTICLE I
                                        DEFINITIONS AND INCORPORATION BY REFERENCE
   SECTION 1.1 DEFINITIONS.
      ―Acceleration Notice‖ means a notice, following the occurrence of any Event of Default, pursuant to which the Trustee has indicated to
the Credit Facility Agent in writing the intent of the Holders of the Notes to accelerate the Notes and to take any Lien Enforcement Action.
      ―Accounts‖ means, as to Hancock and each Guarantor, all present and future rights of such Hancock and each Guarantor to payment of a
monetary obligation, whether or not earned by performance, which is not evidenced by chattel paper or an instrument, (a) for property that has
been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for services rendered or to be rendered, (c) for a secondary
obligation incurred or to be incurred, or (d) arising out of the use of a credit or charge card or information contained on or for use with the card.
       ―Affiliate‖ means, with respect to a specified Person, any other Person which directly or indirectly, through one or more intermediaries,
controls or is controlled by or is under common control with such Person, and without limiting the generality of the foregoing, includes (a) any
Person which beneficially owns or holds five (5%) percent or more of any class of Voting Stock of such Person or other equity interests in such
Person, (b) any Person of which such Person beneficially owns or holds five (5%) percent or more of any class of Voting Stock or in which
such Person beneficially owns or holds five (5%) percent or more of the equity interests and (c) any director or executive officer of such
Person. For the purposes of this definition, the term ―control‖ (including with correlative meanings, the terms ―controlled by‖ and ―under
common control with‖), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the ownership of Voting Stock, by agreement or otherwise.
      ―Agent‖ means any Registrar, Paying Agent or co-registrar.
      ―Applicable Procedures‖ means, with respect to any transfer or exchange of beneficial interests in the Global Note, the rules and
procedures of the Depository that apply to such transfer and exchange.
       ―Backstop Purchasers‖ means Sopris Capital Partners, LP, Berg & Berg Enterprises, LLC, Trellus Management and their respective
affiliates to the extent not Loan Parties.
       ―Bank Product‖ means any service or facility extended to the Company or Guarantors by any financial institution including: (a) credit
cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH transactions, (f) cash management, including controlled
disbursement, accounts or services, or (g) hedging agreements.
      ―Bank Product Provider‖ means a financial institution that provides any Bank Products to Hancock or a Guarantor.
      ―Bankruptcy Code‖ means the provisions of Title 11 of the United States Code, as amended from time to time and any successor statute
and all rules and regulations promulgated thereunder.
       ―Bankruptcy Law‖ means the Bankruptcy Code, and any other bankruptcy, reorganization or insolvency law or any other law relating to
the relief of debtors, readjustment of indebtedness, reorganization, arrangement, composition or extension or marshalling of assets or otherwise.
     ―Blockage Notice‖ means a written notice delivered by the Credit Facility Agent to the Trustee following receipt by the Credit Facility
Agent of an Acceleration Notice and indicating that it is a blockage notice pursuant to this Indenture.
      ―Board of Directors‖ means the Board of Directors of Hancock, or any authorized committee of such Board of Directors.
      ―Business Day‖ means any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to
close under the laws of the State of New York, and a day on which the Trustee is open for the transaction of business.
      ―Capital Leases‖ means, as applied to any Person, any lease of (or any agreement conveying the right to use) any property (whether real,
personal or mixed) by such Person as lessee which in accordance with GAAP, is required to be reflected as a liability on the balance sheet of
such Person.
      ―Capital Stock‖ means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated)
of such Person‘s capital stock or partnership, limited liability company or other equity interests at any time outstanding, and any and all rights,
warrants or options exchangeable for or convertible into such capital stock or other interests (but excluding any debt security that is
exchangeable for or convertible into such capital stock).
       ―Cash Equivalents‖ means, at any time, (a) any evidence of Indebtedness with a maturity date of ninety (90) days or less issued or
directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof; provided , that , the full faith
and credit of the United States of America is pledged in support thereof; (b) certificates of deposit or bankers‘ acceptances with a maturity of
ninety (90) days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and
undivided profits of not less than $1,000,000,000; (c) commercial paper (including variable rate demand

                                                                          2
notes) with a maturity of ninety (90) days or less issued by a corporation (except an Affiliate of Hancock or any Guarantor) organized under the
laws of any State of the United States of America or the District of Columbia and rated at least A-1 by Standard & Poor‘s Ratings Service, a
division of The McGraw-Hill Companies, Inc. or at least P-1 by Moody‘s Investors Service, Inc.; (d) repurchase obligations with a term of not
more than thirty (30) days for underlying securities of the types described in clause (a) above entered into with any financial institution having
combined capital and surplus and undivided profits of not less than $1,000,000,000; (e) repurchase agreements and reverse repurchase
agreements relating to marketable direct obligations issued or unconditionally guaranteed by the United States of America or issued by any
governmental agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within ninety
(90) days or less from the date of acquisition; provided , that , the terms of such agreements comply with the guidelines set forth in the Federal
Financial Agreements of Depository Institutions with Securities Dealers and Others, as adopted by the Comptroller of the Currency on
October 31, 1985; and (f) investments in money market funds and mutual funds which invest substantially all of their assets in securities of the
types described in clauses (a) through (e) above.
       ―Change of Control‖ means (a) the transfer (in one transaction or a series of transactions) of all or substantially all of the assets of
Hancock to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act); (b) the liquidation or dissolution of Hancock or
the adoption of a plan by the stockholders of Hancock relating to the dissolution or liquidation of Hancock or Guarantor; (c) the acquisition by
any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), other than the Backstop Purchasers, of more than fifty
(50%) percent of beneficial ownership, directly or indirectly, of the voting power of the total outstanding Voting Stock of Hancock or the
Board of Directors of Hancock; (d) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (or similar governing body) of Hancock (together with any new directors whose nomination for election by the
stockholders of Hancock was approved by a vote of at least a majority of the directors (or similar persons) then still in office who were either
directors (or similar persons) at the beginning of such period or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors (or similar governing body) of Hancock then still in office; or (e) the failure of
Hancock to own and control, directly or indirectly, one hundred (100%) percent of the voting power of the total outstanding Voting Stock of
any Guarantor; provided , however , that any action taken in accordance with the terms of the Plan of Reorganization, the issuance of any
Specified Warrant or the conversion of the Specified Warrants into the Specified Common Stock pursuant to the terms of the Specified Warrant
shall not be considered a ―Change of Control‖ hereunder.
      ―Change of Control Notice‖ means a notice mailed by Hancock to each Holder describing the transaction or transactions that constitute a
Change of Control and offering to repurchase all or any part (equal to $1,000 or integral multiple thereof if in part) of such Holder‘s Notes
pursuant to Section 3.8 hereof.
      ―Clearstream‖ means Clearstream, S.A.

                                                                         3
      ―Code‖ shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified,
recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto.
      ―Collateral‖ means all assets and properties of any kind whatsoever that constitutes collateral under the Credit Facility Documents, this
Indenture or the Collateral Documents.
     ―Collateral Documents‖ means all deeds of trust, mortgages, collateral documents, pledge agreements, and other similar documents from
Hancock and each Guarantor for the benefit of the Trustee and the Holders given to secure the Notes pursuant to this Indenture.
      ―Commission‖ means the United States Securities and Exchange Commission.
     ―Corporate Trust Office‖ means the office of the Trustee at which the corporate trust business of the Trustee is principally administered,
which at the date of this Indenture is located at 222 South Riverside Plaza, 25 Floor, MS CH 105-2502 Chicago, IL 60606-5808.
      ―Credit Card Agreements‖ means all agreements now or hereafter entered into by Hancock or any Guarantor for the benefit of Hancock
or a Guarantor, in each case with any Credit Card Issuer or any Credit Card Processor, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
       ―Credit Card Issuer‖ means any person (other than Hancock or a Guarantor) who issues or whose members issue credit cards, including,
without limitation, MasterCard or VISA bank credit or debit cards or other bank credit or debit cards issued through MasterCard International,
Inc., Visa, U.S.A., Inc. or Visa International and American Express, Discover, Diners Club, Carte Blanche and other non-bank credit or debit
cards, including, without limitation, credit or debit cards issued by or through American Express Travel Related Services Company, Inc., and
Discover Financial Services, Inc.
      ―Credit Card Processor‖ means any servicing or processing agent or any factor or financial intermediary who facilitates, services,
processes or manages the credit authorization, billing transfer and/or payment procedures with respect to Hancock‘s or any Guarantor‘s sales
transactions involving credit card or debit card purchases by customers using credit cards or debit cards issued by any Credit Card Issuer.
       ―Credit Facility‖ means, collectively, (i) the credit facility established pursuant to the Credit Facility Loan Agreement and (ii) after such
Credit Facility Loan Agreement has been terminated and all then outstanding Indebtedness thereunder or with respect thereto has been repaid in
full in cash and discharged, any successors to or replacements (as designated by the Board of Directors of Hancock in its sole judgment, and
evidenced by a resolution) of such credit facility, as such successors or replacements may from time to time be amended, renewed,
supplemented, modified or replaced, including any increases in the principal amount thereof.
      ―Credit Facility Agent‖ means the agent for the Credit Facility Lenders under the Credit Facility Loan Agreement.

                                                                         4
      ―Credit Facility Debt‖ means all principal, interest, fees (including any prepayment fees or premiums), costs, enforcement expenses
(including legal fees and disbursements), collateral protection expenses, other reimbursement or indemnity obligations and all other
obligations, liabilities and indebtedness of every kind, nature and description created or evidenced by the Credit Facility Loan Agreement or
any of the other Credit Facility Document or any prior, concurrent, or subsequent notes, instruments or agreements of indebtedness, liabilities
or obligations of any type or form whatsoever relating thereto in favor of the Credit Facility Agent or any of the Credit Facility Secured Parties.
Credit Facility Debt shall expressly include any and all interest accruing or out of pocket costs or expenses incurred after the date of any filing
by or against Hancock or the Loan Parties of any petition under any Bankruptcy Law, regardless of whether the Credit Facility Agent‘s or any
Credit Facility Secured Party‘s claim therefor is allowed or allowable in the case or proceeding relating thereto.
      ―Credit Facility Default‖ means an act, condition or event which with notice or passage of time or both would constitute a Credit Facility
Event of Default.
       ―Credit Facility Documents‖ mean collectively, (i) the Credit Facility Loan Agreement, (ii) all ―Financing Agreements‖ (as defined in
the Credit Facility Loan Agreement)(or any such comparable term for the loan documents executed and delivered in connection with the Credit
Facility Loan Agreement), (iii) any and all other documents and instruments evidencing or creating the Credit Facility Debt (including, without
limitation, Hedge Agreements and Bank Products) and (iv) all guaranties, mortgages, security agreements, pledges and other collateral
guarantying or securing directly or indirectly any Credit Facility Debt, whether now existing or hereafter created, as each such agreement,
document or instrument may be amended, restated or otherwise modified and in effect from time to time.
       ―Credit Facility Event of Default‖ means the occurrence of existence of any event of condition described in Section 10.1 of the Credit
Facility Loan Agreement or any other ―Event of Default‖ (howsoever defined) under any Credit Facility Document.
      ―Credit Facility Lenders‖ means the financial institutions identified as Lenders in the Credit Facility Loan Agreement.
      ―Credit Facility Loan Agreement‖ means that certain that certain Loan and Security Agreement (as amended, amended and restated,
supplemented, refinanced or otherwise modified and in effect from time to time, including any replacement agreement therefor), to be entered
into among Hancock, the Guarantors, the Credit Facility Lenders, and General Electric Capital Corporation, in its capacity as agent thereunder.
      ―Credit Facility Secured Parties‖ means collectively, (i) the Credit Facility Agent, (ii) the Credit Facility Lenders, (iii) the Issuing Bank
(as defined in the Credit Facility Loan Agreement) and (iv) any Bank Product Provider (including, for the avoidance of doubt, any Secured
Swap Provider)(as each such term is defined in the Credit Facility Loan Agreement).
      ―Default‖ means any event that is or with the passage of time or the giving of notice or both would be an Event of Default.

                                                                          5
      ―Definitive Notes‖ means Notes that are substantially in the form of the Note attached hereto as Exhibit A, that do not include the
information or text called for by footnotes 1 and 2 thereto.
      ―Depository‖ means the Depository Trust Company as the depository with respect to the Notes, until a successor shall have been
appointed and become such Depository pursuant to the applicable provision of this Indenture, and, thereafter, ―Depository‖ shall mean or
include such successor.
       ―Discharge of all Credit Facility Debt‖ means the occurrence of all of the following: (i) termination of all commitments to extend credit
that would constitute Credit Facility Debt, (ii) final payment in full in cash of all Credit Facility Debt and (iii) termination, cancellation or cash
collateralization (in each case, in accordance with the terms of the Credit Facility Loan Agreement) of all outstanding Letter of Credit
Obligations (as defined in the Credit Facility Loan Agreement).
       ―Environmental Laws‖ means all foreign, Federal, State and local laws (including common law), legislation, rules, codes, licenses,
permits (including any conditions imposed therein), authorizations, judicial or administrative decisions, injunctions or agreements between
Hancock or any Guarantor and any Governmental Authority, (a) relating to pollution and the protection, preservation or restoration of the
environment (including air, water vapor, surface water, ground water, drinking water, drinking water supply, surface land, subsurface land,
plant and animal life or any other natural resource), or to human health or safety, (b) relating to the exposure to, or the use, storage, recycling,
treatment, generation, manufacture, processing, distribution, transportation, handling, labeling, production, release or disposal, or threatened
release, of Hazardous Materials, or (c) relating to all laws with regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term ―Environmental Laws‖ includes: (i) the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Federal Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control
Act of 1972, the Federal Clean Water Act, the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the
Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii) applicable state counterparts to such
laws and (iii) any common law or equitable doctrine that may impose liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Materials.
       ―Equipment‖ means, as to Hancock and each Guarantor, all of its now owned and hereafter acquired equipment, wherever located,
including machinery, data processing and computer equipment (whether owned or licensed and including embedded software), vehicles, tools,
furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions
and replacements thereof, wherever located.
      ―ERISA‖ means the Employee Retirement Income Security Act of 1974, together with all rules, regulations and interpretations
thereunder or related thereto.

                                                                           6
      ―ERISA Affiliate‖ means any person required to be aggregated with Hancock, any Guarantor or any of its or their respective Subsidiaries
under Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
      ―Euroclear‖ means the Euroclear system.
      ―Exchange Act‖ means the Securities Exchange Act of 1934, together with all rules, regulations and interpretations thereunder or related
thereto.
       ―GAAP‖ shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth
in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the
statements and pronouncements of the Financial Accounting Standards Board which are applicable to the circumstances as of the date of
determination consistently applied.
      ―Global Note‖ means a permanent global secured note that contains the paragraph referred to in footnotes 1 and 2 to the form of the Note
attached hereto as Exhibit A, and that is deposited with the Note Custodian and registered in the name of the Depository or its nominee.
       ―Governmental Authority‖ means any nation or government, any state, province, or other political subdivision thereof, any central bank
(or similar monetary or regulatory authority) thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
       ―Guarantee‖ means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any
part of any Indebtedness.
       ―Guarantors‖ means, collectively, the following (together with their respective successors and assigns): (a) HF Merchandising, Inc, a
Delaware corporation; (b) Hancock Fabrics of MI, Inc., a Delaware corporation; (c) hancockfabrics.com, Inc., a Delaware corporation;
(d) Hancock Fabrics, LLC, a Delaware limited liability company, (e) HF Enterprises, Inc., a Delaware corporation; (f) HF Resources, Inc., a
Delaware corporation and (g) any other Person that at any time after the date hereof becomes a Subsidiary of Hancock; each sometimes being
referred to herein individually as a ―Guarantor‖.
      ―Hazardous Materials‖ means any hazardous, toxic or dangerous substances, materials and wastes, including hydrocarbons (including
naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants
(including materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law
(including any that are or become classified as hazardous or toxic under any Environmental Law).

                                                                          7
       ―Hedge Agreement‖ means an agreement between Hancock or any Guarantor and a Bank Product Provider that is a rate swap agreement,
basis swap, forward rate agreement, commodity swap, interest rate option, forward foreign exchange agreement, spot foreign exchange
agreement, rate cap agreement, rate floor agreement, rate collar agreement, currency swap agreement, cross-currency rate swap agreement,
currency option, any other similar agreement (including any option to enter into any of the foregoing or a master agreement for any the
foregoing together with all supplements thereto) for the purpose of protecting against or managing exposure to fluctuations in interest or
exchange rates, currency valuations or commodity prices; sometimes being collectively referred to herein as ―Hedge Agreements‖.
      ―Holder‖ means a Person in whose name a Note is registered on the Registrar‘s books.
        ―Indebtedness‖ means, with respect to any Person, any liability, whether or not contingent, (a) in respect of borrowed money (whether or
not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof) or evidenced by bonds, notes, debentures
or similar instruments; (b) representing the balance deferred and unpaid of the purchase price of any property or services (other than an account
payable to a trade creditor (whether or not an Affiliate) incurred in the ordinary course of business of such Person and payable in accordance
with customary trade practices); (c) all obligations as lessee under leases which have been, or should be, in accordance with GAAP recorded as
Capital Leases; (d) any contractual obligation, contingent or otherwise, of such Person to pay or be liable for the payment of any indebtedness
described in this definition of another Person, including, without limitation, any such indebtedness, directly or indirectly guaranteed, or any
agreement to purchase, repurchase, or otherwise acquire such indebtedness, obligation or liability or any security therefor, or to provide funds
for the payment or discharge thereof, or to maintain solvency, assets, level of income, or other financial condition; (e) all obligations with
respect to redeemable stock and redemption or repurchase obligations under any Capital Stock or other equity securities issued by such Person;
(f) all reimbursement obligations and other liabilities of such Person with respect to surety bonds (whether bid, performance or otherwise),
letters of credit, banker‘s acceptances, drafts or similar documents or instruments issued for such Person‘s account; (g) all indebtedness of such
Person in respect of indebtedness of another Person for borrowed money or indebtedness of another Person otherwise described in this
definition which is secured by any consensual lien, security interest, collateral assignment, conditional sale, mortgage, deed of trust, or other
encumbrance on any asset of such Person, whether or not such obligations, liabilities or indebtedness are assumed by or are a personal liability
of such Person, all as of such time; (h) all obligations, liabilities and indebtedness of such Person (marked to market) arising under swap
agreements, cap agreements and collar agreements and other agreements or arrangements designed to protect such person against fluctuations
in interest rates or currency or commodity values; (i) all obligations owed by such Person under License Agreements with respect to
non-refundable, advance or minimum guarantee royalty payments; (j) indebtedness of any partnership or joint venture in which such Person is
a general partner or a joint venturer to the extent such Person is liable therefor as a result of such Person‘s ownership interest in such entity,
except to the extent that the terms of such indebtedness expressly provide that such Person is not liable therefor or such Person has no liability
therefor as a matter of law; and (k) the principal and interest portions of all rental obligations of such Person under any synthetic lease or
similar off-balance sheet financing where such transaction is considered to be

                                                                         8
borrowed money for tax purposes but is classified as an operating lease in accordance with GAAP.
      ―Indenture‖ means this Indenture, as amended or supplemented from time to time.
      ―Indenture Debt‖ means all Indebtedness, Obligations or any other liabilities or obligations arising under this Indenture and the other
Indenture Documents.
      ―Indenture Documents‖ means, collectively, the Indenture, the Notes, the Collateral Documents and each other document or instrument
executed and/or delivered in connection therewith.
      ―Indirect Participant‖ means a person who holds an interest through a Participant.
      ―Initial Issue Date‖ means the first date on which any Note is issued.
       ―Intellectual Property‖ means, as to Hancock and each Guarantor, its now owned and hereafter arising or acquired: patents, patent rights,
patent applications, copyrights, works which are the subject matter of copyrights, copyright applications, copyright registrations, trademarks,
servicemarks, trade names, trade styles, trademark and service mark applications, and licenses and rights to use any of the foregoing and all
applications, registrations and recordings relating to any of the foregoing as may be filed in the United States Copyright Office, the United
States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof, any political subdivision thereof
or in any other country or jurisdiction, together with all rights and privileges arising under applicable law with respect to Hancock‘s or any
Guarantor‘s use of any of the foregoing; all extensions, renewals, reissues, divisions, continuations, and continuations-in-part of any of the
foregoing; all rights to sue for past, present and future infringement of any of the foregoing; inventions, trade secrets, formulae, processes,
compounds, drawings, designs, blueprints, surveys, reports, manuals, and operating standards; goodwill (including any goodwill associated
with any trademark or servicemark, or the license of any trademark or servicemark); customer and other lists in whatever form maintained;
trade secret rights, copyright rights, rights in works of authorship, domain names and domain name registration; software and contract rights
relating to computer software programs, in whatever form created or maintained.
      ―Interest Coverage Ratio‖ means income before interest, taxes, depreciation and amortization on a first in, first out (FIFO) basis for the
previous twelve (12) months divided by the interest expense incurred during the same period.
      ―Inventory‖ means, as to Hancock and each Guarantor, all of its now owned and hereafter existing or acquired goods, wherever located,
which (a) are leased by it as lessor; (b) are held by it for sale or lease or to be furnished under a contract of service; (c) are furnished by it under
a contract of service; or (d) consist of raw materials, work in process, finished goods or materials used or consumed in its business.
     ―License Agreements‖ shall mean all of the agreements or other arrangements of Hancock and each Guarantor pursuant to which
Hancock or such Guarantor has a license or

                                                                            9
other right to use any trademarks, logos, designs, representations or other Intellectual Property owned by another person.
      ―Lien‖ means with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other
type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset.
       ―Lien Enforcement Action‖ means (i) any action by the Credit Facility Agent or any Credit Facility Secured Party or the Trustee or any
Holder to foreclose on the Lien of such Person in any Collateral, (ii) any action, as part of an exercise of rights or remedies by any of the Credit
Facility Agent, any Credit Facility Secured Party, the Trustee or any Holder to take possession of, sell or otherwise realize (judicially or non
judicially) upon any Collateral (including, without limitation, by setoff or notification of account debtors or other Persons obligated on
Collateral), and/or (iii) the commencement by the Credit Facility Agent or any Credit Facility Secured Party or the Trustee or any Holder of
any legal proceedings against any Loan Party or with respect to any Collateral to facilitate the actions described in clauses (i) and (ii) above;
provided that, for the avoidance of doubt, none of the following shall constitute a Lien Enforcement Action: (A) making demand for payment
or accelerating the maturity of any Credit Facility Debt or Indenture Debt, (B) the receipt of payments of principal of or interest on the Credit
Facility Debt or payments of other obligations arising under the Credit Facility Documents (including the receipt and application by the Credit
Facility Agent to the Credit Facility Debt of collections of accounts receivable or proceeds of other Collateral received from account debtors or
other Persons obligated on Collateral or through any lockbox or other cash management arrangement, whether or not any Credit Facility Event
of Default under the Credit Facility Loan Agreement exists at the time of application), or receipt of scheduled payments of interest on the Notes
as set forth in Section 11.1 hereof, (C) the implementation of Reserves (as defined in the Credit Facility Loan Agreement) under the Credit
Facility Loan Agreement, (D) the reduction or increase of advance rates under the Credit Facility Loan Agreement, (E) the termination of the
Commitments (as defined in the Credit Facility Loan Agreement) or the cessation (whether temporary or permanent) of lending under the
Credit Facility Loan Agreement due to the existence of a Credit Facility Default or Credit Facility Event of Default, (F) sending by the Credit
Facility Agent, any Credit Facility Secured Party or any of their Affiliates of any ―activation‖ notice under a deposit control agreement to block
access to any deposit account of a Loan Party, or (G) the exercise by the Credit Facility Agent, any Credit Facility Secured Party or any of their
Affiliates of any right of offset with respect to Credit Facility Debt not arising under the Credit Facility Debt Documents.
      ―Loan Parties‖ means collectively, Hancock, the Guarantors, any other guarantor of all or any portion of the Credit Facility Debt or the
Indebtedness evidenced by any Indenture Documents and any other person granting a security interest in or Lien on such Person‘s assets to
secure the obligations arising under the Credit Facility Documents or the Indenture Debt.
      ―Maturity Date‖ means five years from the Initial Issue Date.
      ―Mortgage‖ shall mean a deed of trust and any other instrument issued by Hancock or a Guarantor creating a lien in favor of Trustee with
respect to the Real Property and related assets

                                                                         10
of Hancock located in Baldwyn, Mississippi, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
      ―Multiemployer Plan‖ shall mean a ―multi-employer plan‖ as defined in Section 4001(a)(3) of ERISA which is or was at any time during
the current year or the immediately preceding six (6) years contributed to by Hancock, any Guarantor or any ERISA Affiliate or with respect to
which Hancock, any Guarantor or any ERISA Affiliate may incur any liability.
        ―Note Custodian‖ means the Trustee, as custodian with respect to the Global Note, or any successor entity thereto.
        ―Notes‖ means Hancock Floating Rate Series A Secured Notes due 2013, including, without limitation, the PIK Notes and the Global
Note.
      ―Obligations‖ means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Indebtedness.
      ―Officer‖ means, with respect to any Person, the Chairman of the Board, any Vice Chairman, the Chief Executive Officer, the President,
the Chief Operating Officer, the Chief Financial Officer, any Senior Vice President, or any Vice President of such Person.
      ―Officers‘ Certificate‖ means a certificate signed on behalf of Hancock by two Officers of Hancock, one of whom must be the principal
executive officer, the principal financial officer or the principal accounting officer of Hancock, that meets the requirements of Section 12.4
hereof.
      ―Opinion of Counsel‖ means an opinion from legal counsel who is reasonably acceptable to the Trustee and meets the requirements of
Section 12.4 hereof. The counsel may be an employee of or counsel to Hancock, any Subsidiary of Hancock or the Trustee.
      ―Participant‖ means, with respect to DTC, Euroclear or Clearstream, a Person who has an account with DTC, Euroclear or Clearstream,
respectively (and, with respect to DTC, shall include Euroclear and Clearstream).
      ―Pension Funding Rules‖ means the rules of the Code and ERISA regarding minimum required contributions (including any installment
payment thereof) to certain Plans and set forth in, with respect to plan years ending prior to the effective date as to any such Plan of the Pension
Protection Act of 2006, Section 412 of the Code and Part 3, Subtitle I, of Title I of ERISA each as in effect prior to the Pension Protection Act
of 2006 and, thereafter, Sections 412 and 430 of the Code and Sections 302 and 303 of ERISA.
       ―Pension Plan‖ means an employee benefit plan (as defined in Section 3(3) of ERISA) subject to the Pension Funding Rules which is or
was at any time during the current year or the immediately preceding six (6) years contributed to by Hancock, any Guarantor or any ERISA
Affiliate or with respect to which Hancock, any Guarantor or any ERISA Affiliate may incur any liability, other than a Multiemployer Plan.

                                                                         11
     ―Permits‖ shall mean all material permits, licenses, approvals, consents, certificates, orders or authorizations of any Governmental
Authority required for the lawful conduct of its business.
       ―Permitted Acquisitions‖ means the purchase by Hancock or a Guarantor after the date hereof of all or substantially all of the assets of
any Person or a business or division of such Person (including pursuant to a merger with such Person or the formation of a wholly owned
Subsidiary solely for such purpose that is merged with such Person) or of all or a majority of the Capital Stock (such assets or Person being
referred to herein as the ―Acquired Business‖) and in one or a series of transaction that satisfies each of the following conditions:
        (a) the Acquired Business shall be an operating company that engages in a line of business substantially similar to the business that
Hancock and the Guarantors are engaged in on the date hereof,
         (b) (i) the aggregate consideration paid for or in connection with the assets or shares of the Acquired Business shall not exceed
$17,250,000 (calculated after giving effect to all payments or other consideration paid in respect of such acquisition and after giving effect to
the assumption of all Indebtedness in connection with such acquisition), and (ii) the aggregate consideration paid for or in connection with all
Permitted Acquisitions shall not exceed $34,500,000 (calculated after giving effect to all payments or other consideration paid in respect of all
Permitted Acquisitions and after giving effect to the assumption of all Indebtedness in connection with all Permitted Acquisitions),
          (c) in the case of the acquisition of the Capital Stock of another Person, the board of directors (or other comparable governing body)
of such other Person shall have duly approved such acquisition and such Person shall not have announced that it will oppose such acquisition or
shall not have commenced any action which alleges that such acquisition will violate applicable law.
      ―Permitted Dispositions‖ means each of the following:
         (a) sales of Inventory in the ordinary course of business,
         (b) the sale or other disposition of Equipment (including worn-out or obsolete Equipment or Equipment no longer used or useful in
the business of Hancock or any Guarantor) so long as such sales or other dispositions do not involve Equipment having an aggregate fair
market value in excess of $575,000 for all such Equipment disposed of in any fiscal year of Hancock,
          (c) sales or other dispositions by Hancock or any Guarantor of assets in connection with the closing or sale of a retail store location of
Hancock or a Guarantor in the ordinary course of Hancock‘s or such Guarantor‘s business which consist of leasehold interests in the premises
of such store, the Equipment and fixtures located at such premises and the books and Records relating exclusively and directly to the operations
of such store; provided , that , as to each and all such sales and closings, (i) after giving effect thereto, no Default or Event of Default

                                                                         12
shall exist or have occurred and be continuing, and (ii) such sale shall be on commercially reasonable prices and terms in a bona fide arm‘s
length transaction,
           (d) the grant by Hancock or any Guarantor after the date hereof of a non-exclusive license to any person for the use of any Intellectual
Property consisting of trademarks owned by Hancock or such Guarantor; provided , that , as to any such license, each of the following
conditions is satisfied, (i) such licenses shall be on commercially reasonable prices and terms in a bona fide arms‘ length transactions, (ii) the
rights of the licensee shall not adversely affect, limit or restrict the rights of Trustee to sell or otherwise dispose of any Inventory or other
Collateral, and (iii) as of the date of the grant of any such license, and after giving effect thereto, no Default or Event of Default shall exist or
have occurred,
         (e) sales, transfers and dispositions of assets of Hancock or a Guarantor to Hancock or another Guarantor, in each case to the extent
permitted under this Indenture; and
         (f) the sale or other dispositions of any Real Property permitted under the Credit Facility Documents.
      ―Permitted Investments‖ shall mean each of the following:
         (a) the endorsement of instruments for collection or deposit in the ordinary course of business;
         (b) Investments in cash or Cash Equivalents;
         (c) the existing Investments of Hancock and each Guarantor as of the date hereof in its Subsidiaries, provided , that , neither Hancock
nor any Guarantor shall have any further obligations or liabilities to make any capital contributions or other additional investments or other
payments to or in or for the benefit of any of such Subsidiaries;
          (d) loans and advances by Hancock or any Guarantor to employees of Hancock or such Guarantor not to exceed the principal amount
of $287,500 in the aggregate at any time outstanding for: (i) reasonably and necessary work-related travel or other ordinary business expenses
to be incurred by such employee in connection with their work for Hancock or such Guarantor and (ii) reasonable and necessary relocation
expenses of such employees (including home mortgage financing for relocated employees);
         (e) stock or obligations issued to Hancock or any Guarantor by any Person (or the representative of such Person) in respect of
Indebtedness of such Person owing to Hancock or such Guarantor in connection with the insolvency, bankruptcy, receivership or
reorganization of such Person or a composition or readjustment of the debts of such Person; and
        (f) obligations of account debtors to Hancock or any Guarantor arising from Accounts which are past due and are evidenced by a
promissory note made by such account debtor payable to Hancock or such Guarantor.
      ―Permitted Lien‖ means the Liens permitted pursuant to Section 4.14 of this Indenture.

                                                                          13
      ―Person‖ or ―person‖ means any individual, sole proprietorship, partnership, corporation (including any corporation which elects
subchapter S status under the Code), limited liability company, limited liability partnership, business trust, unincorporated association, joint
stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof.
      ―PIK Notes‖ means the Notes issued to Holders in lieu of the payment of cash interest, as permitted under the terms of the Notes.
      ―Plan‖ means an employee benefit plan (as defined in Section 3(3) of ERISA) which Hancock or any Guarantor sponsors, maintains, or
to which it makes, is making, or is obligated to make contributions, or, in the case of a Multiemployer Plan, has made contributions at any time
during the immediately preceding six (6) plan years or with respect to which Hancock or any Guarantor may incur liability.
       ―Plan of Reorganization‖ means a plan (within the meaning of the Bankruptcy Code) proposed in the reorganization case with respect to
Hancock in connection with Hancock‘s voluntary petition under Chapter 11 of the Bankruptcy Code which is filed with and/or confirmed by a
final order of the United States Bankruptcy Court for the District of Delaware.
      ―Proceeding‖ means any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution,
reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any
other proceeding for the liquidation, dissolution or other winding up of a Person.
      ―Real Property‖ means all now owned and hereafter acquired real property of Hancock and each Guarantor, including leasehold interests,
together with all buildings, structures, and other improvements located thereon and all licenses, easements and appurtenances relating thereto,
wherever located, including the real property and related assets more particularly described in the Mortgage.
       ―Records‖ means, as to Hancock and each Guarantor, all of its present and future books of account of every kind or nature, purchase and
sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and
other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media
and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Hancock or any Guarantor with respect
to the foregoing maintained with or by any other person).
       ―Responsible Officer,‖ when used with respect to the Trustee, means any officer of the Trustee with direct responsibility for the
administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular subject.
      ―Restricted Payment‖ means (a) any cash dividend or other cash distribution other than an intercompany cash dividend, direct or indirect,
on account of any shares of any class of Capital Stock of Hancock or any of its Subsidiaries, as the case may be, now or hereafter

                                                                         14
outstanding, (b) any redemption, retirement, sinking fund or similar payment on account of, or purchase or other acquisition for value, direct or
indirect, of any shares of any class of Capital Stock of Hancock or any of its Subsidiaries, except for any redemption, retirement, sinking funds
or similar payment payable solely in such shares of that class of stock or in any class of stock junior to that class, (c) any cash payment made to
redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire any shares of
any class of Capital Stock of Hancock or any of its Subsidiaries now or hereafter outstanding, or (d) any payment (including, without
limitation, any payment of management, consulting, monitoring or advisory fees) to any Affiliate of Hancock or any Guarantor except to the
extent expressly permitted in this Indenture.
      ―Securities Act‖ means the United States Securities Act of 1933, as amended.
       ―Senior Credit Facility Payment Event of Default‖ means a Credit Facility Event of Default arising under Section 10.1(a)(i) of the Credit
Facility Loan Agreement or any other ―Event of Default‖ (howsoever defined) arising as a result of the failure to make any payment to any
Credit Facility Secured Party as and when required under any of the Credit Facility Documents.
     ―Significant Subsidiary‖ means any Subsidiary that would be a ―significant subsidiary‖ as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Indenture.
      ―Specified Common Stock‖ means the shares of common stock of Hancock issuable upon exercise of the Specified Warrants.
     ―Specified Warrants‖ means the warrants to be issued by Hancock to purchase an aggregate of 9,500,000 shares of common stock of
Hancock in connection with the issuance of the Notes.
       ―Standstill Termination Date‖ means the date which is the earlier of: (i) one hundred and eighty (180) days following the date on which
the Credit Facility Agent has delivered to the Trustee a Blockage Notice and (ii) ten (10) Business Days following the date on which the Credit
Facility Agent has received an Acceleration Notice from the Trustee and prior to the end of such ten-Business Day period the Credit Facility
Agent has failed to deliver to the Trustee a Blockage Notice.
       ―Stated Maturity‖ means, when used with respect to any Indebtedness or any installment of interest thereon, the date specified in the
instrument evidencing or governing such Indebtedness as the fixed date on which the principal of such Indebtedness or such installment of
interest is due and payable.
      ―Subsidiary‖ or ―subsidiary‖ means, with respect to any Person, any corporation, limited liability company, limited liability partnership
or other limited or general partnership, trust, association or other business entity of which an aggregate of at least a majority of the outstanding
Capital Stock or other interests entitled to vote in the election of the board of directors of such corporation (irrespective of whether, at the time,
Capital Stock of any other

                                                                          15
class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency), managers, trustees
or other controlling persons, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such
Person and/or one or more subsidiaries of such Person.
      ―Subsidiary Guarantee‖ means an unconditional guarantee of the Notes and this Indenture in the form set forth as Exhibit B hereof given
by any Subsidiary or other Person pursuant to the terms of this Indenture or any supplement hereto.
      ―Supplemental Agreement‖ means the agreement to be entered into among Hancock, General Electric Capital Corporation, in its capacity
as agent for the Credit Facility Lenders, the Trustee and the Backstop Purchasers.
      ―Supplemental Indenture‖ means a supplement to this Indenture substantially in the form of Exhibit B hereto.
      ―Trust Indenture Act‖ or ―TIA‖ means the United States Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on
the date on which this Indenture is qualified under the Trust Indenture Act, except as provided in Section 9.3 hereof.
      ―Trustee‖ means the party named as such in the preamble to this Indenture or any successor entity by merger, acquisition, consolidation
or otherwise, until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor
serving hereunder.
       ―UCC‖ means the Uniform Commercial Code as in effect in any applicable jurisdiction and any successor statute, as in effect from time
to time (except that terms used herein which are defined in the Uniform Commercial Code as in effect in such jurisdiction on the date hereof
shall continue to have the same meaning notwithstanding any replacement or amendment of such statute except as the Trustee may otherwise
determine).
      ―Voting Stock‖ shall mean with respect to any Person, (a) one (1) or more classes of Capital Stock of such Person having general voting
powers to elect at least a majority of the board of directors, managers or trustees of such Person, irrespective of whether at the time Capital
Stock of any other class or classes have or might have voting power by reason of the happening of any contingency, and (b) any Capital Stock
of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in
clause (a) of this definition.
   SECTION 1.2 OTHER DEFINITIONS.

                                                                                                                                       DEFINED IN
                                                            TERM                                                                        SECTION
―Additional Amounts‖                                                                                                                       4.3
―Change of Control Offer‖                                                                                                                  3.8
―Change of Control Offer Period‖                                                                                                           3.8

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                                                                                                                                     DEFINED IN
                                                             TERM                                                                     SECTION
―Change of Control Payment‖                                                                                                               3.8
―Change of Control Purchase Date‖                                                                                                         3.8
―Custodian‖                                                                                                                               6.1
―DIP Financing‖                                                                                                                          11.5
―DTC‖                                                                                                                                     2.3
―Event of Default‖                                                                                                                        6.1
―Excluded Taxes‖                                                                                                                          4.3
―Group of Subsidiaries‖                                                                                                                   6.1
―Investment‖                                                                                                                             4.16
―Legal Defeasance‖                                                                                                                        8.2
―Notice of Default‖                                                                                                                       6.1
―Paying Agent‖                                                                                                                            2.3
―Payment Default‖                                                                                                                         6.1
―Registrar‖                                                                                                                               2.3
―Release Event‖                                                                                                                          11.6
―Tax‖ or ―Taxes‖                                                                                                                          4.3
―Voided Payment‖                                                                                                                         11.9
   SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
       Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by reference in and made a part of
this Indenture. The following Trust Indenture Act terms used in this Indenture have the following meanings:
         ―indenture securities‖ means the Notes;
         ―indenture security Holder‖ means a Holder of a Note;
         ―indenture to be qualified‖ means this Indenture;
         ―indenture trustee‖ or ―institutional trustee‖ means the Trustee; and
         ―obligor‖ on the Notes means Hancock and any successor thereto.
       All other terms used in this Indenture that are defined by the Trust Indenture Act, defined by the Trust Indenture Act reference to another
statute or defined by Commission rule under the Trust Indenture Act have the meanings so assigned to them.

                                                                        17
   SECTION 1.4 RULES OF CONSTRUCTION.
      Unless the context otherwise requires:
      (1)   a term has the meaning assigned to it;

      (2)   an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;

      (3)   ―or‖ is not exclusive;

      (4)   ―including‖ means ―including without limitation;‖

      (5)   words in the singular include the plural, and in the plural include the singular;

      (6)   provisions apply to successive events and transactions; and

      (7)   references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement or successor sections
            or rules adopted by the Commission from time to time.


