EXHIBIT 10.11

PERFORMANCE VESTING
 
HANCOCK FABRICS, INC.
2001 STOCK INCENTIVE PLAN
(As Amended And Restated)

NONQUALIFIED STOCK OPTION AGREEMENT
 
 
 
Employee/Optionee:
      Number of Shares: _____________ Shares     Option Exercise Price:
$____________ Per Share     Date of Grant: _____________, 2012     Vesting
Schedule: As provided in Section 3 below

 
 
 
THIS OPTION AGREEMENT (the “Agreement”) is entered into as of the ______ day of
_________, 2012, by and between HANCOCK FABRICS, INC., a Delaware corporation
(the “Company”), and the employee designated above (the “Optionee”).
 
W I T N E S S E T H:

WHEREAS, the Company maintains the Hancock Fabrics, Inc. 2001 Stock Incentive
Plan, as amended and restated effective as of January 30, 2011 (the “Plan”); and
 
WHEREAS, as of the date hereof, the Committee responsible for administration of
the Plan granted the Option as provided herein;
 
NOW, THEREFORE, the parties agree as follows:
 
1.            Grant of Option.
 
1.1           Option.  An option to purchase shares of the Company’s Common
Stock, par value $.01 per share (the “Shares”), is hereby granted to the
Optionee (the “Option”).
 
1.2           Number of Shares.  The number of Shares that the Optionee can
purchase upon exercise of the Option and the dates upon which the Option can
first be exercised are set forth above and in Section 3 below.
 
1.3           Option Exercise Price.  The price the Optionee must pay to
exercise the Option (the “Option Exercise Price”) is set forth above.
 
 
 

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1.4           Date of Grant.  The date the Option is granted (the “Date of
Grant”) is set forth above.
 
1.5           Type of Option. The Option is intended to be a Nonqualified Stock
Option.  It is not intended to qualify as an Incentive Stock Option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended from
time to time, or any successor provision thereto.
 
1.6           Construction.  This Agreement shall be construed in accordance and
consistent with, and subject to, the provisions of the Plan (the provisions of
which are incorporated herein by reference) and, except as otherwise expressly
set forth herein, the capitalized terms used in this Agreement shall have the
same definitions as set forth in the Plan.
 
1.7           Condition.  The Option is conditioned on the Optionee’s execution
of this Agreement.  If this Agreement is not executed by the Optionee, it may be
canceled by the Committee.  The Company may, in its sole discretion, decide to
deliver by electronic means any documents related to the Options granted under
the Agreement or to request by electronic means Optionee’s consent to the terms
and conditions of the Agreement and participation in the Plan.  Optionee hereby
consents to receive such documents by electronic delivery and, if requested, to
agree to the terms and conditions of the Agreement and to participation in the
Plan through an on-line or electronic system established and maintained by the
Company or any third party designated by the Company.
 
2.            Duration.
 
The Option shall be exercisable to the extent and in the manner provided in
Sections 3 and 4 below for a period of seven (7) years from the Grant Date (the
“Exercise Term”); provided, however, that the Option may be earlier terminated
as provided in Section 1.7 and Section 5.
 
3.            Vesting.
 
[Subject to earlier termination of the Option as provided in Section 1.7 and
Section 5, the Option shall vest, and may be exercised, with respect to the
Shares, as follows:  if Optionee remains employed as an employee by the Company,
the Options shall vest and become exercisable on the dates indicated below (each
date on which the Options vest and become exercisable is hereinafter referred to
as a “Vesting Date”) in accordance with the achievement of the Performance
Targets for the Performance Measures as provided in Schedule A attached hereto
as of the applicable Vesting Date:
 
Vesting Date                                Number of Options
 
April 30, 2013
April 30, 2014
April 30, 2015

The number of Options vesting and becoming exercisable on each Vesting Date
shall be determined in accordance with Schedule A.  The number of Options
eligible for vesting on a Vesting Date that do not vest in accordance with
Schedule A shall be immediately forfeited and shall not be subject to vesting in
the future.

 
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The Option may vest earlier as provided in Section 8.  The right to purchase the
Shares as they become vested shall be cumulative and shall continue during the
Exercise Term unless sooner terminated as provided herein.]1
 
4.             Manner of Exercise and Payment.
 
4.1           Exercise and Payment.  Once a portion of the Option becomes
exercisable, the Optionee can exercise such part of the Option through such
electronic or other means as may be provided by the Company.  The Option may be
exercised in whole or in part with respect to the vested Shares; provided,
however, the Committee may establish a minimum number of Shares (e.g., 100) for
which an Option may be exercised at a particular time.  Within thirty (30) days
of exercise of the Option, the Company shall deliver certificates evidencing the
Shares to the Optionee, duly endorsed for transfer to the Optionee, free and
clear of all liens, security interests, pledges or other claims or
charges.  Contemporaneously with the exercise of the Option, Optionee shall
tender the Option Exercise Price to the Company, by cash, check, wire transfer,
delivery of, or attestation to, Shares already owned or a cashless exercise, or
such other payment method as may be acceptable to the Committee pursuant to the
Plan.
 
