EXHIBIT
10.2




[*]=Information
redacted pursuant to a confidential treatment request.  Such
information has been filed separately with the Securities and Exchange
Commission.




N.B.  THE
RIGHTS GRANTED TO THE TRUSTEE IDENTIFED HEREIN, INCLUDING, WITHOUT LIMITATION
THE AUTHORITY GRANTED TO THE TRUSTEE TO DIRECT THE BANK (AS DEFINED BELOW) WITH
RESPECT TO THE DEPOSIT ACCOUNT COLLATERAL (AS DEFINED BELOW) AS HEREIN PROVIDED,
SHALL BE LIMITED AS HEREIN PROVIDED.  THIS SECOND LIEN DEPOSIT ACCOUNT
CONTROL AGREEMENT IS SUBJECT TO THE TERMS OF THE FIRST LIEN AGREEMENT REFERRED
TO BELOW AND IN THE EVENT OF ANY INCONSISTENCIES BETWEEN THIS AGREEMENT AND THE
FIRST LIEN AGREEMENT, THE FIRST LIEN AGREEMENT SHALL CONTROL.




SECOND LIEN DEPOSIT ACCOUNT
CONTROL AGREEMENT




THIS
DEPOSIT ACCOUNT CONTROL AGREEMENT (as amended and in effect from time to time,
this “Agreement”) is dated as of July 24, 2009 and effective for all purposes as
of August 1, 2008, by and among BancorpSouth Bank (together with its successors
and assigns, “Bank”), Hancock Fabrics, Inc. (together with its successors and
assigns, the “Company”) and Deutsche Bank National Trust Company, in its
capacity as trustee (in such capacity, together with its successors and assigns,
“the Trustee”) pursuant to the Indenture (as hereinafter defined) acting for
itself and on behalf of the Holders (as defined in the Indenture).




WITNESSETH




WHEREAS,
Bank maintains for the use of the Company the following deposit
account:




[*] (the
“Elavon Designated Deposit Account”)





which
deposit account is hereinafter referred to as the “Deposit
Account”;




WHEREAS,
Bank additionally maintains for the use of the Company the following deposit
account (among others):




[*]  (the
“Concentration Account”)





which
deposit account is hereinafter referred to as the “Concentration
Account”;




WHEREAS,
Bank additionally maintains for the use of the Company the following deposit
account (among others):




[*]  (the
“Operating Account”)





which
deposit account is hereinafter referred to as the “Operating
Account”;







WHEREAS,
pursuant to the Loan and Security Agreement dated as of August 1, 2008, by and
among the Company, certain of Company’s affiliates and subsidiaries, General
Electric Capital Corporation, in its capacity as agent (together with its
successors and assigns, the “Agent”) and the lenders identified therein (the
“Lenders”) (as amended, restated, supplemented or otherwise modified and in
effect, the “Loan Agreement”), Agent and the Lenders have a first priority
security interest in, among other things, all right, title and interest of the
Company in and to the following, whether now or hereafter existing or arising
(collectively, the “Deposit Account Collateral”):  (a) the Deposit
Account, (b) all cash, checks, money orders, drafts, instruments, electronic
funds transfers and other items and forms of remittances and all funds and other
amounts at any time paid, deposited or credited (whether for collection,
provisionally or otherwise), held or otherwise in the possession or under the
control of, or in transit to, Bank or any agent or custodian thereof for credit
to or to be deposited in the Deposit Account, (c) all funds and cash balances or
other amounts in or attributable to the Deposit Account, and (d) any and all
proceeds of any of the foregoing;




WHEREAS,
in order to perfect the first priority security interest in the Deposit Account
Collateral of the Agent and the Lenders, the Agent, the Bank and the Company
entered into a Deposit Account Control Agreement dated August 1, 2008 (as
amended and as in effect from time to time, the “First Lien
Agreement”),




WHEREAS,
pursuant to the Indenture dated as of June 18, 2008, between the Company and the
Trustee, the Trustee and the Holders have a second priority security interest
in, among other things, all right title and interest of the Company in and to
the Deposit Account Collateral.




WHEREAS,
the Company, the Trustee and Bank desire to enter into this Agreement in order
to set forth their relative rights and duties with respect to, and to perfect
its second lien security interest in, the Deposit Account
Collateral.