                                                                   ARTICLE II
                                                                  THE NOTES
   SECTION 2.1 FORM AND DATING.
       (a) Form of Notes . The Notes and the Trustee‘s certificate of authentication shall be substantially in the form set forth in Exhibit A
hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the
date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof (except for the PIK Notes, which may
be in denominations of $1,000 or higher).
      The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture; and Hancock
and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby.
      (b) Global Note . The Notes shall be issued initially in the form of the Global Note. The Global Note shall be deposited on behalf of the
purchasers of the Notes represented thereby with the Note Custodian, and registered in the name of the Depository or a nominee of the
Depository, duly executed by Hancock and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global
Note may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee as
hereinafter provided.
      The Global Note shall represent such of the outstanding Notes as shall be specified therein and shall provide that it shall represent the
aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented

                                                                          18
thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, redemptions and transfers of interests. Any
endorsement of the Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall
be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.6 hereof.
     Except as set forth in Section 2.6 hereof, the Global Note may be transferred, in whole and not in part, only to a nominee of the
Depository or to a successor of the Depository or its nominee.
      (c) Book-Entry Provisions . This Section 2.1(c) shall apply only to the Global Note deposited with or on behalf of the Depository.
      Hancock shall execute and the Trustee shall, in accordance with this Section 2.1(c), authenticate and deliver the Global Note that (i) shall
be registered in the name of the Depository or the nominee of the Depository and (ii) shall be delivered by the Trustee to the Depository or
pursuant to the Depository‘s instructions or held by the Note Custodian.
      Participants shall have no rights either under this Indenture with respect to the Global Note held on their behalf by the Depository or by
the Note Custodian as custodian for the Depository or under the Global Note, and the Depository may be treated by Hancock, the Trustee and
any agent of Hancock or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Nothing herein shall prevent
Hancock, the Trustee or any agent of Hancock or the Trustee from giving effect to any written certification, proxy or other authorization
furnished by the Depository or impair, as between the Depository and its Participants, the operation of customary practices of such Depository
governing the exercise of the rights of an owner of a beneficial interest in the Global Note.
      (d) Definitive Notes . Notes issued in certificated form shall be substantially in the form of Exhibit A attached hereto.
       (e) Provisions Applicable to Forms of Notes . The Notes may also have such additional provisions omissions, variations or substitutions
as are not inconsistent with the provisions of this Indenture and may have such letters, numbers or other marks of identification and such
legends or endorsements placed thereon as may be required to comply with this Indenture, any applicable law or with any rules made pursuant
thereto or with the rules of any securities exchange or governmental agency or as may be determined consistently herewith by the Officers of
Hancock executing such Notes, as conclusively evidenced by their execution of such Notes. All Notes will be otherwise substantially identical
except as provided herein.
      Subject to the provisions of this Article 2, a Holder of the Global Note may grant proxies and otherwise authorize any Person to take any
action that a Holder is entitled to take under this Indenture or the Notes.
   SECTION 2.2 EXECUTION AND AUTHENTICATION.
      Two Officers shall sign the Notes for Hancock by manual or facsimile signature.

                                                                        19
         If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
      A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture. The form of Trustee‘s certificate of authentication to be borne by the Notes shall be
substantially as set forth in Exhibit A hereto.
      The Trustee shall, upon a written order of Hancock signed by two Officers, authenticate Notes for original issue up to the aggregate
principal amount stated in the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as
provided in Section 2.7 hereof, and with respect to the issuance of the PIK Notes.
      The Trustee may appoint an authenticating agent acceptable to Hancock to authenticate the Notes. An authenticating agent may
authenticate a Note whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication
by such agent. An authenticating agent has the same rights as an Agent to deal with Hancock or an Affiliate of Hancock.
   SECTION 2.3 REGISTRAR AND PAYING AGENT.
       Hancock shall maintain (i) an office or agency where the Notes may be presented for registration of transfer or for exchange
(―Registrar‖) and (ii) an office or agency where the Notes may be presented for payment (―Paying Agent‖). The Registrar shall keep a register
of the Notes and of their transfer and exchange. Hancock may appoint one or more co-registrars and one or more additional paying agents. The
term ―Registrar‖ includes any co-registrar and the term ―Paying Agent‖ includes any additional paying agent. Hancock may change any Paying
Agent or Registrar without notice to any Holder. Hancock shall notify the Trustee in writing of the name and address of any agent not a party to
this Indenture. If Hancock fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. Hancock or
any of its Subsidiaries may act as Paying Agent or Registrar.
         Hancock initially appoints the Depository Trust Company (―DTC‖) to act as Depository with respect to the Global Note.
         Hancock initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global
Note.
   SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.
       Hancock shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit
of Holders and the Trustee all money held by the Paying Agent for the payment of principal, premium and Additional Amounts, if any, or
interest on the Notes, and shall notify the Trustee of any default by Hancock in making any such payment. While any such default continues,
the Trustee may require a Paying Agent to pay all money held by it to the Trustee. Hancock at any time may require a Paying Agent to pay all
money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other

                                                                           20
than Hancock or a Subsidiary) shall have no further liability for the money. If Hancock or a Subsidiary acts as Paying Agent, it shall segregate
and hold in a separate trust fund for the benefit of the Holders and the Trustee all money held by it as Paying Agent. Upon any Proceeding
relating to Hancock, the Trustee shall serve as Paying Agent for the Notes.
   SECTION 2.5 HOLDER LISTS.
       The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses
of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, Hancock shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form
and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes, and Hancock shall otherwise
comply with TIA Section 312(a).
   SECTION 2.6 TRANSFER AND EXCHANGE.
       (a) Transfer and Exchange of Interests in the Global Note . If, at any time, an owner of a beneficial interest in the Global Note deposited
with the Depository (or the Note Custodian) wishes to transfer its beneficial interest in the Global Note to a Person who is required or permitted
to take delivery thereof in the form of an interest in the Global Note, such owner shall, subject to the Applicable Procedures, exchange or cause
the exchange of such interest for an equivalent beneficial interest in the Global Note as provided in this Section 2.6(a). Upon receipt by the
Trustee of (1) instructions given in accordance with the Applicable Procedures from a Participant directing the Trustee to credit or cause to be
credited a beneficial interest in the Global Note in an amount equal to the beneficial interest in the Global Note to be exchanged and (2) a
written order given in accordance with the Applicable Procedures containing information regarding the Participant account of the Depository
(or Euroclear or Clearstream, if applicable) to be credited with such increase, to credit or cause to be credited to the account of the Person
specified in such instructions, a beneficial interest in the Global Note, and to debit, or cause to be debited, from the account of the Person
making such exchange or transfer, an amount equal to the principal amount of the beneficial interest in the Global Note that is being exchanged
or transferred.
       (b) Transfer and Exchange of Notes . When Definitive Notes are presented by a Holder to the Registrar with a request to register the
transfer of the Definitive Notes or to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized
denominations, the Registrar shall register the transfer or make the exchange as requested only if the Definitive Notes are presented or
surrendered for registration of transfer or exchange, are endorsed and contain a signature guarantee or are accompanied by a written instrument
of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney duly authorized in writing and containing a
signature guarantee.
      (c) Exchange of a Beneficial Interest in a Global Note for a Definitive Note .
        (i) Any Person having a beneficial interest in a Global Note may upon request, subject to the Applicable Procedures, exchange such
     beneficial interest for a

                                                                         21
     Definitive Note. The Trustee or the Note Custodian, at the direction of the Trustee, shall, in accordance with the standing instructions and
     procedures existing between the Depository and the Note Custodian, cause the aggregate principal amount of the Global Note to be
     reduced accordingly and, following such reduction, Hancock shall execute and the Trustee shall authenticate and deliver to the transferee
     a Definitive Note in the appropriate principal amount, upon receipt by the Trustee of written instructions or such other form of
     instructions as is customary for the Depository (or Euroclear or Clearstream, if applicable), from the Depository or its nominee on behalf
     of any Person having a beneficial interest in the Global Note.
        (ii) Definitive Notes issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.6(c) shall be registered in
     such names and in such authorized denominations as the Depository, pursuant to instructions from its Participants or Indirect Participants
     or otherwise, shall instruct the Trustee. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so
     registered. Following any such issuance of Definitive Notes, the Trustee, as Registrar, shall instruct the Depository to reduce or cause to
     be reduced the aggregate principal amount at maturity of the Global Note to reflect the transfer.
      (d) Exchange of a Definitive Note for a Beneficial Interest in a Global Note . Any Person may upon request, subject to the Applicable
Procedures, exchange a Definitive Note for a beneficial interest in a Global Note. The Trustee or the Note Custodian, at the direction of the
Trustee, shall, in accordance with the standing instructions and procedures existing between the Depository and the Note Custodian, cause the
aggregate amount of the Global Note to be increased accordingly.
      (e) Restrictions on Transfer and Exchange of Global Note . Notwithstanding any other provision of this Indenture, the Global Note may
not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or
another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor
Depository.
      (f) Authentication of Definitive Notes in Absence of Depository . If at any time:
        (i) the Depository for the Global Note notifies Hancock that the Depository is unwilling or unable to continue as Depository for the
     Global Note and a successor Depository for the Global Note is not appointed by Hancock within 90 days after delivery of such notice; or
        (ii) Hancock, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Notes under this
     Indenture, then Hancock shall execute, and the Trustee shall, upon receipt of an authentication order in accordance with Section 2.2
     hereof, authenticate and deliver, Definitive Notes in an aggregate principal amount equal to the principal amount of the Global Note in
     exchange for the Global Note.

                                                                         22
       (g) Cancellation and/or Adjustment of the Global Note . At such time as all beneficial interests in the Global Note have been exchanged
for Definitive Notes, redeemed, repurchased or cancelled, the Global Note shall be returned to or retained and cancelled by the Trustee in
accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in the Global Note is exchanged for
Definitive Notes, redeemed, repurchased or cancelled, the principal amount of Notes represented by the Global Note shall be reduced
accordingly and an endorsement shall be made on the Global Note, by the Trustee or the Notes Custodian, at the direction of the Trustee, to
reflect such reduction.
      (h) General Provisions Relating to Transfers and Exchanges .
        (i) To permit registrations of transfers and exchanges, Hancock shall execute and the Trustee shall authenticate the Global Note, and
     the Definitive Notes at the Registrar‘s request.
        (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but Hancock may require payment of a
     sum sufficient to cover any stamp or transfer tax or similar governmental charge payable in connection therewith (other than any such
     stamp or transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.6, 3.7, 3.8 and 9.5
     hereto).
        (iii) The Global Note and Definitive Notes issued upon any registration of transfer or exchange of the Global Note shall be the valid
     obligations of Hancock, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Note and
     Definitive Notes surrendered upon such registration of transfer or exchange.
        (iv) The Registrar shall not be required: (A) to issue, to register the transfer of or to exchange Notes during a period beginning at the
     opening of fifteen (15) Business Days before the day of any selection of Notes for redemption under Section 3.2 hereof and ending at the
     close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in
     part, except the unredeemed portion of any Note being redeemed in part, or (C) to register the transfer of or to exchange a Note between a
     record date and the next succeeding interest payment date.
        (v) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and Hancock may deem and treat the
     Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and
     interest on such Notes and for all other purposes, and neither the Trustee, any Agent nor Hancock shall be affected by notice to the
     contrary.
        (vi) The Trustee shall authenticate the Global Note and Definitive Notes in accordance with the provisions of Section 2.2 hereof.
      (i) Legends .

                                                                       23
       (i) Subordination Legend on Global Note and Definitive Notes . (a) Until the termination of the subordination arrangements in
accordance with Section 11.9 hereof, the Trustee will cause to be clearly, conspicuously and prominently inserted on the face of each Note as
well as any replacements thereof, the following legend (or such other notice reasonably acceptable to the Credit Facility Agent) in substantially
the following form:
  ―THIS INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER
  AND TO THE EXTENT SET FORTH IN ARTICLE XI OF THE INDENTURE BETWEEN THE COMPANY AND THE TRUSTEE
  DATED JUNE 17, 2008. EACH HOLDER OF THIS INSTRUMENT, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO
  BE BOUND BY THE PROVISIONS OF ARTICLE XI APPLICABLE TO A HOLDER.‖
      (ii) Global Note Legend . The Global Note shall bear a legend in substantially the following form:
     ―THIS GLOBAL NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR
     ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE
     TO ANY PERSON UNDER ANY SUCH CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS
     HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.6 OR IN ACCORDANCE WITH SECTION 9.6 OF THE
     INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION
     2.6(e) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION
     PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
     SUCCESSOR DEPOSITORY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.‖
     ―UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY
     NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
     NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE
     DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
     DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
     DEPOSITORY TRUST COMPANY (―DTC‖) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
     EXCHANGE OR

                                                                        24
      PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
      MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
      OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
      PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
      THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.‖
   SECTION 2.7 REPLACEMENT OF NOTES.
       If any mutilated Note is surrendered to the Trustee, or Hancock and the Trustee receive evidence to its satisfaction of the destruction, loss
or theft of any Note, Hancock shall issue and the Trustee, upon the written order of Hancock signed by two Officers of Hancock, shall
authenticate a replacement Note if the Trustee‘s requirements are met. If required by the Trustee or Hancock, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and Hancock to protect Hancock, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is replaced. Hancock and the Trustee may charge the Holder of a
replacement Note for their expenses in replacing a Note.
      Every replacement Note is an additional obligation of Hancock and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
   SECTION 2.8 OUTSTANDING NOTES.
      The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in the Global Note effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. Except as set forth in Section 2.9 hereof, a Note does not cease to be outstanding because Hancock
or an Affiliate of Hancock holds the Note.
      If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a protected purchaser as defined in Article 8 of the UCC.
      If the principal amount of any Note is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
       If the Paying Agent (other than Hancock, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease
to accrue interest.
   SECTION 2.9 TREASURY NOTES.

                                                                          25
      In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes
owned by Hancock, or by any Person other than the Backstop Purchasers, directly or indirectly controlling or controlled by or under direct or
indirect common control with Hancock, shall be considered as though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Trustee knows are so owned shall be so
disregarded.
   SECTION 2.10 TEMPORARY NOTES.
       Until Definitive Notes are ready for delivery, Hancock may prepare and the Trustee shall authenticate temporary Notes upon a written
order of Hancock signed by two Officers of Hancock. Temporary Notes shall be substantially in the form of Definitive Notes but may have
variations that Hancock considers appropriate for temporary Notes (but shall, for the avoidance of doubt, contain the legends required under
Section 2.6 hereof) and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, Hancock shall prepare and the Trustee
shall authenticate Definitive Notes in exchange for temporary Notes, as applicable.
      Holders of temporary Notes shall be entitled to all of the benefits of this Indenture.
   SECTION 2.11 CANCELLATION.
       Hancock at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for
registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention
requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to Hancock. Hancock may not issue
new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation.
   SECTION 2.12 DEFAULTED INTEREST.
      If Hancock defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate
provided in the Notes. Hancock shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the
date of the proposed payment. Hancock shall fix or cause to be fixed each such special record date and payment date, provided that no such
special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special
record date, Hancock (or, upon the written request of Hancock, the Trustee in the name and at the expense of Hancock) shall mail or cause to
be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.
   SECTION 2.13 RECORD DATE.

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     The record date for purposes of determining the identity of Holders of the Notes entitled to vote or consent to any action by vote or
consent authorized or permitted under this Indenture shall be as provided for in TIA Section 316(c).
   SECTION 2.14 COMPUTATION OF INTEREST.
      Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months.
   SECTION 2.15 CUSIP NUMBER.
       Hancock in issuing the Notes may use a ―CUSIP‖ number, and if it does so, the Trustee shall use the CUSIP number in notices of
redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the
correctness or accuracy of the CUSIP number printed in the notice or on the Notes and that reliance may be placed only on the other
identification numbers printed on the Notes. Hancock shall promptly notify the Trustee of any change in the CUSIP number.


                                                                   ARTICLE III
                                                     REDEMPTION AND REPURCHASE
   SECTION 3.1 NOTICES TO TRUSTEE.
        If Hancock elects to redeem Notes pursuant to the optional redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at
least 45 days (unless a shorter period is acceptable to the Trustee) but not more than 60 days before a redemption date, an Officers‘ Certificate
setting forth (i) the paragraph of the Notes and clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date,
(iii) the principal amount of Notes to be redeemed and (iv) the redemption price.
   SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED.
       If less than all of the Notes are to be redeemed at any time, selection of the Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so
listed, on a pro rata basis, by lot or by such other method as the Trustee considers fair and appropriate. In the event of partial redemption by lot,
the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the
redemption date by the Trustee from the outstanding Notes not previously called for redemption.
       The Trustee shall promptly notify Hancock in writing of the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the portion of the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of
$1,000 or integral multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding principal amount of
Notes held by such Holder, even if not an integral multiple of $1,000, shall be redeemed. Except as provided in the preceding

                                                                          27
sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption.
       The provisions of the two preceding paragraphs of this Section 3.2 shall not apply with respect to any redemption affecting only the
Global Note, whether the Global Note is to be redeemed in whole or in part. In case of any such redemption in part, the unredeemed portion of
the principal amount of the Global Note shall remain outstanding.
   SECTION 3.3 NOTICE OF REDEMPTION.
      At least 30 days but not more than 60 days before a redemption date, Hancock shall mail or cause to be mailed, by first class mail, a
notice of redemption to each Holder whose Notes are to be redeemed at its registered address.
      The notice shall identify the Notes to be redeemed and shall state:
         (a) the redemption date;
         (b) the redemption price;
        (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the
     redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued
     upon cancellation of the original Note;
         (d) the name and address of the Paying Agent;
         (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;
        (f) that, unless Hancock defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and
     after the redemption date;
        (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed;
     and
       (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the
     Notes.
     If any of the Notes to be redeemed is in the form of the Global Note, then such notice shall be modified by Hancock to the extent
appropriate to accord with the Applicable Procedures for redemptions.
      At Hancock‘s request, the Trustee shall give the notice of redemption in Hancock‘s name and at its expense; provided, however, that
Hancock shall have delivered to the Trustee, at least 45 days prior to the redemption date (unless a shorter time is acceptable to the Trustee), an
Officers‘ Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the
preceding paragraph.

                                                                         28
   SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION.
      Once notice of redemption is mailed in accordance with Section 3.3 hereof, Notes called for redemption become irrevocably due and
payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Failure to give such notice by mailing
to any Holder of Notes or any defect therein shall not affect the validity of any proceedings for redemption of other Notes.
   SECTION 3.5 DEPOSIT OF REDEMPTION PRICE.
       On or prior to the redemption date, Hancock shall deposit with the Trustee or with the Paying Agent (or, if the Company is acting as its
own Paying Agent, segregate and hold in trust as provided in Section 2.4 hereof) immediately available funds sufficient to pay the redemption
price of and accrued and unpaid interest, if any, and Additional Amounts, if any, on all Notes to be redeemed on that date. The Trustee or the
Paying Agent shall promptly return to Hancock any money deposited with the Trustee or the Paying Agent by Hancock in excess of the
amounts necessary to pay the amount referred to in the immediately preceding sentence.
       If Hancock complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest (and Additional Amounts, if any) shall be paid to the Person in whose name such
Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of Hancock to comply with the preceding paragraph, interest (and Additional Amounts, if any) shall be paid
on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case at the rate provided in the Notes and in Section 4.1 hereof.
   SECTION 3.6 NOTES REDEEMED IN PART.
      Upon surrender of a Note that is redeemed in part (with, if the Company or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form reasonably satisfactory to the Company and the Trustee, duly executed by the Holder thereof or such Holder‘s
attorney duly authorized in writing), Hancock shall issue and, upon Hancock‘ written request, the Trustee shall authenticate for the Holder at
the expense of Hancock a new Note equal in principal amount to the unredeemed portion of the Note surrendered. The records of the Registrar
and the Depository shall reflect any partial redemption of the Global Note.
   SECTION 3.7 OPTIONAL REDEMPTION.
      The Notes shall be subject to redemption for cash at the option of Hancock, in whole or in part, upon not less than 30 nor more than
60 days‘ notice to each Holder of Notes to be redeemed at a redemption price equal to (i) (A) 102.000% of the principal amount thereof if
redeemed on or before one year from the date of issuance of the Notes, (B) 101.000% of the principal amount thereof if redeemed after one
year but on or before two years from the date of issuance of the Notes, or (C) 100.000% of the principal amount thereof if redeemed after two

                                                                         29
years from the date of issuance of the Notes, plus (ii) any accrued and unpaid interest, plus (iii) any Additional Amounts thereon to the
redemption date. Any redemption pursuant to this Section 3.7 shall be made pursuant to the provisions of Sections 3.1 through 3.6 hereof and
subject to Article XI hereof.
   SECTION 3.8 MANDATORY REDEMPTION.
       (a) Upon the occurrence of a Change of Control at any time and subject to Hancock‘s right to redeem all of the Notes pursuant to
Section 3.7 and subject to Article XI hereof, each Holder of Notes shall have the right to require Hancock to repurchase all or any part (equal to
$1,000 or an integral multiple thereof if in part) of such Holder‘s Notes pursuant to the offer described below (the ―Change of Control Offer‖)
at an offer price in cash equal to 101.000% of the aggregate principal amount thereof plus accrued and unpaid interest and Additional Amounts,
if any, thereon to the date of purchase (the ―Change of Control Payment‖). The offer to repurchase shall be made in the Change of Control
Notice and shall offer to repurchase Notes pursuant to the procedures required by this Indenture and described in the Change of Control Notice.
If any of the Notes subject to a Change of Control Offer is in the form of the Global Note, such notice shall be modified by the Company to the
extent appropriate to accord with the Applicable Procedures for repurchases. Hancock shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control.
       The Change of Control Offer shall remain open for a period of at least 20 days following its commencement but no longer than 40 days,
except to the extent that a longer period is required by applicable law (the ―Change of Control Offer Period‖). No later than five Business Days
after the termination of the Change of Control Offer Period (the ―Change of Control Purchase Date‖), Hancock shall purchase all Notes validly
tendered and not properly withdrawn pursuant to the Change of Control Offer. Payment for any Notes so purchased shall be made in the same
manner as interest payments are made on the Notes.
       If the Change of Control Purchase Date is on or after an interest record date and on or before the related interest payment date, any
accrued and unpaid interest and Additional Amounts, if any, shall be paid to the Person in whose name a Note is registered at the close of
business on such interest record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Change of Control
Offer.
      Upon the commencement of a Change of Control Offer, Hancock shall send, by first class mail, a notice to each of the Holders, with a
copy of each such notice to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes
pursuant to the Change of Control Offer. The Change of Control Offer shall be made to all Holders. The notice, which shall govern the terms of
the Change of Control Offer, shall state:
        (i) that the Change of Control Offer is being made pursuant to this covenant and the length of time the Change of Control Offer shall
     remain open;
         (ii) the purchase price and the Change of Control Purchase Date;

                                                                        30
        (iii) that any Note which is not validly tendered or are otherwise not accepted for payment shall continue to accrue interest;
        (iv) that, unless Hancock defaults in making such payment, any Note accepted for payment pursuant to the Change of Control Offer
     shall cease to accrue interest after the Change of Control Purchase Date;
        (v) that Holders electing to have a Note purchased pursuant to any Change of Control Offer shall be required to surrender the Note,
     with the form entitled ―Option of Holder to Elect Purchase‖ on the reverse of the Note completed, or transfer by book-entry transfer, to
     Hancock, the Depository, or a Paying Agent at the address specified in the notice no later than the close of business on the last day of the
     Change of Control Offer Period; and
        (vi) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the last
     day of the Change of Control Offer Period, a telegram, facsimile transmission or letter setting forth the name of the Holder, the principal
     amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note (or
     specified portion thereof) purchased.
      On the Change of Control Purchase Date, Hancock will, to the extent lawful and to the extent expressly permitted under Article XI
hereof, (1) accept for payment all Notes or portions thereof validly tendered and not properly withdrawn pursuant to the Change of Control
Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so
validly tendered and not properly withdrawn and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an
Officers‘ Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by Hancock. The Paying Agent shall
promptly mail to each Holder of Notes so validly tendered and not properly withdrawn the Change of Control Payment for such Notes, and the
Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to
any unpurchased portion of the Notes surrendered, if any.
      (b) Except as set forth in Section 3.8(a) and subject to Article XI hereof, Hancock is not required to make any mandatory redemption,
purchase or sinking fund payments with respect to the Notes prior to the Maturity Date.


                                                                  ARTICLE IV
                                                                 COVENANTS
   SECTION 4.1 PAYMENT OF NOTES.
      Hancock shall pay or cause to be paid the principal of, premium, if any, and interest and Additional Amounts, if any, on the Notes on the
dates and in the manner provided in the Notes. Principal, premium, if any, and interest and Additional Amounts, if any, shall be considered
paid on the date due if the Paying Agent, if other than Hancock or a Subsidiary thereof, holds as of

                                                                         31
10:00 a.m. Eastern Time on the due date money deposited by or for the benefit of Hancock in immediately available funds and designated for
and sufficient to pay all principal, premium, if any, and interest and Additional Amounts, if any, then due.
      Hancock shall pay or cause to be paid interest on overdue principal, premium, if any, and interest and Additional Amounts, if any, on the
Notes on the dates and in the manner provided in the Notes.
   SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.
       Hancock shall maintain an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar)
where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon Hancock in respect of
the Notes and this Indenture may be served. Hancock shall give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time Hancock shall fail to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of
the Trustee.
       Hancock may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered
for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission
shall in any manner relieve Hancock of its obligation to maintain an office or agency in the city of New York for such purposes. Hancock, shall
give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or
agency.
      Hancock hereby designates the Corporate Trust Office of the Trustee as one such office or agency of Hancock in accordance with
Section 2.3 hereof.
   SECTION 4.3 ADDITIONAL AMOUNTS.
       Hancock will make all payments of principal of, premium, if any, and interest on, each Note free and clear of, and without withholding or
deduction for or on account of, any current or future taxes, levies, imports, deductions, withholdings, collections, duties, assessments or charges
of whatever nature and any fines, penalties, interest or liabilities with respect thereto imposed, levied, collected, withheld or assessed by or on
behalf of any jurisdiction with which Hancock has any connection (including any jurisdiction from or through which payments under the Notes
are made) or any political subdivision or authority therein or thereof having power to tax (referred to herein as a ―Tax‖ or ―Taxes‖), unless such
withholding or deduction is required by law or by regulation or governmental policy having the force of law. In the event that any such
withholding or deduction for or on account of any Tax is required, (excluding any Taxes imposed on a Holder by the jurisdiction (or by a
political subdivision thereof) under the laws of which (or under the laws of a political subdivision of which) the Holder is organized or if such
Holder is an individual, the jurisdiction (or by a political subdivision thereof) of which such Holder is a citizen or resident), Hancock will pay
such additional amounts (―Additional Amounts‖) as will result in receipt by each Holder of any Note of such amounts as would have

                                                                        32
been received by such Holder or the beneficial owner with respect to such Note had no such withholding or deduction of Taxes been required,
provided that:
      (a) No Additional Amounts shall be payable for or on account of any Tax which would not have been imposed but for:
        (1) the existence of any present or former connection between such Holder or the beneficial owner of such Note and any jurisdiction
     with which Hancock has any connection (including any jurisdiction from or through which payments under the Notes are made) or any
     political subdivision or authority therein (other than merely holding such Note), including, without limitation, such Holder or the
     beneficial owner of such Note being or having been a national, domiciliary or resident of or treated as a resident thereof or being or
     having been present or engaged in a trade or business therein or having had a permanent establishment therein;
        (2) the presentation of such Note (where presentation is required) more than 30 days after the date on which the payment in respect of
     such Note became due and payable or provided for, whichever is later, except to the extent that such Holder would have been entitled to
     such Additional Amounts if it had presented such Note for payment on any day within such period of 30 days;
        (3) the failure of such Holder or the beneficial owner of such Note to comply with a request by Hancock addressed to such Holder
     (A) to provide information concerning the nationality, residence or identity of such Holder or such beneficial owner or (B) to make any
     declaration or other similar claim or satisfy any information or reporting requirement, which, in the case of (A) or (B), is required or
     imposed by a statute, treaty, regulation or administrative practice of the taxing jurisdiction as a precondition to exemption from all or part
     of such tax, assessment or other governmental charge; or
        (4) any combination of items (1) , (2) and (3) (collectively, the ―Excluded Taxes‖).
      (b) No Additional Amounts shall be payable to any Holder who is not the beneficial owner of such Note (including a fiduciary or
partnership) to the extent that the beneficial owner of such Note would not have been entitled to such Additional Amounts had it been the
Holder of the Note.
       In the event that Hancock fails to pay any Taxes (other than Excluded Taxes) when due to the appropriate taxing authority and a Holder
is subsequently assessed by such taxing authority in respect of such Taxes, Hancock shall pay such Taxes assessed to the taxing authority. In
the event that a Holder previously shall have paid such Taxes to the taxing authority, Hancock shall promptly indemnify and reimburse such
Holder in respect of all such Taxes so paid plus interest at the rate borne by the Notes.
      Whenever there is mentioned, in any context, the payment of principal, premium or interest in respect of any Note or the net proceeds
received on the sale or exchange of any Note,

                                                                        33
such mention shall be deemed to include the payment of Additional Amounts provided for in this Indenture to the extent that, in such context,
Additional Amounts are, were or would be payable in respect thereof pursuant to this Indenture.
   SECTION 4.4 PAYMENT CERTIFICATIONS.
       At least 10 days prior to the first date on which payment of principal and any premium, interest or Additional Amounts, if any, on the
Notes is to be made, and at least 10 days prior to any subsequent such date if there has been any change with respect to the matters set forth in
the Officers‘ Certificate described in this Section, Hancock will furnish the Trustee and the Paying Agent, if other than the Trustee, with an
Officers‘ Certificate instructing the Trustee and the Paying Agent whether such payment of principal, premium, interest or Additional
Amounts, if any, on the Notes (whether or not in the form of Definitive Notes or the Global Note) shall be made to the Holders without
withholding for or on account of Taxes, unless the withholding or deduction of such Taxes is then required by law. If any such withholding
shall be required, then such Officers‘ Certificate shall specify the amount, if any, required to be withheld on such payments to such Holders and
Hancock will pay to the Trustee or the Paying Agent the Additional Amounts pursuant to the terms of this Indenture and the Notes. Hancock
shall indemnify the Trustee and the Paying Agent for, and hold them harmless against, any loss, liability or expense reasonably incurred
without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them in reliance on any
Officers‘ Certificate furnished to them pursuant to this Section.
   SECTION 4.5 COMPLIANCE CERTIFICATE.
       (a) Hancock shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers‘ Certificate stating that a review of
the activities of Hancock and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with
a view to determining whether Hancock has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as
to each such Officer signing such certificates that to the best of his or her knowledge Hancock has kept, observed, performed and fulfilled each
and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and
conditions of this Indenture (or, if a Default or Event of Default shall have occurred describing all such Defaults or Events of Default of which
he or she may have knowledge and what action Hancock is taking, or proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the
Notes is prohibited or if such event has occurred, a description of the event and what action Hancock is taking or proposes to take with respect
thereto.
      (b) Hancock shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer of Hancock becoming
aware of any Default or Event of Default, an Officers‘ Certificate specifying such Default or Event of Default and what action Hancock is
taking or proposes to take with respect thereto.
   SECTION 4.6 COMPLIANCE WITH TIA.

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      Hancock agrees to comply with all provisions of the TIA applicable to it, including without limitation, Section 314(b) thereof.
   SECTION 4.7 MAINTENANCE OF EXISTENCE.
      (a) Hancock and each Guarantor shall at all times preserve, renew and keep in full force and effect its existence and rights and franchises
with respect thereto and maintain in full force and effect all licenses, trademarks, tradenames, approvals, authorizations, leases, contracts and
Permits necessary to carry on the business as presently or proposed to be conducted, other than as permitted in this Indenture and other than the
termination or expiration of leases in the ordinary course of business.
      (b) Neither Hancock nor any Guarantor shall change its name unless each of the following conditions is satisfied: (i) Trustee shall have
received not less than thirty (30) days prior written notice from Hancock of such proposed change in its corporate name, which notice shall
accurately set forth the new name; and (ii) Trustee shall have received a copy of the amendment to the certificate of incorporation or formation
of Hancock or such Guarantor providing for the name change certified by the Secretary of State of the jurisdiction of incorporation or
organization of Hancock or such Guarantor as soon as it is available.
       (c) Neither Hancock nor any Guarantor shall change its chief executive office or its mailing address or organizational identification
number (or if it does not have one, shall not acquire one) unless Trustee shall have received not less than thirty (30) days‘ prior written notice
from Hancock of such proposed change, which notice shall set forth such information with respect thereto as Trustee may require and Trustee
shall have received such agreements as Trustee may reasonably require in connection therewith. Neither Hancock nor any Guarantor shall
change its type of organization, jurisdiction of organization or other legal structure.
   SECTION 4.8 NEW COLLATERAL LOCATIONS.
        Hancock and each Guarantor may only open any new location, provided (a) Hancock or Guarantor (i) gives Trustee twenty (20) days
prior written notice of the intended opening of any such new location, (ii) prior to the opening of any new location or the relocation of any
Collateral or other assets or properties thereto, grants to the Trustee, for the benefit of the Trustee and the Holders, a security interest in and
Lien on such assets or properties (which security interest and lien shall be subject to the provisions of Article XI hereof), (iii) causes such Lien
to be duly perfected in any manner permitted by law, and (iv) executes and delivers, or causes to be executed and delivered, to the Trustee such
agreements, documents, and instruments, including opinions of local counsel, as Trustee may deem reasonably necessary or desirable to protect
its interests in the Collateral, assets and properties at such location.
   SECTION 4.9 COMPLIANCE WITH LAWS, REGULATIONS, ETC.
      (a) Hancock and each Guarantor shall, and shall cause any Subsidiary to, at all times, comply in all material respects with all laws, rules,
regulations, licenses, approvals, orders and other Permits applicable to it and duly observe all requirements of any foreign, Federal, State or
local Governmental Authority.