4.2           No Rights as Shareholder.  The Optionee shall not be deemed to be
the holder of, or to have any of the rights of a holder with respect to any
Shares subject to the Option until (i) the Option shall have been exercised
pursuant to the terms of this Agreement and the Optionee shall have paid the
full purchase price for the number of Shares in respect of which the Option was
exercised, (ii) the Company shall have issued and delivered the Shares to the
Optionee, and (iii) the Optionee’s name shall have been entered as a shareholder
of record on the books of the Company, whereupon the Optionee shall have full
voting and other ownership rights with respect to such Shares.
 
5.             Termination of Employment.
 
5.1           Termination of Employment.  If the Optionee’s employment with the
Company is terminated by the Company (including as a result of death or
Disability) or if Optionee terminates his employment, all outstanding unvested
Options granted to the Optionee shall be immediately forfeited.  Unless the
Optionee is terminated by the Company for engaging in Detrimental Activity (as
defined in Section 10 below), in which event the Optionee’s right to exercise
any vested Options shall be terminated immediately, the Options vested at the
time of Optionee’s termination of employment shall remain exercisable for thirty
(30) days after Optionee’s date of termination, provided, that if Optionee’s
employment is terminated as a result of death, Disability or Retirement, the
Options vested at the time of Optionee’s termination of employment shall remain
exercisable at any time prior to the end of the Exercise Term or for one (1)
year after Optionee’s date of termination, whichever period is shorter.
 

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1 Vesting requirements to be determined at the time of grant.
 
 
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5.2           Employment with a Subsidiary.  For purposes of this Section and
Section 9, employment with the Company includes employment with any Subsidiary
of the Company or service as a Director on the Board of Directors of the
Company.
 
6.             Nontransferability.
 
The Option shall not be transferable other than by will or by the laws of
descent and distribution, and during the lifetime of the Optionee, the Option
shall be exercisable only by the Optionee.  Notwithstanding the foregoing, any
portion or all of the Option which is vested may be transferred, in whole or in
part, without consideration, to Optionee’s Immediate Family.  Appropriate
evidence of any such transfer to a member of Optionee’s Immediate Family shall
be delivered to the Company on such forms as the Committee or Company shall
prescribe and shall comply with and indicate the Optionee’s (if during the
lifetime of the Optionee) and the member of the Immediate Family’s agreement to
abide by the Company’s then current stock option transfer guidelines.  If all or
part of the Option is transferred to a member of Optionee’s Immediate Family,
the member of Optionee’s Immediate Family shall remain subject to all terms and
conditions applicable to such Option prior to the transfer.
 
7.             Restrictions on the Options; Restrictions on the Shares.
 
The Option may not be exercised at any time unless, in the opinion of counsel
for the Company, the issuance and sale of the Shares issued upon such exercise
is exempt from registration under the Securities Act of 1933, as amended, or any
other applicable federal or state securities law, rule or regulation, or the
Shares have been duly registered under such laws.  The Company intends to
register the Shares issuable upon the exercise of the Option; however, until the
Shares have been registered under all applicable laws, the Optionee shall
represent, warrant and agree, as a condition to the exercise of the Option, that
the Shares are being purchased for investment only and without a view to any
sale or distribution of such Shares and that such Shares shall not be
transferred or disposed of in any manner without registration under such laws,
unless it is the opinion of counsel for the Company that such a disposition is
exempt from such registration.  The Optionee acknowledges that an appropriate
legend giving notice of the foregoing restrictions shall appear conspicuously on
all certificates evidencing the Shares issued upon the exercise of the Option.
 
8.             Effect of Change in Control.
 
8.1           Vesting.  Upon a Change in Control, all outstanding unvested
Options shall become immediately and fully exercisable, and shall remain
exercisable as otherwise provided in this Agreement.
 
8.2           Termination of Options.  The Committee, in its discretion, may
terminate the Options upon a Change in Control; provided, however, that at least
30 days prior to the Change in Control, the Committee notifies the Optionee that
the Options will be terminated and provides the Optionee, either, at the
election of the Committee, (i) a cash payment equal to the difference between
the Fair Market Value of the vested Options (including Options that would become
vested upon the Change in Control in accordance with Section 8.1 above) and the
Exercise Price for such Options, computed as of the date of the Change in
Control and to be paid no later than 3 business days after the Change in
Control, or (ii) the right to exercise all vested Options (including Options
that would become vested upon the Change in Control in accordance with Section
8.1 above) immediately prior to the Change in Control.
 