NOW,
THEREFORE, in order for the Company to comply with the requirements of the
Trustee and the Holders under the Indenture and the other financing arrangements
with the Company, the Company, Bank and the Trustee agree as
follows:




1.           Deposit Account
Collateral.  Bank hereby represents, warrants and covenants
with and to the Trustee and the Holders that:  Bank has established
and will maintain the Deposit Account and has identified the Company as the sole
owner of the Deposit Account, subject to the rights therein of the Agent and the
Lenders under the First Lien Agreement, and of the Trustee and the Holders as
provided herein; the records of Bank do not reflect, and it has not received any
notice of, any assignment or pledge of, or security interest in, the Deposit
Account or any of the other Deposit Account Collateral (other than the pledge
and security interest of Agent and the Lenders referred to in the First Lien
Agreement and of the Trustee and the Holders referred to herein), or any notice
of any adverse claim with respect to any of the same; Bank has not entered and
will not enter into any agreement with any person, other than Agent pursuant to
the First Lien  Agreement or the Trustee as set forth herein, by which
it is obligated for any reason to comply with instructions from such other
person as to the disposition of funds in or from the Deposit Account or with
respect to any other dealings with any of the Deposit Account Collateral; Bank
will not agree that any person other than the Company, Agent or the Trustee is
Bank’s customer with respect to the Deposit Account; the Deposit Account is a
“deposit account” as such term is defined in the UCC (as hereinafter defined);
Bank acknowledges that it holds and will hold possession of the Deposit Account
Collateral consisting of instruments and money as bailee for Agent for the
benefit of Agent and the Lenders, and for the Trustee and for the benefit of
itself and the Holders, subject to the terms and provisions of the First Lien
Agreement and of this Agreement; Bank is hereby irrevocably authorized and
instructed to change the designation of the customer on the Deposit Account to
Agent upon the request of Agent and Bank shall so change the customer
designation promptly upon such request by Agent; and Bank is hereby irrevocably
authorized and instructed to change the designation of the customer on the
Deposit Account to the Trustee upon the request of the Trustee and Bank shall so
change the customer designation promptly upon such request by the Trustee;
provided, however, that the Trustee agrees that the Bank shall have no duty to
comply with any such request until the Bank has received written notice from
Agent that states the Agent has terminated the First Lien Agreement and
identifies such written notice as a “Termination Notice” (such written notice
from the Agent to the Bank hereinafter referred to as  a “Termination
Notice”).  The Company hereby confirms to Bank that the Company has
granted to the Trustee, as collateral security for the Company’s obligations to
the Trustee and the Holders under the Indenture, a second priority security
interest in and Lien on the Deposit Account Collateral, and Bank hereby
acknowledges such second priority security interest in and Lien on the Deposit
Account Collateral.  This Agreement shall be inapplicable to any
account maintained by Company at Bank other than the Deposit Account, the
Payroll Accounts and the Store Accounts.


2




2.           Control.




(a)          Notwithstanding
any term or provision of this Agreement or other agreement between Bank and the
Company or otherwise, other than in respect of the First Lien Agreement,
following the receipt by the Bank of a Termination Notice, the Company hereby
irrevocably authorizes and directs the Bank to comply with, and the Bank hereby
agrees to comply with, all instructions originated by the Trustee in accordance
with this Agreement, including directing the disposition of funds in the Deposit
Account or as to any other matter relating to the Deposit Account or other
Deposit Account Collateral, without further consent by the Company (which
instructions may include the giving of stop payment orders for any items being
presented to the Deposit Account for payment).




(b)          With
respect to the Deposit Account, Bank shall not permit the Company or any of its
affiliates or any other person (other than Agent prior to the delivery of a
Termination Notice) to withdraw any amounts from, to draw upon or otherwise
exercise any authority or powers with respect to the Deposit Account, and Bank
shall not at any time honor, any instructions with respect to the Deposit
Account, other than, prior to receipt by the Bank of a Termination Notice, those
approved in writing by Agent, and following its receipt of a Termination Notice,
those approved in writing by the Trustee.  Notwithstanding the
foregoing, until the Trustee otherwise advises Bank in writing following the
Bank’s receipt of a Termination Notice, any entity identified by ACH company
identification number 1841010148 (such entity being Elavon, Inc. f/k/a NOVA
Information Systems, Inc. as of the date of this Agreement) (hereinafter
referred to as “Elavon”) shall have access to the Deposit Account to the extent
expressly provided in the Loan Agreement, the First Lien Agreement and Section 3(b)
herein.