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       (b) Hancock and each Guarantor shall indemnify and hold harmless Trustee and the Holders and their respective directors, officers,
employees, agents, invitees, representatives, successors and assigns, from and against any and all losses, claims, damages, liabilities, costs, and
expenses (including reasonable attorneys‘ fees and expenses) directly or indirectly arising out of or attributable to the use, generation,
manufacture, reproduction, storage, release, threatened release, spill, discharge, disposal or presence of a Hazardous Material, including the
costs of any required or necessary repair, cleanup or other remedial work with respect to any property of Hancock or any Guarantor and the
preparation and implementation of any closure, remedial or other required plans. All representations, warranties, covenants and
indemnifications in this Section shall survive the payment of the Notes and the termination of this Indenture.
   SECTION 4.10 PAYMENT OF TAXES AND CLAIMS.
       Hancock and each Guarantor shall, and shall cause any Subsidiary to, promptly pay and discharge all material Taxes, assessments,
contributions and governmental charges upon or against it or its properties or assets, except for Taxes the validity of which are being contested
in good faith by appropriate proceedings diligently pursued and available to Hancock or the Guarantor, as the case may be; provided, that
(i) adequate reserves with respect to such contest are maintained on the books of Hancock or Guarantor, in accordance with GAAP; (ii) no Lien
shall be imposed to secure payment of such charges (other than payments to warehousemen and/or bailees) that is superior to any of the Liens
securing the Notes and such contest is maintained and prosecuted continuously and with diligence and operates to suspend collection or
enforcement of such charges; (iii) none of the Collateral becomes subject to forfeiture or loss as a result of such contest; and (iv) Hancock or
the Guarantors shall promptly pay or discharge such contested charges, Taxes or claims and all additional charges, interest, penalties and
expenses, if any, and shall deliver to Trustee evidence reasonably acceptable to Trustee of such compliance, payment or discharge, if such
contest is terminated or discontinued adversely to such Hancock or Guarantor or the conditions set forth in this Section are no longer met.
   SECTION 4.11 INSURANCE.
      Hancock and each Guarantor shall, and shall cause any Subsidiary to, at all times, maintain with financially sound and reputable insurers
insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured
against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated.
   SECTION 4.12 FINANCIAL STATEMENTS AND OTHER INFORMATION.
       Hancock and each Guarantor shall, and shall cause each Subsidiary to, keep proper books and Records in which true and complete
entries shall be made of all dealings or transactions of or in relation to the Collateral and the business of each of Hancock, such Guarantor and
their respective Subsidiaries, in accordance with GAAP. So long as any Notes are outstanding, Hancock shall furnish to all Holders and to the
Trustee, within 135 days after Hancock‘s fiscal year end, annual financial information required to be contained in a filing with the Commission
on Form 10-K. Such annual financial information may be delivered to the Holders and the

                                                                         36
Trustee in any manner permitted under the rules and regulations promulgated by the Commission.
   SECTION 4.13 SALE OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ETC.
      Hancock and each Guarantor shall not, and shall not permit any Subsidiary to, directly or indirectly,
      (a) sell, issue, assign, lease, license, transfer, abandon or otherwise dispose of any Capital Stock or Indebtedness to any other Person or
any of its assets to any other Person, except for:
         (i) Permitted Dispositions,
        (ii) the issuance of Capital Stock of Hancock consisting of common stock pursuant to a restricted stock award, an employee stock
     option or grant or similar equity plan or 401(k) plans of Hancock for the benefit of its employees, directors and consultants, provided,
     that, in no event shall Hancock be required to issue, or shall Hancock issue, Capital Stock pursuant to such stock plans or 401(k) plans
     which would result in a Change of Control or other Event of Default,
        (iii) the sublease by Hancock or any Guarantor of any Real Property leased by Hancock or a Guarantor; provided, that, as to any such
     sublease, (A) after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing, and (B) such
     sublease shall be on commercially reasonable prices and terms in a bona fide arm‘s length transaction,
        (iv) Licenses and sublicenses of Intellectual Property by Hancock or a Guarantor to Hancock or another Guarantor in the ordinary
     course of business and consistent with past practices,
        (v) any sale, issuance, assignment, lease, license, transfer, abandonment or other disposition of any Capital Stock or Indebtedness to
     any other Person or any of its assets to any other Person to the extent permitted under the Credit Facility, or
         (vi) issuance of the Specified Warrants and the Specified Common Stock in accordance with the terms of the Specified Warrants.
       (b) wind up, liquidate or dissolve except that any Guarantor or Subsidiary of Hancock may wind up, liquidate and dissolve, provided,
that, each of the following conditions is satisfied: (i) the winding up, liquidation and dissolution of such Guarantor or other Subsidiary shall not
violate any law or any order or decree of any court or other Governmental Authority in any material respect and shall not conflict with or result
in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, or any other agreement or instrument to which Hancock
or any Guarantor is a party or may be bound, (ii) such winding up, liquidation or dissolution shall be done in accordance with the requirements
of all applicable laws and

                                                                         37
regulations, (iii) effective upon such winding up, liquidation or dissolution, all of the assets and properties of such Guarantor or other
Subsidiary shall be duly and validly transferred and assigned to its shareholders, free and clear of any liens, restrictions or encumbrances other
than the security interest and liens of the Credit Facility and this Indenture, (iv) Trustee shall have received all documents and agreements that
Hancock or Guarantor has filed with any Governmental Authority or as are otherwise required to effectuate such winding up, liquidation or
dissolution, (v) neither Hancock nor Guarantor shall assume any obligations or liabilities as a result of such winding up, liquidation or
dissolution, or otherwise become liable in respect of any Indebtedness or liabilities of the entity that is winding up, liquidating or dissolving,
unless such Indebtedness is otherwise expressly permitted hereunder, (vi) Trustee shall have received not less than ten (10) Business Days prior
written notice of the intention of such Guarantor or Subsidiary to wind up, liquidate or dissolve, and (vii) as of the date of such winding up,
liquidation or dissolution and after giving effect thereto, no Default or Event of Default shall exist or have occurred; or
      (c) agree to do any of the foregoing.
   SECTION 4.14 ENCUMBRANCES.
       Hancock and each Guarantor shall not, and shall not permit any Subsidiary to, create, incur, assume or suffer to exist any security
interest, mortgage, pledge, Lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including the
Collateral, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any security interest or
Lien with respect to any such assets or properties, except:
      (a) the security interests and liens arising out of or securing the Credit Facility;
      (b) the security interest and liens arising out of this Indenture and the Collateral Documents;
      (c) liens securing the payment of Taxes, assessments or other governmental charges or levies either not yet overdue or the validity of
which are being contested in good faith by appropriate proceedings diligently pursued and available to Hancock or such Guarantor or
Subsidiary, as the case may be, and with respect to which adequate reserves have been set aside on its books;
      (d) non-consensual statutory liens (other than liens securing the payment of Taxes) arising in the ordinary course of Hancock‘s, such
Guarantor‘s or a Subsidiary‘s business to the extent: (i) such liens secure Indebtedness which is not overdue or (ii) such liens secure
Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the
insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Hancock, such Guarantor or such
Subsidiary, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves
have been set aside on its books;

                                                                           38
      (e) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of Real Property which do not interfere in
any material respect with the use of such Real Property or ordinary conduct of the business of Hancock, a Guarantor or a Subsidiary as
currently conducted thereon or materially impair the value of the Real Property which may be subject thereto;
      (f) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on Real Property to secure
Indebtedness permitted under this Indenture;
      (g) pledges and deposits of cash by Hancock or any Guarantor after the date hereof in the ordinary course of business in connection with
workers‘ compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Hancock or
such Guarantor as of the date hereof;
       (h) pledges and deposits of cash by Hancock or any Guarantor after the date hereof to secure the performance of tenders, bids, leases,
trade contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations in each case in the ordinary
course of business consistent with the current practices of Hancock or such Guarantor as of the date hereof;
      (i) liens arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or
other materials which are not owned by Hancock or any Guarantor located on the premises of Hancock or a Guarantor (but not in connection
with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Hancock
or such Guarantor and the precautionary UCC financing statement filings in respect thereof;
      (j) liens or rights of setoff against credit balances of Hancock with Credit Card Issuers or Credit Card Processors or amounts owing by
such Credit Card Issuers or Credit Card Processors to Hancock in the ordinary course of business, but not liens on or rights of setoff against any
other property or assets of Hancock, pursuant to the Credit Card Agreements (as in effect on the date hereof) to secure the obligations of
Hancock to the Credit Card Issuers or Credit Card Processors as a result of fees and chargebacks;
      (k) statutory or common law liens or rights of setoff of depository banks with respect to funds of Hancock or any Guarantor at such
banks to secure fees and charges in connection with returned items or the standard fees and charges of such banks in connection with the
deposit accounts maintained by Hancock and any Guarantor at such banks (but not any other Indebtedness);
        (l) judgments and other similar liens arising in connection with court proceedings that do not constitute an Event of Default, provided,
that, (i) such liens are being contested in good faith and by appropriate proceedings diligently pursued, (ii) adequate reserves or other
appropriate provision, if any, as are required by GAAP have been made therefor, and (iii) a stay of enforcement of any such liens is in effect;

                                                                         39
      (m) the security interests and liens which are permitted under the Credit Facility whether or not otherwise permitted by this Indenture; or
      (n) non-consensual security interests and liens which are not permitted by the other provisions of this Indenture to secure Indebtedness
and other liabilities in an amount not to exceed $115,000 in the aggregate.
   SECTION 4.15 INDEBTEDNESS.
      Hancock and each Guarantor shall not, and shall not permit any Subsidiaries to, incur, create, assume, become or be liable in any manner
with respect to, or permit to exist, any Indebtedness, or Guarantee, assume, endorse, or otherwise become responsible for (directly or
indirectly), the Indebtedness, performance, obligations or dividends of any other Person, except:
      (a) the Notes;
      (b) the Credit Facility and the Indebtedness of Hancock and the other Loan Parties under the Credit Facility Documents;
      (c) purchase money Indebtedness (including Capital Leases) arising after the date hereof to the extent secured by purchase money
security interests in Equipment (including Capital Leases) and purchase money mortgages on Real Property not to exceed $2,875,000 in the
aggregate at any time outstanding so long as such security interests and mortgages do not apply to any property of Hancock, Guarantor or
Subsidiary other than the Equipment or Real Property so acquired, and the Indebtedness secured thereby does not exceed the cost of the
Equipment or Real Property so acquired, as the case may be;
      (d) the Indebtedness of Hancock or any Guarantor to Hancock or any other Guarantor or any other Subsidiary of Hancock arising
pursuant to loans permitted under this Indenture;
        (e) Indebtedness of Hancock or any Guarantor entered into in the ordinary course of business pursuant to a Hedge Agreement; provided,
that, (i) such arrangements are not for speculative purposes, and (ii) such Indebtedness shall be unsecured, except to the extent such
Indebtedness constitutes part of the obligations arising under or pursuant to Hedge Agreements with any Bank Product Provider that are
secured under the terms of the Credit Facility;
       (f) unsecured Guarantees by Hancock or a Guarantor of the obligations of Hancock or a Guarantor arising pursuant to a lease from a third
party in a bona fide arm‘s length transaction of real property for use as a retail store location in the ordinary course of the business of Hancock
or a Guarantor; provided, that, (i) the Person issuing such Guarantee is permitted hereunder to incur directly the obligation that is being
guaranteed and (ii) as of the date on which such Guarantee is issued no Event of Default exists or has occurred and is continuing;
       (g) Indebtedness of Hancock or any Guarantor arising after the date of this Indenture to any third person not otherwise provided for in
this Section, provided, that, in each case, each of the following conditions is satisfied and Hancock certifies to the Trustee that each of the
following conditions is satisfied: (i) such Indebtedness shall be subject and subordinate in right

                                                                        40
of payment to the right of Holders to receive the prior indefeasible payment and satisfaction in full payment of all of the Notes, (ii) as of the
date of incurring such Indebtedness and after giving effect thereto, no Default or Event of Default shall exist or have occurred, (iii) as of the
date of incurring such Indebtedness and after give effect thereto, the Interest Coverage Ratio is greater than 2.0, and (iv) such Indebtedness
shall not exceed $20,000,000 at any time;
      (h) intercompany indebtedness between (i) Hancock and any Subsidiary of Hancock and (ii) any Subsidiary of Hancock and any other
Subsidiary of Hancock; and
      (i) Indebtedness permissible under the Credit Facility which is not permitted by the other provisions of this Section.
   SECTION 4.16 LOANS, INVESTMENTS, ETC.
       Hancock and each Guarantor shall not, and shall not permit any Subsidiary to, directly or indirectly, purchase, hold or acquire (including
pursuant to any merger with any Person that was not a wholly owned Subsidiary immediately prior to such merger) any Capital Stock,
evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to
exist any loans or advances to, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise
acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit or all or a substantial part of
the assets or property of any other Person (whether through purchase of assets, merger or otherwise), or form or acquire any Subsidiaries, or
agree to do any of the foregoing (each of the foregoing an ―Investment‖), except:
      (a) Permitted Investments;
      (b) Permitted Acquisitions;
      (c) Investments by Hancock, a Guarantor or other Subsidiary of Hancock in another Guarantor or other Subsidiary of Hancock, in each
case after the date hereof, provided, that, to the extent that such Investment gives rise to any Indebtedness, such Indebtedness is permitted
hereunder and to the extent that such Investment gives rise to the issuance of any shares of Capital Stock, such issuance is permitted hereunder;
      (d) loans by Hancock or a Guarantor to another Guarantor after the date hereof; and
     (e) the loans and advances permitted under the Credit Facility which are not permitted by the other provisions of this Section.
   SECTION 4.17 RESTRICTED PAYMENTS.
      Hancock and each Guarantor shall not, and shall not permit any Subsidiary to, declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, except:

                                                                         41
       (a) Hancock may make Restricted Payments with respect to its Capital Stock payable solely in additional shares of its Capital Stock that
satisfies the requirements for issuance of Capital Stock by Hancock under Section 4.13(a) hereof;
      (b) Subsidiaries of Hancock or any Guarantor may make Restricted Payments to Hancock or to other Subsidiaries of Hancock;
      (c) A Guarantor may make Restricted Payments to another Guarantor for the purpose of paying dividends in respect of the Capital Stock
of a Guarantor;
       (d) Hancock and Guarantors may repurchase Capital Stock consisting of common stock held by employees pursuant to any employee
stock ownership plan thereof upon the termination, retirement or death of any such employee in accordance with the provisions of such plan or
upon the vesting of restricted stock in any such employee in accordance with the provisions of the restricted stock plan, provided, that, as to
any such repurchase, each of the following conditions is satisfied: (i) as of the date of the payment for such repurchase and after giving effect
thereto, no Default or Event of Default shall exist or have occurred and be continuing, (ii) such repurchase shall be paid with funds legally
available therefor, (iii) such repurchase shall not violate any law or regulation or the terms of any indenture, agreement or undertaking to which
Hancock or such Guarantor is a party or by which such Hancock or Guarantor or its or their property are bound, and (iv) the aggregate amount
of all payments for such repurchases in any calendar year shall not exceed $4,600,000;
      (e) Hancock may make Restricted Payments for the purpose of paying dividends and paying other distributions in respect of its Capital
Stock or the repurchase of its Capital Stock in an amount not to exceed $1,150,000 in the aggregate in any calendar year and not to exceed
$3,450,000 in the aggregate during the term of this Indenture, provided, that, as of the date of any such payment and after giving effect thereto,
no Default or Event of Default shall exist or have occurred; and
      (f) Hancock may make payments (voluntary, mandatory or otherwise) of principal, interest and all other obligations (whether in cash or
in kind) with respect to all permitted Indebtedness, as set forth in Section 4.15 of this Indenture.
   SECTION 4.18 TRANSACTIONS WITH AFFILIATES.
       Hancock and each Guarantor shall not, directly or indirectly, purchase, acquire or lease any property from, or sell, transfer or lease any
property to, any officer, director or other Affiliate of Hancock or a Guarantor, except (a) in the ordinary course of Hancock‘s or a Guarantor‘s
business and upon terms no less favorable to Hancock or a Guarantor than Hancock or a Guarantor would obtain in a comparable arm‘s length
transaction with an unaffiliated person, (b) for any purchase or acquisition by Hancock or a Guarantor from Hancock or another Guarantor, any
sale or transfer by Hancock or a Guarantor to Hancock or another Guarantor, or any lease of any property by Hancock or a Guarantor from
Hancock or another Guarantor or lease of any property from Hancock or a Guarantor to Hancock or another Guarantor and (c) transactions
expressly permitted by this Indenture.

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   SECTION 4.19 COMPLIANCE WITH ERISA.
      Hancock and each Guarantor shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other Federal and State law; (b) cause each Plan which is qualified under
Section 401(a) of the Code to maintain such qualification; (c) not terminate any Pension Plan so as to incur any material liability to the Pension
Benefit Guaranty Corporation; (d) not allow or suffer to exist any prohibited transaction involving any Plan or any trust created thereunder
which would subject Hancock, a Guarantor or an ERISA Affiliate to a material tax or other liability on prohibited transactions imposed under
Section 4975 of the Code or ERISA; (e) make all required contributions to any Plan (determined without regard to any waiver) which it is
obligated to pay under the Pension Funding Rules or the terms of such Plan; (f) not engage in a transaction that could be subject to
Section 4069 or 4212(c) of ERISA; or (g) not allow or suffer to exist any occurrence of a reportable event or any other event or condition
which presents a material risk of termination by the Pension Benefit Guaranty Corporation of any Pension Plan that is a single employer plan,
which termination could result in any material liability to the Pension Benefit Guaranty Corporation.
   SECTION 4.20 END OF FISCAL YEARS; FISCAL QUARTERS.
       Hancock and each Guarantor shall, for financial reporting purposes, cause its, and each of its Subsidiaries‘ (a) fiscal years to end on the
last Saturday closest to January 31st of each year and (b) fiscal quarters to end on or about each April 30th, July 31st, October 31st and
January 31st of each year.
   SECTION 4.21 CHANGE IN BUSINESS.
      Hancock and each Guarantor shall not engage in any business other than the business of Hancock or a Guarantor on the date hereof and
any business reasonably related, ancillary or complimentary to the business in which Hancock or a Guarantor is engaged on the date hereof.
   SECTION 4.22 LIMITATION OF RESTRICTIONS AFFECTING SUBSIDIARIES.
       Hancock and each Guarantor shall not, directly, or indirectly, create or otherwise cause or suffer to exist any encumbrance or restriction
which prohibits or limits the ability of any Subsidiary of Hancock or a Guarantor to (a) pay dividends or make other distributions or pay any
Indebtedness owed to Hancock or a Guarantor or any Subsidiary of Hancock or a Guarantor; (b) make loans or advances to Hancock or a
Guarantor or any Subsidiary of Hancock or a Guarantor, (c) transfer any of its properties or assets to Hancock or a Guarantor or any Subsidiary
of Hancock or a Guarantor; or (d) create, incur, assume or suffer to exist any lien upon any of its property, assets or revenues, whether now
owned or hereafter acquired, except for encumbrances and restrictions arising under (i) applicable law, (ii) this Indenture, (iii) the Credit
Facility, (iv) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of Hancock or a Guarantor or
any Subsidiary of Hancock or a Guarantor, (v) customary restrictions on dispositions of real property interests found in reciprocal easement
agreements of Hancock or a Guarantor or any Subsidiary of Hancock or a Guarantor, (vi) any agreement relating to Indebtedness incurred by a
Subsidiary of Hancock or a Guarantor prior to the date on

                                                                         43
which such Subsidiary was acquired by Hancock or such Guarantor and outstanding on such acquisition date, and (vii) the extension or
continuation of contractual obligations in existence on the date hereof; provided, that, any such encumbrances or restrictions contained in such
extension or continuation are no less favorable to the Holders than those encumbrances and restrictions under or pursuant to the contractual
obligations so extended or continued.
   SECTION 4.23 CREDIT CARD AGREEMENTS.
      Hancock and each Guarantor shall (a) observe and perform all material terms, covenants, conditions and provisions of the Credit Card
Agreements to be observed and performed by it at the times set forth therein; and (b) at all times maintain in full force and effect the Credit
Card Agreements and not terminate, cancel, surrender, modify, amend, waive or release any of the Credit Card Agreements, or consent to or
permit to occur any of the foregoing; except, that, Hancock or any Guarantor may terminate or cancel any of the Credit Card Agreements in the
ordinary course of the business of Hancock or such Guarantor and to the extent permitted under the Credit Facility.
   SECTION 4.24 AFTER ACQUIRED REAL PROPERTY.
       If Hancock or any Guarantor hereafter acquires any Real Property, fixtures or any other property that is of the kind or nature described in
the Mortgage and such Real Property, fixtures or other property is adjacent to, contiguous with or necessary or related to or used in connection
with any Real Property then subject to a Mortgage, or if such Real Property is not adjacent to, contiguous with or related to or used in
connection with such Real Property, then if such Real Property, fixtures or other property at any location (or series of adjacent, contiguous or
related locations, and regardless of the number of parcels) has a fair market value in an amount equal to or greater than $287,500 (or if an Event
of Default exists, then regardless of the fair market value of such assets), without limiting any other rights of the Trustee or the Holders, or
duties or obligations of Hancock or any Guarantor, Hancock or such Guarantor shall execute and deliver to Trustee for the benefit of the
Trustee and the Holders a mortgage, deed of trust or deed to secure debt, in form and substance substantially similar to the Mortgage and as to
any provisions relating to specific state laws and in form appropriate for recording in the real estate records of the jurisdiction in which such
Real Property or other property is located granting to Trustee a lien and mortgage on and security interest in such Real Property, fixtures or
other property (except as Hancock or such Guarantor would otherwise be permitted to incur hereunder or under the Mortgage) provided, that,
as to any such Real Property that is not adjacent, contiguous or related to Real Property then subject to a Mortgage, if the purchase price for
such Real Property is paid with the initial proceeds of a loan from a financial institution giving rise to Indebtedness permitted under this
Indenture, then Hancock or such Guarantor shall not be required to execute and deliver such mortgage, deed of trust or deed to secure debt in
favor of the Trustee and the Holders with respect to such Real Property.
   SECTION 4.25 FOREIGN ASSETS CONTROL REGULATIONS, ETC.
    The issuance of the Notes will not violate the Trading With the Enemy Act (50 USC §1 et seq., as amended) (the ―Trading With the
Enemy Act‖) or any of the foreign assets control regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as

                                                                        44
amended) (the ―Foreign Assets Control Regulations‖) or any enabling legislation or executive order relating thereto (including, but not limited
to (a) Executive order 13224 of September 21, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to
Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the ―Executive Order‖) and (b) the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56). Neither Hancock nor any of its
Subsidiaries is or will become a ―blocked person‖ as described in the Executive Order, the Trading with the Enemy Act or the Foreign Assets
Control Regulations or engages or will engage in any dealings or transactions, or be otherwise associated, with any such ―blocked person.‖
   SECTION 4.26 FURTHER ASSURANCES.
       (a) In the case of the formation or acquisition by Hancock or a Guarantor of any Subsidiary after the date hereof, as to any such
Subsidiary, (i) Hancock or the Guarantor forming such Subsidiary shall cause any such Subsidiary to execute and deliver to Trustee, the
following: (A) an absolute and unconditional Guarantee of payment of the Notes in the form of Exhibit B, (B) a security agreement granting to
Trustee for the benefit of the Trustee and the Holders a security interest and Lien upon all of the assets of any such Subsidiary of the type or
category of the assets of Hancock and the Guarantors subject to the security interests and Liens pursuant hereto (in each case, subject to
Article XI hereof), and (C) such other agreements, documents and instruments previously delivered under this Indenture with respect to assets
of the type or category of assets of Hancock and the Guarantors subject to the security interests and Liens pursuant hereto.
       (b) In the case of an acquisition of assets (other than Capital Stock) by Hancock or a Guarantor pursuant to a Permitted Acquisition after
the date hereof, Trustee shall have received: (i) evidence that Trustee has valid and perfected security interests in and liens upon all purchased
assets, and (ii) the agreement of the seller consenting to the collateral assignment by Hancock or the Guarantor purchasing such assets of all
rights and remedies and claims for damages of Hancock or the Guarantor relating to the Collateral (including, without limitation, any bulk sales
indemnification) under the agreements, documents and instruments relating to such acquisition.
      (c) At the request of Trustee at any time and from time to time, Hancock and the Guarantors shall, at their expense, duly execute and
deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such
further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the
Collateral and to otherwise effectuate the provisions or purposes of this Indenture.
   SECTION 4.27 LEASEHOLD ESTATES.
       Neither Hancock nor any Guarantor shall, nor shall any of them permit any of their Subsidiaries to, enter into any leasehold mortgage,
deed of trust or any other agreement irrespective of how so identified which grants to any third party a leasehold mortgage in such leasehold
estate and the properties and assets located therein except to the extent permitted under the Credit Facility.

                                                                        45
                                                                   ARTICLE V
                                                                  SUCCESSORS
   SECTION 5.1 MERGER, CONSOLIDATION OR SALE OF ASSETS OF HANCOCK.
       Hancock shall not, in a single transaction or series of related transactions, consolidate or merge with or into (whether or not Hancock is
the surviving corporation), or directly and/or indirectly through its Subsidiaries sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets determined on a consolidated basis for Hancock and its Subsidiaries taken as a whole in one or
more related transactions, to another Person unless (i) Hancock is the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than Hancock) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have
been made is a corporation organized or existing under the laws of one of the states of the United States; (ii) the Person formed by or surviving
any such consolidation or merger (if other than Hancock) or the Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of Hancock under the Notes and this Indenture pursuant to a Supplemental
Indenture in the form set forth as Exhibit B; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) Hancock
shall have delivered to the Trustee an Officers‘ Certificate and an Opinion of Counsel addressed to the Trustee with respect to the foregoing
matters.
   SECTION 5.2 SUCCESSOR CORPORATION OF HANCOCK SUBSTITUTED.
      Upon any consolidation or merger, or any sale, assignment, transfer, lease conveyance or other disposition of all or substantially all of
the properties or assets of Hancock in accordance with Section 5.1 hereof, the successor corporation formed by such consolidation or into or
with which Hancock is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and
be substituted for, Hancock under this Indenture and the Notes (so that from and after the date of such consolidation, merger, sale, lease,
conveyance or other disposition, the provisions of this Indenture referring to ―Hancock‖ shall refer instead to the successor corporation and not
to Hancock), and may exercise every right and power of Hancock under this Indenture with the same effect as if such successor Person had
been named as Hancock herein; provided, however, that the predecessor corporation shall not be relieved from the obligation to pay the
principal, premium if any, and interest and Additional Amounts, if any, on the Notes except in the case of a sale of all or substantially all of
Hancock‘s properties or assets that meets the requirements of Section 5.1 hereof.

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                                                             ARTICLE VI
                                                   DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
  An ―Event of Default‖ occurs if:
    (a) Hancock defaults in the payment of interest on, or Additional Amounts with respect to, any Note when the same becomes due and
 payable and the Default continues for a period of 30 days;
   (b) Hancock defaults in the payment of the principal of or premium, if any, on any Note when the same becomes due and payable at
 maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise;
    (c) Hancock fails to comply with any of its other agreements or covenants in, or provisions of, the Notes or this Indenture and the
 Default continues for a period of 60 days after there has been given to Hancock by the Trustee or to Hancock and the Trustee by the
 Holders of at least 50.1% in principal amount of the outstanding Notes a written notice specifying such Default and requiring it to be
 remedied and stating that such notice is a ―Notice of Default‖ hereunder;
     (d) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured
 or evidenced any Indebtedness for money borrowed by Hancock or any Guarantor (or the payment of which is guaranteed by Hancock or
 any Guarantor), whether such Indebtedness or Guarantee exists on the date of this Indenture or shall be created thereafter, which default
 (i) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the applicable
 grace period provided in such Indebtedness on the date of such default (a ―Payment Default‖) or (ii) results in the acceleration of such
 Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount
 of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated,
 aggregates $5,750,000 or more;
    (e) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against
 Hancock or any of its Subsidiaries, and such judgment or judgments are not paid, discharged or stayed for a period of 60 days, provided
 that the aggregate of all such undischarged and unpaid judgments exceeds $5,750,000;
    (f) Hancock or any of its Significant Subsidiaries or group of Subsidiaries that, together taken (as of the latest audited consolidated
 financial statement for Hancock and its Subsidiaries), would constitute a Significant Subsidiary (a ―Group of Subsidiaries‖), pursuant to
 or within the meaning of the Bankruptcy Code:

                                                                   47
            (i) commences a voluntary case;
            (ii) consents to the entry of an order for relief against it in an involuntary case;
            (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property;
            (iv) makes a general assignment for the benefit of its creditors; or
            (v) generally is not paying its debts as they become due;
         (g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that, in each case remains unstayed and in
  effect for 30 consecutive days, and that:
            (vi) is for relief against Hancock or any Significant Subsidiary or Group of Subsidiaries in an involuntary case;
           (vii) appoints a Custodian of Hancock or any Significant Subsidiary or Group of Subsidiaries or for all or substantially all of the
        property of Hancock or any Significant Subsidiary or Group of Subsidiaries; or
            (viii) orders the liquidation of Hancock or any Significant Subsidiary or Group of Subsidiaries; or
        (h) the security interest in the Collateral shall cease to be in full force and effect or enforceable in accordance with the terms of the
  Collateral Documents or this Indenture.
      The term ―Custodian‖ means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.
   SECTION 6.2 ACCELERATION.
       If an Event of Default (other than an Event of Default specified in clause (f) or (g) of Section 6.1) occurs and is continuing, the Trustee,
upon the written direction of the Holders of at least 50.1% in aggregate principal amount of the then outstanding Notes, by written notice to
Hancock, may declare the unpaid principal of and any premium and accrued interest, and Additional Amounts, if any, on all the Notes to be
due and payable. Upon such declaration, 100% of the principal amount of the Notes plus any premium and accrued and unpaid interest, and
Additional Amounts, if any, on the Notes shall be due and payable immediately. If an Event of Default specified in clause (f) or (g) of
Section 6.1 relating to Hancock, any Significant Subsidiary or any Group of Subsidiaries occurs, all such amounts shall ipso facto become and
be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of a majority in
principal amount of the then outstanding Notes by written notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing Events of Default (except

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nonpayment of principal or interest or Additional Amounts that has become due solely because of the acceleration) have been cured or waived.
The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest.
   SECTION 6.3 OTHER REMEDIES.
       If an Event of Default occurs and is continuing, the Trustee may, if indemnified to its satisfaction pursuant to Section 7.1(e) hereof, and
shall, upon having been requested so to do by the Holders of at least 50.1% in aggregate principal amount of the then outstanding Notes and
having been indemnified to its satisfaction pursuant to Section 7.1(e) hereof, pursue any available remedy to collect the payment of principal,
premium, if any, and interest and Additional Amounts, if any, on the Notes or to enforce the performance of any provision of the Notes, this
Indenture or the Collateral Documents, in each case, subject to Article XI hereof.
       The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair
the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by
law.
   SECTION 6.4 WAIVER OF EXISTING DEFAULTS.
       Subject to Section 6.7 and Section 9.2, Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by
notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences
hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Additional Amounts, if any, or
interest on, the Notes (including in connection with an offer to purchase). Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereon.
   SECTION 6.5 CONTROL BY MAJORITY.
      Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation,
under the Collateral Documents, provided that Trustee is indemnified to its satisfaction pursuant to Section 7.1(e) hereof. However, the Trustee
may refuse to follow any direction that conflicts with law, this Indenture or the Collateral Documents or that the Trustee determines may be
unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability.

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   SECTION 6.6 LIMITATION ON SUITS.
      A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if (and subject to Article XI hereof):
        (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default;
        (b) the Holders of at least 50.1% in aggregate of the principal amount of the then outstanding Notes make a written request to the
     Trustee to pursue the remedy;
        (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee
     against any loss, liability or expense pursuant to Section 7.1(d) hereof;
        (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the
     provision of indemnity; and
        (e) during such 60-day period the Holders of a majority in aggregate of the principal amount of the then outstanding Notes do not give
     the Trustee a direction inconsistent with the request.
   SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
       Notwithstanding any other provision of this Indenture but subject to Article XI hereof, the right of any Holder of a Note to receive
payment of principal, premium and Additional Amounts, if any, and interest on the Note, on or after the respective due dates expressed in the
Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
   SECTION 6.8 COLLECTION SUIT BY TRUSTEE.
      If an Event of Default specified in Section 6.1 (a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against Hancock for the whole amount of principal of, premium and Additional Amounts, if any,
and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall
be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due to the Trustee under Section 7.7.
   SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
       The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to

                                                                        50
Hancock (or any other obligor upon the Notes), its creditors or its property and will be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to
the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.7 hereof out of the estate in any such proceeding shall be denied for any reason, payment of the same shall be secured by a Lien on,
and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive
in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, or any
adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
   SECTION 6.10 PRIORITIES.
      If the Trustee collects any money pursuant to this Article, it shall, subject to Article XI hereof, pay out the money in the following order:
         First: to the Trustee, its agents and attorneys for amounts due under Section 7.7 hereof, including payment of all compensation,
      expenses and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of such collection;
         Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Additional Amounts, if any, and
      interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal,
      premium and Additional Amounts, if any, and interest, respectively; and
         Third: to Hancock or to such party as a court of competent jurisdiction shall direct.
      The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10.
   SECTION 6.11 UNDERTAKING FOR COSTS.
       In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the
suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys‘ fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by
the Trustee, a

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suit by a Holder of a Note pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in aggregate of the principal amount of the
then outstanding Notes.


                                                                   ARTICLE VII
                                                                     TRUSTEE
   SECTION 7.1 DUTIES OF TRUSTEE.
      (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the
conduct of such person‘s own affairs.
      (b) Except during the continuance of an Event of Default:
        (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only
     those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this
     Indenture against the Trustee; and
        (ii) in the absence of bad faith on its part the Trustee may conclusively rely, as to the truth of the statements and the correctness of the
     opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture.
     However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this
     Indenture.
     (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
         (i) this paragraph does not limit the effect of paragraph (b) of this Section;
        (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the
     Trustee was negligent in ascertaining the pertinent facts; and
        (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction
     received by it pursuant to Section 6.5 hereof.
      (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to the
provisions of this Section.
      (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have

                                                                          52
offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.
    (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with Hancock.
Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
       (g) The Trustee is hereby authorized to act on behalf of the Holders as collateral agent, secured party, beneficiary, or pledgee under the
Collateral Documents, as appropriate, and to exercise such powers and to perform such duties as are set forth in the Collateral Documents on
their behalf, together with such other powers as are reasonably incident thereto.
   SECTION 7.2 RIGHTS OF TRUSTEE.
      (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the
proper Person. The Trustee need not investigate any fact or matter stated in the document.
       (b) Before the Trustee acts or refrains from acting, it may require an Officers‘ Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers‘ Certificate or Opinion of Counsel. The
Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization
and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
      (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or
agent appointed with due care.
      (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights
or powers conferred upon it by this Indenture.
      (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction or other paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, Records and premises of Hancock, personally or by agent or attorney.
     (f) Unless otherwise specifically provided in this Indenture and subject to Section 7.2(b), any demand, request, direction or notice from
Hancock shall be sufficient if signed by an Officer of Hancock.
       (g) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders

                                                                          53
shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction.
      (h) The Trustee shall not be liable with respect to the validity or perfection of any security interest to be created under this Indenture.
   SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.
      The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with Hancock or
any Affiliate of Hancock with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any
conflicting interest (as defined in the Trust Indenture Act) it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue as Trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to
Sections 7.10 and 7.11 hereof.
   SECTION 7.4 TRUSTEE‘S DISCLAIMER.
      The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall
not be accountable for Hancock‘s use of the proceeds from the Notes or any money paid to Hancock or upon Hancock‘s direction under any
provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the
Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection
with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.
   SECTION 7.5 NOTICE OF DEFAULTS.
      If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of
principal of, premium, if any, or interest or Additional Amounts, if any, on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes.
   SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
      Within 60 days after each May 30 beginning with May 30, 2009, and for so long as Notes remain outstanding, the Trustee shall mail to
the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA
Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall
comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c).
      A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to Hancock and filed with the Commission and on
any stock exchange on which the Notes are listed in accordance with TIA Section 313(d).

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   SECTION 7.7 COMPENSATION AND INDEMNITY.
       Hancock shall pay to the Trustee from time to time such compensation as agreed to between Hancock and the Trustee for its acceptance
of this Indenture and services hereunder and under the Collateral Documents. The Trustee‘s compensation shall not be limited by any law on
compensation of a trustee of an express trust. Hancock shall reimburse the Trustee promptly upon request for all reasonable disbursements,
advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee‘s agents and counsel.
        Hancock shall indemnify the Trustee against any and all losses, liabilities or expenses (including reasonable attorneys‘ fees) incurred by
it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of
enforcing this Indenture against Hancock (including this Section 7.7) and defending itself against any claim (whether asserted by Hancock or
any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder or
thereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify
Hancock promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify Hancock shall not relieve Hancock of its
obligations hereunder. Hancock shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel
and Hancock shall pay the reasonable fees and expenses of such counsel. Hancock need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
      The obligations of Hancock under this Section 7.7 shall survive the resignation or removal of the Trustee and the satisfaction and
discharge of this Indenture.
      To secure Hancock‘s payment obligations in this Section, the Trustee shall have a Lien prior to the interest of the Holders of the Notes
but junior to the Lien in favor of the Credit Facility Agent, for itself and on behalf of the Credit Facility Secured Parties, on all money or
property held or collected by the Trustee, except that held in trust to pay principal, premium and Additional Amounts, if any, and interest on
particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture.
      When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(f) or 6.1(g) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses
of administration under any Bankruptcy Law.
      The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable.
   SECTION 7.8 REPLACEMENT OF TRUSTEE.
      A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee‘s
acceptance of appointment as provided in this Section.

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      The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying Hancock. The Holders of
Notes of a majority in aggregate of the principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and
Hancock in writing. Hancock may remove the Trustee if:
         (a) the Trustee fails to comply with Section 7.10 hereof;
       (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy
     Law;
         (c) a Custodian or public officer takes charge of the Trustee or its property; or
         (d) the Trustee becomes incapable of acting.
       If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, Hancock shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate of the principal amount of
the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by Hancock.
       If a successor Trustee does not take office within 60 days after the retiring Trustee notifies Hancock of its resignation or is removed, the
retiring Trustee, Hancock, or the Holders of Notes of at least 10% in aggregate of the principal amount of the then outstanding Notes may
petition any court of competent jurisdiction for the appointment of a successor Trustee.
      If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
      A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to Hancock. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of
the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid
and subject to the Lien provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, Hancock‘
obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee.
   SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
      If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the successor Trustee. Such successor Trustee shall assume all rights and
obligations hereunder and under the other Indenture Documents (including, without limitation, the subordination provisions set forth in
Article XI). Within 30 days of such event, the successor

                                                                         56
Trustee shall mail a notice of its succession to Hancock, the Holders of the Notes and the Credit Facility Agent. In the event that the successor
Trustee does not become obligated under the Supplemental Agreement by operation of law, then the successor Trustee shall execute
appropriate documentation to become obligated under such agreements contemporaneously with the transaction pursuant to which such
successor Trustee becomes the successor Trustee.
   SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.
      There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or
examination by federal or state authorities and that has a combined capital and surplus of at least $10.0 million (in the case of each successor
Trustee) as set forth in its most recent published annual report of condition.
     This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
   SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST HANCOCK.
      The Trustee is subject to TIA Section 31l(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein.


                                                                 ARTICLE VIII
                                                            LEGAL DEFEASANCE
   SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE.
      Hancock may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers‘ Certificate, at any time, elect to
have Section 8.2 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article Eight but
subject, in each case, to Article XI hereof.
   SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE.
       Upon Hancock‘s exercise under Section 8.1 hereof of the option applicable to this Section 8.2, Hancock shall, subject to the satisfaction
of the conditions set forth in Section 8.3 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes
on the date the conditions set forth below are satisfied (hereinafter, ―Legal Defeasance‖). For this purpose, Legal Defeasance means that
Hancock shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be
deemed to be ―outstanding‖ only for the purposes of Section 8.4 hereof and the other sections of this Indenture referred to in (a) and (b) below,
and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of
Hancock, shall execute proper instruments acknowledging the same), except for the following provisions which shall

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survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund
described in Section 8.3 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and
interest and Additional Amounts, if any, on such Notes when such payments are due, (b) Hancock‘s obligations with respect to such Notes
under Article 2 and Section 4.2 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and Hancock‘s obligations
in connection therewith and (d) this Article Eight.
   SECTION 8.3 CONDITIONS TO LEGAL DEFEASANCE.
      The following shall be the conditions to application of Section 8.2 to the outstanding Notes and the Subsidiary Guarantees:
        (a) Hancock must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in United States
     dollars, non-callable U.S. Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a
     nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest and Additional
     Amounts, if any, on the outstanding Notes at the Stated Maturity or on the applicable redemption date, as the case may be, and Hancock
     must specify whether the Notes are being defeased to maturity or to a particular redemption date;
         (b) Hancock shall have delivered to the Trustee an Opinion of Counsel in the United States confirming that (i) Hancock has received
     from, or there has been published by, the Internal Revenue Service a ruling or (ii) since the date of this Indenture, there has been a change
     in the applicable United States federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall
     confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for United States federal income tax purposes
     as a result of such Legal Defeasance and will be subject to United States federal income tax on the same amounts, in the same manner
     and at the same times as would have been the case if such Legal Defeasance had not occurred;
        (c) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of
     Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Section 6.1(g) or 6.1(h) hereof is concerned, at
     any time in the period ending on the 91st day after the date of deposit;
        (d) such Legal Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or
     instrument (other than this Indenture with the exception of Article XI hereof) to which Hancock or any of its Subsidiaries is a party or by
     which Hancock or any of its Subsidiaries is bound, including, without limitation, the Credit Facility;
        (e) Hancock shall have delivered to the Trustee an Opinion of Counsel to the effect that on the 91st day following the deposit, the trust
     funds will not be subject to the

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     effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors‘ rights generally;
        (f) Hancock shall have delivered to the Trustee an Officers‘ Certificate stating that the deposit was not made by Hancock with the
     intent of preferring the Holders of Notes over any other creditors of Hancock or with the intent of defeating, hindering, delaying or
     defrauding creditors of Hancock or others; and
        (g) Hancock shall have delivered to the Trustee an Officers‘ Certificate and an Opinion of Counsel, each stating that all conditions
     precedent provided for or relating to the Legal Defeasance have been complied with.

SECTIO      DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS
N 8.4       PROVISIONS.
      Subject to Section 8.5 hereof, all money and non-callable U.S. government securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section 8.4, the ―Trustee‖) pursuant to Section 8.3 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the
payment, either directly or through any Paying Agent (including Hancock acting as Paying Agent) as the Trustee may determine, to the Holders
of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest and Additional Amounts, if any,
but such money need not be segregated from other funds except to the extent required by law.
      Hancock shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable
      U.S. government securities deposited pursuant to Section 8.3 hereof or the principal and interest received in respect thereof.
       Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to Hancock from time to time upon the
request of Hancock, any money or non-callable U.S. government securities held by it as provided in Section 8.3 hereof which, in the opinion of
a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.3(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect
an equivalent Legal Defeasance.
   SECTION 8.5 REPAYMENT TO HANCOCK.
       Subject to applicable escheat and abandoned property laws, any money deposited with the Trustee or any Paying Agent, or then held by
Hancock, in trust for the payment of the principal of, premium if any, Additional Amounts, if any, or interest on any Note and remaining
unclaimed for two years after such principal, and premium, if any, Additional Amounts, if any, or interest has become due and payable shall be
paid to Hancock on its request or (if then held by Hancock) shall be discharged from such trust; and the Holder of such Note shall thereafter, as
a

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creditor, look only to Hancock for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and
all liability of Hancock as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of Hancock cause to be published once, in The New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to Hancock.
   SECTION 8.6 REINSTATEMENT.
      If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable U.S. government securities in accordance with
Section 8.4 hereof, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then Hancock‘ obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.2 hereof, until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 8.4 hereof, as the case may be; provided, however, that, if Hancock makes any payment of principal of, premium, if any, Additional
Amounts, if any, or interest on any Note following the reinstatement of its obligations, Hancock shall be subrogated to the rights of the Holders
of such Notes to receive such payment from the money held by the Trustee or Paying Agent.