 
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9.             No Right to Continued Employment.
 
Nothing in this Agreement or the Plan shall be interpreted or construed to
confer upon the Optionee any right with respect to continuance of employment by
the Company or any Subsidiary, nor shall this Agreement or the Plan interfere in
any way with the right of the Company or a Subsidiary to terminate the
Optionee’s employment at any time.
 
10.           Employment Covenants
 
In consideration of the grant of Options pursuant to this Agreement and
Optionee’s continued employment with the Company, Optionee hereby agrees to the
following covenants:
 
10.1           Covenant Against Competition.  While Optionee is employed with
the Company or its affiliates, and for a period of two (2) years after
Optionee’s employment with the Company terminates for any reason, Optionee will
not, directly or indirectly, provide Services within the United States of
America, whether as an owner, investor, lender, employee, director, officer,
independent contractor, or consultant to any Competitor.  Each of the following
entities shall be deemed to be a “Competitor” under this Agreement:  A.C. Moore
Arts & Crafts, Inc., Jo-Ann Stores, Inc., Calico Corners, Inc., Hobby Lobby
Stores, Inc. and Michaels Stores, Inc.  The Optionee acknowledges that the
United States of America comprises the geographic territory in which Optionee
performs Services on behalf of the Company.  “Services” means the provision of
management and strategic business advice, direction and guidance.  In the event
that a court of competent jurisdiction shall determine that any provision of
this Agreement or the application thereof is unenforceable in whole or in part
because of the duration or scope thereof, the parties hereto agree that such
court in making such determination shall have the power to reduce the duration
and scope of such provision to the extent necessary to make it enforceable, and
that the Agreement in its reduced form shall be valid and enforceable to the
full extent permitted by law.
 
10.2           Non-Disclosure.  During the course of Optionee’s employment with
the Company, Optionee will have access to certain Confidential
Information.  Optionee agrees to hold in strictest confidence and not to use,
except for the benefit of the Company, the Company’s Confidential
Information.  For purposes of this Agreement, “Confidential Information” means
any information, without regard to form, relating to the Company’s and its
subsidiaries’ and affiliates’ customers, operations, finances, and business that
derives economic value, actual or potential, from not being generally known to
other persons or entities, including but not limited to technical or
non-technical data, compilations (including compilations of customer, supplier,
or vendor information), programs, methods, devices, techniques, processes,
inventions, improvements, writings, memoranda, reports, drawings, sketches,
financial data, pricing methodology, formulas, patterns, strategies, studies,
business development, software systems, marketing techniques and lists of actual
or potential customers (including identifying information about customers),
whether or not in writing.  Confidential Information includes information
disclosed to the Company by third parties that the Company is obligated to
maintain as confidential.  Confidential Information shall not include any
information that:  (i) at the time of the disclosure was generally known to the
public, (ii) becomes known to the public through no violation of this Agreement,
or (iii) is disclosed to Optionee by a third party that is not under an
obligation to maintain the confidentiality of the information.  In the event
that Optionee becomes legally compelled to disclose any confidential
Information, Optionee shall provide the Company with prompt written notice of
such requirement prior to any disclosure to allow the Company to seek a
protective order or other remedy.  Confidential Information subject to this
Agreement may include information that is not a trade secret under applicable
law, but information not constituting a trade secret under applicable law shall
only be treated as Confidential Information under this Agreement for a two (2)
year period following Optionee’s termination of employment.
 
 
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10.3           Nondisparagement.  Optionee agrees not to make any statements,
written or verbal, or cause or encourage others to make any statements, written
or verbal, that defame, disparage or in any way criticize the personal or
business reputation, practices, or conduct of the Company, its employees,
directors, and officers.  Optionee acknowledges and agrees that this prohibition
extends to statements, written or verbal, made to anyone, including but not
limited to, the news media, investors, potential investors, any board of
directors or advisory board or directors, industry analysts, competitors,
strategic partners, vendors, employees (past and present), and
customers.  Optionee understands that this nondisparagement provision does not
apply on occasions when Optionee is subpoenaed or ordered by a court or other
governmental authority to testify or give evidence and must, of course, respond
truthfully, or to conduct or testimony in the context of enforcing this
Agreement or other rights, powers, privileges, or claims.  Optionee also
understands that the foregoing nondisparagement provision does not apply on
occasions when Optionee provides truthful information in good faith to any
federal, state, or local governmental body, agency, or official investigating an
alleged violation of any employment-related law or otherwise gathering
information or evidence pursuant to any official investigation, hearing, trial,
or proceeding.
 