3




3.           Remittance of Funds; Use of
Cash Management Facilities.




(a)      
   Unless the Bank is otherwise directed by Agent prior to the
Bank’s receipt of a Termination Notice, or by the Trustee following the Bank’s
receipt of a Termination Notice, the Bank shall cause all Deposit Account
Collateral in excess of $200,000 in the aggregate to be deposited into the
Concentration Account in immediately available funds.




(b)    
     Notwithstanding any provision of this Agreement to
the contrary, until Agent otherwise advises Bank in writing following the Bank’s
receipt of a Termination Notice, Elavon shall have access to the Deposit Account
via ACH Debit Entry (assuming sufficient funds are available therein on the
Effective Entry Date).  As used in this subsection (b), the terms
“ACH”, “Debit”, “Entry” and “Effective Entry Date” shall have the respective
meanings ascribed in Bank’s cash management agreements with the
Company.




(c)     
    Until Agent otherwise advises Bank in writing following
the Bank’s receipt of a Termination Notice, Company shall have access to the
Deposit Account via Bank’s cash management facilities solely for the purposes of
viewing all transactions on the Deposit Account and for retrieving all balance
information concerning the Deposit Account.




4.           Indemnity; Bank’s
Responsibility.  The Company agrees to indemnify, defend and
hold harmless Bank against any loss, liability or expense (including reasonable
fees and disbursements of counsel) incurred in connection with this Agreement,
including any action taken by Bank pursuant to the instructions of the Trustee,
except to the extent due to the gross negligence or willful misconduct of Bank
or breach of any of the provisions hereof.  The Company confirms and
agrees that neither Bank nor the Trustee or the Holders shall have any liability
to the Company for wrongful dishonor of any items or transaction as a result of
any instructions of the Trustee or otherwise in accordance with the terms of
this Agreement.  Bank shall have no duty to inquire or determine
whether the obligations of the Company to the Trustee or the Holders are in
default, or whether the Trustee or the Holders are authorized by the Indenture,
applicable law or otherwise to take any action, or whether the Trustee is
entitled to give any such instructions, and Bank is fully entitled to rely upon
such instructions from the Trustee (even if such instructions are contrary or
inconsistent with any instructions or demands given by the
Company).




5.           Statements, Confirmations
and Notices of Adverse Claims.  At such time or times as the
Trustee may request, Bank will promptly report to the Trustee the amounts
received in and held in the Deposit Account and will furnish to the Trustee any
copies of bank statements, deposit tickets, deposited items, debit and credit
advices and other records maintained by Bank under the terms of its arrangements
with the Company (as in effect on the date hereof).  The Trustee will
reimburse Bank for its reasonable expenses in providing such items to the
Trustee.  Upon receipt of notice of any lien, encumbrance or adverse
claim against the Deposit Account Collateral, Bank will promptly notify the
Trustee and the Company thereof.


4




6.           Subordination of Bank’s
Security Interest; Setoff Rights; Bank’s Fees and Expenses.




(a)          In
the event that at any time Bank has a security interest in or lien upon any of
the Deposit Account Collateral, such security interest and lien of Bank shall be
subject and subordinate to the security interest and lien of the Trustee
therein.  Bank shall not for any reason charge, debit, deduct or
offset, or exercise any security interest or lien rights, against any checks,
automated clearinghouse transfers or other form of remittances at any time
deposited in or credited to the Deposit Account, except that Bank may setoff
against funds in the Deposit Account (i) for all amounts due to Bank in respect
of its fees and expenses as provided in Section 6(b) hereof
that are unpaid and outstanding, (ii) for the amount of any checks, automated
clearinghouse transfers, items or other form of remittances that have been
credited to the Deposit Account and subsequently returned unpaid or lawfully
demanded to be refunded by any paying or collecting bank(whether for
insufficient funds or any other reason), (iii) for the amount of any checks,
automated clearinghouse transfers, items or other form of remittances which have
been credited to the Deposit Account incorrectly by reason of inadvertent error
which is corrected as soon as practicable after the discovery of such error, and
(iv) for any overdrafts arising as a result of any of the foregoing; provided, that, Bank shall
first setoff for such amounts due to it against funds held in the Operating
Accounts before the Deposit Account.