                                                                  ARTICLE IX
                                              AMENDMENT, SUPPLEMENT AND WAIVER
   SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES.
      Notwithstanding Section 9.2 of this Indenture, but subject to Section 11.10, Hancock, the Guarantors and the Trustee may amend or
supplement this Indenture, and the Notes without the consent of any Holder of a Note:
        (a) to cure any ambiguity, defect or inconsistency;
        (b) to provide for certificated Notes in addition to or in place of uncertificated Notes;
        (c) to provide for the assumption of Hancock‘s obligations to the Holders of the Notes pursuant to Article 5 hereof;
         (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes, to further secure the Notes, to
     add to the covenants of Hancock for the benefit of the Holders of the Notes or to surrender any right or power conferred upon Hancock,
     or to make any change that does not adversely affect the legal rights hereunder of any Holder of the Notes;

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        (e) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust
     Indenture Act; or
         (f) to add any additional Guarantor or to release any Guarantor from its Subsidiary Guarantee in accordance with this Indenture.
       Upon the request of Hancock accompanied by a resolution of its Board of Directors authorizing the execution of any such amendment or
supplement, and upon receipt by the Trustee of the documents described in Section 9.6 hereof, the Trustee shall join with Hancock in the
execution of any amendment or supplement authorized or permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amendment or supplement
that affects its own rights, duties or immunities under this Indenture or otherwise.
   SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES.
      Except as provided below in this Section 9.2 and subject to Section 11.10, Hancock and the Trustee may amend or supplement this
Indenture and the Notes with the consent of the Holders of at least a majority in aggregate of the principal amount of Notes then outstanding
(including consents obtained in connection with a purchase of or tender offer or exchange offer for the Notes).
      Upon the request of Hancock accompanied by a resolution of its Board of Directors authorizing the execution of any such amendment or
supplement, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and
upon receipt by the Trustee of the documents described in Section 9.6 hereof, the Trustee shall join with Hancock in the execution of such
amendment or supplement unless such amendment or supplement affects the Trustee‘s own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amendment or supplement.
     It shall not be necessary for the consent of the Holders of Notes under this Section 9.2 to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof.
       After an amendment, supplement or waiver under this Section becomes effective, Hancock shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any failure of Hancock to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such amendment, supplement or waiver.
      Subject to Sections 6.4 and 6.7 hereof and the provisions of this Section, the Holders of a majority in aggregate principal amount of the
Notes then outstanding may waive any existing Default or Event of Default or compliance in a particular instance by Hancock with any
provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver may not (with respect
to any Notes held by a non-consenting Holder):

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        (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver;
        (b) reduce the principal of or Additional Amounts payable with respect to any Note, change the fixed maturity of any Note or alter or
     waive any of the provisions with respect to the redemption or repurchase of the Notes, except as provided above with respect to Section
     3.8 hereof;
        (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note;
         (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission
     of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver
     of the Payment Default that resulted from such acceleration);
        (e) make any Note payable in money other than that stated in the Notes;
        (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive
     payments of principal of or interest, premium, if any, or Additional Amounts, if any, on the Notes;
        (g) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants under Section 3.8
     hereof);
        (h) make any change in Section 6.4 or 6.7 hereof or in the foregoing amendment and waiver provisions;
        (i) except as provided in Article VIII and Article XI hereof, or in accordance with the terms of any Subsidiary Guarantee, release a
     Guarantor from its obligations under its Subsidiary Guarantee or make any changes in the Notes or the Subsidiary Guarantees that would
     change the ranking thereof to anything other than pari passu in right of payment to pari passu or senior Indebtedness of Hancock or the
     applicable Guarantor;
        (j) release any of the Collateral from the Lien of this Indenture except in accordance with the terms of this Indenture; or
       (k) make any modification to the provisions in Section 4.18 hereof that would adversely affect the rights of Holders to receive
     Additional Amounts as described thereunder.
   SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.
     Every amendment or supplement to this Indenture or the Notes shall be set forth in an amended indenture or Supplemental Indenture that
complies with the Trust Indenture Act as then in effect.
   SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.

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       Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder
of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder‘s Note, even if
notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent
as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An
amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder.
   SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES.
     The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated.
Hancock in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver.
     Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or
waiver.
   SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
       The Trustee shall sign any amendment or supplement authorized pursuant to this Article IX if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee. Hancock may not sign an amendment or supplement until the Board
of Directors approves it. In executing any amendment or supplement, the Trustee shall be entitled to receive indemnity reasonably satisfactory
to it and to receive and (subject to Section 7.2) shall be fully protected in relying upon, in addition to the documents required by Section 9.2, an
Officers‘ Certificate and an Opinion of Counsel stating that the execution of such amended indenture or Supplemental Indenture is authorized
or permitted by this Indenture, if applicable.


                                                                   ARTICLE X
                                               SECURITY AND PLEDGE OF COLLATERAL
   SECTION 10.1 GRANT OF SECURITY INTEREST.
      To secure the full and punctual payment when due and the full and punctual performance of the Obligations under the Notes and this
Indenture, in addition to the security interests, liens and other rights in the Collateral granted the Trustee for the benefit of the Trustee and the
Holders pursuant to the Collateral Documents, Hancock hereby conveys, grants, assigns, transfers, pledges, sets over, confirms and grants a
security interest to the Trustee, for the benefit of the Trustee and the Holders, in any and all property of every kind and nature now owned or
hereafter acquired from time to time, conveyed, pledged, assigned or transferred as and for additional security hereunder by the Company or by
anyone on its behalf, including specifically any and all funds held by the Trustee hereunder.

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   SECTION 10.2 REPRESENTATIONS AND WARRANTIES.
      Hancock hereby represents and warrants on the Initial Issue Date as follows:
        (i) it is the record and beneficial owner of the Collateral pledged by it hereunder, free and clear of any Lien, except for Permitted Liens
     and the Lien created by this Indenture;
       (ii) it has full corporate power, authority and legal right to pledge all the Collateral pledged by it pursuant to this Indenture and the
     Collateral Documents; and
       (iii) the pledge in accordance with the terms of this Indenture and the Collateral Documents creates a valid and perfected Lien on the
     Collateral, securing the payment and performance of the Obligations under the Notes.
   SECTION 10.3 FURTHER ASSURANCES.
      Hancock agrees that at any time and from time to time, at its expense, it will promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or that the Trustee may reasonably request in order to perfect and protect any Lien
granted or purported to be granted hereby or to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any
Collateral.
   SECTION 10.4 TRUSTEE APPOINTED ATTORNEY-IN-FACT.
       Hancock hereby appoints the Trustee as its attorney-in-fact, with full authority in the place and stead and in its name or otherwise, from
time to time in the Trustee‘s discretion but only after the occurrence and during the continuance of an Event of Default, to take any action and
to execute any instrument which the Trustee may deem necessary or advisable in order to accomplish the purposes of this Article X, including
to receive, endorse and collect all instruments made payable to Hancock, representing any dividend, interest payment or other distribution in
respect of the Collateral or any part thereof and to give full discharge for the same. This power, being coupled with an interest, is irrevocable.
   SECTION 10.5 TRUSTEE MAY PERFORM.
      If Hancock fails to perform any agreement contained in this Article X or in the Collateral Documents, the Trustee may itself perform, or
cause performance of, such agreement, and the expenses of the Trustee incurred in connection therewith shall be payable by Hancock under
Section 7.7.
   SECTION 10.6 TRUSTEE‘S DUTIES.
      The powers conferred on the Trustee under this Article X are solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession, if any, and the accounting for moneys
actually received by it hereunder, the Trustee shall have no duty as to any Collateral or as to the

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taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.
   SECTION 10.7 APPLICATION OF PROCEEDS.
       Upon the occurrence and during the continuance of an Event of Default and after the acceleration of the Notes pursuant to Section 6.2 (so
long as such acceleration has not been rescinded), all cash proceeds received by the Trustee in respect of any sale of, collection from, or other
realization upon, all or any part of the Collateral, shall be applied by the Trustee in the manner specified in Section 6.10.
   SECTION 10.8 CONTINUING LIEN.
       This Indenture and the Collateral Documents shall create a continuing Lien on the Collateral that shall (i) remain in full force and effect
until payment in full of the Notes, (ii) be binding upon Hancock and its successors and assigns, and (iii) inure to the benefit of the Trustee and
its successors, transferees and assigns.
   SECTION 10.9 CERTIFICATES AND OPINIONS.
      The Company shall comply with (a) TIA Section 314(b), relating to Opinions of Counsel regarding the Lien of this Indenture and
(b) TIA Section 314(d), relating to the release of Collateral from the Lien of this Indenture and Officers‘ Certificates or other documents
regarding fair value of the Collateral, to the extent such provisions are applicable. Any certificate or opinion required by TIA Section 314(d)
may be executed and delivered by an Officer of Hancock to the extent permitted by TIA Section 314(d).


                                                                   ARTICLE XI
                             SUBORDINATION OF INDENTURE DEBT AND INDENTURE DOCUMENTS
   SECTION 11.1 GENERAL.
       The Indenture Documents and the Indenture Debt (including, for the avoidance of doubt and without limitation, all principal, interest,
fees, prepayment premiums or any other obligations arising under the Indenture Documents) shall be and hereby are subordinated, and the
payment of the Indenture Debt (and, for the avoidance of doubt, any redemption or repurchase of the Indenture Documents and/or the Indenture
Debt or in connection with any put rights) is deferred until the Discharge of all Credit Facility Debt, whether now or hereafter incurred or owed
by Hancock or any other Loan Parties. Notwithstanding the immediately preceding sentence, Hancock shall be permitted to pay, and the
Holders shall be permitted to receive, any regularly scheduled cash payment of interest on the Notes for so long as at the time of such payment,
or after giving effect thereto, no Credit Facility Default or Credit Facility Event of Default has occurred and is continuing under the Credit
Facility Loan Agreement or would occur after giving effect thereto. Hancock shall also be permitted to pay, and the Trustee shall be permitted
to receive, compensation specified in Section 7.7 as in effect on the date hereof.

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   SECTION 11.2 ENFORCEMENT.
       (a) Neither the Trustee nor any Holder may take or omit to take any action or assert any claim with respect to the Indenture Documents
or the Indenture Debt or otherwise which is inconsistent with the provisions of this Article XI. Without limiting the foregoing and except to the
extent (and only to such extent) (i) as is necessary, so long as no Credit Facility Default or Credit Facility Event of Default has occurred and is
then continuing under the Credit Facility Loan Agreement or would occur after giving effect thereto, to collect any sums expressly permitted to
be paid by Hancock pursuant to Section 11.1, or (ii) that the commencement of a legal action may be required to toll the running of any
applicable statute of limitation, neither the Trustee nor any Holder will assert, collect or enforce the Indenture Documents, Indenture Debt or
any part thereof or take any action to foreclose or realize upon the Indenture Documents, Indenture Debt or any part thereof or take any Lien
Enforcement Action until the termination of the Standstill Termination Date, provided that the Trustee shall have given at least ten (10) days
written notice to the Credit Facility Agent of the Trustee‘s or the Holders‘ intention to take such enforcement action (which notice may be
given prior to the Standstill Termination Date), provided, further that no such enforcement action may be taken by the Trustee or any Holder at
any time (i) if a Senior Credit Facility Payment Event of Default is then continuing or (ii) if Credit Facility Agent is diligently pursuing in good
faith an enforcement action against the Collateral.
       (b) Until the Discharge of all Credit Facility Debt, neither the Trustee nor any Holder shall have any right of subrogation, reimbursement,
restitution, contribution or indemnity whatsoever from any assets of Hancock or any other Loan Party or any provider of collateral security for
the Credit Facility Debt. The Trustee, for itself and on behalf of each Holder, further waives any and all rights with respect to marshalling.
   SECTION 11.3 PAYMENTS HELD IN TRUST.
       The Trustee and each Holder will hold in trust and immediately pay over to the Credit Facility Agent, for the account of the Credit
Facility Secured Parties, in the same form of payment received, with appropriate endorsements, for application to the Credit Facility Debt any
cash amount that Hancock or any other Loan Party pays to the Trustee or such Holder with respect to the Indenture Debt or, as collateral for the
Credit Facility Debt, any other assets of Hancock or any other Loan Party that the Trustee or such Holder may receive with respect to the
Indenture Debt and/or the Indenture Documents, in each case, except with respect to payments expressly permitted pursuant to Section 11.1.
For the avoidance of doubt, any proceeds of any third party surety or third party hedging arrangement received by the Trustee or any Holder
from any Person (other than a Loan Party) that does not constitute Collateral hereunder shall be for the account of the Trustee and the Holders.
   SECTION 11.4 DEFENSE TO ENFORCEMENT.
      If the Trustee or any Holder, in contravention of the terms of this Article XI, shall commence, prosecute or participate in any suit, action
or proceeding against Hancock or any other Loan Party, then Hancock may interpose as a defense or plea the making of this Article XI, and the
Credit Facility Agent or any Credit Facility Lender may intervene and interpose such

                                                                         66
defense or plea in its name or in the name of Hancock or such Credit Facility Loan Party. If the Trustee or any Holder, in contravention of the
terms of this Article XI, shall attempt to collect any of the Notes or enforce any of the Indenture Documents, then the Credit Facility Agent, any
Credit Facility Lender or Hancock may, by virtue of this Article XI, restrain the enforcement thereof in the name of the Credit Facility Agent or
such Credit Facility Lender or in the name of Hancock, respectively. If the Trustee or any Holder, in contravention of the terms of this Article
XI, obtains any cash or other assets of Hancock or any other Loan Party as a result of any administrative, legal or equitable actions, or
otherwise, the Trustee, for itself and on behalf of the Holders, agrees forthwith to pay, deliver and assign to the Credit Facility Agent, for the
account of the Credit Facility Secured Parties, with appropriate endorsements, any such cash for application to the Credit Facility Debt and any
such other assets as collateral for the Credit Facility Debt.
   SECTION 11.5 BANKRUPTCY, ETC.
       (a) Payments Relating to Notes . At any meeting of creditors of Hancock or in the event of any case or proceeding, voluntary or
involuntary, for the distribution, division or application of all or part of the assets of Hancock or the proceeds thereof, whether such case or
proceeding be for the liquidation, dissolution or winding up of Hancock or its business, a receivership, insolvency or bankruptcy case or
proceeding, an assignment for the benefit of creditors or a proceeding by or against Hancock for relief under any Bankruptcy Law, the Credit
Facility Agent is hereby irrevocably authorized at any such meeting or in any such proceeding to receive or collect for the benefit of the Credit
Facility Secured Parties any cash or other assets of Hancock distributed, divided or applied by way of dividend or payment, or any securities
issued on account of any Indenture Debt, and apply such cash to or to hold such other assets or securities as collateral for the Credit Facility
Debt, and to apply to the Credit Facility Debt any cash proceeds of any realization upon such other assets or securities that the Credit Facility
Agent in its discretion elects to effect, until the Discharge of all Credit Facility Debt, rendering to the Trustee and the Holders any surplus to
which the Trustee and the Holders are then entitled.
       (b) Securities by Plan of Reorganization or Readjustment . Notwithstanding the foregoing provisions of Section 11.5(a), each Holder
shall be entitled to receive and retain any securities of Hancock or any other corporation or other entity provided for by a plan of reorganization
or readjustment (i) the payment of which securities is subordinate, at least to the extent provided in this Article XI with respect to Indenture
Debt, to the full and final payment of all Credit Facility Debt under any such plan of reorganization or readjustment and (ii) all other terms of
which are acceptable to the Credit Facility Lenders and the Credit Facility Agent.
        (c) Voting Rights . At any such meeting of creditors or in the event of any such case or proceeding, the Trustee and each Holder shall
retain the right to vote and otherwise act with respect to the Indenture Documents (including, without limitation, the right to vote to accept or
reject any plan of partial or complete liquidation, reorganization, arrangement, composition or extension), provided that neither the Trustee, for
itself and on behalf of the Holders, nor any Holder shall vote with respect to any such plan or take any other action in any way so as to contest
(i) the validity of any Credit Facility Debt or any collateral therefor or guaranties thereof, (ii) the relative rights and duties of any holders of any
Credit Facility Debt established in any

                                                                           67
instruments or agreements creating or evidencing any of the Credit Facility Debt with respect to any of such collateral or guaranties or (iii) the
Trustee‘s or any Holder‘s obligations and agreements set forth in this Article XI.
      (d) Liquidation, Dissolution, Bankruptcy Generally . In the event of any Proceeding involving any Loan Party:
         (i) Except as otherwise specifically permitted in this Article XI, until Discharge of all Credit Facility Debt, neither the Trustee nor any
     Holder shall assert, without the prior written consent of Credit Facility Agent, any claim, motion, objection or argument in respect of all
     or any part of the Collateral in connection with such Proceeding which could otherwise be asserted or raised in connection with such
     Proceeding by the Trustee or such Holder as a secured creditor of any Loan Party. Without limiting the generality of the foregoing,
     (A) except to the extent permitted by Section 11.5(d)(vi)(B), neither the Trustee nor a Holder may object to or oppose (or support any
     other Person in objecting to or opposing) any sale or other disposition of all or any part of the Collateral free and clear of Liens or other
     claims of the Trustee or such Holder under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code or any
     other law applicable to such Proceeding if Credit Facility Agent and/or the Credit Facility Lenders have consented to such sale or
     disposition; (B) except to the extent permitted by Section 11.5(d)(vi)(B), neither the Trustee nor any Holder may challenge (or support
     any other Person in challenging) any use of cash collateral or debtor-in-possession financing consented to or provided by the Credit
     Facility Agent or any Credit Facility Lender (whether consented to or provided by the Credit Facility Agent or any Credit Facility Lender,
     a ―DIP Financing‖), such DIP Financing shall be on such terms and conditions and in such amounts as the Credit Facility Agent and/or
     such Credit Facility Lender, in its sole discretion, may decide and, in connection therewith, any Loan Party may grant to such
     participating Credit Facility Agent and/or Credit Facility Lender (or any agent or representative thereof) Liens upon all of the property of
     such Loan Party, which Liens (x) shall secure payment of all Credit Facility Debt whether such Credit Facility Debt arose prior to the
     commencement of such Proceeding or at any time thereafter and all other financing provided by any Credit Facility Lender and/or the
     Credit Facility Agent during the Proceeding and (y) shall be superior in priority to the liens and security interests, if any, in favor of the
     Trustee and the Holders on the assets of such Loan Party on the same terms and conditions as provided herein; provided, however that in
     connection with any such use of cash collateral or DIP Financing, the Holders shall have the right to request a replacement Lien in
     post-petition assets of Hancock the Loan Parties as adequate protection of their interests which shall be junior and subordinate to all Liens
     granted pursuant to such consent to use cash collateral or DIP Financing with the same priorities afforded the Liens granted to the
     Holders pursuant to this Article XI; (C) other than a request by the Holders for a replacement lien referred to in clause (B)(ii) herein,
     neither the Trustee nor any Holder may assert (or support any other Person in asserting) any right it may have to ―adequate protection‖ of
     its interest in any Collateral in any Proceeding; (D) the Trustee and the Holders shall turn over to the Credit Facility Agent for the pro rata
     benefit of the Credit Facility Secured Parties and the Credit Facility Agent any ―adequate protection‖ of its interest in any

                                                                         68
Collateral that the Trustee or any Holder receives in any Proceeding for application to the Credit Facility Debt owed to the Credit Facility
Agent and/or the Credit Facility Secured Parties; and (E) neither Trustee nor any Holder may seek to have the automatic stay of
Section 362 of the Bankruptcy Code lifted or modified with respect to any Collateral, to appoint a trustee or examiner under Section 1104
of the Bankruptcy Code or to convert or dismiss (or support any other Person in converting or dismissing) such Proceeding under
Section 1112 of the Bankruptcy Code, in each case without the prior written consent of the Credit Facility Agent; provided, that, in the
case of this clause (E), if the Credit Facility Secured Parties and/or the Credit Facility Agent seek such aforementioned relief, the Trustee,
on its own behalf and on behalf of the Holders, hereby irrevocably consents thereto and shall join in any such motion or application
seeking such relief if requested by the Credit Facility Agent. The Trustee, on its own behalf and on behalf of the Holders, waives any
claim it may now or hereafter have arising out of the election of the Credit Facility Agent and/or the Credit Facility Secured Parties, in
any Proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b) of the Bankruptcy Code.
    (ii) Except as otherwise expressly set forth herein, the Credit Facility Agent shall have the exclusive right to file proofs of claim and
other pleadings and motions with respect to any Collateral in any Proceeding. Subject to the limitations set forth in this Article XI, the
Credit Facility Agent may (but shall have no obligation or duty to) file appropriate proofs of claim and other pleadings and motions with
respect to any Indenture Debt in any Proceeding if and to the extent a proper proof of claim with respect to such Indenture Debt has not
been filed by the Trustee or a Holder in the form required in such Proceeding at least ten (10) days prior to the expiration of the time for
filing thereof. In furtherance of the foregoing, the Trustee, on its own behalf and on behalf of the Holders, and each Holder hereby
appoints the Credit Facility Agent as its attorney-in-fact, with full authority in the place and stead of the Trustee or such Holder and full
power of substitution and in the name of the Trustee or such Holder or otherwise, to execute, file and deliver any document or instrument
that the Credit Facility Agent is required or permitted to file or deliver pursuant to this Section 11.5(d)(ii), such appointment being
coupled with an interest and irrevocable.
   (iii) The Trustee and each Holder shall execute and deliver to the Credit Facility Agent all such agreements, instruments and other
documents confirming the above authorizations and all such proofs of claim, assignments of claim and other instruments and
documentation, and shall take all such other action as may be reasonably requested by the Credit Facility Agent to enforce such claims
and carry out the intent of this Section 11.5(d).
   (iv) The Credit Facility Debt shall continue to be treated as Credit Facility Debt and the provisions of this Article XI shall continue to
govern the relative rights and priorities of the Credit Facility Agent and the Credit Facility Secured Parties and the Trustee and the
Holders even if all or part of the Credit Facility Debt or the Liens securing same are subordinated, set aside, avoided, invalidated or
disallowed in connection with any Proceeding.

                                                                   69
        (v) To the extent that any Credit Facility Secured Party or the Credit Facility Agent receives payments (whether in cash, property or
     securities) on the Credit Facility Debt or Collateral which are subsequently invalidated, declared to be fraudulent or preferential, set aside
     and/or required to be repaid to a trustee, receiver or any other party under any Bankruptcy Law, state or federal law, common law or
     equitable cause, then, to the extent of such payment or proceeds received, the Credit Facility Debt, or part thereof, intended to be satisfied
     shall be revived and continue in full force and effect as if such payments or proceeds had not been received by such Credit Facility
     Secured Party or the Credit Facility Agent.
        (vi) Notwithstanding any other provision of this Article XI, (A) the Trustee and each Holder shall be entitled to file any necessary
     responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any Person
     objecting to or otherwise seeking the disallowance of the claims of the Trustee or such Holder, including without limitation any claims
     secured by the Collateral, if any, (B) the Trustee and each Holder shall be entitled to file any pleadings, objections, motions or
     agreements which assert rights or interests available to unsecured creditors of the Loan Parties arising under either the Bankruptcy Code
     or applicable non-bankruptcy law, and (C) subject to Section 11.5(d)(ii), the Trustee and each Holder shall be entitled to file any proof of
     claim and other filings and make any arguments and motions that are, in each case, in accordance with the terms of this Article XI and
     necessary to preserve their rights with respect to the Indenture Debt and the Collateral; provided, that notice of intent to take any such
     action shall be given by the Trustee or such Holder, as applicable, to the Credit Facility Agent not less than the earlier of (x) fifteen
     (15) Business Days prior to the taking of such action and (y) ten (10) Business Days less than the number of days available by order of
     any applicable bankruptcy court in which to file any such claim, filing, pleading, objection, motion or agreement, as the case may be.
   SECTION 11.6 LIEN SUBORDINATION.
       The Liens securing the Credit Facility Debt, the Credit Facility Loan Agreement and the other Credit Facility Documents shall be senior
to the Liens securing the Indenture Debt and the Indenture Documents irrespective of the time of the execution, delivery or issuance of any
thereof or the filing or recording for perfection of any thereof or the filing of any financing statement or continuation statement relating to any
thereof.
      (a) New Liens . At any time prior to the Discharge of all Credit Facility Debt, (a) neither the Trustee nor any Holder may demand or
accept the grant of any additional Liens on any asset of a Loan Party to secure any Indenture Debt unless such Loan Party has granted, or
concurrently therewith grants, a Lien on such asset to secure the Credit Facility Debt, and (b) the Credit Facility Agent shall not demand or
accept the grant of any additional Liens (other than DIP Financing Liens) on any asset of a Loan Party to secure any Credit Facility Debt unless
such Loan Party has granted, or concurrently therewith grants, a Lien on such asset to secure the Indenture Debt, with each such Lien to be
subject to the provisions of this Article XI. Without limiting any other right or remedy available to the Credit Facility Agent, the Credit Facility
Secured Parties, the Trustee or the Holders, any amounts received by or distributed to any such

                                                                         70
Person pursuant to or as a result of any Lien granted in contravention of this Section shall be subject to this Article XI.
       (b) Further Assurances . The Trustee and each Holder agrees, upon request of the Credit Facility Agent at any time and from time to
time, to execute such other documents or instruments as may be requested by the Credit Facility Agent further to evidence of public record or
otherwise the senior priority of the Credit Facility Debt as contemplated hereby.
      (c) Books and Records . The Trustee agrees to maintain on its books and records such notations as the Credit Facility Agent may
reasonably request to reflect the subordination contemplated hereby and to perfect or preserve the rights of the Credit Facility Agent hereunder.
       (d) Release of Guaranties and Collateral . Without limiting any of the rights of the Credit Facility Agent or any Credit Facility Secured
Party under the Credit Facility Loan Agreement, the other Credit Facility Documents or applicable law, in the event that the Credit Facility
Agent releases or discharges any guaranties of the Credit Facility Debt given by guarantors which have also guarantied the Indenture Debt or
releases or discharges any security interests in, or mortgages or liens upon, any collateral securing the Credit Facility Debt and also securing the
Indenture Debt or consent to Hancock or any other Loan Party entering into any sale or other disposition of collateral including, without
limitation, any agency agreements for the sale of Hancock‘s or such Loan Party‘s assets, such guarantors or (as the case may be) (each of the
foregoing being, a ―Release Event‖) such collateral shall thereupon be deemed to have been released from all such guaranties or security
interests, mortgages or liens in favor of the Trustee and any Holder, and the Trustee and such Holder shall be deemed to have consented to any
such sale or disposition (including, without limitation, in relation to any agency agreement). The Trustee, for itself and on behalf of each
Holder, agrees that, within ten (10) days following the Credit Facility Agent‘s written request therefor, the Trustee will execute, deliver and file
any and all such termination statements, mortgage discharges, lien releases and other agreements and instruments as the Credit Facility Agent
reasonably deems necessary or appropriate in order to give effect to the preceding sentence. The Trustee and each Holder hereby irrevocably
appoints the Credit Facility Agent, and its successors and assigns, and its officers, with full power of substitution, the true and lawful
attorney(s) of the Trustee and such Holder for the purpose of effecting any such executions, deliveries and filings if and to the extent that the
Trustee shall have failed to perform such obligations pursuant to the foregoing provisions of this Section 11.6(e) within such ten (10) day
period.
   SECTION 11.7 CREDIT FACILITY LENDERS‘ FREEDOM OF DEALING.
       (a) Modification of Credit Facility Documents . Hancock, the other Loan Parties and the Credit Facility Secured Parties may agree to
increase the amount of the Credit Facility Debt or otherwise modify the terms of any of the Credit Facility Debt or the Credit Facility
Documents, and the Credit Facility Secured Parties may grant extensions of the time of payment or performance to and make compromises,
including releases of collateral or guaranties, and settlements with Hancock and all other Persons, in each case without the consent of the
Trustee, any Holder or Hancock and without affecting the agreements of the Trustee, any Holder or Hancock contained in this Article XI;
provided, however, that nothing contained in this Section 11.7 shall constitute a waiver of the right of Hancock itself to agree or consent to a
settlement or

                                                                         71
compromise of a claim which the Credit Facility Agent or any Credit Facility Secured Party may have against Hancock.
       (b) Modification of the Indenture Documents . Until the Discharge of all Credit Facility Debt and notwithstanding anything to the
contrary contained in any Indenture Document, neither the Trustee nor any Holder shall, without the prior written consent of the Credit Facility
Agent, amend or otherwise modify any of the terms of any of the Notes or any other Indenture Documents if the effect thereof is to: (i) increase
the rate of interest on any of the Notes (except in connection with the imposition of the default rate of interest in accordance with the Indenture
Documents as in effect on the date hereof), provided that interest may be increased on any Notes payable via the issuance of PIK Notes in lieu
of payment of cash interest without the prior written consent of the Credit Facility Agent, (ii) change to earlier dates upon which payments of
principal or interest on the Notes are due; or (iii) change or amend any other term of the Indenture Documents if such change or amendment
would result in a Credit Facility Default or Credit Facility Event of Default under the Credit Facility Loan Agreement or increase the
obligations of any Loan Party or confer additional material rights on any Holder or any other holder of the Indenture Debt in a manner adverse
in any respect to any of the Credit Facility Secured Parties, except to the extent such change or amendment causes the terms of the Indenture
Documents to be the same as or less restrictive than the applicable provision under the Credit Facility Loan Agreement.
   SECTION 11.8 HANCOCK‘S OBLIGATIONS ABSOLUTE.
       Nothing contained in this Article XI shall impair, as between Hancock, on the one hand, and the Trustee and the Holders, on the other
hand, the obligation of Hancock to pay to the Trustee and the Holders all amounts payable in respect of the Indenture Documents as and when
the same shall become due and payable in accordance with the terms thereof, or prevent the Trustee and Holders (except as expressly otherwise
provided in Section 11.2 or Section 11.6) from exercising all rights, powers and remedies otherwise permitted by this Indenture, and the other
Indenture Documents and by applicable law upon a default in the payment of the Notes or under any Indenture Document, all, however, subject
to the rights of the Credit Facility Agent and the Credit Facility Secured Parties as set forth in this Article XI.
   SECTION 11.9 TERMINATION OF SUBORDINATION.
       This Article XI shall continue in full force and effect, and the obligations and agreements of the Trustee, the Holders, Hancock and the
Loan Parties hereunder shall continue to be fully operative, until the Discharge of all Credit Facility Debt which shall be final and not
avoidable. To the extent that Hancock, any Loan Party or any other guarantor of or provider of collateral for the Credit Facility Debt makes any
payment on the Credit Facility Debt that is subsequently invalidated, declared to be fraudulent or preferential or set aside or is required to be
repaid to a trustee, receiver or any other party under any Bankruptcy Law or any other state or federal law, common law or equitable cause
(such payment being hereinafter referred to as a ―Voided Payment‖), then to the extent of such Voided Payment, that portion of the Credit
Facility Debt that had been previously satisfied by such Voided Payment shall be revived and continue in full force and effect as if such Voided
Payment had never been made. In the event that a Voided Payment is recovered from the Credit Facility Agent or any Credit Facility Secured
Party, an

                                                                        72
Credit Facility Event of Default shall be deemed to have existed and to be continuing under the Credit Facility Loan Agreement from the date
of the Credit Facility Agent‘s or such Credit Facility Secured Party‘s initial receipt of such Voided Payment until the full amount of such
Voided Payment is restored to the Credit Facility Agent or such Credit Facility Secured Party. During any continuance of any such Credit
Facility Event of Default, this Article XI shall be in full force and effect with respect to the Indenture Debt and the Indenture Documents. To
the extent that the Trustee or any Holder has received any payments with respect to the Indenture Debt subsequent to the date of the Credit
Facility Agent‘s or any Credit Facility Secured Party‘s initial receipt of such Voided Payment and such payments have not been invalidated,
declared to be fraudulent or preferential or set aside or are required to be repaid to a trustee, receiver, or any other party under any Bankruptcy
Law or any other state or federal law, common law or equitable cause, the Trustee or such Holder, as applicable, shall be obligated and such
payment so made or received shall be deemed to have been received in trust for the benefit of the Credit Facility Agent or such Credit Facility
Secured Party, and the Trustee or such Holder, as applicable, shall be obligated to pay to the Credit Facility Agent for the benefit of the Credit
Facility Agent or (as the case may be) such Credit Facility Secured Party, upon demand, the full amount so received by the Trustee or such
Holder during such period of time to the extent necessary fully to restore to the Credit Facility Agent or such Credit Facility Secured Party the
amount of such Voided Payment. Upon the Discharge of all Credit Facility Debt, which payment of the Credit Facility Debt shall be final and
not avoidable, this Article XI will automatically terminate without any additional action by any party hereto.

SECTIO      THIRD PARTY BENEFICIARY STATUS AND AMENDMENTS AND OTHER MODIFICATIONS TO INDENTURE
N 11.10     DOCUMENTS.
       (a) The Trustee and each Holder hereby acknowledges and agrees that the Credit Facility Agent and each Credit Facility Secured Party is
a third party beneficiary of this Article XI.
      (b) The Trustee and each Holder each hereby acknowledges, covenants and agrees that, notwithstanding any other provisions in this
Indenture, the Notes, the Collateral Documents or any other Indenture Documents, this Article XI and any references to this Article XI (or any
Sections in Article XI herein) in the Indenture, the Notes, the Collateral Documents or the other Indenture Documents shall not be amended,
waived, supplemented or otherwise modified without the prior written consent of the Credit Facility Agent for so long as the Credit Facility is
outstanding.


                                                                  ARTICLE XII
                                                               MISCELLANEOUS
   SECTION 12.1 TRUST INDENTURE ACT CONTROLS.
      If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall
control.

                                                                         73
   SECTION 12.2 NOTICES.
        Any notice or communication by Hancock or the Trustee to the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the
others‘ address:

      If to Hancock or a Guarantor:                              With a copy to:
      Hancock Fabrics, Inc.                                      Baker, Donelson, Berman, Caldwell & Berkowitz, PC
      Attention: Chief Financial Officer                         Attention: Sam D. Chafetz
      One Fashion Way                                            165 Madison Avenue, Ste. 2000
      Baldwyn, MS 38824                                          Memphis, TN 38103
      Telephone No. (662) 365-6112                               Telephone No. (901) 577-2148
      Telecopier No. (662) 365-6025                              Telecopier No. (901) 577-0854

      If to the Trustee:                                         With a copy to:
      Deutsche Bank National Trust Company                       Macaulay Law Ltd.
      Attention: George Kubin                                    Attention: Susan J. Macaulay
      222 South Riverside Plaza, 25th Floor                      310 Park Avenue, Ste. 101
      Chicago, IL 60606                                          River Forest, IL 60305
      Telephone No. (312) 537-1159                               Telephone No. (708) 657-4084
      Telecopier No. (312) 537-1009                              Telecopier No. (888) 872-4764
    Hancock or the Trustee, by notice to the others, may designate additional or different addresses for subsequent notices or
communications.
      All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent
by overnight air courier guaranteeing next day delivery.
       Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication
shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the Trust Indenture Act. Failure to mail a notice
or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders.
      If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the
addressee receives it.
      If Hancock mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time.

                                                                         74
   SECTION 12.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
      Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the
Notes. Hancock, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c).
   SECTION 12.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
       Upon any request or application by Hancock to the Trustee to take any action under this Indenture, Hancock, upon request, shall furnish
to the Trustee:
        (a) an Officers‘ Certificate in form reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.5
     hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to
     the proposed action have been satisfied; and
        (b) an Opinion of Counsel in form reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.5
     hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.
   SECTION 12.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
     Each certificate (other than the certificates provided pursuant to Section 4.21) or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
        (a) a statement that the person making such certificate or opinion has read such covenant or condition;
        (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in
     such certificate or opinion are based;
        (c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to
     express an informed opinion as to whether such covenant or condition has been complied with; and
        (d) a statement as to whether, in the opinion of such person, such condition or covenant has been complied with; provided, however,
     that with respect to matters of fact an Opinion of Counsel may rely on an Officers‘ Certificate or certificates of public officials.
   SECTION 12.6 GOVERNING LAW.
    THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK.

                                                                         75
   SECTION 12.7 LEGAL HOLIDAYS.
      In any case where a payment date shall not be a Business Day, then (notwithstanding any other provisions of this Indenture or the Notes)
payment of interest or principal (and premium, if any) need not be made on such date but may be made on the next succeeding Business Day
with the same force and effect as if made on the interest payment date or date established for payment of defaulted interest pursuant to
Section 4.1 or the Maturity Date, and no interest shall accrue with respect to such payment for the period from and after such interest payment
date or date established for payment of defaulted interest pursuant to Section 4.1 or Maturity Date, as the case may be, to the next succeeding
Business Day.
   SECTION 12.8 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS.
       No past, present or future director, officer, employee, incorporator or stockholder of Hancock, as such, shall have any liability for any
obligations of Hancock under the Notes, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for
issuance of the Notes.
   SECTION 12.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
      This Indenture may not be used to interpret any other indenture, loan or debt agreement of Hancock or its Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
   SECTION 12.10 SUCCESSORS.
       All agreements of Hancock in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.
   SECTION 12.11 SEVERABILITY.
      In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
   SECTION 12.12 COUNTERPART ORIGINALS.
     The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the
same agreement.
   SECTION 12.13 TABLE OF CONTENTS, HEADINGS, ETC.
      The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for
convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or
provisions hereof.

                                                                          76
      IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed, as of the date first written above.

                                                                          HANCOCK FABRICS, INC.

                                                                          By:        /s/ Robert W. Driskell
                                                                          Name:      Robert W. Driskell
                                                                          Title:     Senior Vice President and
                                                                                     Chief Financial Officer

                                                                          DEUTSCHE BANK NATIONAL TRUST COMPANY ,
                                                                          as Trustee

                                                                          By:        /s/ Jeffrey J. Powell
                                                                          Name:      Jeffrey J. Powell
                                                                          Title:     Vice President

                                                                          By:        /s/ Katherine Cokic
                                                                          Name:      Katherine Cokic
                                                                          Title:     Vice President

                                                                    77
                                                                 EXHIBIT A
                                                                (Face of Note)
                                                Floating Rate Series A Secured Notes due 2013

CUSIP

No.                                                                                                        $


                                                        HANCOCK FABRICS, INC.
promises to pay to Cede & Co. or registered assigns, the principal sum of            Dollars ($     ) on       , 2013
[5 years from the date of issuance] .
Interest Payment Dates: [quarterly from date of issuance]
Record Dates: [15 days prior to interest payment date]

                                                                            HANCOCK FABRICS, INC.