10.4           Cancellation and Recession.  If, at any time, (i) during
Optionee’s employment with the Company or a Subsidiary or (ii) during the period
after Optionee’s termination of employment with the Company or any Subsidiary
for any reason, but not to exceed 24 months following Optionee’s termination of
employment, Optionee engages in any “Detrimental Activity” (as defined below),
the Committee may, notwithstanding any other provision in this Agreement to the
contrary, cancel, rescind, suspend, withhold or otherwise restrict or limit this
grant of Options as of the first date Optionee engaged in the Detrimental
Activity, as determined by the Committee.  Without limiting the generality of
the foregoing, the Committee may also require Optionee to pay to the Company the
amount realized by Optionee from the Shares subject to this award of Options
that vested and were exercised during the period beginning six months prior to
the date on which Optionee engaged or began engaging in Detrimental
Activity.  As used in this Agreement, “Detrimental Activity” means the breach or
violation by the Optionee of any of the covenants of the Optionee in this
Section 6.
 
11.           Adjustments.
 
In the event of a change in capitalization as provided in Section 17 of the
Plan, the Committee shall make appropriate adjustments to the number and class
of Shares or other stock or securities subject to the Option and the Option
Exercise Price for such Shares or other stock or securities.  The Committee’s
adjustments shall be made in accordance with the provisions of Section 17 of the
Plan and shall be effective and final, binding and conclusive for all purposes
of the Plan and this Agreement.
 
 
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12.           Withholding of Taxes.
 
The Company shall have the right to deduct from any distribution of cash to the
Optionee an amount equal to the federal, state and local income taxes and other
amounts as may be required by law to be withheld (the “Withholding Taxes”) with
respect to the Option.  If the Optionee is entitled to receive Shares upon
exercise of the Option, the Optionee shall pay the Withholding Taxes (if any) to
the Company in cash prior to the issuance of such Shares.  In satisfaction of
the Withholding Taxes, the Optionee may make a written election (the “Tax
Election”) to have withheld a portion of the Shares issuable to him or her upon
exercise of the Option, having an aggregate Fair Market Value equal to the
withholding Taxes, provided that, if the Optionee may be subject to liability
under Section 16(b) of the Exchange Act, the election must comply with the
requirements applicable to Share transactions by such Optionee.
 
13.           Modification of Agreement.
 
Except as provided in Section 8, this Agreement may be modified, amended,
suspended or terminated, and any terms or conditions may be waived, only by a
written instrument executed by the parties hereto.
 
14.           Severability.
 
Should any provision of this Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and shall
continue in full force in accordance with their terms.
 
15.           Data Privacy; Transfer of Data
 
By accepting the Award, Optionee (a) explicitly and unambiguously consents to
the collection, use and transfer, in electronic or other form, of any of
Optionee’s personal data that is necessary to facilitate the implementation,
administration and management of the Award and the Plan, (b) understands that
the Company and any Subsidiary may, for the purpose of implementing,
administering and managing the Plan, hold certain personal information about
Optionee, including, but not limited to, Optionee’s name, home address and
telephone number, date of birth, social security number or other identification
number, salary, nationality, job title, and details of all awards or
entitlements to Shares granted to Optionee under the Plan or otherwise (“Data”),
(c) understands that Data may be transferred to any third parties assisting in
the implementation, administration and management of the Plan, including any
broker with whom the Shares issued with respect to an Award may be deposited,
and that these recipients may be located in Optionee’s country or elsewhere, and
that the recipient’s country may have different data privacy laws and
protections than Optionee’s country; (d) waives any data privacy rights Optionee
may have with respect to the Data; and (e) authorizes the Company and any
Subsidiary and its agents to store and transmit such information in electronic
form.
 
16.           Governing Law.
 
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Delaware without giving effect to
the conflicts of laws principles thereof.
 
 
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17.           Successors in Interest.
 
This Agreement shall inure to the benefit of and be binding upon each successor
corporation to the Company.  This Agreement shall inure to the benefit of the
Optionee’s legal representatives.  All obligations imposed upon the Optionee and
all rights granted to the Company under this Agreement shall be final, binding
and conclusive upon the Optionee’s heirs, executors, administrators and
successors.
 
18.           Resolution of Disputes.
 
Any dispute or disagreement which may arise under, or as a result of, or in any
way relate to, the interpretation, construction or application of this Agreement
shall be determined by the Committee.  Any determination made hereunder shall be
final, binding and conclusive on the Optionee and the Company for all purposes.
 

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

   
HANCOCK FABRICS, INC.
                         
 
By:
      Name:       Title:            

 
By signing below, Optionee hereby accepts the Option subject to all its terms
and provisions and agrees to be bound by the terms and provisions of the
Plan.  Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Committee responsible for administration of
the Plan, upon any questions arising under the Plan.  Optionee authorizes the
Company to withhold, in accordance with applicable law, from any compensation
payable to him or her, any taxes required to be withheld by federal, state or
local law as a result of the grant, existence or exercise of the Option.
 
 
 

   
OPTIONEE
                   
Signature:
     
Name:
   

 
 
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