(b)         Prior
to the receipt by the Bank of a Termination Notice, Bank shall be entitled to
such fees and expenses as are set forth in the First Lien
Agreement.  Following receipt by the Bank of a Termination Notice, as
compensation for Bank’s services rendered to the Trustee and to Company under
this Agreement, Bank shall be entitled to the fees and expenses set forth in
Exhibit “A” hereto.




7.           Termination.




(a)          This
Agreement may be terminated by Bank at any time on not less than thirty (30)
days’ prior written notice to each of the Company and the
Trustee.  This Agreement may be terminated by the Trustee at any time
upon receipt by Bank of the Trustee’s written notice of
termination.  This Agreement may not be terminated by the Company
without the express prior written consent of the Trustee and, in that case, the
Trustee and the Company shall jointly notify Bank in writing of such
termination.




(b)     
    In the event that this Agreement is terminated for any
reason following the Bank’s receipt of a Termination Notice, unless otherwise
instructed by the Trustee, Bank will, on the effective date of such termination,
transfer all available funds in the Deposit Account to the Trustee Payment
Account.




8.           Notices.  All
notices hereunder to Bank shall be in writing, sent by telecopier and by
nationally recognized overnight courier with instructions to deliver the next
business day, and shall be deemed to have been given or made when Bank has had a
reasonable period of time to act thereon (but in no event longer than two
business days after Bank has received such notice).  All notices to
any other party hereunder shall be in writing and deemed to have been given or
made: if delivered in person, immediately upon delivery; if by telex, telegram
or facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after
mailing.  All notices to any party shall be given to its address set
forth below (or to such other address as any party may designate by notice in
accordance with this Section).


5




9.           Customer
Agreements.  Other than in respect of the First Lien Agreement,
this Agreement supplements all other agreements between the Company and Bank
with respect to the Deposit Account, as such agreements may now exist or may
hereafter be amended and whether now existing or hereafter arising, including,
but not limited to, all agreements pertaining to use of Bank’s cash management
facilities and the daily transmission limits set forth therein.  No
consent of the Trustee or the Holders shall be required to amend the First Lien
Agreement or any such other agreement or for the Company and Bank to enter into
any additional agreement.  In the event of any inconsistency between
this Agreement and the terms of such other agreements (other than in respect of
the First Lien Agreement) of the Company or its affiliates with Bank, the terms
of this Agreement control.  In the event of any inconsistency between
this Agreement and the terms of the First Lien Agreement, the terms of the First
Lien Agreement control.




10.           Governing Law. This
Agreement shall be governed by the laws of the State of Mississippi.
Notwithstanding anything to the contrary contained in any other agreement among
any of the parties hereto, for purposes of the UCC, the State of Mississippi
shall be deemed to be Bank’s jurisdiction within the meaning of Section 9-304 of
the UCC. All references to the “UCC” herein shall mean the Uniform Commercial
Code as in effect on the date hereof in the State of Mississippi.




11.           Counterparts.  This
Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile or other means of electronic transmission shall have the same
force and effect as the delivery of an original executed counterpart of this
Agreement.  Any party delivering an executed counterpart of any such
agreement by telefacsimile or other means of electronic transmission shall also
deliver an original executed counterpart, but the failure to do so shall not
affect the validity, enforceability or binding effect of such
agreement.




12.           Successors and
Assigns.  The Trustee and the Holders are relying upon this
Agreement in providing financing to the Company and this Agreement shall be
binding upon the Company and Bank and their respective successors and assigns
and inure to the benefit of the Trustee and the Holders and their respective
successors and assigns.




13.           Third Party
Beneficiary.  Until such time as the Bank has received a
Termination Notice from the Agent, the Agent for the benefit of itself and the
Lenders shall be a third party beneficiary of this Agreement.