                                                                            By:
                                                                            Name:
                                                                            Title:


                                                                            By:
                                                                            Name:
                                                                            Title:


                                                                      A-1
[This is the Global Note
referred to in the within-
mentioned Indenture] 1
DEUTSCHE BANK NATIONAL TRUST COMPANY,
as Trustee

By:
Name:
Title:


By:
Name:
Title:


Authorized Signatory
Dated:                                   , 20___


1                            Used on Global Note only.

                                                         A-2
                                                     (Back of Note)
                                     Floating Rate Series A Secured Notes due 2013
THIS INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND
TO THE EXTENT SET FORTH IN ARTICLE XI OF THE INDENTURE BETWEEN THE COMPANY AND THE TRUSTEE
DATED           , 2008. EACH HOLDER OF THIS INSTRUMENT, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES
TO BE BOUND BY THE PROVISIONS OF ARTICLE XI APPLICABLE TO A HOLDER.
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS
NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (i) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.06 OR IN ACCORDANCE WITH SECTION 9.06 OF THE INDENTURE, (ii) THIS
GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(e) OF THE INDENTURE,
(iii) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE
INDENTURE, AND (iv) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITORY WITH THE PRIOR
WRITTEN CONSENT OF THE COMPANY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF
THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (―DTC‖), TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY
BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.] 2


2                        Used on Global Note only.

                                                          A-3
      Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
      1. INTEREST. Hancock Fabrics, Inc., a Delaware corporation (the ―Company‖), promises to pay interest, either in cash or by issuance of
PIK Notes on the principal amount of this Note at a variable rate of interest, adjusted quarterly, equal to LIBOR plus 4.50% per annum until
maturity and shall pay the Additional Amounts, if any, as follows:
        (a) Interest and Additional Amounts, if any, shall be paid quarterly on                ,             ,                , and                of
each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an ―Interest Payment Date‖), to Persons who
are registered Holders of Notes at the close of business on the date that is 15 days immediately prior to an Interest Payment Date (the ―Record
Date‖), even if such Notes are cancelled after such record date and on or before an Interest Payment Date, except as provided in Section 2.12 of
the Indenture with respect to defaulted interest. Quarterly interest accrued and unpaid under this paragraph (a) will, to the extent lawful, accrue
interest at the rate provided in this Note. Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from                                , 2008, through the next succeeding Interest Payment Date (the ―Interest Period‖). The
first Interest Payment Date shall be                  , 2008 and the last Interest Payment Date shall be              , 2013.
       (b) ―LIBOR‖ shall mean, for each Interest Period, a rate of interest determined by Trustee equal to the offered rate for deposits in United
States dollars for the applicable Interest Period that appears on Reuters Screen LIBOR01 Page as of 11:00 a.m. (London time), on the second
full Business Day next preceding the first day of each Interest Period (unless such date is not a Business Day, in which event the next
succeeding Business Day will be used). If such interest rates shall cease to be available from Telerate News Service (or its successor
satisfactory to the Trustee), LIBOR shall be determined from such financial reporting service or other information as shall be reasonably
determined by the Trustee.
       (c) The Company shall pay interest (i) entirely in money of the United States that at the time of payment is legal tender for payment of
public and private debts (―Cash Interest‖) for all amounts due, or (ii) with respect to the initial four Interest Payment Dates, in the Company‘s
discretion either (A) entirely by the payment of Cash Interest, (B) partially by the payment of Cash Interest and partially by the issuance of
additional Notes (―PIK Notes‖), or (C) entirely by the issuance of PIK Notes. If the Company elects to issue PIK Notes in lieu of part or all of
the Cash Interest owed, the Company shall give written notice of such election to the Trustee on or before the record date for the applicable
Interest Payment Date, and execute such PIK Notes, dated the date of such Interest Payment Date. In the event the Company elects to pay some
or all of the interest that is due for a Payment Period by issuance of PIK Notes, the interest due on that portion of the Indebtedness to be paid by
a PIK Note shall be equal to LIBOR plus 5.50% per annum for such Payment Period. The issuance of such PIK Notes shall constitute payment
in full of the interest in lieu of cash payment of which such PIK Notes are issued.
      (d) The Company shall pay interest (including post-petition interest in any Proceeding under any Bankruptcy Law) on overdue principal
and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay

                                                                         A-4
interest (including post-petition interest in any Proceeding under any Bankruptcy Law) on overdue installments of interest and Additional
Amounts, if any (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest
shall be computed on the basis of a 360-day year of twelve 30-day months.
       2. METHOD OF PAYMENT. The Company shall pay principal, premium, if any, interest and Additional Amounts, if any, on the
Maturity Date and Interest Payment Dates, as applicable, to the Persons who are registered Holders of Notes. The Notes shall be payable by
wire transfer of immediately available funds to the registered Holder of the Global Note and, with respect to certificated Notes, by wire transfer
of immediately available funds in accordance with instructions provided by the registered Holders of certificated Notes or, if no such
instructions are specified, by mailing a check to each such Holder‘s registered address.
       3. PAYING AGENT AND REGISTRAR. Initially, Deutsche Bank National Trust Company, the Trustee under the Indenture, shall act as
Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of
its Subsidiaries may act in any such capacity.
      4. INDENTURE. The Company issued the Notes under an Indenture dated as of June 17, 2008 (―Indenture‖) between the Company and
the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to
the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the
Indenture, the provisions of the Indenture shall govern and be controlling.
       5. OPTIONAL REDEMPTION. The Notes are subject to redemption for cash at the option of the Company, in whole or in part, upon not
less than 30 nor more than 60 days notice to each Holder of Notes to be redeemed at a redemption price equal to (i) (A) 102.000% of the
principal amount thereof if redeemed on or before one year from the date of issuance of the Notes, (B) 101.000% of the principal amount
thereof if redeemed after one year but on or before two years from the date of issuance of the Notes, or (C) 100.000% of the principal amount
thereof if redeemed after two years from the date of issuance of the Notes, plus (ii) any accrued and unpaid interest, plus (iii) any Additional
Amounts thereon to the redemption date.
      6. REPURCHASE AT OPTION OF HOLDER. If there is a Change of Control, the Company shall, subject to Article XI of the
Indenture, be required to make an offer (a ―Change of Control Offer‖) to repurchase all or any part (equal to $1,000 or an integral multiple
thereof if in part) of each Holder‘s Notes at a purchase price equal to 101.000% of the aggregate principal amount thereof plus accrued and
unpaid interest thereon and Additional Amounts, if any, to the date of purchase (the ―Change of Control Payment‖). Within 30 days following
any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as
required by the Indenture.
       7. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption
date to each Holder whose Notes are to be redeemed at its registered address. Notes and portions of Notes selected shall be in amounts of

                                                                       A-5
$1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held
by such Holder, even if not a multiple of $1,000, shall be redeemed. On and after the redemption date interest ceases to accrue on Notes, or
portions thereof called for redemption.
      8. SECURITY. To secure the due and punctual payment of the principal, interest and Additional Amounts, if any, on the Notes and all
other amounts payable by the Company under the Indenture and the Notes when and as the same shall be due and payable, whether at maturity,
by acceleration or otherwise, according to the terms of the Notes and the Indenture, the Company has granted a security interest in the
Collateral to the Trustee for the benefit of the Holders of Notes pursuant to the Indenture. The Collateral is subject to release from the Lien of
the Indenture to the extent provided therein.
       9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and
integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar
and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also,
the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or
during the period between a record date and the corresponding interest payment date.
      10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes.
       11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes voting as a single class,
and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes voting as a single class. Without the consent of any Holder of a Note, the Indenture
or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for certificated Notes in addition to or
in place of uncertificated Notes, to provide for the assumption of the Company‘s obligations to Holders of the Notes in case of a merger or
consolidation, or sale of substantially all of the Company‘s assets, to make any change that would provide any additional rights or benefits to
the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the
requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act.
      12. DEFAULTS AND REMEDIES. Events of Default are identified in the Indenture, and include, in summary form (the following
summary being for illustrative purposes only and not creating any additional Events of Default or expanding any Events of Default identified in
the Indenture): (a) default in payment when due of the principal of or premium, if any, on the

                                                                       A-6
Notes; (b) default for 30 days in the payment when due of interest or Additional Amounts, if any, on the Notes; (c) failure by the Company for
60 days after notice to comply with any of its other agreements in the Indenture or the Notes; (d) the nonpayment within any applicable grace
period after the final maturity, or the acceleration by the Holders because of a default, of Indebtedness of the Company or any Subsidiary, and
the total amount of such Indebtedness unpaid or accelerated exceeds $5,750,000; (e) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $5,750,000, which judgments are not paid, discharged or stayed for a period of 60 consecutive days;
and (f) certain events of bankruptcy or insolvency with respect to the Company. If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 50.1% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable, subject to
certain conditions. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency,
all outstanding Notes shall become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding Notes
may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the
Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the
Indenture except a continuing Default or Event of Default in the payment of interest and premium, if any, on, or the principal of, the Notes. The
Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
       13. DEFEASANCE. The Indenture and the obligations under the Notes may be defeased (subject to certain exceptions) upon satisfaction
of the conditions specified in Article 8 of the Indenture.
      14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the
Trustee.
       15. NO RECOURSE AGAINST OTHERS. No recourse for the payment of the principal of, premium, if any, or interest or Additional
Amounts, if any, on any of the Notes, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company contained in this Indenture or in any of the Notes, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator or past, present or future director, officer, employee, controlling Person
or stockholder of the Company. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.

                                                                       A-7
         16. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating
agent.
     17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
      18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures,
the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a
convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any
notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
         The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to:


                                                             Hancock Fabrics, Inc.
                                                               One Fashion Way
                                                             Baldwyn, MS 38824
                                                              Attention: President

                                                                      A-8
                                                              ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to


                                                  (Insert assignee‘s social security or tax I.D. no.)




                                               (Print or type assignee‘s name, address and zip code)
and irrevocably appoint                                             to transfer this Note on the books of the Company. The agent may substitute
another to act for him.




Date:

                                                                             Your Signature:


                                                                             (Sign exactly as your name appears on the face of this Note)

                                                                             Signature Guarantee:



                                                                          A-9
                                                OPTION OF HOLDER TO ELECT PURCHASE
        If you want to elect to have this Note purchased by the Company pursuant to Section 3.8 of the Indenture, check the box below:
        [   ]
      If you want to elect to have only part of the Note purchased by the Company pursuant to Section 3.8 of the Indenture, state the amount
you elect to have purchased: $
Date:

                                                                     Your Signature:


                                                                     (Sign exactly as your name appears on the face of the Note)

                                                                     Signature Guarantee:



                                                                     Tax Identification
                                                                     No.:


                                                                      A-10
                                 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
      The following exchanges of a part of this Global Note for a Series A Definitive Note, or exchanges of a part of a Series A Definitive
Note for an interest in this Global Note, have been made:

                                                                                             Principal Amount
                                 Amount of                       Amount of                         of this                       Signature
                                 decrease in                     increase in                    Global Note                          of
                              Principal Amount                Principal Amount                following such                 authorized officer
                                    of this                         of this                      decrease                            of
Date of Exchange                 Global Note                     Global Note                   (or increase)                Trustee or Custodian



                                                                      A-11
                                                                EXHIBIT B
                                                FORM OF SUPPLEMENTAL INDENTURE
                                                         AND GUARANTEE
     SUPPLEMENTAL INDENTURE AND GUARANTEE (this ―Supplemental Indenture‖), dated as of                               ,
among                                        (the ―Guarantor‖), a subsidiary of Hancock Fabrics, Inc., a Delaware corporation (the
―Company‖), and Deutsche Bank National Trust Company, as trustee under the indenture referred to below (the ―Trustee‖).


                                                               WITNESSETH:
      WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the ―Indenture‖), dated as of ___, 2008
providing for the issuance of an aggregate principal amount of $20 million of Floating Rate Series A Secured Notes due 2013 (the ―Notes‖);
      WHEREAS, the Indenture provides that under certain circumstances the Guarantor shall execute and deliver to the Trustee a
supplemental indenture pursuant to which the Guarantor shall unconditionally guarantee all of the Company‘s Obligations under the Notes and
the Indenture on the terms and conditions set forth herein; and
      WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
      NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby
acknowledged, the Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as
follows:
      (a) Capitalized Terms . Capitalized Terms used herein without definition shall have the meanings assigned to them in the Indenture.
      (b) Agreement to Guarantee . The Guarantor hereby agrees as follows:
        (i) Along with all Guarantors, to jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee
     and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the
     Obligations of the Company hereunder or thereunder, that:
               (A) the principal of, premium, if any, and interest and Additional Amounts, if any, on the Notes shall be promptly paid in full
           when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of to the extent and
           interest and Additional Amounts, if any, on the Notes to the extent lawful, and all other Obligations of the Company to the Holders
           or the Trustee hereunder or under the Indenture shall be promptly paid in

                                                                      B-1
   full or performed, all in accordance with the terms hereof and under the Indenture; and
        (B) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that same shall be
  promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by
  acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever
  reason, the Guarantors shall be jointly and severally obligated to pay the same immediately.
   (ii) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the
Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which
might otherwise constitute a legal or equitable discharge or defense of a Guarantor.
   (iii) The following is hereby waived: diligence presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands
whatsoever.
   (iv) This Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the
Indenture.
   (v) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any Custodian,
Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the
Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.
   (vi) The Guarantor shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby.
   (vii) As between the Guarantors, on the one hand, the Holders and the Trustee, on the other hand, (x) the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of
any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and
payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee.

                                                                  B-2
        (viii) The Guarantors shall have the right to seek contribution from non-paying Guarantors so long as the exercise of such right does
     not impair the rights of the Holders under the Guarantee.
        (ix) Notwithstanding the foregoing, in the event that this Guarantee would constitute or result in a violation of any applicable
     fraudulent conveyance or similar law of any relevant jurisdiction, the liability of the Guarantor under this Supplemental Indenture and its
     Guarantee of the Notes shall be reduced to the maximum amount permissible under such fraudulent conveyance or similar law.
      (c) Execution and Delivery . Each Guarantor agrees that the Guarantees shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Guarantee of the Notes.
      (d) Guarantor May Consolidate, Etc. on Certain Terms .
        (i) Subject to Section (e) hereof, the Guarantor may not consolidate with or merge with or into (whether or not such Guarantor is the
     surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor unless:
               (A) subject to Section (e) hereof, the Person formed by or surviving any such consolidation or merger (if other than a Guarantor
           or the Company) unconditionally assumes all the obligations of such Guarantor, pursuant to a Supplemental Indenture in form and
           substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Guarantee of the Notes on the terms set
           forth herein or therein; and
              (B) immediately after giving effect to such transaction, no Default or Event of Default exists.
         (ii) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by Supplemental
     Indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Guarantee endorsed upon the Notes and
     the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guarantor, such
     successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor.
     Such successor Person thereupon may cause to be signed any or all of the Guarantees to be endorsed upon all of the Notes issuable
     hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Guarantees of the Notes so
     issued shall in all respects have the same legal rank and benefit under the Indenture as the Guarantees of the Notes theretofore and
     thereafter issued in accordance with the terms of the Indenture as though all of such Guarantees of the Notes had been issued at the date
     of the execution hereof.
        (iii) Except as set forth in Articles 4 and 5 of the Indenture, and notwithstanding clauses (A) and (B) of Section (d)(i) hereof, nothing
     contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a

                                                                       B-3
     Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor, or shall prevent any sale or conveyance of the property
     of a Subsidiary Guarantor as an entirety or substantially as an entirety to the Company or another Subsidiary Guarantor.
      (e) Releases .
        (i) In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a
     sale or other disposition of all to the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by
     way of merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the
     event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and relieved of any
     obligations under the Supplemental Indenture and its Guarantee of the Notes; provided that the Net Proceeds of such sale or other
     disposition are applied in accordance with the applicable provisions of the Indenture, including without limitation Section 4.10 of the
     Indenture. Upon delivery by the Company to the Trustee of an Officers‘ Certificate and an Opinion of Counsel complying with
     Sections 11.4 and 11.5 of the Indenture to the effect that such sale or other disposition was made by the Company in accordance with the
     provisions of the Indenture, including without limitation Section 4.10 of the Indenture, the Trustee shall execute any documents
     reasonably required in order to evidence the release of any Guarantor from its obligations under its Guarantee of the Notes.
        (ii) Any Guarantor not released from its obligations under its Guarantee shall remain liable for the full amount of principal of and
     interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in the Indenture.
      (f) No Recourse Against Others . No past, present or future director, officer, employee, incorporator, stockholder or agent of the
Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, any Guarantees of the Notes,
the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
     (g) New York Law to Govern . THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS
OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
        (h) Counterparts . The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement.

                                                                       B-4
      (i) Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.
     (j) The Trustee . The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guarantor and the
Company.
       IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
Dated:

                                                                              [Guarantor]

                                                                              By:
                                                                              Name:
                                                                              Title:
                                                                                                                                                ,
                                                                                                                                                ,

                                                                              as Trustee

                                                                              By:
                                                                              Name:
                                                                              Title:


                                                                       B-5
                                                        Exhibit 4.5


            MASTER WARRANT AGREEMENT
                      BETWEEN
               HANCOCK FABRICS, INC.
                         AND
  CONTINENTAL STOCK TRANSFER & TRUST COMPANY ,
                AS WARRANT AGENT
               DATED AS OF JUNE 17, 2008
WARRANTS TO PURCHASE 9,500,000 SHARES OF COMMON STOCK
                                                         TABLE OF CONTENTS

                                                                             Page
1. Definitions                                                                  1

2. Appointment of Warrant Agent                                                 4

3. Warrants                                                                     5

  3.1 Issuance of Warrants                                                      5
  3.2 Form of Warrant                                                           5
  3.3 Execution of Global Warrant Certificates                                  5
  3.4 Registration and Countersignature                                         6

4. Terms And Exercise Of Warrants                                               7

  4.1 Exercise Price                                                            7
  4.2 Duration of Warrants                                                      7
  4.3 Method of Exercise                                                        7
  4.4 Issuance of Warrant Shares                                                8
  4.5 Exercise of Warrant                                                       9
  4.6 Reservation of Shares                                                    10
  4.7 Fractional Shares                                                        10
  4.8 Listing                                                                  10

5. Adjustment of Warrant Shares and Exercise Price                             11

  5.1 Mechanical Adjustments                                                   11
  5.2 Notices of Adjustment                                                    12
  5.3 Form of Warrant After Adjustments                                        12
  5.4 Organic Changes                                                          13
  5.5 Adjustments for the Issuance of Common Stock at less than FMV            14

6. Transfer and Exchange of Warrants and Warrant Shares                        17

  6.1 Registration of Transfers and Exchanges                                  17
  6.2 Obligations with Respect to Transfers and Exchanges of Warrants          19
  6.3 Fractional Warrants                                                      20

7. Other Provisions Relating To Rights Of Holders Of Warrants                  21

  7.1 No Rights or Liability as Stockholder; Notice to Registered Holders     21

                                                                      i
                                                         TABLE OF CONTENTS
                                                              (continued)

                                                                              Page
  7.2 Lost, Stolen, Mutilated or Destroyed Global Warrant Certificates         22
  7.3 No Restrictive Legends                                                   22
  7.4 Cancellation of Warrants                                                 22

8. Concerning the Warrant Agent and Other Matters                               22

  8.1 Payment of Taxes                                                          22
  8.2 Resignation, Consolidation or Merger of Warrant Agent                     22
  8.3 Fees and Expenses of Warrant Agent                                        24
  8.4 Liability of Warrant Agent                                                24
  8.5 Acceptance of Agency                                                      25

9. Miscellaneous Provisions                                                     25

  9.1 Binding Effects; Benefits                                                 25
  9.2 Notices                                                                   25
  9.3 Persons Having Rights under this Agreement                                26
  9.4 Examination of this Agreement                                             26
  9.5 Counterparts                                                              26
  9.6 Effect of Headings                                                        26
  9.7 Amendments                                                                26
  9.8 No Inconsistent Agreements; No Impairment                                 27
  9.9 Integration/Entire Agreement                                              27
  9.10 Governing Law                                                            27
  9.11 Termination                                                              27
  9.12 Waiver of Trial by Jury                                                  27
  9.13 Severability                                                             28
  9.14 Attorneys‘ Fees                                                          28

EXHIBITS :

Global Warrant Certificate    A
Exercise Form                 B
Assignment                    C

                                                                         ii
                                                    MASTER WARRANT AGREEMENT
   THIS MASTER WARRANT AGREEMENT is entered into June 17, 2008, between HANCOCK FABRICS, INC., a Delaware corporation,
and CONTINENTAL STOCK TRANSFER & TRUST COMPANY (the ―Warrant Agent‖).


                                                                  RECITALS:
   A. The Company is offering the Company‘s Floating Rate Series A Secured Notes due 2013 (the ―Notes‖) in the aggregate principal amount
of Twenty Million Dollars ($20,000,000.00) pursuant to a rights offering to the Company‘s shareholders.
  B. In connection with the issuance of the Notes, the Company proposes to issue Common Stock Purchase Warrants to purchase Nine
Million Five Hundred Thousand (9,500,000) of the Company‘s ordinary shares, par value $0.01, pursuant to this Agreement.
   C. The Company desires to retain the Warrant Agent to act on behalf of the Company and the Warrant Agent is willing to act on behalf of
the Company in connection with the issuance of the Warrants and the other matters provided herein.
   NOW, THEREFORE, in consideration of the mutual agreements set forth herein the parties agree as follows:
    1. Definitions . Wherever used in this Agreement the following terms will have the meanings indicated:
   1.1 ― Agreement ‖ means this Warrant Agreement, as the same may be amended, modified or supplemented from time to time.
   1.2 ― Appropriate Officers ‖ mean one or more officers of the Company authorized to execute Global Warrant Certificates, the Warrant
Statements, or to take such other actions on behalf of the Company as contemplated by this Agreement.
   1.3 ― Beneficial Holder ‖ means any Person or entity that holds beneficial interests in a Global Warrant Certificate.
   1.4 ― Black Scholes Warrant Value ‖ means the value of a Warrant on an Organic Change Date as determined by the Company‘s Board of
Directors immediately prior to such Organic Change (based upon the written advice of an independent investment bank selected by the Board
of Directors) and shall be determined by customary investment banking practices using the Black-Scholes model. For purposes of calculating
such amount, (1) the term of the Warrants will be the time from the Organic Change Date to the Expiration Date, (2) the assumed volatility will
be 50%, (3) the assumed risk-free rate will equal the 3.50%, (4) the price for each share of Common Stock will be (w) the average closing price
of a share of Common Stock for the five consecutive trading days immediately preceding, but not including, the Organic Change Date as
reported on the principal national securities exchange on which the shares of Common
Stock are listed or admitted for trading, or (x) if not listed or admitted for trading on any national securities exchange, and if prices for the
Common Stock are then quoted on the OTC Bulletin Board, the average of the closing bid and asked prices during such five trading day period,
or (y) if not listed or admitted for trading on any national securities exchange and not then listed or quoted on the OTC Bulletin Board and if
prices for the Common Stock are then reported in the Pink Sheets published by Pink Sheets LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the average of the closing bid and asked prices during such five trading day period, or (z) in all
other cases, as determined in good faith by the Board of Directors of the Company, following the receipt of a written valuation by an
independent bank selected by the Board of Directors, and (5) the exercise price shall be the Exercise Price, as adjusted.
   1.5 ― Board of Directors ‖ means the Board of Directors of the Company.
   1.6 ― Book-Entry Warrants ‖ means Warrants that were issued by book-entry registration on the books of the Warrant Agent.
   1.7 ― Business Day ‖ means a day which in New York, New York, is neither a legal holiday nor a day on which banking institutions are
authorized by law or regulation to close.
   1.8 ― Common Stock ‖ means the Company‘s common shares, par value $0.01 per share.
   1.9 ― Common Stock Equivalents ‖ means any stock or securities (directly or indirectly) convertible into or exchangeable for Common
Stock.
   1.10 ― Company ‖ means Hancock Fabrics, Inc. and its successors and assigns.
   1.11 ― Depository ‖ means Cede & Co., as the nominee of The Depository Trust Company.
   1.12 ― Exercise Amount ‖ means the full Exercise Price for the number of Warrant Shares specified in the Exercise Form (which shall be
equal to the Exercise Price multiplied by the number of Warrant Shares in respect of which any Warrants are being exercised) and any and all
applicable taxes and governmental charges due in connection with the exercise of Warrants and the exchange of Warrants for Warrant Shares.
  1.13 ― Exercise Form ‖ means, in the case of Persons who hold Book-Entry Warrants, an exercise form for the election to exercise such
Warrant, substantially in the form of Exhibit B hereto.
   1.14 ― Exercise Price ‖ means the purchase price per Warrant Share payable upon exercise of a warrant. The initial exercise price is the
greater of (i) $1.00 and (ii) the volume weighted average trading price for 30 days prior to the 3rd Business Day before the issuance of the
Warrants, and is subject to adjustment as provided in this Agreement.
   1.15 ― Expiration Date ‖ means the date that is five years from the first date of issuance of the Warrants.

                                                                         2
   1.16 ― FMV ‖ means the fair market value of a Warrant Share as of a specified date (the ―date of calculation‖), calculated as follows:
         (i) If the Common Stock is traded on the New York Stock Exchange, NASDAQ, another stock exchange or comparable system, the
     fair market value of the Warrant Shares shall be deemed to be the average of the closing bid and asked prices of the Common Stock
     during the ten consecutive trading days immediately preceding, but not including, the calculation date as reported on the New York Stock
     Exchange, NASDAQ or such other exchange or comparable system; and
        (ii) In all other cases, the fair market value shall be determined in good faith by the Board of Directors of the Company in consultation
     with a financial advisor.
   1.17 ― Global Warrant Certificates ‖ means one or more global certificates, with the forms of election to exercise and of assignment printed
on the reverse thereof, in substantially the form set forth in Exhibit A attached hereto.
   1.18 ― Holder ‖ means a Registered Holder in the case of the Book-Entry Warrants and the Beneficial Holder in the case of the Warrants
held through the book-entry facilities of the Depository or by or through Persons that are direct participants in the Depository.
   1.19 ― Issue Date ‖ means the first date the Warrants are issued.
    1.20 ― Net Issuance Exercise Date ‖ means the date the Warrant Agent receives an Exercise Form electing a Net Issuance Right, or on such
later date as is specified in the Exercise Form.
  1.21 ― Net Issuance Right ‖ means the right of a Holder to use Warrant Shares to exercise Warrants in lieu of paying cash to exercise
Warrants as provided in Section 4.5(b) .
   1.22 ― Net Issuance Warrant Shares ‖ means the Warrant Shares used to exercise Warrants in lieu of paying cash to exercise the Warrants.
   1.23 ― Note ‖ has the meaning set forth in Recital A to this Agreement.
   1.24 ― Organic Change ‖ has the meaning set forth in Section 5.4(a) hereof.
   1.25 ― Organic Change Date ‖ means the date on which an Organic Change is consummated.
   1.26 ― Person ‖ means any individual, corporation (including a business trust), partnership, joint venture, association, joint-stock company,
trust, estate, limited liability company, unincorporated association, unincorporated organization, government or agency or political subdivision
thereof or any other entity.
   1.27 ― Registered Holder ‖ means a holder of a Warrant reflected on the Warrant Register.

                                                                        3
   1.28 ― Registered Noteholder ‖ means a holder of a Note reflected on the records of the Registrar.
   1.29 ― Registrar ‖ means Continental Stock Transfer & Trust Company, and its successors and assigns.
   1.30 ― Special Dividend ‖ has the meaning assigned to such term in Section 5.1(b) hereof.
   1.31 ― Securities Act ‖ means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
   1.32 ― Subsidiary ‖ means with respect to any Person, any corporation, association or other business entity of which more than 50% of the
total voting power of equity interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the Subsidiaries of such
Person or a combination thereof.
   1.33 ― Successor Person ‖ means the Person that is the successor or acquiring Person in the case of a reorganization, reclassification,
consolidation, merger or business combination with another Person.
   1.34 ― Warrant Agent ‖ means the Person named in the preamble hereof or the successor or successors of such Person appointed in
accordance with the terms hereof.
    1.35 ― Warrant Register ‖ means books of the Warrant Agent in which the Warrant Agent shall register the Book-Entry Warrants as well as
any Global Warrant Certificates and exchanges and transfers of outstanding Warrants in accordance with the procedures set forth in Section 6.1
of this Agreement, all in form satisfactory to the Company.
   1.36 ― Warrant Shares ‖ means the Common Stock issuable upon exercise of the Warrants, the number of shares of which is subject to
adjustment from time to time in accordance with this Agreement.
  1.37 ― Warrant Statements ‖ means the statements issued by the Warrant Agent from time to time to Registered Holders of Book-Entry
Warrants reflecting such book-entry position.
  1.38 ― Warrants ‖ means those warrants issued hereunder to purchase initially up to an aggregate of 9,500,000 Warrant Shares at the
Exercise Price, subject to adjustment pursuant to this Agreement.
    2. Appointment of Warrant Agent . The Company hereby appoints the Warrant Agent to act as agent for the Company for the Warrants
in accordance with the instructions hereinafter set forth in this Agreement, and the Warrant Agent hereby accepts such appointment and agrees
to perform the same in accordance with the terms and conditions set forth in this Agreement.

                                                                         4
    3. Warrants . The Warrants will be issued as follows:
   3.1 Issuance of Warrants . Contemporaneously with the issuance of each Note, the Company will issue Warrants to each Registered
Noteholder equal to the following: (a) 400; multiplied by (b) the number obtained by (i) dividing the initial principal balance of the Notes
specified as held by the Registered Noteholder by (ii) One Thousand Dollars ($1,000.00), and (c) rounded to the nearest whole number. In
addition, the Company will issue to Sopris Capital Partners, LP, Berg & Berg Enterprises, LLC and Trellus Management, or their designees, an
aggregate of 1,500,000 Warrants. The maximum Warrants to be issued pursuant to this Agreement is 9,500,000 Warrants, as such amount may
be adjusted from time to time pursuant to this Agreement.
   3.2 Form of Warrant.
      (a) The Company will deliver, or cause to be delivered to the Depository, one or more Global Warrant Certificates evidencing a portion
  of the Warrants in accordance with this Agreement and the procedures of the Depository. The remainder of the Warrants shall be
  Book-Entry Warrants, evidenced by Warrant Statements.
      (b) The Warrant Statements and Global Warrant Certificates may bear such appropriate insertions, omissions, substitutions and other
  variations as are required or permitted by this Agreement, and may have such letters, numbers or other marks of identification and such
  legends or endorsements placed thereon as may be required to comply with any law or with any rules made pursuant thereto or with any
  rules of any securities exchange or as may, consistently herewith, or, be determined by (i) in the case of Global Warrant Certificates, the
  Appropriate Officers executing such Global Warrant Certificates, as evidenced by their execution of the Global Warrant Certificates, or
  (ii) in the case of a Warrant Statement, any Appropriate Officer.
     (c) The Global Warrant Certificates shall be deposited on or after the Issue Date with the Warrant Agent and registered in the name of the
  Depository. Each Global Warrant Certificate shall represent such number of the outstanding Warrants as specified therein, and each shall
  provide that it shall represent the aggregate amount of outstanding Warrants from time to time endorsed thereon and that the aggregate
  amount of outstanding Warrants represented thereby may from time to time be reduced or increased, as appropriate, in accordance with the
  terms of this Agreement.
   3.3 Execution of Global Warrant Certificates .
     (a) The Global Warrant Certificates shall be signed on behalf of the Company by an Appropriate Officer. Each such signature upon the
  Global Warrant Certificates may be in the form of a facsimile signature of any such Appropriate Officer and may be imprinted or otherwise
  reproduced on the Global Warrant Certificates and for that purpose the Company may adopt and use the facsimile signature of any
  Appropriate Officer.

                                                                        5
   (b) If any Appropriate Officer who shall have signed any of the Global Warrant Certificates shall cease to be such Appropriate Officer
before the Global Warrant Certificates so signed shall have been countersigned by the Warrant Agent or disposed of by the Company, such
Global Warrant Certificates nevertheless may be countersigned and delivered or disposed of as though such Appropriate Officer had not
ceased to be such Appropriate Officer of the Company; and any Global Warrant Certificate may be signed on behalf of the Company by any
Person who, at the actual date of the execution of such Global Warrant Certificate, shall be a proper Appropriate Officer of the Company to
sign such Global Warrant Certificate, although at the date of the execution of this Agreement any such Person was not such Appropriate
Officer.
3.4 Registration and Countersignature .
    (a) Upon written order of the Company, the Warrant Agent shall (i) register in the Warrant Register the Book-Entry Warrants and
(ii) upon receipt of the Global Warrant Certificates duly executed on behalf of the Company, countersign one or more Global Warrant
Certificates evidencing Warrants. Such written order of the Company shall specifically state the number of Warrants that are to be issued as
Book-Entry Warrants and the number of Warrants that are to be issued as a Global Warrant Certificate. A Global Warrant Certificate shall
be, and shall remain, subject to the provisions of this Agreement until such time as all of the Warrants evidenced thereby shall have been
duly exercised or shall have expired or been canceled in accordance with the terms hereof.
   (b) No Global Warrant Certificate shall be valid for any purpose, and no Warrant evidenced thereby shall be exercisable, until such
Global Warrant Certificate has been countersigned by the manual signature of the Warrant Agent. Such signature by the Warrant Agent
upon any Global Warrant Certificate executed by the Company shall be conclusive evidence that such Global Warrant Certificate so
countersigned has been duly issued hereunder.
   (c) The Warrant Agent shall keep the Warrant Register in accordance with the procedures set forth in Section 6.1 of this Agreement. No
service charge shall be made for any exchange or registration of transfer of the Warrants, but the Company may require payment of a sum
sufficient to cover any stamp or other tax or other governmental charge that may be imposed on the Registered Holder in connection with
any such exchange or registration of transfer. The Warrant Agent shall have no obligation to effect an exchange or register a transfer unless
and until any payments required by the immediately preceding sentence have been made.
   (d) Prior to due presentment for registration of transfer or exchange of any Warrant in accordance with the procedures set forth in this
Agreement, the Company and the Warrant Agent may deem and treat the Registered Holder as the absolute owner of such Warrant
(notwithstanding any notation of ownership or other writing on a Global Warrant Certificate made by anyone other than the Company or the
Warrant Agent), for the purpose of any exercise thereof, any distribution to the holder thereof and for all other

                                                                     6
  purposes, and neither the Warrant Agent nor the Company shall be affected by notice to the contrary.
    4. Terms And Exercise Of Warrants.
  4.1 Exercise Price . On the Issue Date, each Warrant shall entitle the Holder, subject to the provisions of such Warrant and of this
Agreement, to purchase from the Company the number of Warrant Shares, at the price equal to the Exercise Price per share specified in such
Warrant (as the same may be hereafter adjusted pursuant to Article V).
   4.2 Duration of Warrants . Warrants may be exercised by the Holder thereof at any time and from time to time during the period
commencing on the Issue Date and terminating at 5:00 p.m., New York City time, on the Expiration Date. Any Warrant not exercised prior to
5:00 p.m., New York City time, on the Expiration Date, shall become permanently and irrevocably null and void at 5:00 p.m., New York City
time, on the Expiration Date, and all rights thereunder and all rights in respect thereof under this Agreement shall cease at such time.
   4.3 Method of Exercise.
      (a) Subject to the provisions of the Warrants and this Agreement, the Holder of a Warrant may exercise such Holder‘s right to purchase
  the Warrant Shares, in whole or in part, by: (x) in the case of Persons who hold Book-Entry Warrants, providing the Exercise Form, properly
  completed and executed by the Registered Holder thereof, together with payment of the Exercise Amount in accordance with Section 4.5(a)
  in the case of an exercise for cash pursuant to Section 4.5(a) , to the Warrant Agent, and (y) in the case of Warrants held through the
  book-entry facilities of the Depository or by or through Persons that are direct participants in the Depository, providing an Exercise Form (as
  provided by such Holder‘s broker) to its broker, properly completed and executed by the Beneficial Holder thereof, together with payment
  of the Exercise Amount in accordance with Section 4.5(a) in the case of an exercise for cash pursuant to Section 4.5(a) .
     (b) Any exercise of a Warrant pursuant to the terms of this Agreement shall be irrevocable and shall constitute a binding agreement
  between the Holder and the Company, enforceable in accordance with its terms.
     (c) The Warrant Agent shall:
        (i) examine all Exercise Forms and all other documents delivered to it by or on behalf of Holders as contemplated hereunder to
     ascertain whether or not, on their face, such Exercise Forms and any such other documents have been executed and completed in
     accordance with their terms and the terms hereof;
         (ii) where an Exercise Form or other document appears on its face to have been improperly completed or executed or some other
     irregularity in connection with the exercise of the Warrants exists, endeavor to inform the appropriate parties (including the Person
     submitting such instrument) of the need

                                                                       7
  for fulfillment of all requirements, specifying those requirements which appear to be unfulfilled;
     (iii) inform the Company of and cooperate with and assist the Company in resolving any reconciliation problems between Exercise
  Forms received and the delivery of Warrants to the Warrant Agent‘s account;
     (iv) use commercially reasonable efforts to advise the Company no later than three (3) Business Days after receipt of an Exercise
  Form, of (A) the receipt of such Exercise Form and the number of Warrants exercised in accordance with the terms and conditions of this
  Agreement, (B) the instructions with respect to delivery of the Warrant Shares deliverable upon such exercise, subject to timely receipt
  from the Depository of the necessary information, and (C) such other information as the Company shall reasonably require; and
      (v) subject to Warrant Shares being made available to the Warrant Agent by or on behalf of the Company for delivery to the
  Depository, liaise with the Depository and endeavor to effect such delivery to the relevant accounts at the Depository in accordance with
  its customary requirements.
   (d) The Company reserves the right to reasonably reject any and all Exercise Forms not in proper form or for which any corresponding
agreement by the Company to exchange would, in the opinion of the Company, be unlawful. Such determination by the Company shall be
final and binding on the Holders of the Warrants, absent manifest error. Moreover, the Company reserves the absolute right to waive any of
the conditions to the exercise of Warrants or defects in Exercise Forms with regard to any particular exercise of Warrants. Neither the
Company nor the Warrant Agent shall be under any duty to give notice to the Holders of the Warrants of any irregularities in any exercise of
Warrants, nor shall it incur any liability for the failure to give such notice.
4.4 Issuance of Warrant Shares .
   (a) Upon exercise of any Warrants pursuant to Section 4.3 and clearance of the funds in payment of the Exercise Price, the Company
shall promptly at its expense, and in no event later than five (5) Business Days thereafter, cause to be issued to the Holder of such Warrants
the total number of whole Warrant Shares for which such Warrants are being exercised (as the same may be hereafter adjusted pursuant to
Article V) in such denominations as are requested by the Holder as set forth below:
     (i) in the case of a Beneficial Holder who holds the Warrants being exercised through the Depository‘s book-entry transfer facilities,
  by same-day or next-day credit to the Depository for the account of such Beneficial Holder or for the account of a participant in the
  Depository the number of Warrant Shares to which such Person is entitled, in each case registered in such name and delivered to such
  account as directed in the Exercise Form by such Beneficial Holder or by the direct participant in the Depository through which such
  Beneficial Holder is acting, or

                                                                      8
     (ii) in the case of a Registered Holder who holds the Warrants being exercised in the form of Book-Entry Warrants, a book-entry
  interest in the Warrant Shares registered on the books of the Company‘s transfer agent.
   (b) Any exercise of any Net Issuance Right pursuant to Section 4.5(b) shall be effective on the Net Issuance Exercise Date, and, at the
election of the Holder thereof. The Holder of the Warrants shall be deemed to be the holder of record of the Warrant Shares issuable upon
such exercise as of the time of receipt of the Exercise Form and payment of the aggregate Exercise Price for the Warrant Shares for which a
Warrant is then being exercised, in the case of an exercise for cash pursuant to Section 4.5(a) , or as of the Net Issuance Exercise Date, in the
case of a net issuance exercise pursuant to Section 4.5(b) , except that, if the date of such receipt and payment or the Net Issuance Exercise
Date is a date when the stock transfer books of the Company are closed, the Holder shall be deemed to have become the holder of such
shares at the close of business on the next succeeding date on which the stock transfer books are open. Warrants may not be exercised by, or
securities issued to, any Holder in any state in which such exercise or issuance would be unlawful.
   (c) If less than all of the Warrants evidenced by a Global Warrant Certificate surrendered upon the exercise of Warrants are exercised at
any time prior to the Expiration Date, a new Global Warrant Certificate or Global Warrant Certificates shall be issued for the remaining
number of Warrants evidenced by the Global Warrant Certificate so surrendered, and the Warrant Agent is hereby authorized to countersign
the required new Global Warrant Certificate or Certificates pursuant to the provisions of Section 3.4 and this Section 4.4 .
4.5 Exercise of Warrant.
   (a) Warrants may be exercised by the Holders thereof by delivery of payment to the Warrant Agent, for the account of the Company, by
certified or bank cashier‘s check payable to the order of the Company (or as otherwise agreed to by the Company), in lawful money of the
United States of America, of the Exercise Amount.
   (b) In lieu of exercising Warrants for cash pursuant to Section 4.5(a) , Holders shall have the right to exercise Warrants or any portion
thereof for Warrant Shares as provided in this Section 4.5(b) at any time or from time to time during the period specified in Section 4.2
hereof by the surrender to the Warrant Agent of a duly executed and completed Exercise Form marked to reflect that the Holder is electing
the Net Issuance Right. Upon exercise of the Net Issuance Right, the Company shall deliver or cause to be delivered to the Holder (without
payment by the Holder of any Exercise Amount or any cash or other consideration) that number of fully paid and nonassessable Warrant
Shares (subject to the provisions of Section 4.7 ) (x) equal to the quotient obtained by dividing the value of such Warrants (or the specified
portion hereof) on the Net Issuance Exercise Date, which value shall be determined by subtracting (A) the aggregate Exercise Amount of the
Net Issuance Warrant Shares immediately prior to the exercise of the Net Issuance Right from (B) the aggregate fair market value of the Net
Issuance Warrant Shares issuable upon exercise of such Warrants (or the specified

                                                                      9
  portion thereof) on the Net Issuance Exercise Date (as defined above) by (y) the fair market value of one Warrant Share on the Net Issuance
  Exercise Date. Expressed as a formula, such net issuance exercise shall be computed as follows:
      X = (B-A)/Y
  where X = the number of Warrant Shares issuable to the Holder thereof, Y = the FMV of one Warrant Share as of the Net Issuance Exercise
  Date, A = the aggregate Exercise Amount (i.e., Net Issuance Warrant Shares x Exercise Amount), B = the aggregate FMV (i.e., FMV x Net
  Issuance Warrant Shares). If the foregoing calculation results in a negative number, then no Warrant Shares shall be issuable upon exercise
  of the Net Issuance Right by the applicable Holder.
   4.6 Reservation of Shares . The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of
Warrants such number of Warrant Shares as may be from time to time issuable upon exercise in full of the Warrants. All Warrant Shares shall
be duly authorized, and when issued upon such exercise, shall be validly issued, fully paid and non-assessable, free and clear of all liens,
security interests, charges and other encumbrances or restrictions on sale and free and clear of all preemptive rights, and the Company shall
take all such action as may be necessary or appropriate in order that the Company may validly and legally issue all Warrant Shares in
compliance with this sentence. If at any time prior to the Expiration Date the number and kind of authorized but unissued shares of the
Company‘s capital stock shall not be sufficient to permit exercise in full of the Warrants, the Company will promptly take such corporate
action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares to such number of shares as shall be
sufficient for such purposes. The Company agrees that its issuance of Warrants shall constitute full authority to its officers who are charged
with the issuance of Warrant Shares to issue shares of Common Stock upon the exercise of Warrants. Without limiting the generality of the
foregoing, the Company will not increase the stated or par value per share, if any, of the Common Stock above the Exercise Price in effect
immediately prior to such increase in stated or par value.
   4.7 Fractional Shares . Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not be required to
issue any fraction of a share of its capital stock in connection with the exercise of Warrants, and in any case where the Registered Holder
would, except for the provisions of this Section 4.7 , be entitled under the terms of Warrants to receive a fraction of a share upon the exercise of
such Warrants, the Company shall, upon the exercise of such Holder‘s Warrants, issue or cause to be issued only the largest whole number of
Warrant Shares issuable on such exercise (and such fraction of a share will be disregarded); provided, that if more than one Warrant is
presented for exercise at the same time by the same Holder, the number of whole Warrant Shares which shall be issuable upon the exercise
thereof shall be computed on the basis of the aggregate number of Warrant Shares issuable on exercise of all such Warrants.
   4.8 Listing . Prior to the issuance of any Warrant Shares upon exercise of Warrants, the Company shall secure the listing of such shares of
Common Stock or other Warrant Shares upon each national securities exchange or stock market, if any, upon which shares of Common Stock
(or securities of the same class as such other Warrant Shares, if applicable) are then listed

                                                                         10
(subject to official notice of issuance upon exercise of Warrants) and shall maintain, so long as any other shares of Common Stock (or, as
applicable, other securities) shall be so listed, such listing of all Warrant Shares from time to time issuable upon the exercise of Warrants.
    5. Adjustment of Warrant Shares and Exercise Price The Exercise Price and the number and kind of Warrant Shares shall be subject to
adjustment from time to time upon the happening of certain events as provided in this Article V.
   5.1 Mechanical Adjustments .
      (a) Subject to the provisions of Section 4.7 , if at any time prior to the exercise in full of the Warrants, the Company shall (i) declare a
  dividend or make a distribution on the Common Stock payable in shares of its capital stock (whether shares of Common Stock or of capital
  stock of any other class), (ii) subdivide, reclassify or recapitalize its outstanding Common Stock into a greater number of shares,
  (iii) combine, reclassify or recapitalize its outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of its capital
  stock by reclassification of its Common Stock (including any such reclassification in connection with a consolidation or a merger in which
  the Company is the continuing corporation), the number of Warrant Shares issuable upon exercise of Warrants and/or the Exercise Price in
  effect at the time of the record date of such dividend, distribution, subdivision, combination, reclassification or recapitalization shall be
  adjusted so that the Holders shall be entitled to receive the aggregate number and kind of shares which, if their Warrants had been exercised
  in full immediately prior to such event, the Holders would have owned upon such exercise and been entitled to receive by virtue of such
  dividend, distribution, subdivision, combination, reclassification or recapitalization. Any adjustment required by this Section 5.1(a) shall be
  made successively immediately after the record date, in the case of a dividend or distribution, or the effective date, in the case of a
  subdivision, combination, reclassification or recapitalization, to allow the purchase of such aggregate number and kind of shares.
      (b) If at any time prior to the exercise in full of the Warrants, the Company shall fix a record date for the issuance or making of a
  distribution to all holders of the Common Stock or any other Warrant Shares for which Warrants are exercisable (including any such
  distribution to be made in connection with a consolidation or merger in which the Company is to be the continuing corporation) of evidences
  of its indebtedness, any other securities of the Company or any cash, property or other assets (excluding a combination, reclassification or
  recapitalization referred to in Section 5.1(a) and regular quarterly cash dividends) or of subscription rights, options or warrants to purchase
  or acquire Common Stock or Common Stock Equivalents (excluding those referred to in Section 5.1(a)) (any such event being herein called
  a ―Special Dividend‖), the Exercise Price shall be decreased immediately after the record date for such Special Dividend to a price
  determined by multiplying the Exercise Price then in effect by a fraction, the numerator of which shall be the then current FMV of the
  Common Stock on such record date less the fair market value (as determined in good faith by the Company‘s Board of Directors based on
  the written advice of an independent investment banking firm) of the evidences of indebtedness, securities or property, or other assets issued
  or

                                                                         11
  distributed in such Special Dividend applicable to one share of Common Stock or of such subscription rights or warrants applicable to one
  share of Common Stock and the denominator of which shall be such then current FMV per share of Common Stock (as so determined). Any
  adjustment required by this Section 5.1(b) shall be made successively whenever such a record date is fixed and in the event that such
  distribution is not so made, the Exercise Price shall again be adjusted to be the Exercise Price that was in effect immediately prior to such
  record date.
     (c) Subject to the provisions of Section 4.7 , whenever the Exercise Price payable upon exercise of the Warrants is adjusted pursuant to
  Section 5.1(a) or Section 5.1(b) , the number of Warrant Shares issuable upon exercise of the Warrants shall simultaneously be adjusted by
  multiplying the number of Warrant Shares initially issuable upon exercise of each Warrant by the Exercise Price in effect on the date thereof
  and dividing the product so obtained by the Exercise Price, as adjusted.
     (d) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least five
  cents ($.05) in such price; provided, however, that any adjustments which by reason of this Section 5.1(e) are not required to be made shall
  be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5.1 shall be made to the nearest
  cent ($.01) or to the nearest one-hundredth of a share, as the case may be. Notwithstanding anything in this Section 5.1 to the contrary, the
  Exercise Price shall not be reduced to less than the then existing par value of the Common Stock as a result of any adjustment made
  hereunder.
     (e) In the event that at any time, as a result of any adjustment made pursuant to Section 5.1(a) or Section 5.4 , the Holder thereafter shall
  become entitled to receive any shares of the Company (or, as applicable, the Successor Person) other than Common Stock, thereafter the
  number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on
  terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in this Section 5.1 .
    5.2 Notices of Adjustment . Whenever the number and/or kind of Warrant Shares or the Exercise Price is adjusted as herein provided, the
Company shall (i) prepare and deliver, or cause to be prepared and delivered, forthwith to the Warrant Agent a statement setting forth the
adjusted number and/or kind of shares purchasable upon the exercise of Warrants and the Exercise Price of such shares after such adjustment,
the facts requiring such adjustment and the computation by which adjustment was made, and (ii) cause the Warrant Agent to give written notice
to each Holder in the manner provided in Section 9.2 below, of the record date or the effective date of the event. Failure to give such notice, or
any defect therein, shall not affect the legality or validity of such event.
   5.3 Form of Warrant After Adjustments . The form of the Global Warrant Certificate need not be changed because of any adjustments in the
Exercise Price or the number or kind of the Warrant Shares, and Warrants theretofore or thereafter issued may continue to express the same
price and number and kind of shares as are stated in Warrants, as initially issued. The

                                                                        12
Company, however, may at any time in its sole discretion make any change in the form of Global Warrant Certificate that it may deem
appropriate to give effect to such adjustments and that does not affect the substance of the Global Warrant Certificate (including the rights,
duties or obligations of the Warrant Agent), and any Global Warrant Certificate thereafter issued, whether in exchange or substitution for an
outstanding Global Warrant Certificate, may be in the form so changed.
   5.4 Organic Changes .
     (a) Adjustments for Organic Change With Consideration Consisting Solely of Cash . If (i) the Company reorganizes its capital stock,
  reclassifies its capital stock or consolidates or merges with or into another Person or enters into a business combination with another Person
  where the Company is not the Successor Person, or sells, leases, transfers or otherwise disposes of all or substantially all of its property,
  assets or business to another Person (each, an ―Organic Change‖), and (B) pursuant to the terms of such Organic Change, the consideration
  to be received by or distributed to the holders of Common Stock of the Company consists solely of cash, then the Successor Person shall
  purchase the Warrants on the Organic Change Date for an amount in cash (less the Exercise Price) equal to the greater of (i) the
  consideration as such Holder would have been entitled to receive upon exercise of its Warrant had it been exercised immediately before such
  Organic Change, subject to applicable adjustments (as determined in good faith by the Board of Directors) and (ii) the Black Scholes
  Warrant Value.
     (b) Adjustments for Organic Change With Consideration Consisting of Cash and/or Other Property . If the Company consummates an
  Organic Change which shall be effected in such a way that the holders of the Common Stock shall be entitled to receive stock, securities,
  cash or other property (whether such stock, securities, cash or other property are issued or distributed by the Company or any other Person)
  with respect to or in exchange for the Common Stock, then as a condition of such Organic Change, lawful and adequate provision shall be
  made whereby each Holder shall have the right to acquire and receive upon exercise of its Warrant such shares of stock, securities, cash or
  other property issuable or payable (as part of the Organic Change) with respect to or in exchange for such number of outstanding shares of
  Common Stock as such Holder would have been entitled to receive upon exercise of its Warrant had it been exercised immediately before
  such Organic Change, subject to applicable adjustments (as determined in good faith by the Board of Directors).
     (c) Assumption by Successor Person. In the event of any Organic Change contemplated by Section 5.4(a) and (b) above, effective
  provisions shall be made in the certificate or articles of incorporation of the Successor Person, or in any contract of sale, merger,
  conveyance, lease, transfer or otherwise, so that the provisions set forth herein for the protection of the rights of the Holders of Warrants
  shall thereafter continue to be applicable; and any such Successor Person shall expressly assume all of the obligations set forth under
  Section 5.4(b) above and the due and punctual performance and observation of all of the obligations of the Company hereunder. The
  provisions of this Section 5.4 shall apply similarly to all successive events constituting Organic Changes.

                                                                        13
   (d) Notices . The Successor Person shall notify the Company, which in turn shall notify or cause to be notified all Holders at the last
address set forth for such Holder in the Warrant Register, in the manner provided in Section 9.2 below, of the Organic Change at least five
Business Days prior to the Organic Change Date. Such notice shall state:
      (i) the expected Organic Change Date;
     (ii) a reasonably detailed description of the consideration to be paid per share of Common Stock in the Organic Change to the holders
  of Common Stock;
      (iii) the option elected by the Successor Person pursuant to Section 5.4(b) hereof (as applicable); and
     (iv) a description of the procedures and method of payment in respect of the Organic Change consideration. No failure of the
  Company to give or cause to be given the foregoing notices or defect therein shall affect the validity of the proceedings for the purchase
  of Warrants, or limit the Holders‘ rights hereunder.
5.5 Adjustments for the Issuance of Common Stock at less than FMV .
   (a) In the event that at any time or from time to time the Company shall issue or sell: (1) shares of Common Stock (other than Excluded
Stock), (2) any rights, options or warrants entitling the holders thereof to subscribe for shares of Common Stock or securities convertible
into Common Stock (other than Excluded Stock), or (3) securities convertible into or exchangeable or exercisable for Common Stock (other
than Excluded Stock), entitling such holders to subscribe for or purchase shares of Common Stock without consideration or for
consideration per share that is less at the day of such issuance or sale than the FMV per share of Common Stock and shall not offer such
rights, options or warrants to the Holders of Warrants, then, the Exercise Price in effect immediately prior to each such issuance or sale will
immediately (except as provided below) be reduced to the price determined by multiplying the Exercise Price, in effect immediately prior to
such issuance or sale, by a fraction, (1) the numerator of which shall be (x) the number of shares of Common Stock outstanding immediately
prior to such issuance or sale plus (y) the number of shares of Common Stock which the aggregate consideration received by the Company
for the total number of such additional shares of Common Stock so issued or sold would purchase at the FMV on the last trading day
immediately preceding such issuance or sale and (2) the denominator of which shall be the number of shares of Common Stock outstanding
immediately after such issue or sale. In such event, the number of shares of Common Stock issuable upon the exercise of each Warrant shall
be increased to the number obtained by dividing (1) the product of (x) the number of Shares issuable upon the exercise of each Warrant
before such adjustment, and (y) the Exercise Price in effect immediately prior to the issuance giving rise to this adjustment by (2) the new
Exercise Price determined in accordance with the immediately preceding sentence. As used above ―Common Stock outstanding‖ means the
number of shares of Common Stock actually outstanding and the number of shares of Common

                                                                     14
Stock deemed to be outstanding pursuant to paragraph 3 below, regardless of whether the securities therein have been actually exercised.
Such adjustments shall be made whenever such rights, options or warrants or convertible securities are issued or sold or whenever such
shares of Common Stock are issued. For the purposes of any adjustment of the Exercise Price and the number of Shares issuable upon
exercise of this Warrant pursuant to this Section 5.5, the following provisions shall be applicable:
     (i) In the case of the issuance or sale of Common Stock for cash, the amount of the consideration received by the Company shall be
  deemed to be the amount of the cash proceeds received by the Company for such Common Stock before deducting therefrom any
  reasonable discounts or commissions allowed, paid or incurred by the Company for any underwriting or placement in connection with the
  issuance and sale thereof.
     (ii) In the case of the issuance or sale of Common Stock (otherwise than upon the conversion of any securities of the Company) for a
  consideration in whole or in part other than cash, including securities acquired in exchange therefor (other than securities by their terms
  so exchangeable), the consideration other than cash shall be deemed to be the fair value thereof (which, in the case of consideration
  consisting of securities which are publicly traded shall be the FMV of such securities) as determined in good faith by the Board of
  Directors, whose determination shall be evidenced by a resolution of the Board of Directors delivered to the Holders.
     (iii) In the case of the issuance or sale of (a) options, warrants or other rights to purchase or acquire Common Stock (whether or not at
  the time exercisable) or (b) securities by their terms convertible into or exchangeable for Common Stock (whether or not at the time so
  convertible or exchangeable) or options, warrants or rights to purchase such convertible or exchangeable securities (whether or not at the
  time exercisable):
        (1) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options, warrants or other rights
     to purchase or acquire Common Stock shall be deemed to have been issued at the time such options, warrants or rights are issued and
     for a consideration equal to the consideration (determined in the manner provided in Section 5.5(a)(i) and (ii)), if any, received by the
     Company upon the issuance or sale of such options, warrants or rights plus the minimum purchase price provided in such options,
     warrants or rights for the Common Stock covered thereby;
        (2) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such
     convertible or exchangeable securities, or upon the exercise of options, warrants or other rights to purchase or acquire such convertible
     or exchangeable securities and the subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such
     securities

                                                                    15
were issued or such options, warrants or rights were issued or sold and for a consideration equal to the consideration, if any, received
by the Company for any such securities and related options, warrants or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional consideration (determined in the manner provided in Section 5.5(a)(i) and (ii)), if
any, to be received by the Company upon the conversion or exchange of such securities, or upon the exercise of any related options,
warrants or rights to purchase or acquire such convertible or exchangeable securities and the subsequent conversion or exchange
thereof;
   (3) on any change in the number of shares of Common Stock deliverable upon exercise of any such options, warrants or rights or
conversion or exchange of such convertible or exchangeable securities or any change in the consideration to be received by the
Company upon such exercise, conversion or exchange, but excluding changes resulting from the anti-dilution provisions thereof (to the
extent not better, vis-a-vis the holders thereof, than to the anti-dilution provisions contained herein), the Exercise Price and the number
of Shares issuable upon exercise of each Warrant as then in effect shall forthwith be readjusted to such Exercise Price and number of
shares of Common Stock as would have been obtained had an adjustment been made upon the issuance of such options, warrants or
rights not exercised prior to such change, or of such convertible or exchangeable securities not converted or exchanged prior to such
change, upon the basis of such change;
   (4) on the expiration or cancellation of any such options, warrants or rights (without exercise), or the termination of the right to
convert or exchange such convertible or exchangeable securities (without exercise), if the Exercise Price and the number of Shares
issuable upon exercise of each Warrant shall have been adjusted upon the issuance thereof, the Exercise Price and the number of
Shares issuable upon exercise of each Warrant shall forthwith be readjusted to such Exercise Price and number of Shares as would
have been obtained had an adjustment been made upon the issuance of such options, warrants, rights or such convertible or
exchangeable securities on the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise
of such options, warrants or rights, or upon the conversion or exchange of such convertible or exchangeable securities; provided,
however, no readjustment pursuant to this Section 5.5(a)(iii)(4) shall have the effect of increasing the Exercise Price by an amount in
excess of the amount of the adjustment thereof originally made in respect of such issuance; and
   (5) if the Exercise Price and the number of Shares issuable upon exercise of each Warrant shall have been adjusted upon the
issuance

                                                                16
     of any such options, warrants, rights or convertible or exchangeable securities, no further adjustment of the Exercise Price and the
     number of Shares issuable upon exercise of each Warrant shall be made for the actual issuance of Common Stock upon the exercise,
     conversion or exchange thereof.
   (b) For the purposes of Section 5.5, the following definitions apply:
      (i) ―Excluded Stock‖ means:
        (1) shares of Common Stock issued or sold by the Company as a stock dividend payable in shares of Common Stock, or upon any
     subdivision or split-up of the outstanding shares of Common Stock in each case which is subject to Section 5.1;
        (2) the issuance of Common Stock in connection with any debt financing (including upon the exercise of any warrants issued in
     connection with such financings) approved by the Board of Directors;
        (3) the issuance of stock options or shares of Common Stock (including upon exercise of options) to directors, officers, and covered
     employees of the Company pursuant to the Company‘s incentive plans; provided such issuance is either (x) pursuant to a plan
     approved by the Company‘s stockholders or (y) for up to an aggregate amount of shares of Common Stock excluded hereby after the
     date hereof not to exceed 5% of the Common Stock at the time of such issuance;
        (4) the issuance of Common Stock at a price per share determined by the Board of Directors to be equal to the FMV thereof at the
     time a definitive agreement is entered into, provided such definitive agreement is closed within 90 days of the date such definitive
     agreement is entered into, or as may be extended due to regulatory reviews; and
        (5) the issuance of Common Stock and Warrants in connection with the Plan (including shares of Common Stock issued upon
     exercise of any Warrants).
 6. Transfer and Exchange of Warrants and Warrant Shares.
6.1 Registration of Transfers and Exchanges .
   (a) Transfer and Exchange of Global Warrant Certificates or Beneficial Interests Therein . The transfer and exchange of Global Warrant
Certificates or beneficial interests therein shall be effected through the Depository, in accordance with this Agreement and the procedures of
the Depository therefor.

                                                                     17
   (b) Exchange of a Beneficial Interest in a Global Warrant Certificate for a Book-Entry Warrant.
      (i) Any Holder of a beneficial interest in a Global Warrant Certificate may, upon request, exchange such beneficial interest for a
  Book-Entry Warrant. Upon receipt by the Warrant Agent from the Depository or its nominee of written instructions or such other form of
  instructions as is customary for the Depository on behalf of any Person having a beneficial interest in a Global Warrant Certificate, the
  Warrant Agent shall cause, in accordance with the standing instructions and procedures existing between the Depository and Warrant
  Agent, the number of Warrants represented by the Global Warrant Certificate to be reduced by the number of Warrants to be represented
  by the Book-Entry Warrants to be issued in exchange for the beneficial interest of such Person in the Global Warrant Certificate and,
  following such reduction, the Warrant Agent shall register in the name of the Holder a Book-Entry Warrant and deliver to said Holder a
  Warrant Statement.
     (ii) Book-Entry Warrants issued in exchange for a beneficial interest in a Global Warrant Certificate pursuant to this Section 6.1(b)
  shall be registered in such names as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall
  instruct the Warrant Agent. The Warrant Agent shall deliver such Warrant Statements to the Persons in whose names such Warrants are
  so registered.
   (c) Transfer and Exchange of Book-Entry Warrants. When Book-Entry Warrants are presented to the Warrant Agent with a written
request:
      (i) to register the transfer of the Book-Entry Warrants; or
     (ii) to exchange such Book-Entry Warrants for an equal number of Book-Entry Warrants of other authorized denominations, the
  Warrant Agent shall register the transfer or make the exchange as requested if its customary requirements for such transactions are met;
  provided, however, that the Warrant Agent has received a written instruction of transfer in form satisfactory to the Warrant Agent, duly
  executed by the Registered Holder thereof or by his attorney, duly authorized in writing.
   (d) Restrictions on Exchange or Transfer of a Book-Entry Warrant for a Beneficial Interest in a Global Warrant Certificate . A
Book-Entry Warrant may not be exchanged for a beneficial interest in a Global Warrant Certificate except upon satisfaction of the
requirements set forth below. Upon receipt by the Warrant Agent of appropriate instruments of transfer with respect to a Book-Entry
Warrant, in form satisfactory to the Warrant Agent, together with written instructions directing the Warrant Agent to make, or to direct the
Depository to make, an endorsement on the Global Warrant Certificate to reflect an increase in the number of Warrants represented by the
Global Warrant Certificate equal to the number of Warrants represented by such Book-Entry Warrant, then the Warrant Agent shall cancel
such Book-Entry Warrant on the

                                                                     18
Warrant Register and cause, or direct the Depository to cause, in accordance with the standing instructions and procedures existing between
the Depository and the Warrant Agent, the number of Warrants represented by the Global Warrant Certificate to be increased accordingly. If
no Global Warrant Certificates are then outstanding, the Company shall issue and the Warrant Agent shall countersign a new Global
Warrant Certificate representing the appropriate number of Warrants.
   (e) Restrictions on Transfer and Exchange of Global Warrant Certificates. Notwithstanding any other provisions of this Agreement
(other than the provisions set forth in Section 6.1(f)), unless and until it is exchanged in whole for a Book-Entry Warrant, a Global Warrant
Certificate may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of
such successor Depository.
   (f) Book-Entry Warrants . If at any time:
    (i) the Depository for the Global Warrant Certificates notifies the Company that the Depository is unwilling or unable to continue as
  Depository for the Global Warrant Certificates and a successor Depository for the Global Warrant Certificates is not appointed by the
  Company within 90 days after delivery of such notice; or
    (ii) the Company, in its sole discretion, notifies the Warrant Agent in writing that it elects to exclusively cause the issuance of
  Book-Entry Warrants under this Agreement, then the Warrant Agent, upon written instructions signed by an Appropriate Officer of the
  Company, shall register Book-Entry Warrants, in an aggregate number equal to the number of Warrants represented by the Global
  Warrant Certificates, in exchange for such Global Warrant Certificates.
   (g) Restrictions on Transfer . No Warrants or Warrant Shares shall be sold, exchanged or otherwise transferred in violation of the
Securities Act or state securities laws.
   (h) Cancellation of Global Warrant Certificate . At such time as all beneficial interests in Global Warrant Certificates have either been
exchanged for Book-Entry Warrants, redeemed, repurchased or cancelled, all Global Warrant Certificates shall be returned to, or retained
and cancelled by, the Warrant Agent, upon written instructions from the Company satisfactory to the Warrant Agent.
6.2 Obligations with Respect to Transfers and Exchanges of Warrants .
   (a) To permit registrations of transfers and exchanges, the Company shall execute Global Warrant Certificates, if applicable, and the
Warrant Agent is hereby authorized, in accordance with the provisions of Section 3.4 and this Article VI, to countersign such Global
Warrant Certificates, if applicable, or register Book-Entry Warrants, if applicable, as required pursuant to the provisions of this Article VI
and for

                                                                      19
  the purpose of any distribution of new Global Warrant Certificates contemplated by Section 7.2 or additional Global Warrant Certificates
  contemplated by Article V.
     (b) All Book-Entry Warrants and Global Warrant Certificates issued upon any registration of transfer or exchange of Book-Entry
  Warrants or Global Warrant Certificates shall be the valid obligations of the Company, entitled to the same benefits under this Agreement as
  the Book-Entry Warrants or Global Warrant Certificates surrendered upon such registration of transfer or exchange.
     (c) No service charge shall be made to a Holder for any registration, transfer or exchange but the Company may require payment of a
  sum sufficient to cover any stamp or other tax or other governmental charge that may be imposed on the Holder in connection with any such
  exchange or registration of transfer.
     (d) So long as the Depository, or its nominee, is the registered owner of a Global Warrant Certificate, the Depository or such nominee, as
  the case may be, will be considered the sole owner or holder of the Warrants represented by such Global Warrant Certificate for all purposes
  under this Agreement. Except as provided in Sections 6.1(b) and (f) upon the exchange of a beneficial interest in a Global Warrant
  Certificate for Book-Entry Warrants, Beneficial Holders will not be entitled to have any Warrants registered in their names, and will under
  no circumstances be entitled to receive physical delivery of any such Warrants and will not be considered the Registered Holder thereof
  under the Warrants or this Agreement. Neither the Company nor the Warrant Agent, in its capacity as registrar for such Warrants, will have
  any responsibility or liability for any aspect of the records relating to beneficial interests in a Global Warrant Certificate or for maintaining,
  supervising or reviewing any records relating to such beneficial interests.
     (e) Subject to Sections 6.1(b), (c) and (d), and this Section 6.2, the Warrant Agent shall, upon receipt of all information required to be
  delivered hereunder, from time to time to register the transfer of any outstanding Warrants in the Warrant Register, upon surrender of Global
  Warrant Certificates, if applicable, representing such Warrants at the Warrant Agent‘s office as set forth in Section 9.2, duly endorsed, and
  accompanied by a completed form of assignment substantially in the form of Exhibit C hereto (or with respect to a Book-Entry Warrant,
  only such completed form of assignment substantially in the form of Exhibit C hereto), duly signed by the Registered Holder thereof or by
  the duly appointed legal representative thereof or by a duly authorized attorney, such signature to be guaranteed by a participant in the
  Securities Transfer Agent Medallion Program, the Stock Exchanges Medallion Program or the New York Stock Exchange, Inc. Medallion
  Signature Program. Upon any such registration of transfer, a new Global Warrant Certificate or a Warrant Statement, as the case may be,
  shall be issued to the transferee.
   6.3 Fractional Warrants . The Warrant Agent shall not be required to effect any registration of transfer or exchange which will result in the
issuance of a warrant certificate for a fraction of a Warrant.

                                                                        20
    7. Other Provisions Relating To Rights Of Holders Of Warrants.
    7.1 No Rights or Liability as Stockholder; Notice to Registered Holders. Nothing contained in the Warrants shall be construed as conferring
upon the Holder or his, her or its transferees the right to vote or to receive dividends or to consent or to receive notice as a stockholder in
respect of any meeting of stockholders for the election of directors of the Company or of any other matter, or any rights whatsoever as
stockholders of the Company. No provision thereof and no mere enumeration therein of the rights or privileges of the Holder shall give rise to
any liability of such holder for the Exercise Price hereunder or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company. To the extent not covered by any statement delivered pursuant to Section 5.2, the Company shall
give notice to Registered Holders by registered mail if at any time prior to the expiration or exercise in full of the Warrants, any of the
following events shall occur:
        (i) the Company shall authorize the payment of any dividend payable in any securities upon shares of Common Stock or authorize the
      making of any distribution (other than a regular quarterly cash dividend) to all holders of Common Stock;
         (ii) the Company shall authorize the issuance to all holders of Common Stock of any additional shares of Common Stock or Common
      Stock Equivalents or of rights, options or warrants to subscribe for or purchase Common Stock or Common Stock Equivalents or of any
      other subscription rights, options or warrants;
         (iii) a dissolution, liquidation or winding up of the Company shall be proposed; or
         (iv) a capital reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding
      Common Stock and other than a change in the par value of the Common Stock) or any consolidation or merger of the Company with or
      into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not
      result in any reclassification or change of Common Stock outstanding) or in the case of any sale or conveyance to another corporation or
      other entity of the property of the Company as an entirety or substantially as an entirety.
Such giving of notice shall be initiated at least fifteen (15) Business Days prior to the date fixed as a record date or effective date or the date of
closing of the Company‘s stock transfer books for the determination of the stockholders entitled to such dividend, distribution or subscription
rights, or for the determination of the stockholders entitled to vote on such proposed merger, consolidation, sale, conveyance, dissolution,
liquidation or winding up. Such notice shall specify such record date or the date of closing the stock transfer books, as the case may be. Failure
to provide such notice shall not affect the validity of any action taken in connection with such dividend, distribution or subscription rights, or
proposed merger, consolidation, sale, conveyance, dissolution, liquidation or winding up. For the avoidance of doubt, no such notice

                                                                          21
shall supersede or limit any adjustment called for by Section 5.1 of Section 5.4 by reason of any event as to which notice is required by this
Section.
   7.2 Lost, Stolen, Mutilated or Destroyed Global Warrant Certificates . If any Global Warrant Certificate is lost, stolen, mutilated or
destroyed, the Company shall issue, and the Warrant Agent shall countersign and deliver, in exchange and substitution for and upon
cancellation of the mutilated Global Warrant Certificate, or in lieu of and substitution for the Global Warrant Certificate lost, stolen or
destroyed, a new Global Warrant Certificate of like tenor and representing an equivalent number of Warrants, but only upon receipt of evidence
and an affidavit reasonably satisfactory to the Company and the Warrant Agent of the loss, theft or destruction of such Global Warrant
Certificate, and an indemnity of the Company and Warrant Agent for any losses in connection therewith, if requested by either the Company or
the Warrant Agent, also satisfactory to them. Applicants for such substitute Global Warrant Certificates shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company or the Warrant Agent may prescribe and as required by
Section 8-405 of the Uniform Commercial Code as in effect in the State of New York.
   7.3 No Restrictive Legends. No legend shall be stamped or imprinted on any stock certificate for Warrant Shares issued upon the exercise of
any Warrant and or stock certificate issued upon the direct or indirect transfer of any such Warrant Shares.
    7.4 Cancellation of Warrants . If the Company shall purchase or otherwise acquire Warrants, the Global Warrant Certificates and the
Book-Entry Warrants representing such Warrants shall thereupon be delivered to the Warrant Agent, if applicable, and be cancelled by it and
retired. The Warrant Agent shall cancel all Global Warrant Certificates surrendered for exchange, substitution, transfer or exercise in whole or
in part. Such cancelled Global Warrant Certificates shall thereafter be disposed of in a manner satisfactory to the Company provided in writing
to the Warrant Agent.
    8. Concerning the Warrant Agent and Other Matters.
   8.1 Payment of Taxes . The Company will from time to time promptly pay all taxes and charges that may be imposed upon the Company or
the Warrant Agent in respect of the issuance or delivery of the Warrant Shares upon the exercise of Warrants, but any taxes or charges in
connection with the issuance of Warrants or Warrant Shares in any name other than that of the Holder of the Warrants shall be paid by such
Holder; and in any such case, the Company shall not be required to issue or deliver any Warrants or Warrant Shares until such taxes or charges
shall have been paid or it is established to the Company‘s satisfaction that no tax or charge is due.
   8.2 Resignation, Consolidation or Merger of Warrant Agent.
     (a) Appointment of Successor Warrant Agent . The Warrant Agent, or any successor to it hereafter appointed, may resign its duties and be
  discharged from all further duties and liabilities hereunder after giving thirty (30) days‘ notice in writing to the Company. If the office of the
  Warrant Agent becomes vacant by resignation or incapacity to act or otherwise, the Company shall appoint in writing a successor Warrant

                                                                        22
Agent in place of the Warrant Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after it has been
notified in writing of such resignation or incapacity by the Warrant Agent or by the Registered Holder of a Warrant (who shall, with such
notice, submit his Warrant for inspection by the Company), then the Registered Holder of any Warrant may apply to the Supreme Court of
the State of New York for the County of New York for the appointment of a successor Warrant Agent at the Company‘s cost. Any successor
Warrant Agent, whether appointed by the Company or by such court, shall be a corporation organized and existing under the laws of the
State of New York in good standing and having its principal office in the Borough of Manhattan, City and State of New York, and shall be
authorized under such laws to exercise corporate trust powers and subject to supervision or examination by federal or state authority. After
appointment, any successor Warrant Agent shall be vested with all the authority, powers, rights, immunities, duties and obligations of its
predecessor Warrant Agent with like effect as if originally named as Warrant Agent hereunder, without any further act or deed; but if for any
reason it becomes necessary or appropriate, the predecessor Warrant Agent shall execute and deliver, at the expense of the Company, an
instrument transferring to such successor Warrant Agent all the authority, powers, rights, immunities, duties and obligations of such
predecessor Warrant Agent hereunder; and upon request of any successor Warrant Agent, the Company shall make, execute, acknowledge
and deliver any and all instruments in writing for more fully and effectually vesting in and confirming to such successor Warrant Agent all
such authority, powers, rights, immunities, duties and obligations.
   (b) Notice of Successor Warrant Agent . In the event a successor Warrant Agent shall be appointed, the Company shall (i) give notice
thereof to the predecessor Warrant Agent and the transfer agent for the Common Stock not later than the effective date of any such
appointment, and (ii) cause written notice thereof to be delivered to each Registered Holder at such holder‘s address appearing on the
Warrant Register. Failure to give any notice provided for in this Section 8.2(b) or any defect therein shall not affect the legality or validity of
the removal of the Warrant Agent or the appointment of a successor Warrant Agent, as the case may be.
   (c) Merger, Consolidation or Name Change of Warrant Agent.
       (i) Any corporation into which the Warrant Agent may be merged or with which it may be consolidated or any corporation resulting
   from any merger or consolidation to which the Warrant Agent shall be a party shall be the successor Warrant Agent under this
   Agreement, without any further act or deed, if such Person would be eligible for appointment as a successor Warrant Agent under the
   provisions of Section 8.2(a). If any of the Global Warrant Certificates have been countersigned but not delivered at the time such
   successor to the Warrant Agent succeeds under this Agreement, any such successor to the Warrant Agent may adopt the countersignature
   of the original Warrant Agent; and if at that time any of the Global Warrant Certificates shall not have been countersigned, any successor
   to the Warrant Agent may countersign such Global Warrant Certificates either in the name of the predecessor Warrant Agent or in the
   name of

                                                                       23
  the successor Warrant Agent; and in all such cases such Global Warrant Certificates shall have the full force provided in the Global
  Warrant Certificates and in this Agreement.
      (ii) If at any time the name of the Warrant Agent is changed and at such time any of the Global Warrant Certificates have been
  countersigned but not delivered, the Warrant Agent whose name has changed may adopt the countersignature under its prior name; and if
  at that time any of the Global Warrant Certificates have not been countersigned, the Warrant Agent may countersign such Global Warrant
  Certificates either in its prior name or in its changed name; and in all such cases such Global Warrant Certificates shall have the full force
  provided in the Global Warrant Certificates and in this Agreement.
8.3 Fees and Expenses of Warrant Agent.
   (a) Remuneration . The Company agrees to pay the Warrant Agent reasonable remuneration for its services as Warrant Agent hereunder
and will reimburse the Warrant Agent upon demand for all expenditures that the Warrant Agent may reasonably incur in the execution of its
duties hereunder.
   (b) Further Assurances . The Company agrees to perform, execute, acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts, instruments, and assurances as may reasonably be required by the Warrant
Agent for the carrying out or performing of the provisions of this Agreement.
8.4 Liability of Warrant Agent .
   (a) Reliance on Company Statement . Whenever in the performance of its duties under this Agreement, the Warrant Agent shall deem it
necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and
established by a statement signed by the Chief Executive Officer or Chairman of the Board of Directors of the Company and delivered to the
Warrant Agent. The Warrant Agent may rely upon such statement for any action taken or suffered in good faith by it pursuant to the
provisions of this Agreement.
   (b) Indemnity. The Warrant Agent shall be liable hereunder only for its own negligence, willful misconduct or bad faith. The Company
agrees to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and reasonable counsel
fees, for anything done or omitted by the Warrant Agent in the execution of this Agreement except as a result of the Warrant Agent‘s
negligence, willful misconduct or bad faith. Notwithstanding the foregoing, the Company shall not be responsible for any settlement made
without its written consent. No provision in this Agreement shall be construed to relieve the Warrant Agent from liability for its own
negligence, willful misconduct or bad faith.

                                                                     24
      (c) Exclusions. The Warrant Agent shall have no responsibility with respect to the validity of this Agreement or with respect to the
  validity or execution of any Warrant (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any
  covenant or condition contained in this Agreement or in any Warrant; nor shall it be responsible to make any adjustments required under the
  provisions of Article V hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence
  of facts that would require any such adjustment; nor shall it by any act hereunder be deemed to make any representation or warranty as to
  the authorization or reservation of any Warrant Shares to be issued pursuant to this Agreement or any Warrant or as to whether any Warrant
  Shares will, when issued, be valid and fully paid and nonassessable.
   8.5 Acceptance of Agency . The Warrant Agent hereby accepts the agency established by this Agreement and agrees to perform the same
upon the terms and conditions herein set forth and, among other things, shall account promptly to the Company with respect to Warrants
exercised and concurrently account for and pay to the Company all moneys received by the Warrant Agent for the purchase of Warrant Shares
through the exercise of Warrants.
    9. Miscellaneous Provisions
   9.1 Binding Effects; Benefits . This Agreement shall inure to the benefit of and shall be binding upon the Company, the Warrant Agent and
the Holders and their respective heirs, legal representatives, successors and assigns. Nothing in this Agreement, expressed or implied, is
intended to or shall confer on any Person other than the Company, the Warrant Agent and the Holders, or their respective heirs, legal
representatives, successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.
    9.2 Notices . Any notice or other communication required or which may be given hereunder shall be in writing and shall be sent by certified
or registered mail, by private national courier service (return receipt requested, postage prepaid), by Personal delivery or by facsimile
transmission. Such notice or communication shall be deemed given (a) if mailed, two days after the date of mailing, (b) if sent by national
courier service, one Business Day after being sent, (c) if delivered Personally, when so delivered, or (d) if sent by facsimile transmission, on the
Business Day after such facsimile is transmitted, in each case as follows:

   if to the Warrant Agent, to:                  Continental Stock Transfer & Trust Company
                                                 17 Battery Place, 8th Floor
                                                 New York, New York 10004
                                                 Attn: Vivina Mendez
                                                 Facsimile: (212) 616-7615

   if to the Company, to:                        Hancock Fabrics, Inc.
                                                 One Fashion Way
                                                 Baldwyn, MS 38824
                                                 Attn: Chief Financial Officer
                                                 Facsimile (662) 365-6025

                                                                         25
   if to Registered Holders, at their addresses as they appear in the Warrant Register.
    9.3 Persons Having Rights under this Agreement . Nothing in this Agreement expressed and nothing that may be implied from any of the
provisions hereof is intended, or shall be construed, to confer upon, or give to, any Person or corporation other than the parties hereto and the
Holders, any right, remedy, or claim under or by reason of this Agreement or of any covenant, condition, stipulation, promise, or agreement
hereof. All covenants, conditions, stipulations, promises, and agreements contained in this Agreement shall be for the sole and exclusive benefit
of the parties hereto, their successors and assigns and the Holders.
   9.4 Examination of this Agreement . A copy of this Agreement shall be available at all reasonable times at the office of the Warrant Agent at
the address set forth in Section 9.2 above, for examination by the Holder of any Warrant. Prior to such examination, the Warrant Agent may
require any such holder to submit his Warrant for inspection by it.
   9.5 Counterparts . This Agreement may be executed in any number of original or facsimile counterparts and each of such counterparts shall
for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.
   9.6 Effect of Headings . The section headings herein are for convenience only and are not part of this Agreement and shall not affect the
interpretation hereof.
   9.7 Amendments.
      (a) Subject to Section 9.7(b) below, this Agreement may not be amended except in writing signed by both parties hereto.
     (b) The Company and the Warrant Agent may from time to time supplement or amend this Agreement or the Warrants (a) without the
  approval of any Holders in order to cure any ambiguity, manifest error or other mistake in this Agreement or the Warrants, or to correct or
  supplement any provision contained herein or in the Warrants that may be defective or inconsistent with any other provision herein or in the
  Warrants, or to make any other provisions in regard to matters or questions arising hereunder that the Company and the Warrant Agent may
  deem necessary or desirable and that shall not adversely affect, alter or change the interests of the Holders or (b) with the prior written
  consent of holders of the Warrants exercisable for a majority of the Warrant Shares then issuable upon exercise of the Warrants then
  outstanding. Notwithstanding anything to the contrary herein, upon the delivery of a certificate from an Appropriate Officer which states
  that the proposed supplement or amendment is in compliance with the terms of this Section 9.7 and, provided such supplement or
  amendment does not change the Warrant Agent‘s rights, duties, liabilities or obligations hereunder, the Warrant Agent shall execute such
  supplement or amendment. Any amendment, modification or waiver effected pursuant to and in accordance with the provisions of this
  Section 9.7 will be binding upon all Holders and upon each future Holder, the Company and the Warrant Agent. In the event of any
  amendment, modification or waiver, the Company will give prompt notice thereof to all Registered Holders and, if appropriate, notation
  thereof will

                                                                        26
  be made on all Global Warrant Certificates thereafter surrendered for registration of transfer or exchange.
    9.8 No Inconsistent Agreements; No Impairment . The Company will not, on or after the date hereof, enter into any agreement with respect
to its securities which conflicts with the rights granted to the Holders in the Warrants or the provisions hereof. The Company represents and
warrants to the Holders that the rights granted hereunder do not in any way conflict with the rights granted to holders of the Company‘s
securities under any other agreements. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of the Warrants and in the taking of all such action as may be necessary in order to preserve the exercise
rights of the Holders against impairment.
    9.9 Integration/Entire Agreement . This Agreement, together with the Warrants, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement and understanding of the Company, the Warrant Agent and
the Holders in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those
set forth or referred to herein, with respect to the Warrants. This Agreement and the Warrants supersede all prior agreements and
understandings between the parties with respect to such subject matter.
   9.10 Governing Law . This Agreement and each Warrant issued hereunder shall be deemed to be a contract made under the laws of the State
of New York and for all purposes shall be governed by and construed in accordance with the laws of such State. Each party hereto consents and
submits to the jurisdiction of the courts of the State of New York and of the federal courts of the Southern District of New York in connection
with any action or proceeding brought against it that arises out of or in connection with, that is based upon, or that relates to this Agreement or
the transactions contemplated hereby. In connection with any such action or proceeding in any such court, each party hereto hereby waives
Personal service of any summons, complaint or other process and hereby agrees that service thereof may be made in accordance with the
procedures for giving notice set forth in Section 9.2 hereof. Each party hereto hereby waives any objection to jurisdiction or venue in any such
court in any such action or proceeding and agrees not to assert any defense based on forum non conveniens or lack of jurisdiction or venue in
any such court in any such action or proceeding.
   9.11 Termination . This Agreement shall terminate on the Expiration Date. Notwithstanding the foregoing, this Agreement will terminate on
any earlier date when all Warrants have been exercised. The provisions of Section 8.4 and this Article IX shall survive such termination and the
resignation or removal of the Warrant Agent.
   9.12 Waiver of Trial by Jury . Each party hereto hereby irrevocably and unconditionally waives the right to a trial by jury in any action, suit,
counterclaim or other proceeding (whether based on contract, tort or otherwise) arising out of, connected with or relating to this Agreement and
the transactions contemplated hereby.