14.           Amendments.  Any
amendments or other modifications to the terms of this Agreement shall be in
writing and signed by the Bank, the Customer and the
Trustee.  Notwithstanding the foregoing, no such amendment or
modification shall be or become effective prior to the Bank’s receipt of a
Termination Notice unless the Agent has given its written consent to such
amendment or modification.


6




[SIGNATURE
PAGE FOLLOWS]


7


DEPOSIT ACCOUNT CONTROL
AGREEMENT




(ELAVON
DESIGNATED DEPOSIT ACCOUNT)




SIGNATURE
PAGE




HANCOCK
      FABRICS, INC.
                                    
                                    BANCORPSOUTH
      BANKBy:
                                    
                                    
                                    By:Name:
                                    
                                    
                                    NameTitle:
                                    
                                    
                                    Title:Address
      for Notices:
                                    
                                    Address
      for Notices:One
      Fashion Way
                                    
                                    Corporate
      Banking DepartmentBaldwyn,
      MS 38824
                                    
                                    201
      South Spring StreetAttention:
      Larry D. Fair
                                    
                                    Tupelo,
      Mississippi 38804Telecopy:  662-365-6025
                                    
                                    Attention:  Corporate
      Banking Dept.Telecopy:
      662-680-2261with
      a copy to:DEUTSCHE
      BANK NATIONAL
                                    
                                    Cash
      Management DepartmentTRUST COMPANY, as the
      Trustee
                                    
                                    6363
      Poplar Avenue, Suite 429Memphis,
      Tennessee 38119By:
                                    
                                    
                                    Attention:  Cash
      Management Dept.Telecopy:  901-374-0866Title:with
      a copy to:By:
                                    
                                    
                                    Cash
      Management Department2830
      West Jackson Street, Building BTitle:
                                    
                                    
                                    Tupelo,
      Mississippi 38801Attention:  Cash
      Management Dept.Telecopy:  662-620-4029





Address
for Notices:





Deutsche
Bank National Trust Company


Corporate
Trust and Securities Services


222 South
Riverside Plaza, 25 Floor, MS CH 105-2502


Chicago,
IL 60606-5808


Telecopy:  312-537-1009


8





EXHIBIT
“A”


TO


DEPOSIT
ACCOUNT CONTROL AGREEMENT




(ELAVON
DESIGNATED DEPOSIT ACCOUNT)




[BANK
TO UPDATE/CONFIRM.]




GENERAL
      ACCT SERVICESDDA
      Account Maintenance
            [*]
            
            Per
      AccountFDIC
            [*]
            
            Per
      Avg. BalanceZero
      Balance Account - Master
            [*]
            
            Operating
      AccountZero
      Balance Account - Sub
            [*]
            
            Per
      AccountDeposits/Credits
            [*]
            
            Per
      ItemChecks
      Paid
            [*]
            
            Per
      ItemCash
      Management Special Handling Fee
            [*]
            
            Operating
      AccountAccount
      Analysis Automated Transmission
            [*]
            
            Per
      AccountACH
      Return Item
            [*]
            
            Per
      ItemACH
      Notification of Change
            [*]
            
            Per
      ItemDeposit
      Correction Fee
            [*]
            
            Per
      ItemDEPOSITORY
      SERVICESCurrency
      Straps Out
            [*]
            
            Per
      ItemWrapped
      Coin Out
            [*]
            
            Per
      ItemDeposit
      Verification (per $100 < $5,000)
            [*]
            
            Per
      ItemItems
      Deposited On-Us
            [*]
            
            Per
      ItemGovernment
      Items Deposited
            [*]
            
            Per
      ItemLocal
      Items Deposited
            [*]
            
            Per
      ItemCity
      Items Deposited
            [*]
            
            Per
      ItemRCPC
      Items Deposited
            [*]
            
            Per
      Item





[*]=Information
redacted pursuant to a confidential treatment request.  Such
information


has
been filed separately with the Securities and Exchange
Commission.