                                                                         27
   9.13 Severability . In the event that any one or more of the provisions contained herein or in the Warrants, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provisions in every other respect
and of the remaining provisions contained herein and therein shall not be affected or impaired thereby.
   9.14 Attorneys‘ Fees . In any action or proceeding brought to enforce any provisions of this Agreement or any Warrant, or where any
provision hereof or thereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys‘ fees and
disbursements in addition to its costs and expenses and any other available remedy.


                                                             [Signature Page Follows]

                                                                         28
   IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first
above written.

                                                          HANCOCK FABRICS, INC. ,

                                                          By:       /s/ Robert W. Driskell

                                                          Name:     Robert W. Driskell
                                                          Title:    Senior Vice President and
                                                                    Chief Financial Officer

                                                          CONTINENTAL STOCK TRANSFER & TRUST
                                                          COMPANY

                                                          By:       /s/ Alexandra Albrecht
                                                          Name:
                                                          Title:    Alexandra Albrecht
                                                                    Vice President

                                                          By:       /s/ John W. Comer, Jr.
                                                          Name:
                                                          Title:    John W. Comer, Jr.
                                                                    Vice President

                                                                   29
                                                                  EXHIBIT A
                                         FORM OF FACE OF GLOBAL WARRANT CERTIFICATE
                                 VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON                             , 2013
   This Global Warrant Certificate is held by The Depository Trust Company (the ―Depository‖) or its nominee in custody for the benefit of
the beneficial owners hereof, and is not transferable to any Person under any circumstances except that (i) this Global Warrant Certificate may
be exchanged in whole but not in part pursuant to Section 6.1(a) of the Warrant Agreement, (ii) this Global Warrant Certificate may be
delivered to the Warrant Agent for cancellation pursuant to Section 6.1(h) of the Warrant Agreement and (iii) this Global Warrant Certificate
may be transferred to a successor Depository with the prior written consent of the Company.
   Unless this Global Warrant Certificate is presented by an authorized representative of the Depository to the Company or the Warrant Agent
for registration of transfer, exchange or payment and any certificate issued is registered in the name of Cede & Co. or such other entity as is
requested by an authorized representative of the Depository (and any payment hereon is made to Cede & Co. or to such other entity as is
requested by an authorized representative of the Depository), any transfer, pledge or other use hereof for value or otherwise by or to any Person
is wrongful because the registered owner hereof, Cede & Co., has an interest herein.
   Transfers of this Global Warrant Certificate shall be limited to transfers in whole, but not in part, to nominees of the Depository or to a
successor thereof or such successor‘s nominee, and transfers of portions of this Global Warrant Certificate shall be limited to transfers made in
accordance with the restrictions set forth in Section 6 of the Warrant Agreement.
   No registration or transfer of the securities issuable pursuant to the Warrant will be recorded on the books of the Company until such
provisions have been complied with.

                                                                       A-1
  THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE (INCLUDING THE SECURITIES ISSUABLE UPON
EXERCISE OF THE WARRANT) ARE SUBJECT TO ADDITIONAL AGREEMENTS SET FORTH IN THE WARRANT AGREEMENT
DATED AS OF JUNE 17, 2008, BY AND BETWEEN THE COMPANY AND THE WARRANT AGENT (THE ―WARRANT
AGREEMENT‖).
     THIS WARRANT WILL BE VOID IF NOT EXERCISED PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON                                             .


                                       WARRANT TO PURCHASE SHARES OF COMMON STOCK OF
                                                          HANCOCK FABRICS, INC.
     CUSIP #
     ISSUE DATE:                  , 2008
     No.
   This certifies that, for value received,           , and its registered assigns (collectively, the ―Registered Holder‖), is entitled to purchase
from Hancock Fabrics, Inc., a corporation incorporated under the laws of the State of Delaware (the ―Company‖), subject to the terms and
conditions hereof, at any time before 5:00 p.m., New York time, on                 , 2013, the number of fully paid and non-assessable shares of
Common Stock of the Company set forth above at the Exercise Price (as defined in the Warrant Agreement). The Exercise Price and the
number and kind of shares purchasable hereunder are subject to adjustment from time to time as provided in Article V of the Warrant
Agreement. The initial Exercise Price shall be $               .
     This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent.
     IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under its corporate seal as of the                         day
of             , 2008.

                                                                HANCOCK FABRICS, INC.

                                                                By:

                                                                Print
                                                                Name:

                                                                Title:


     Attest:
               Secretary

                                                                         A-2
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent

By:

Name:

Title:


By:

Name:

Title:


Address of Registered Holder for Notices (until changed in accordance with this Warrant):




  REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT CERTIFICATE SET FORTH ON THE
REVERSE HEREOF. SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.

                                                                     A-3
                                                    FORM OF REVERSE OF WARRANT
   The Warrant evidenced by this Warrant Certificate is a part of a duly authorized issue of Warrants to purchase                shares of
Common Stock issued pursuant to that the Warrant Agreement, a copy of which may be inspected at the Warrant Agent‘s office. The Warrant
Agreement hereby is incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the Warrant Agent, the Company and the Registered Holders of the
Warrants. All capitalized terms used on the face of this Warrant herein but not defined that are defined in the Warrant Agreement shall have the
meanings assigned to them therein.
   Upon due presentment for registration of transfer of the Warrant at the office of the Warrant Agent, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any applicable tax or other
governmental charge.
   The Company shall not be required to issue fractions of Warrant Shares or any certificates that evidence fractional Warrant Shares.
   No Warrants may be sold, exchanged or otherwise transferred in violation of the Securities Act or state securities laws.
   This Warrant does not entitle the Registered Holder to any of the rights of a stockholder of the Company.
   The Company and Warrant Agent may deem and treat the Registered Holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by anyone) for the purpose of any exercise hereof and for all other
purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary.

                                                                       A-4
                                                                 EXHIBIT B-1
                           EXERCISE FORM FOR REGISTERED HOLDERS HOLDING BOOK-ENTRY WARRANTS
                                                   (To be executed upon exercise of Warrant)
   The undersigned hereby irrevocably elects to exercise the right, represented by the Book-Entry Warrants, to purchase Warrant Shares and
(check one):
    [ ] herewith tenders payment for                of the Warrant Shares to the order of Hancock Fabrics, Inc. in the amount of
$                in accordance with the terms of the Warrant Agreement and this Warrant; or
   [ ] herewith tenders this Warrant for             Warrant Shares pursuant to the net issuance exercise provisions of Section 4.4(b) of the
Warrant Agreement. This exercise and election shall [ ] be immediately effective or [ ] shall be effective as of 5:00 pm., New York time, on
[insert date].
    The undersigned requests that a statement representing the Warrant Shares be delivered as follows:

    Name

    Address




   Delivery Address (if
different):




    If said number of shares shall not be all the shares purchasable under the within Warrant Certificate, the undersigned requests that a new
Book-Entry Warrant representing the balance of such Warrants shall be registered, with the appropriate Warrant Statement delivered as
follows:

    Name

    Address




    Delivery Address (if
    different):




    Social Security or Other Taxpayer Identification Number of Holder



                                                                        B-1
   Signature of Holder:


   Print Name:
    Note: If the statement representing the Warrant Shares or any Book-Entry Warrants representing Warrants not exercised is to be registered
in a name other than that in which the Book-Entry Warrants are registered, the signature of the holder hereof must be guaranteed.
   SIGNATURE GUARANTEED BY:


   Signatures must be guaranteed by a participant in the Securities Transfer Agent Medallion Program, the Stock Exchanges Medallion
Program or the New York Stock Exchange, Inc. Medallion Signature Program.
   Countersigned:
   Dated:                            , 20
   CONTINENTAL STOCK TRANSFER & TRUST COMPANY, as Warrant Agent

   Signature
                                Authorized Signatory


                                Authorized Signatory

                                                                      B-2
                                                                  EXHIBIT B-2
                                              EXERCISE FORM FOR BENEFICIAL HOLDERS
                               HOLDING WARRANTS THROUGH THE DEPOSITORY TRUST COMPANY
                                              TO BE COMPLETED BY DIRECT PARTICIPANT
                                                  IN THE DEPOSITORY TRUST COMPANY
                                                   (To be executed upon exercise of Warrant)
   The undersigned hereby irrevocably elects to exercise the right, represented by ___ Warrants held for its benefit through the book-entry
facilities of The Depository Trust Company (the ―Depository‖), to purchase Warrant Shares and (check one):
    [ ] herewith tenders payment for                of the Warrant Shares to the order of Hancock Fabrics, Inc. in the amount of
$                in accordance with the terms of the Warrant Agreement and this Warrant; or
   [ ] herewith tenders this Warrant for             Warrant Shares pursuant to the net issuance exercise provisions of Section 4.4(b) of the
Warrant Agreement. This exercise and election shall [ ] be immediately effective or [ ] shall be effective as of 5:00 pm., New York time, on
[insert date].
   The undersigned requests that the Warrant Shares issuable upon exercise of the Warrants be in registered form in the authorized
denominations, registered in such names and delivered, all as specified in accordance with the instructions set forth below; provided, that if the
Warrant Shares are evidenced by global securities, the Warrant Shares shall be registered in the name of the Depository or its nominee.
    Dated:
   NOTE: THIS EXERCISE NOTICE MUST BE DELIVERED TO THE WARRANT AGENT, PRIOR TO 5:00 P.M., NEW YORK CITY
TIME, ON THE EXPIRATION DATE. THE WARRANT AGENT SHALL NOTIFY YOU (THROUGH THE CLEARING SYSTEM) OF
(1) THE WARRANT AGENT‘S ACCOUNT AT THE DEPOSITORY TO WHICH YOU MUST DELIVER YOUR WARRANTS ON THE
EXERCISE DATE AND (2) THE ADDRESS, PHONE NUMBER AND FACSIMILE NUMBER WHERE YOU CAN CONTACT THE
WARRANT AGENT AND TO WHICH WARRANT EXERCISE NOTICES ARE TO BE SUBMITTED. NAME OF DIRECT
PARTICIPANT IN THE DEPOSITORY:
    (PLEASE PRINT)

    ADDRESS:

  CONTACT
NAME:


                                                                        B-3
  ADDRESS:

  TELEPHONE:

  FAX:


  SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER (IF
APPLICABLE):
  ACCOUNT FROM WHICH WARRANTS ARE BEING DELIVERED:
  DEPOSITORY ACCOUNT NO.
  WARRANT EXERCISE NOTICES WILL ONLY BE VALID IF DELIVERED IN ACCORDANCE WITH THE INSTRUCTIONS SET
FORTH IN THIS NOTIFICATION (OR AS OTHERWISE DIRECTED), MARKED TO THE ATTENTION OF ―WARRANT EXERCISE‖.
WARRANT HOLDER DELIVERING WARRANTS, IF OTHER THAN THE DIRECT DTC PARTICIPANT DELIVERING THIS
WARRANT EXERCISE NOTICE:

  NAME:
                               (PLEASE PRINT)
  CONTACT
NAME:

  TELEPHONE:

  FAX:


  SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER (IF
APPLICABLE):
  ACCOUNT TO WHICH THE SHARES OF COMMON STOCK ARE TO BE CREDITED:
  DEPOSITORY ACCOUNT NO.
  FILL IN FOR DELIVERY OF THE COMMON STOCK, IF OTHER THAN TO THE PERSON DELIVERING THIS WARRANT
EXERCISE NOTICE:

    NAME:
         (PLEASE PRINT)
    ADDRESS:

    CONTACT NAME:

    TELEPHONE:


                                                  B-4
     FAX:


   SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER (IF APPLICABLE):
   NUMBER OF WARRANTS BEING EXERCISED:
   (ONLY ONE EXERCISE PER WARRANT EXERCISE NOTICE)

     Signature:

     Name:


    Capacity in
   which Signing:

    SIGNATURE
   GUARANTEED
   BY:


   Signatures must be guaranteed by a participant in the Securities Transfer Agent Medallion Program, the Stock Exchanges Medallion
Program or the New York Stock Exchange, Inc. Medallion Signature Program.

                                                                    B-5
                                                                 EXHIBIT C

                                                         FORM OF ASSIGNMENT

                                              (To be executed only upon assignment of Warrant)
   For value received,              hereby sells, assigns and transfers unto the Assignee(s) named below the rights represented by such
Warrant to purchase number of Warrant Shares listed opposite the respective name(s) of the Assignee(s) named below and all other rights of
the Registered Holder under the within Warrant, and does hereby irrevocably constitute and appoint                attorney, to transfer said
Warrant on the books of the within-named Company with respect to the number of Warrant Shares set forth below, with full power of
substitution in the premises:

   Name(s) of Assignee(s):

   Address:

   No. of Warrant Shares:


  And if said number of Warrant Shares shall not be all the Warrant Shares represented by the Warrant, a new Warrant is to be issued in the
name of said undersigned for the balance remaining of the Warrant Shares registered by said Warrant.
   Dated:                            , 20
   Signature:
   Note: The above signature should correspond exactly with the name on the face of this Warrant.

                                                                      C-1
                                                                                                                Exhibit 4.6


                                                                (Face of Note)
                                                Floating Rate Series A Secured Notes due 2013

CUSIP

No.                                                                                                        $


                                                        HANCOCK FABRICS, INC.
promises to pay to Cede & Co. or registered assigns, the principal sum of            Dollars ($     ) on       , 2013
[5 years from the date of issuance] .
Interest Payment Dates: [quarterly from date of issuance]
Record Dates: [15 days prior to interest payment date]

                                                                            HANCOCK FABRICS, INC.

                                                                            By:
                                                                            Name:

                                                                            Title:


                                                                            By:
                                                                            Name:
                                                                            Title:
[This is the Global Note
referred to in the within-
mentioned Indenture] 1

DEUTSCHE BANK NATIONAL TRUST COMPANY,
as Trustee

By:
Name:
Title:


By:
Name:
Title:

Authorized Signatory
Dated:                       , 20 ___


1                                   Used on Global Note only.
                                                     (Back of Note)
                                     Floating Rate Series A Secured Notes due 2013
THIS INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND
TO THE EXTENT SET FORTH IN ARTICLE XI OF THE INDENTURE BETWEEN THE COMPANY AND THE TRUSTEE DATED
JUNE 17, 2008. EACH HOLDER OF THIS INSTRUMENT, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE
BOUND BY THE PROVISIONS OF ARTICLE XI APPLICABLE TO A HOLDER.
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS
NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (i) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.06 OR IN ACCORDANCE WITH SECTION 9.06 OF THE INDENTURE, (ii) THIS
GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(e) OF THE INDENTURE,
(iii) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE
INDENTURE, AND (iv) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITORY WITH THE PRIOR
WRITTEN CONSENT OF THE COMPANY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF
THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (―DTC‖), TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY
BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.] 2


2                        Used on Global Note only.
   Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
   1. INTEREST. Hancock Fabrics, Inc., a Delaware corporation (the ―Company‖), promises to pay interest, either in cash or by issuance of
PIK Notes on the principal amount of this Note at a variable rate of interest, adjusted quarterly, equal to LIBOR plus 4.50% per annum until
maturity and shall pay the Additional Amounts, if any, as follows:
    (a) Interest and Additional Amounts, if any, shall be paid quarterly on                 ,              ,               , and               of
each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an ―Interest Payment Date‖), to Persons who
are registered Holders of Notes at the close of business on the date that is 15 days immediately prior to an Interest Payment Date (the ―Record
Date‖), even if such Notes are cancelled after such record date and on or before an Interest Payment Date, except as provided in Section 2.12 of
the Indenture with respect to defaulted interest. Quarterly interest accrued and unpaid under this paragraph (a) will, to the extent lawful, accrue
interest at the rate provided in this Note. Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from                                , 2008, through the next succeeding Interest Payment Date (the ―Interest Period‖). The
first Interest Payment Date shall be                  , 2008 and the last Interest Payment Date shall be                            , 2013.
    (b) ―LIBOR‖ shall mean, for each Interest Period, a rate of interest determined by Trustee equal to the offered rate for deposits in United
States dollars for the applicable Interest Period that appears on Reuters Screen LIBOR01 Page as of 11:00 a.m. (London time), on the second
full Business Day next preceding the first day of each Interest Period (unless such date is not a Business Day, in which event the next
succeeding Business Day will be used). If such interest rates shall cease to be available from Telerate News Service (or its successor
satisfactory to the Trustee), LIBOR shall be determined from such financial reporting service or other information as shall be reasonably
determined by the Trustee.
    (c) The Company shall pay interest (i) entirely in money of the United States that at the time of payment is legal tender for payment of
public and private debts (―Cash Interest‖) for all amounts due, or (ii) with respect to the initial four Interest Payment Dates, in the Company‘s
discretion either (A) entirely by the payment of Cash Interest, (B) partially by the payment of Cash Interest and partially by the issuance of
additional Notes (―PIK Notes‖), or (C) entirely by the issuance of PIK Notes. If the Company elects to issue PIK Notes in lieu of part or all of
the Cash Interest owed, the Company shall give written notice of such election to the Trustee on or before the record date for the applicable
Interest Payment Date, and execute such PIK Notes, dated the date of such Interest Payment Date. In the event the Company elects to pay some
or all of the interest that is due for a Payment Period by issuance of PIK Notes, the interest due on that portion of the Indebtedness to be paid by
a PIK Note shall be equal to LIBOR plus 5.50% per annum for such Payment Period. The issuance of such PIK Notes shall constitute payment
in full of the interest in lieu of cash payment of which such PIK Notes are issued.
   (d) The Company shall pay interest (including post-petition interest in any Proceeding under any Bankruptcy Law) on overdue principal and
premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay
interest (including post-petition interest in any Proceeding under any Bankruptcy Law) on overdue installments of interest and Additional
Amounts, if any (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest
shall be computed on the basis of a 360-day year of twelve 30-day months.
    2. METHOD OF PAYMENT. The Company shall pay principal, premium, if any, interest and Additional Amounts, if any, on the Maturity
Date and Interest Payment Dates, as applicable, to the Persons who are registered Holders of Notes. The Notes shall be payable by wire transfer
of immediately available funds to the registered Holder of the Global Note and, with respect to certificated Notes, by wire transfer of
immediately available funds in accordance with instructions provided by the registered Holders of certificated Notes or, if no such instructions
are specified, by mailing a check to each such Holder‘s registered address.
    3. PAYING AGENT AND REGISTRAR. Initially, Deutsche Bank National Trust Company, the Trustee under the Indenture, shall act as
Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of
its Subsidiaries may act in any such capacity.
   4. INDENTURE. The Company issued the Notes under an Indenture dated as of June 17, 2008 (―Indenture‖) between the Company and the
Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture
Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the
Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the
Indenture, the provisions of the Indenture shall govern and be controlling.
   5. OPTIONAL REDEMPTION. The Notes are subject to redemption for cash at the option of the Company, in whole or in part, upon not
less than 30 nor more than 60 days notice to each Holder of Notes to be redeemed at a redemption price equal to (i) (A) 102.000% of the
principal amount thereof if redeemed on or before one year from the date of issuance of the Notes, (B) 101.000% of the principal amount
thereof if redeemed after one year but on or before two years from the date of issuance of the Notes, or (C) 100.000% of the principal amount
thereof if redeemed after two years from the date of issuance of the Notes, plus (ii) any accrued and unpaid interest, plus (iii) any Additional
Amounts thereon to the redemption date.
   6. REPURCHASE AT OPTION OF HOLDER. If there is a Change of Control, the Company shall, subject to Article XI of the Indenture, be
required to make an offer (a ―Change of Control Offer‖) to repurchase all or any part (equal to $1,000 or an integral multiple thereof if in part)
of each Holder‘s Notes at a purchase price equal to 101.000% of the aggregate principal amount thereof plus accrued and unpaid interest
thereon and Additional Amounts, if any, to the date of purchase (the ―Change of Control Payment‖). Within 30 days following any Change of
Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the
Indenture.
    7. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption date
to each Holder whose Notes are to be redeemed at its registered address. Notes and portions of Notes selected shall be in amounts of
$1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held
by such Holder, even if not a multiple of $1,000, shall be redeemed. On and after the redemption date interest ceases to accrue on Notes, or
portions thereof called for redemption.
    8. SECURITY. To secure the due and punctual payment of the principal, interest and Additional Amounts, if any, on the Notes and all other
amounts payable by the Company under the Indenture and the Notes when and as the same shall be due and payable, whether at maturity, by
acceleration or otherwise, according to the terms of the Notes and the Indenture, the Company has granted a security interest in the Collateral to
the Trustee for the benefit of the Holders of Notes pursuant to the Indenture. The Collateral is subject to release from the Lien of the Indenture
to the extent provided therein.
   9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and
integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar
and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also,
the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or
during the period between a record date and the corresponding interest payment date.
   10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes.
    11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes voting as a single class,
and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes voting as a single class. Without the consent of any Holder of a Note, the Indenture
or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for certificated Notes in addition to or
in place of uncertificated Notes, to provide for the assumption of the Company‘s obligations to Holders of the Notes in case of a merger or
consolidation, or sale of substantially all of the Company‘s assets, to make any change that would provide any additional rights or benefits to
the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the
requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act.
   12. DEFAULTS AND REMEDIES. Events of Default are identified in the Indenture, and include, in summary form (the following
summary being for illustrative purposes only and not creating any additional Events of Default or expanding any Events of Default identified in
the Indenture): (a) default in payment when due of the principal of or premium, if any, on the
Notes; (b) default for 30 days in the payment when due of interest or Additional Amounts, if any, on the Notes; (c) failure by the Company for
60 days after notice to comply with any of its other agreements in the Indenture or the Notes; (d) the nonpayment within any applicable grace
period after the final maturity, or the acceleration by the Holders because of a default, of Indebtedness of the Company or any Subsidiary, and
the total amount of such Indebtedness unpaid or accelerated exceeds $5,750,000; (e) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $5,750,000, which judgments are not paid, discharged or stayed for a period of 60 consecutive days;
and (f) certain events of bankruptcy or insolvency with respect to the Company. If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 50.1% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable, subject to
certain conditions. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency,
all outstanding Notes shall become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding Notes
may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the
Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the
Indenture except a continuing Default or Event of Default in the payment of interest and premium, if any, on, or the principal of, the Notes. The
Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.
   13. DEFEASANCE. The Indenture and the obligations under the Notes may be defeased (subject to certain exceptions) upon satisfaction of
the conditions specified in Article 8 of the Indenture.
   14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the
Trustee.
   15. NO RECOURSE AGAINST OTHERS. No recourse for the payment of the principal of, premium, if any, or interest or Additional
Amounts, if any, on any of the Notes, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company contained in this Indenture or in any of the Notes, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator or past, present or future director, officer, employee, controlling Person
or stockholder of the Company. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
   16. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.
  17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
   18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the
Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a
convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any
notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
   The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to:


                                                           Hancock Fabrics, Inc.
                                                             One Fashion Way
                                                           Baldwyn, MS 38824
                                                            Attention: President
                                                              ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to


                                                  (Insert assignee‘s social security or tax I.D. no.)




                                               (Print or type assignee‘s name, address and zip code)
and irrevocably appoint                                             to transfer this Note on the books of the Company. The agent may substitute
another to act for him.

Date:

                                                                            Your Signature:


                                                                            (Sign exactly as your name appears on the face of this Note)

                                                                            Signature Guarantee:
                                              OPTION OF HOLDER TO ELECT PURCHASE
   If you want to elect to have this Note purchased by the Company pursuant to Section 3.8 of the Indenture, check the box below:
   []
   If you want to elect to have only part of the Note purchased by the Company pursuant to Section 3.8 of the Indenture, state the amount you
elect to have purchased: $

Date:

                                                                  Your Signature:


                                                                  (Sign exactly as your name appears on the face of the Note)

                                                                  Signature Guarantee:



                                                                  Tax Identification No.:
                                 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
   The following exchanges of a part of this Global Note for a Series A Definitive Note, or exchanges of a part of a Series A Definitive Note
for an interest in this Global Note, have been made:

                                                                                               Principal Amount
                                             Amount of             Amount of                         of this            Signature
                                             decrease in           increase in                    Global Note               of
                                              Principal             Principal                                           authorized
                                              Amount                Amount                      following such            officer
                                               of this               of this                       decrease                 of
                                                                                                                        Trustee or
         Date of Exchange                    Global Note          Global Note                    (or increase)          Custodian
                                                                                                                                      Exhibit 4.7


                                         FORM OF FACE OF GLOBAL WARRANT CERTIFICATE
                                 VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON                             , 2013
   This Global Warrant Certificate is held by The Depository Trust Company (the ―Depository‖) or its nominee in custody for the benefit of
the beneficial owners hereof, and is not transferable to any Person under any circumstances except that (i) this Global Warrant Certificate may
be exchanged in whole but not in part pursuant to Section 6.1(a) of the Warrant Agreement, (ii) this Global Warrant Certificate may be
delivered to the Warrant Agent for cancellation pursuant to Section 6.1(h) of the Warrant Agreement and (iii) this Global Warrant Certificate
may be transferred to a successor Depository with the prior written consent of the Company.
   Unless this Global Warrant Certificate is presented by an authorized representative of the Depository to the Company or the Warrant Agent
for registration of transfer, exchange or payment and any certificate issued is registered in the name of Cede & Co. or such other entity as is
requested by an authorized representative of the Depository (and any payment hereon is made to Cede & Co. or to such other entity as is
requested by an authorized representative of the Depository), any transfer, pledge or other use hereof for value or otherwise by or to any Person
is wrongful because the registered owner hereof, Cede & Co., has an interest herein.
   Transfers of this Global Warrant Certificate shall be limited to transfers in whole, but not in part, to nominees of the Depository or to a
successor thereof or such successor‘s nominee, and transfers of portions of this Global Warrant Certificate shall be limited to transfers made in
accordance with the restrictions set forth in Section 6 of the Warrant Agreement.
   No registration or transfer of the securities issuable pursuant to the Warrant will be recorded on the books of the Company until such
provisions have been complied with.

                                                                        1
  THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE (INCLUDING THE SECURITIES ISSUABLE UPON
EXERCISE OF THE WARRANT) ARE SUBJECT TO ADDITIONAL AGREEMENTS SET FORTH IN THE WARRANT AGREEMENT
DATED AS OF JUNE 17, 2008, BY AND BETWEEN THE COMPANY AND THE WARRANT AGENT (THE ―WARRANT
AGREEMENT‖).
     THIS WARRANT WILL BE VOID IF NOT EXERCISED PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON                                              .


                                       WARRANT TO PURCHASE SHARES OF COMMON STOCK OF
                                                          HANCOCK FABRICS, INC.
     CUSIP #
     ISSUE DATE:                  , 2008
     No.
    This certifies that, for value received,                         , and its registered assigns (collectively, the ―Registered Holder‖), is
entitled to purchase from Hancock Fabrics, Inc., a corporation incorporated under the laws of the State of Delaware (the ―Company‖), subject
to the terms and conditions hereof, at any time before 5:00 p.m., New York time, on                                 , 2013, the number of fully paid
and non-assessable shares of Common Stock of the Company set forth above at the Exercise Price (as defined in the Warrant Agreement). The
Exercise Price and the number and kind of shares purchasable hereunder are subject to adjustment from time to time as provided in Article V of
the Warrant Agreement. The initial Exercise Price shall be $                .
     This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent.
     IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under its corporate seal as of the                         day
of                     , 2008.

                                                                        HANCOCK FABRICS, INC.

                                                                        By:

                                                                        Print Name:

                                                                        Title:


      Attest:
                  Secretary

                                                                         2
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY,
as Warrant Agent

By:

Name:

Title:


By:

Name:

Title:


Address of Registered Holder for Notices (until changed in accordance with this Warrant):




  REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT CERTIFICATE SET FORTH ON THE
REVERSE HEREOF. SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY
SET FORTH AT THIS PLACE.

                                                                      3
                                                     FORM OF REVERSE OF WARRANT
    The Warrant evidenced by this Warrant Certificate is a part of a duly authorized issue of Warrants to
purchase                               shares of Common Stock issued pursuant to that the Warrant Agreement, a copy of which may be
inspected at the Warrant Agent‘s office. The Warrant Agreement hereby is incorporated by reference in and made a part of this instrument and
is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Warrant Agent, the
Company and the Registered Holders of the Warrants. All capitalized terms used on the face of this Warrant herein but not defined that are
defined in the Warrant Agreement shall have the meanings assigned to them therein.
   Upon due presentment for registration of transfer of the Warrant at the office of the Warrant Agent, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any applicable tax or other
governmental charge.
   The Company shall not be required to issue fractions of Warrant Shares or any certificates that evidence fractional Warrant Shares.
   No Warrants may be sold, exchanged or otherwise transferred in violation of the Securities Act or state securities laws.
   This Warrant does not entitle the Registered Holder to any of the rights of a stockholder of the Company.
   The Company and Warrant Agent may deem and treat the Registered Holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by anyone) for the purpose of any exercise hereof and for all other
purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary.

                                                                          4
                                                                                                                                       Exhibit 4.8


                                                 FORM OF SUBSCRIPTION CERTIFICATE
Certificate No.:
Name of Registered Holder
Address of Registered Holder
___ Subscription Rights


                               TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH
                                    IN THE COMPANY‘S PROSPECTUS, DATED JUNE 19, 2008,
                                       AND ARE INCORPORATED HEREIN BY REFERENCE.
                               COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM
                                  WUNDERLICH SECURITIES, INC., THE SUBSCRIPTION AGENT.


                                                         HANCOCK FABRICS, INC.
                                                          A Delaware Corporation
                                                       SUBSCRIPTION CERTIFICATE
   Evidencing the number of Subscription Rights stated above, each right representing the right to purchase one $1,000 principal amount of
floating rate secured note (―Note‖) and a warrant (―Warrant‖) to purchase 400 shares of common stock at an exercise price equal to the greater
 of (i) $1.00 and (ii) the volume weighted average trading price for the 30 days prior to the 3 rd business day before the date of issuance of the
                                                      warrants. Subscription Price: $1,000


                                   VOID IF NOT EXERCISED BEFORE 5:00 P.M., EASTERN TIME ON
                                                        JULY 18, 2008.
THIS CERTIFIES THAT the registered owner whose name is inscribed herein is the owner of the number of Subscription Rights set forth
above, each of which entitles the owner to subscribe for and purchase one Note and one Warrant of Hancock Fabrics, Inc., a Delaware
corporation, on the terms and subject to the conditions set forth in the Prospectus and the instructions relating hereto. The Subscription Rights
represented by this Subscription Certificate may be exercised by completing Section 1 hereof. Special delivery restrictions may be specified by
completing Section 2 hereof.

Dated: June 19, 2008


Jane F. Aggers                                                                        Robert W. Driskell
President                                                                             Secretary
SECTION 1. EXERCISE AND SUBSCRIPTION
The undersigned irrevocably exercises Subscription Rights to subscribe for Notes and Warrants as indicated below on the terms and subject to
the conditions specified in the Prospectus, the receipt of which is hereby acknowledged.
     (a)   Number of Subscription Rights subscribed:

     (b)   Total Subscription Price (total number of Subscription Rights subscribed for multiplied by the Subscription Price of
           $1,000):

METHOD OF PAYMENT (CHECK ONE)

[]         Certified check or bank draft (cashier‘s check) drawn on a U.S. bank or money order, payable to Wunderlich Securities, Inc., as
           Subscription Agent.

[]         Wire transfer of immediately available funds directed to the account maintained by Wunderlich Securities, Inc., Subscription Agent
           for Hancock Fabrics, Inc. at Wachovia Bank, ABA # 053000219, Account No. 2000041008548.
If the amount enclosed or transmitted is not sufficient to pay the purchase price for all Subscription Rights that are stated to be subscribed for,
or if the number of Subscription Rights being subscribed for is not specified, the number of Subscription Rights subscribed for will be assumed
to be the maximum number that could be subscribed for upon payment of such amount. If the amount enclosed or transmitted exceeds the
purchase price for all Subscription Rights that the undersigned has the right to subscribe for (such excess amount, the ―Subscription Excess‖)
the Subscription Agent will return the Subscription Excess to the subscriber without interest or deduction.

SECTION 2. SPECIAL ISSUANCE OR DELIVERY INSTRUCTIONS FOR SUBSCRIPTION RIGHTS HOLDERS:
(a) To be completed ONLY if the Notes and Warrants are to be issued in a name other than that of the registered holder. See the Instructions.
DO NOT FORGET TO COMPLETE THE GUARANTEE OF SIGNATURE(S) SECTION BELOW.

Name in which to be issued:                                                         Soc. Sec. #/Tax ID #:


Address:




(b) To be completed ONLY if the certificate representing Notes and Warrants are to be sent to the registered holder at an address other than
that show above. See the Instructions. DO NOT FORGET TO COMPLETE THE GUARANTEE OF SIGNATURE(S) SECTION BELOW

Name:                                                                               Address:



                                                                         2
ACKNOWLEDGMENT — THE SUBSCRIPTION ORDER FORM IS NOT VALID UNLESS YOU SIGN BELOW
I/We acknowledge receipt of the Prospectus and understand that, after delivery to the Subscription Agent for Hancock Fabrics, Inc., I/we may
not modify or revoke this Subscription Certificate. Under penalties of perjury, I/we certify that the information contained herein, including the
social security number or taxpayer identification number given above, is correct.
The signature below must correspond with the name of the registered holder exactly as it appears on the books of the Company‘s transfer agent
without any alteration or change whatsoever.

Signature(s) of Registered Holder:                                                     Date:


If signature is by trustee(s), executor(s), administrator(s), guardian(s), attorney(s)-in-fact, agent(s), officer(s) of a corporation or another acting
in a fiduciary or representative capacity, please provide the following information (please print). See the Instructions.

Name:                                                      Capacity:                                 Soc. Sec. #/Tax ID #



Address:                                                                                             Phone:




                                                        GUARANTEE OF SIGNATURE(S)
All Subscription Rights Holders who specify special issuance or delivery instructions must have their signatures guaranteed by an Eligible
Institution, as defined in Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended. See the Instructions.

Authorized Signature:                                                                                Name of Firm:



Name:                                                      Title:                                    Soc. Sec. #/Tax ID #:



Address:                                                                                             Phone:



                                                                            3
YOU MUST HAVE YOUR SIGNATURE GUARANTEED IF YOU WISH TO HAVE YOUR SHARES DELIVERED TO AN ADDRESS
OTHER THAN YOUR OWN OR TO A STOCKHOLDER OTHER THAN YOURSELF.

                                                               Signature Guaranteed:

                                                               By:


                                                               Name of Bank or Firm:



                                                BACKUP WITHHOLDING CERTIFICATIONS
TIN:
TAXPAYER I.D. NUMBER. The Taxpayer Identification Number shown above (TIN) is my correct taxpayer identification number.
[ ] BACKUP WITHHOLDING. I am not subject to backup withholding either because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or the Internal Revenue Service has notified me that I am no longer subject
to backup withholding.
[ ] EXEMPT RECIPIENTS. I am an exempt recipient under the Internal Revenue Service Regulations.
[ ] NONRESIDENT ALIENS. I am not a United States person, or if I am an individual, I am neither a citizen nor a resident of the United
States.
SIGNATURE: I certify under penalties of perjury the statements checked in this section.

Signature:                                                      Date:



(See ―Federal Income Tax Consequences — Information Reporting and Backup Withholding‖ in the Hancock Fabrics, Inc. Prospectus dated
June 19, 2008 for information concerning this certification and U.S. federal income tax withholding that may apply.

                                                                          4
                                   FORM OF INSTRUCTIONS FOR USE OF HANCOCK FABRICS, INC.

                                                      SUBSCRIPTION CERTIFICATES
The following instructions relate to a rights offering (the ―Rights Offering‖) by Hancock Fabrics, Inc., a Delaware corporation (the
―Company‖), to the holders of its common stock, par value $0.01 per share (―Common Stock‖), as described in the Company‘s prospectus
dated June 19, 2008 (the ―Prospectus‖). Holders of record of Common Stock at the close of business on June 17, 2008 (the ―Record Date‖) will
receive one transferable subscription right (the ―Subscription Rights‖) for each 970 shares of Common Stock held by them as of the close of
business on the Record Date. An aggregate of up to 20,000 Subscription Rights exercisable to purchase an aggregate of up to $20,000,000
principal amount of floating rate secured notes (―Notes‖) and warrants to purchase up to 8,000,000 shares of the Company‘s Common Stock
(―Warrants‖) are being distributed in connection with the Rights Offering. Each Subscription Right is exercisable, upon payment of $1,000 in
cash (the ―Subscription Price‖), to purchase one Note in the principal amount of $1,000 accompanied by a Warrant to purchase 400 shares of
Common Stock. See ―Prospectus Summary‖ and ―The Rights Offering‖ in the Prospectus.
No fractional Subscription Rights or cash in lieu thereof will be issued or paid. The total number of Subscription Rights issued to each
stockholder will be rounded down to the nearest full Subscription Right.
The Subscription Rights will expire at 5:00 p.m., Eastern Time, on July 18, 2008 (the ―Expiration Date‖).
The number of Subscription Rights to which you are entitled is printed on the face of your Subscription Certificate. You should indicate your
wishes with regard to the exercise of your Subscription Rights by completing the appropriate section on your Subscription Certificate and
returning the Subscription Certificate to the Subscription Agent in the envelope provided.
THE SUBSCRIPTION AGENT MUST RECEIVE YOUR SUBSCRIPTION CERTIFICATE ON OR BEFORE THE EXPIRATION DATE.
IN ADDITION, THE SUBSCRIPTION AGENT MUST RECEIVE PAYMENT OF THE SUBSCRIPTION PRICE FOR ALL
SUBSCRIPTION RIGHTS EXERCISED ON OR BEFORE THE EXPIRATION DATE. ONCE A HOLDER OF SUBSCRIPTION RIGHTS
HAS EXERCISED THE SUBSCRIPTION RIGHTS, SUCH EXERCISE MAY NOT BE REVOKED.
1. SUBSCRIPTION RIGHTS. To exercise Subscription Rights, properly complete and execute your Subscription Certificate and send it,
together with payment in full of the Subscription Price to the Subscription Agent. Delivery of the Subscription Certificate must be made by
mail, by hand delivery or by overnight delivery. FACSIMILE DELIVERY OF THE SUBSCRIPTION CERTIFICATE WILL NOT BE
ACCEPTED AND WILL NOT CONSTITUTE VALID DELIVERY. All payments must be made in United States dollars by (i) certified check
or bank draft (cashier‘s check) drawn on a U.S. bank or money order payable to Wunderlich Securities, Inc., as Subscription Agent or (ii) wire
transfer of immediately available funds. Banks, brokers, trusts, depositaries or other nominee holders of the Subscription Rights who exercise
the Subscription Rights on behalf of beneficial owners of Subscription Rights will

                                                                        5
be required to certify to the Subscription Agent and the Company on a Nominee Holder Certification Form as to the aggregate number of
Subscription Rights that have been exercised by each beneficial owner of Subscription Rights on whose behalf such nominee holder is acting.
In the event such certification is not delivered in respect of a Subscription Certificate, the Subscription Agent shall for all purposes be entitled
to assume that such certificate is exercised on behalf of a single beneficial owner.
ACCEPTANCE OF PAYMENTS. Payments will be deemed to have been received by the Subscription Agent only upon the receipt by the
Subscription Agent of any certified check or bank draft (cashier‘s check) drawn on a U.S. bank, money order or immediately available funds
transferred through a wire transfer.
CONTACTING THE SUBSCRIPTION AGENT. The address, telephone and facsimile numbers of the Subscription Agent, Wunderlich
Securities, Inc. are as follows:

                                        If by Hand Delivery, Overnight Delivery,
                                        First Class Mail or Registered Mail:

                                        Wunderlich Securities, Inc.
                                        6000 Poplar Avenue, Suite 210
                                        Memphis, TN 38119
                                        Attention: Jim Harwood
                                        Telephone: (901) 251-2233
                                        Facsimile: (901) 251-1349
PARTIAL EXERCISE. If you exercise less than all of the Subscription Rights evidenced by your Subscription Certificate, the Subscription
Agent will issue to you a new Subscription Certificate evidencing the unexercised Subscription Rights. However, if you choose to have a new
Subscription Certificate sent to you, you may not receive any such new Subscription Certificate in sufficient time to permit exercise of the
Subscription Rights being exercised, or if you do not deliver the dollar amount sufficient to purchase the number of shares subscribed for, you
will be deemed to have exercised the Subscription Right with respect to the maximum number of whole Subscription Rights which may be
exercised for the Subscription Price payment you deliver.
2. DELIVERY OF NOTES AND WARRANTS, ETC. The following deliveries and payments to you will be made to the address shown on the
face of your Subscription Certificate unless you provide instructions to the contrary on your Subscription Certificate.
(a) SUBSCRIPTION RIGHTS. As soon as practicable after the valid exercise of Subscription Rights and the Expiration Date, the Subscription
Agent will mail to each exercising Subscription Rights holder (i) evidence of the Notes, and (ii) Warrant certificates, each purchased pursuant
to the Subscription Rights.
(b) EXERCISE PAYMENTS. As soon as practicable after the Expiration Date and after all prorations and adjustments contemplated by the
terms of the Rights Offering have been effected, the Subscription Agent will mail to each Subscription Rights holder any excess funds received

                                                                           6
(without interest or deduction) in payment of the Subscription Price for shares that are subscribed for but not allocated to such Subscription
Rights holder.
3. TO HAVE A SUBSCRIPTION CERTIFICATE DIVIDED INTO SMALLER DENOMINATIONS. To have a Subscription Certificate
divided into certificates for smaller numbers of Subscription Rights, send your Subscription Certificate, together with complete instructions
(including specification of the whole number of Subscription Rights you wish to be evidenced by each new Subscription Certificate) signed by
you, to the Subscription Agent, allowing three to five days for the Subscription Certificates to be issued and returned so that they can be used
prior to the Expiration Date. Alternatively, you may ask a bank or broker to effect such actions on your behalf. As a result of delays in the mail,
the time of the transmittal, the necessary processing time and other factors, you may not receive the new Subscription Certificates in time to
enable you to complete an exercise by the Expiration Date. Neither Hancock Fabrics, Inc. nor the Subscription Agent will be liable to you for
any such delays.

4. EXECUTION.
(a) EXECUTION BY REGISTERED HOLDER. The signature on the Subscription Certificate must correspond with the name of the registered
holder exactly as it appears on the face of the Subscription Certificate without any alteration or change whatsoever. Persons who sign the
Subscription Certificate in a representative or other fiduciary capacity must indicate their capacity when signing and, unless waived by the
Subscription Agent in its sole and absolute discretion, must present to the Subscription Agent satisfactory evidence of their authority so to act.
(b) EXECUTION BY PERSON OTHER THAN REGISTERED HOLDER. If the Subscription Certificate is executed by a person other than
the holder named on the face of the Subscription Certificate, prior evidence of authority of the person executing the Subscription Certificate
must accompany the name unless the Subscription Agent, in its discretion, dispenses with proof of authority.
(c) SIGNATURE GUARANTEES. Your signature must be guaranteed by an Eligible Guarantor Institution if you specify special issuance or
delivery instructions.
5. METHOD OF DELIVERY. The method of delivery of Subscription Certificates and the payment of the Subscription Price to the
Subscription Agent will be at the election and risk of the Subscription Rights holder. If sent by mail, it is recommended that they be sent by
registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to the
Subscription Agent prior to the Expiration Date.

                                                                         7
                                                                                                                                     Exhibit 5.1


                                                          [BDBCB LETTERHEAD]
                                                                 June 19, 2008
Hancock Fabrics, Inc.
One Fashion Way
Baldwyn, Mississippi 38824
Ladies and Gentlemen:
   Reference is made to your Registration Statement No. 333-150979, as amended (the ―Registration Statement‖) on Form S-1 filed with the
Securities and Exchange Commission with respect to $20,000,000 aggregate principal amount of floating rate secured notes (the ―Notes‖),
$2,000,000 aggregate principal amount of floating rate secured notes that may be issued in lieu of cash for payment of interest on the Notes (the
―In-Kind Notes‖), warrants (the ―Warrants‖) to purchase 9,500,000 of your shares of common stock, par value $0.01 per share (the ―Common
Stock‖), and subscription rights to purchase the Notes and Warrants (―Rights‖). The Rights will be issued to the stockholders of Hancock
Fabrics, Inc. (the ―Company‖) who held at least 970 shares of the Common Stock as of June 17, 2008, and those holders will have the right to
purchase Notes and Warrants. The Notes and any In-Kind Notes will be issued under an indenture (the ―Indenture‖) dated as of June 17, 2008,
between the Company and Deutsche Bank National Trust Company as trustee (the ―Trustee‖). The Warrants will be issued pursuant to a Master
Warrant Agreement (the ―Master Warrant‖) dated as of June 17, 2008 between the Company and the Continental Stock Transfer & Trust
Company (the ―Warrant Agent‖).
   For purposes of this opinion letter, we have examined copies of the following documents:
   1. An executed copy of the Registration Statement.
   2. The Certificate of Incorporation of the Company, as certified by the Secretary of the Company on the date hereof as being complete,
accurate, and in effect.
   3. The Amended and Restated Bylaws of the Company, as certified by the Secretary of the Company on the date hereof as being complete,
accurate, and in effect.
   4. Resolutions of the Board of Directors of the Company, adopted on June 5, 2008, as certified by the Secretary of the Company on the date
hereof as being complete, accurate, and in effect, relating to the issuance of the Rights, the issuance and sale of the Notes, the In-Kind Notes
and Warrants and arrangements in connection therewith.
   5. The form of Subscription Certificate.
   6. An executed copy of the Subscription Agent Agreement, dated as of June 17, 2008, between the Company and Wunderlich Securities,
Inc., as Subscription Agent (the ―Subscription Agent Agreement‖).
   7. The Indenture.
   8. The Master Warrant.
   In our examination of the aforesaid documents, we have assumed the genuineness of all signatures, the legal capacity of all natural persons,
the accuracy and completeness of all documents submitted to us, the authenticity of all original documents, and the conformity to authentic
original documents of all documents submitted to us as copies (including telecopies). This opinion letter is given, and all statements herein are
made, in the context of the foregoing.
    This opinion letter is based as to matters of law solely on the Delaware General Corporation Law, as amended. We express no opinion
herein as to any other laws, statutes, ordinances, rules or regulations. As used herein, the term ―Delaware General Corporation Law, as
amended‖ includes the statutory provisions contained therein, all applicable provisions of the Delaware Constitution and reported judicial
decisions interpreting these laws. We have not been requested to express, and with your knowledge and consent, do not render any opinion as
to the applicability of the United States Bankruptcy Code to the obligations of the Company under the Indenture, the Notes, the In-Kind Notes,
the Master Warrant or the Warrants.
   To the extent that the obligations of the Company under the Indenture or the Master Warrant may be dependent upon such matters, we have
assumed for purposes of this opinion that: (i) the Trustee (a) is duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, (b) has the requisite organizational and legal power and authority to perform its obligations under the Indenture,
and (c) has duly authorized, executed and delivered the Indenture; (ii) the Warrant Agent (a) is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, (b) has the requisite organizational and legal power and authority to perform its
obligations under the Master Warrant, and (c) has duly authorized, executed and delivered the Master Warrant; (iii) the Indenture constitutes
the legally valid and binding obligations of the Trustee, enforceable against the Trustee in accordance with its terms; (iv) the Master Warrant
constitutes the legally valid and binding obligations of the Warrant Agent, enforceable against the Warrant Agent in accordance with its terms;
(v) the Trustee is in compliance, generally and with respect to acting as a trustee under the Indenture, with all applicable laws and regulations;
and (v) the Warrant Agent is in compliance, generally and with respect to acting as a warrant agent under the Master Warrant, with all
applicable laws and regulations.
   Based upon, subject to and limited by the foregoing, we are of the opinion that:
   (a) The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware.
   (b) The Indenture has been duly authorized, executed and delivered by the Company.
   (c) The Notes have been duly authorized by all necessary corporate action of the Company, and when executed, authenticated and delivered
by or on behalf of the Company against payment therefor in accordance with the terms of the Indenture will constitute legally valid and binding
obligations of the Company, enforceable against the Company in accordance with their terms.
   (d) The Master Warrant has been duly authorized, executed and delivered by the Company.
   (e) The Warrants have been duly authorized by all necessary corporate action of the Company, and when executed and delivered by or on
behalf of the Company against payment therefor will constitute legally valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms.
   (f) Upon distribution of the Rights pursuant to the rights offering, as described in the Registration Statement and the prospectus constituting
a part of the Registration Statement (the ―Prospectus‖), the Rights will be duly authorized and validly issued.
   This opinion letter has been prepared for your use in connection with the Registration Statement and speaks as of the date hereof. We
assume no obligation to advise you of any changes in the foregoing subsequent to the delivery of this opinion letter.
   We hereby consent to the filing of this opinion letter as Exhibit 5.1 to the Registration Statement and to the reference to this firm under the
caption ―Legal Matters‖ in the prospectus constituting a part of the Registration Statement. In giving this consent, we do not thereby admit that
we are an ―expert‖ within the meaning of the Securities Act of 1933, as amended.
                                                                         Very truly yours,
                                                                         /s/ Sam D. Chafetz, Esq.
                                                                         Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
                                                                                                                               Exhibit 10.45
     This Subscription Agent Agreement is made as of June 17, 2008.

      BETWEEN: HANCOCK FABRICS, INC., a Delaware corporation, (the ―COMPANY‖)

                     - and –

                     WUNDERLICH SECURITIES, INC., (the ―AGENT‖)
   WHEREAS the Company has resolved to offer rights (the ―Rights‖) at a price of $1,000 per Right. Each Right will allow certain
stockholders of the Company to purchase one $1,000 principal amount of floating rate secured note (―Notes‖) and a warrant (―Warrants‖) to
purchase 400 shares of the Company‘s Common Stock at an exercise price equal to the greater of (i) $1.00 and (ii) the volume weighted
average trading price for the 30 days prior to the 3 rd business day before the date of issuance of the Warrants;
   WHEREAS the Rights are to be issued only to certain stockholders holding Common Stock of the Company as hereinafter described, which
stockholders held Common Stock of the Company on the Record Date; and
   WHEREAS the Company deems it expedient that the Agent act as subscription agent for the Rights and as custodian of monies tendered
upon exercise of the Rights;
     NOW THEREFORE, in consideration of the mutual covenants herein set forth, the parties hereto agree as follows:

1.         DEFINITIONS:

1.01.      In this Agreement:
     (a)   ―Agreement‖ means this agreement;

     (b)   ―Common Stock‖ means the issued and outstanding shares of common stock of the Company, par value $0.01;

     (c)   ―Expiration Date‖ means 5:00 p.m., (Eastern Time), on July 18, 2008;

     (d)   ―Qualified Stockholders‖ means all Common Stockholders who owned at least 970 shares of Common Stock on the Record Date;

     (e)   ―Notes‖ has the meaning set forth in the Recitals to this Agreement;

     (f)   ―Record Date‖ means as of the close of business on June 17, 2008;

                                                                         1
      (g)   ―Rights‖ means the right of Stockholders owning at least 970 shares of Common Stock on the Record Date to purchase Notes and
            Warrants;

      (h)   ―Rights Offering‖ means the offering of the Rights as described in the Rights Offering Prospectus and expected to close on
            July 18, 2008.

      (i)   ―Rights Offering Prospectus‖ means the prospectus pursuant to which the Rights are issued, a copy of which is attached hereto as
            Appendix A ;

      (j)   ―Stockholders‖ means the holders on the Record Date of the Common Stock;

      (k)   ―Subscription Certificates‖ has the meaning set forth in Section 2.02(a);

      (l)   ―Subscription Funds‖ means any and all monies tendered by eligible holders of Rights on subscription for the Notes and Warrants;
            and

      (m)   ―Warrants‖ has the meaning set forth in the Recitals to this Agreement.

2.    APPOINTMENT OF AGENT:
2.01. The Agent is hereby appointed as subscription agent for the Rights and the Agent hereby accepts such appointment upon the terms
hereinafter set forth.
2.02. The Agent shall keep the Company‘s register of Rights, register of transfers and supply of unissued Subscription Certificates and, subject
to such instructions as may be from time to time given by the Company in writing through any of its Chairman, President or Secretary or other
duly authorized officer, the Agent shall:
      (a)   in accordance with Article 3, issue to Qualified Stockholders certificates representing the Rights (―Subscription Certificates‖)
            which are to be held by them, as contemplated by the Rights Offering Prospectus or transferred to them after the initial issuance,
            respectively, and enter such certificates on the Company‘s register of transfers;

      (b)   permit transfers to be made upon register of transfers by holders of Rights, or by their duly authorized attorneys, and cancel
            Subscription Certificates surrendered upon such transfers provided that no transfer of Rights shall be made or Subscription
            Certificate issued to any Stockholder that is not a Qualified Stockholder;

      (c)   in accordance with the Rights Offering Prospectus, accept Subscription Certificates and Subscription Funds from Qualified
            Stockholders, and cancel such Subscription Certificates properly presented for exercise from the register of Rights;

      (d)   in the event that any Notes and Warrants remain available on the Expiration Date after the exercise of the Rights, advise the
            Company of the number of Notes and Warrants which remain available;

                                                                        2
      (e)   after the Expiration Date and after all duly tendered Subscription Certificates for the Notes and Warrants have been calculated,
            cancel all Rights from the register;

      (f)   until the Expiration Date, make such entries from time to time in the said register as may be necessary in order that the account of
            each holder of Rights of the Company may be properly and accurately kept;

      (g)   supply the Company from time to time, as required, with lists of holders of Rights, as shown by the said register, correct to the
            dates of such lists showing the name and last known address of each holder and the number of Rights held by each holder; and

      (h)   the Agent shall:
            (i)    prior to the closing of the Rights Offering, provide to the Company a complete list of holders of Rights who have elected to
                   subscribe to the Notes, including the principal amount of Notes to be issued to each such holder and the number of Warrants
                   to be issued to each such holder;

            (ii)   as soon as possible following the closing of the Rights Offering, issue and mail (by first class insured mail) notification to
                   each subscriber advising the same of the number of Warrants subscribed for and issued and the principal amount of Notes
                   subscribed for and purchased by such holder pursuant to the Rights Offering.
3. THE RIGHTS: The Rights will be issued to Qualified Stockholders shown on the Company‘s register of Common Stock as owning at least
970 shares of Common Stock on the Record Date. The Rights will be in fully registered form and will be freely transferable. The Rights will be
exercisable in accordance with the Rights Offering Prospectus.
4. TAX MATTERS: The Company shall instruct the Agent in writing of the tax forms, if any, that are to be issued and the appropriate filings
that are to be made with the Internal Revenue Service prior to the Expiration of the Rights Offering. Absent written instruction from the
Company, the Agent shall not be responsible for any tax filings.
5. APPOINTMENT OF CUSTODIAN: The Agent is hereby appointed as custodian for the receipt and holding of the Subscription Funds and
the Agent hereby accepts such appointment.

6. DELIVERY OF SUBSCRIPTION FUNDS:
6.01. Any Subscription Funds which may happen to be received by the Company will promptly be delivered or paid over to the Agent together
with all necessary information regarding the subscriber.
6.02. After the Expiration Date, and after the calculation and tabulation of all properly tendered subscriptions, the Subscription Funds will be
paid by the Agent to the Company upon the authentication of the global notes representing the Notes and the Warrants subscribed for and

                                                                         3
purchased in the Rights Offering.
6.03. ANY SUBSCRIPTION FUNDS OR OTHER FUNDS HELD BY THE AGENT DURING THE TERMS OF THIS AGREEMENT
SHALL BE EITHER (i) HELD BY AGENT AS CASH, OR (ii) INVESTED BY AGENT IN SHARES OF THE FEDERATED
AUTOMATED GOVERNMENT MONEY TRUST, WHICH INVESTS IN OBLIGATIONS OF, OR GUARANTEED BY, THE UNITED
STATES GOVERNMENT, ITS AGENCIES OR INSTRUMENTALITIES, MATURING IN ONE YEAR OR LESS, WHICH
OBLIGATIONS MAY BE PURCHASED THROUGH REPURCHASE AGREEMENTS WITH SAID OBLIGATIONS AS COLLATERAL.
ANY INTEREST EARNED ON ANY OF THE SUBSCRIPTION FUNDS OR OTHER FUNDS SHALL BE PAID TO THE COMPANY.
7.    COVENANTS BY THE COMPANY: The Company covenants with the Agent that:
      (a)   it shall provide the Agent with (i) access to and use of the Company‘s personnel as needed by the Agent, (ii) access to the
            Company‘s outside professional resources, such as attorneys and accountants and (iii) such other resources and support as
            reasonably required by the Agent in the performance of services under this Agreement; and

      (b)   it shall promptly give notice to the Agent of any and all changes to the terms and conditions of the Rights which it may resolve to
            make from time to time and that it shall prepare and execute any and all documents to amend this Agreement pursuant to any such
            changes made.
8.    REPLACEMENT OF LOST RIGHTS CERTIFICATES:
8.01. The authority of the Agent shall also extend to the issue as subscription agent of any Subscription Certificate, the issue of which shall be
authorized in writing by the Company through any of its Chairman, President or Secretary, or other duly authorized officer, in lieu of a
Subscription Certificate shown to have been lost, destroyed or stolen as provided in Sections 8.02 and 8.03.
8.02. The applicant for the issue of a new Subscription Certificate(s) pursuant to this Article 8 shall bear the cost of the issue thereof and in case
of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to the Agent and the Company such evidence of
ownership and of the loss, destruction or theft of the certificate satisfactory to the Company and to the Agent in their sole discretion, and such
applicant shall also be required to furnish an indemnity bond satisfactory to the Company and the Agent, to save each of them harmless, and
shall pay the expenses, charges and any taxes applicable thereto to the Company and the Agent in connection therewith.
8.03. No new Subscription Certificates shall be issued in lieu of Subscription Certificate claimed to have been lost, destroyed or stolen until a
statutory declaration and indemnity bond, if required, in form satisfactory to the Company and the Agent shall have been furnished to the
Agent.

                                                                          4
9. FEES AND EXPENSES:
9.01. The Company shall pay to the Agent:
            (i)    A ―base fee‖ of $10,000 (payable (x) $5,000 upon effectiveness of the Registration Statement on Form S-l related to the
                   Rights Offering and (y) $5,000 upon expiration of the Rights Offering and the remittance by the Agent to the Company of
                   all Subscription Funds and processed Subscription Certificates received during that period), and

            (ii)   a ―per subscription fee‖ of $100 per Subscription Certificate, up to a maximum of $15,000, for a total fee potential of
                   $25,000.
9.02. The Company shall reimburse the Agent for reasonable out-of-pocket expenses incurred in connection with services rendered by the
Agent under this Agreement. No out of town travel will be undertaken unless approved by the Company in advance. Expenses shall be billed
on a monthly basis by the Agent and shall be due upon receipt of billing. Services to be provided by other professionals such as attorneys or
accountants shall be engaged directly by the Company and payment for such services shall be the direct responsibility of the Company.
9.03. The Company shall reimburse the Agent for any legal or other expenses reasonably incurred by the Agent in connection with
investigating, preparing to defend or defending any lawsuits, claims, or other proceedings arising in any manner out of or in connection with
the Agent‘s rendering of services hereunder, or in the Agent‘s enforcement of the payment terms of this Agreement.

10. INDEMNITY OF THE AGENT:
10.01. The Company shall indemnify the Agent and hold it harmless against any losses, claims, damages or liabilities to which the Agent may
become subject arising in any manner out of or in connection with (a) actions taken or omitted to be taken (including any untrue statements
made or statements omitted to be made) by the Company or (b) actions taken or omitted to be taken by the Agent in conformity with either
(i) instructions of the Company or (ii) actions taken or omitted to be taken by the Company; or otherwise arising out of or in connection with
the Agent‘s rendering of services hereunder unless it is finally judicially determined that such losses, claims, damages, or liabilities arose out of
the gross negligence or bad faith of the Agent.
10.02. The Agent shall have no duties except those which are expressly set forth herein. The Agent is neither (i) acting as underwriter, agent or
solicitor of the Rights Offering; nor (ii) opining on the merits of the transaction or recommending a purchase of securities in the Rights
Offering.
10.03. The Company agrees that it shall perform, execute, acknowledge and deliver or cause to be delivered all such further and other acts,
instruments and assurances as may reasonably be required by the Agent for the carrying out or performing by the Agent of the provisions of
this Agreement.

                                                                          5
11. TERM AND TERMINATION : The term of this Agreement shall extend from the date hereof until terminated. Either party may
terminate the Agreement at any time, without cause, by giving the other party at least 15 days‘ prior written notice; provided, however, that the
Company‘s obligations pursuant to Article 9 and Article 10 hereof shall survive any such termination.
12. CONFIDENTIALITY: Any information which is delivered to the Agent by the Company shall be kept confidential and shall not be
revealed to any third party without the prior consent of the Company, except as is required by law or in the Agent‘s performance of services as
described herein. Likewise, this and all other documents delivered to the Company by the Agent shall be kept confidential by the Company and
shall not be shared with any party except for the Company‘s attorneys or independent accountants. Any advice provided by the Agent under
this Agreement shall not be disclosed to third parties without the Agent‘s prior approval.
13. RIGHT TO ADVERTISE: The Company agrees that the Agent has the right to place advertisements in financial and other newspapers
and journals, at its own expense, describing its services to the Company hereunder, provided that the Agent will submit a copy of any such
advertisements to the Company so that it can consent to the form of the advertisements, which consent shall not be unreasonably withheld or
delayed. The Agent agrees that the Company has the right to name the Agent as the provider of the services stated herein on the prospectus to
be distributed to existing equity holders and for related purposes.
14. NOTICES: All payments required to be made or given pursuant to this Agreement shall be mailed by first class mail postage prepaid or
delivered by hand and any notice required to be made or given pursuant to this Agreement shall be in writing and shall be deemed to be validly
given if delivered or if sent by registered letter, postage prepaid or if sent by facsimile. Any notice so mailed shall be deemed to have been
given and received by the addressee on the fourth business day next following the day on which such notice is mailed, or, if sent by facsimile
shall be deemed to have been received on the date upon which an acknowledgement of receipt is received from the addressee provided that if
such acknowledgement of receipt is received after 5:00 p.m., Eastern Time, such notice shall be deemed to be received on the next business
day, or, if delivered, shall be deemed to have been given on the delivery date, at the offices and to the parties at the addresses shown below:

If to the Agent:                 Wunderlich Securities, Inc.
                                 6000 Poplar Avenue, Suite 150
                                 Memphis, TN 38119
                                 Attention: James E. Harwood
                                 Facsimile: (901) 251-1349

If to the Company:               Hancock Fabrics, Inc.
                                 One Fashion Way
                                 Baldwyn, MS 38824
                                 Attention: Robert W. Driskell
                                 Facsimile: (602) 365-6025

                                                                        6
with a copy to:                  Sam D. Chafetz, Esq.
                                 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
                                 165 Madison Avenue #2200
                                 Memphis, TN 38103
                                 Facsimile: (901) 577-0854

15. GENERAL:
15.01. It is understood and agreed that any benefits accruing to the holders of Rights at any time are held by each and every holder as against
the Company alone; in all respects, the Agent shall act as agent of the Company in the execution of duties specifically ascribed to Agent
hereunder.
15.02. In the event of any inconsistency between the provisions of this Agreement and the Rights Offering Prospectus, the terms of the Rights
Offering Prospectus shall govern.
15.03. Time shall be of the essence with regard to this Agreement.
15.04. This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns, including, without limitation,
any entity which may acquire all or substantially all of the Company‘s assets and business or into which the Company may be consolidated or
merged, and the Agent, its successors and assigns, including, without limitation, any entity which may acquire all or substantially all of the
Agent‘s assets and business or into which the Agent may be consolidated or merged. The Agent may assign its right to payment, but not its
obligations, under this Agreement.
15.05. This Agreement supersedes all prior understandings between the parties. It may not be amended orally, but only by writing signed by the
parties hereto.
15.06. This Agreement shall be governed by and construed in accordance with the laws of the Tennessee.
15.07. Subject headings as used in this Agreement are for convenience of reference only and shall not affect the construction or interpretation
of this Agreement.
15.08. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which, taken
together, shall constitute one and the same instrument.


                                                            [Signature page follows]

                                                                        7
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written.

                                                         Hancock Fabrics, Inc.

                                                         By:        /s/ Robert W. Driskell
                                                         Name:      Robert W. Driskell
                                                         Title:     Senior Vice President and Chief Financial Officer


                                                          Wunderlich Securities, Inc.

                                                          By:       /s/ James E. Harwood
                                                          Name:     James E. Harwood
                                                          Its:      Managing Director


                                                                   8
      APPENDIX A
Rights Offering Prospectus

            A
                                                                                                                                 Exhibit 23.1


                            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Registration Statement on Form S–1 (Amendment No. 1) of our report dated April 15,
2008, relating to the consolidated financial statements and schedules of Hancock Fabrics, Inc. as of February 2, 2008 and February 3, 2007 and
for the years then ended, appearing in the Annual Report on Form 10–K of Hancock Fabrics, Inc. for the year ended February 2, 2008. We also
consent to the reference to our firm under the heading ―Experts‖ in such Prospectus.


/s/Burr, Pilger & Mayer LLP
San Francisco, California
June 18, 2008
                                                                                                                                    Exhibit 99.1


                                                 FORM OF LETTER TO STOCKHOLDERS
                                                       [Hancock Fabrics, Inc. Letterhead]
                                                                                   , 2008
Dear Stockholder:
       Enclosed are the prospectus and other materials relating to our Rights Offering, pursuant to which you may be entitled to purchase our
floating rate secured notes accompanied by warrants to purchase shares of our common stock. Please carefully review the prospectus, which
describes how you can participate in the Rights Offering. You will be able to purchase the notes and warrants available in the Rights Offering
only during a limited period, until the Rights Offering expires. After you submit the proper documents to our Subscription Agent, you will not
be able to revoke your decision to participate in the Rights Offering.
       You will find a summary of the Rights Offering beginning on page 1 of the prospectus. You should also read the enclosed instructions
that accompany the Subscription Certificate that represents your rights in the offering. A brief summary of the Rights Offering is outlined
below.
   •     If you owned at least 970 shares of our common stock on June 17, 2008 (the Record Date) you are receiving one transferable
         Subscription Right for each 970 shares of common stock you owned on that date. You will not receive any fractional Subscription
         Rights; instead, we will round the total number of Subscription Rights you receive down to the nearest whole number. For example, if
         you owned 10,000 shares of common stock, you will receive ten Subscription Rights. The enclosed Subscription Certificate indicates
         the number of Subscription Rights you have received.

   •     Each Subscription Right entitles you to purchase one $1,000 principal amount floating rate secured note, accompanied by a warrant to
         purchase 400 shares of our common stock at an exercise price equal to the greater of (i) $1.00 and (ii) the volume weighted average
         trading price for the 30 days prior to the 3 rd business day before the date of issuance of the warrants.

   •     The Rights Offering expires at 5:00 p.m., Eastern Time, on July 18, 2008. If you do not exercise your Rights before that time, they
         will expire and will not be exercisable.
     If your shares are held in your name, a Subscription Certificate is enclosed. If your shares are held in the name of your bank or broker,
you must contact your bank or broker if you wish to participate in the Rights Offering.
       If you do not exercise your Subscription Rights, your ownership in Hancock Fabrics, Inc.
may be diluted. Please see the ―Risk Factors‖ section of the prospectus for a discussion of dilution and other risk factors.
   If you have any questions concerning the Rights Offering, please feel free to contact Jim Harwood with Wunderlich Securities, Inc. at
(901) 251-2233.
                                                                          Sincerely,
                                                                          Robert W. Driskell
                                                                          Senior Vice President and
                                                                          Chief Financial Officer
                                                                                                                                   Exhibit 99.2


                                                     FORM OF LETTER TO BROKERS
                                                      [Hancock Fabrics, Inc. Letterhead]
                                                                                    , 2008

To: Securities Dealers, Commercial Banks, Trust Companies, and Other Nominees
   This letter is being distributed to securities dealers, commercial banks, trust companies and other nominees in connection with the offering
(the ―Rights Offering‖) by Hancock Fabrics, Inc. of up to an aggregate of $20,000,000 principal amount of floating rate secured notes
(―Notes‖) accompanied by warrants (―Warrants‖) to purchase up to 8,000,000 shares of common stock, par value $0.01 (―Common Stock‖), at
a subscription price of $1,000 (the ―Subscription Price‖), pursuant to the exercise of transferable subscription rights (―Subscription Rights‖)
distributed to all holders of record of at least 970 shares of Hancock Fabrics, Inc.‘s Common Stock as of the close of business on June 17, 2008
(the ―Record Date‖). The Subscription Rights are described in the enclosed prospectus and evidenced by a Subscription Certificate registered in
your name or in the name of your nominee.
  Each beneficial owner of at least 970 shares of Common Stock registered in your name or the name of your nominee is entitled to one
Subscription Right for each 970 shares of Common Stock owned by such beneficial owner. Stockholders will not receive fractional
Subscription Rights. Instead, the total number of Subscription Rights issued to each Stockholder will be rounded down to the nearest full
Subscription Right.
  We are asking you to contact your clients for whom you hold shares of Common Stock registered in your name or in the name of your
nominee to obtain instructions with respect to the Subscription Rights.
   Enclosed are copies of the following documents for you to use:
   1.    Prospectus;

   2.    Form of Letter from Hancock Fabrics, Inc. to its Stockholders;

   3.    Instructions for Use of Hancock Fabrics, Inc. Subscription Certificates;

   4.    A form letter which may be sent to your clients for whose accounts you hold our Common Stock registered in your name or in the
         name of your nominee;

   5.    Beneficial Owner Election Form, on which you may obtain your clients‘ instructions with regard to the Subscription Rights;

   6.    Nominee Holder Certification Form; and
   7.    Return Envelope addressed to Wunderlich Securities, Inc., as Subscription Agent.
   Your prompt action is requested. The Subscription Rights will expire at 5:00 P.M., Eastern Time, on July 18, 2008 (the ―Expiration Date‖).
   To exercise Subscription Rights, properly completed and executed Subscription Certificates and payment in full for all Subscription Rights
exercised must be delivered to the Subscription Agent as indicated in the prospectus prior to the Expiration Date.
   Additional copies of the enclosed materials may be obtained by contacting Jim Harwood with Wunderlich Securities, Inc. at
(901) 251-2233.
                                                                       Sincerely,
                                                                       Robert W. Driskell
                                                                       Senior Vice President and
                                                                       Chief Financial Officer
                                                      FORM OF LETTER TO CLIENTS
To Our Clients:
Enclosed for your consideration are the Prospectus, dated June 19, 2008 (the ―Prospectus‖), and ―Instructions for Use of Hancock Fabrics, Inc.
Subscription Certificates‖ relating to the offering (the ―Rights Offering‖) by Hancock Fabrics, Inc (the ―Company‖). Holders of record of
Common Stock at the close of business on June 17, 2008 (the ―Record Date‖) will receive one transferable subscription right (the ―Subscription
Rights‖) for each 970 shares of Common Stock held by them as of the close of business on the Record Date. An aggregate of up to 20,000
Subscription Rights exercisable to purchase an aggregate of up to $20,000,000 principal amount of floating rate secured notes (―Notes‖) and
warrants to purchase up to 8,000,000 shares of the Company‘s Common Stock (―Warrants‖) are being distributed in connection with the Rights
Offering. Each Subscription Right is exercisable, upon payment of $1,000 in cash (the ―Subscription Price‖), to purchase one Note in the
principal amount of $1,000 accompanied by a Warrant to purchase 400 shares of Common Stock. See ―Prospectus Summary‖ and ―The Rights
Offering‖ in the Prospectus. Also enclosed is a Beneficial Owner Election Form, which you should use to instruct us regarding the exercise of
Subscription Rights in connection with the Rights Offering.
The Rights are evidenced by Rights certificates (the ―Subscription Certificates‖). The Rights will expire if not exercised by 5:00 p.m., Eastern
Time, on July 18, 2008 (―Expiration Date‖). As described below, we must receive any instructions to exercise rights on your behalf prior to the
Expiration Date.
THE MATERIALS ENCLOSED ARE BEING FORWARDED TO YOU AS THE BENEFICIAL OWNER OF COMMON STOCK
CARRIED BY US IN YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. EXERCISES OF RIGHTS MAY BE MADE ONLY
BY US AS THE RECORD OWNER AND PURSUANT TO YOUR INSTRUCTIONS. Accordingly, we request that you complete the
enclosed Beneficial Owner Election Form in order to instruct us as to whether you wish us to elect to subscribe for any Notes and Warrants to
which you are entitled pursuant to the terms and subject to the conditions set forth in the enclosed Prospectus. However, we urge you to read
the Prospectus and other enclosed materials carefully before instructing us to exercise your Rights.
If you wish to have us, on your behalf, exercise the Rights for any Notes and Warrants to which you are entitled, please so instruct us by timely
completing, executing, and returning to us the Beneficial Owner Election Form attached to this letter. Your instructions to us should be
forwarded as promptly as possible in order to permit us to exercise Rights on your behalf in accordance with the provisions of the Rights
Offering. The Rights Offering will expire at 5:00 p.m., Eastern Time, on the Expiration Date. Once you have exercised your Subscription
Rights, your exercise may not be revoked.
With respect to any instructions to exercise (or not to exercise) Rights, the enclosed Beneficial Owner Election Form must be completed and
returned such that it will be actually received by us by 5:00 p.m., Eastern Time, on July 15, 2008, three business days prior to the scheduled
Expiration Date of the Rights Offering of July 18, 2008.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE RIGHTS OFFERING SHOULD BE DIRECTED TO JIM
HARWOOD WITH WUNDERLICH SECURITIES, INC. AT (901) 251-2233.
                                            FORM OF BENEFICIAL OWNER ELECTION FORM
   I (We) acknowledge receipt of your letter and the enclosed materials relating to the offering of rights (―Rights‖) to purchase floating rate
secured notes (―Notes‖) accompanied by warrants (―Warrants‖) to purchase shares of common stock, par value $0.01 per share (the ―Common
Stock‖), of Hancock Fabrics, Inc. (the ―Company‖).
   In this form, I (we) instruct you whether to exercise the Rights distributed with respect to the Common Stock held by you for my
(our) account, pursuant to the terms and subject to the conditions set forth in the prospectus dated June 19, 2008 (the ―Prospectus‖).

BOX 1. [___]             Please DO NOT EXERCISE my (our) Rights for the Notes and Warrants.

BOX 2. [___]             Please EXERCISE my (our) Rights for me (us) and purchase on my (our) behalf $                      principal amount of
                         the Notes accompanied by Warrants.

                         I (We) understand that the exercise price of the Rights is equal to the principal amount of the Notes set forth above.
                         Accordingly, the EXERCISE PRICE for each $1,000 principal amount of the Notes is $                       .

BOX 3. [___]             Payment in the following amount IS ENCLOSED:

BOX 4. [___]             Please DEDUCT PAYMENT from the following account maintained by you as follows:

                         Type of Account:
                         Account No.:
                         Amount to be deducted:

                                                                     Signature:



Date:
                                                                     (Print name)


                                                                     Signature:



Date:
                                                                     (Print name)
                                             FORM OF NOMINEE HOLDER CERTIFICATION
   The undersigned, a bank, broker, trustee, depository or other nominee holder of rights (―Rights‖) to purchase floating rate secured notes
(―Notes‖) accompanied by warrants (―Warrants‖) to purchase shares of common stock, par value $0.01 per share (―Common Stock‖), of
Hancock Fabrics, Inc. (the ―Company‖) pursuant to the Rights Offering described and provided for in the Company‘s prospectus dated June 19,
2008 (the ―Prospectus‖), hereby certifies to the Company and to Wunderlich Securities, Inc. as Subscription Agent for the Rights Offering, that
the undersigned has subscribed for the principal amount of Notes accompanied by Warrants specified below pursuant to the Rights (as
described in the Prospectus) on behalf of beneficial owners of Rights who have subscribed for the Notes accompanied by Warrants (as
described in the Prospectus).
   1. The undersigned owned                 shares of Common Stock of the Company on behalf of ___ beneficial owners as of the close of
business on                            , 2008, the record date.
   2. Pursuant to Rights issued in the Rights Offering, the undersigned hereby subscribes for $             principal amount of Notes
accompanied by Warrants.


                                                                          Name of Bank, Broker, Trustee,
                                                                          Depository or Other Nominee

                                                                          By:


                                                                          Name:
                                                                          Title:

								
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