9





Country
      Items
            [*]
            
            Per
      ItemCity
      Items Deposited - Other Fed
            [*]
            
            Per
      ItemRCPC
      Items Deposited - Other Fed
            [*]
            
            Per
      ItemCountry
      Items Deposited - Other Fed
            [*]
            
            Per
      ItemNon-U.S.
      Item
            [*]
            
            Per
      ItemDeposited
      Item Returned
            [*]
            
            Per
      ItemReturn
      Items Redeposited
            [*]
            
            Per
      ItemExpressDeposit
      Monthly Maint STD Deadline
            [*]
            
            Operating
      AccountExpressDeposit
      Monthly Maint EXT Deadline
            [*]
            
            Operating
      AccountExpressDeposit
      - Addt'l Location
            [*]
            
            Per
      AccountExpressDeposit
      - Addt'l DDA Settlement Acct
            [*]
            
            Per
      AccountExpressDeposit
      - Per Items
            [*]
            
            Per
      ItemPAPER
      DISBURSEMENT SERVICESControlled
      Disbursement Maintenance Fee
            [*]
            
            Operating
      AccountControlled
      Disbursement Notification - E-mail
            [*]
            
            Operating
      AccountControlled
      Disbursement - FED Charge
            [*]
            
            Operating
      AccountControlled
      Disbursement - Each Addt'l Acct
            [*]
            
            Per
      AccountPositive
      Pay - Primary Account
            [*]
            
            Operating
      AccountPositive
      Pay - Additional Account
            [*]
            
            Per
      AccountDISBURSEMENT
      RECONCILIATIONARP
      Partial Maintenance
            [*]
            
            Per
      AccountARP
      Additional Accts Each
            [*]
            
            Per
      AccountARP
      Partial Per Item
            [*]
            
            Per
      ItemCD
      ROM Monthly Fee
            [*]
            
            Per
      Account





[*]=Information
redacted pursuant to a confidential treatment request.  Such
information


has
been filed separately with the Securities and Exchange
Commission.


10





CD
      ROM - Per Item
            [*]
            
            Per
      ItemCD
      ROM - Deposited Items
            [*]
            
            Per
      ItemCD
      ROM - Additional Account
            [*]
            
            Per
      AccountCD
      ROM - Additional CD
            [*]
            
            Per
      CDGENERAL
      ACH SERVICESACH
      Received Debit
            [*]
            
            Per
      ItemACH
      Received Credit
            [*]
            
            Per
      ItemACH
      Return Item Debit/Credit
            [*]
            
            Per
      ItemEDI
      PAYMENT SERVICESEDI
      Remittance Advising - Term/Email
            [*]
            
            Operating
      AccountINFORMATION
      SERVICESBAI
      Rptg - File Download
            [*]
            
            Operating
      AccountInView
      - Base Charge  (5 Accounts)
            [*]
            
            Operating
      AccountInView
      - Stop Payment
            [*]
            
            Operating
      AccountInView
      Stop Payment (per item)
            [*]
            
            Per
      ItemInView
      ACH - Base Charge
            [*]
            
            Operating
      AccountInView
      ACH (Per Item)
            [*]
            
            Per
      ItemInView
      - Wire
            [*]
            
            Operating
      AccountInView
      Wire (per item)
            [*]
            
            Per
      ItemWire
      Notification - Fax
            [*]
            
            Per
      Account





[*]=Information
redacted pursuant to a confidential treatment request.  Such
information


has
been filed separately with the Securities and Exchange
Commission.


11





OTHEROfficial
      Check
            [*]
            
            Per
      ItemOverdraft/Insufficient
      Item
            [*]
            
            Per
      ItemResearch
      Fees
            [*]
            
            Per
      HourResearch
      Photocopies
            [*]
            
            Per
      Item




The above
does not include all banking services.  Additional prices will be
quoted on request.  Prices are subject to change without
notification.




If any
account becomes the subject of legal proceedings, or if Bank is required to
respond, appear or provide records in any legal proceedings, Bank shall be
entitled to reimbursement of all costs and expenses, including reasonable
attorney's fees, incurred by it in connection with such
proceedings.




Service Charge Offset
Credit:  A credit based on the 90-day Treasury bill will be
earned on the investable balance less 10% (10% Federal Reserve
requirement).  Accounts with a negative average collected balance are
subject to a monthly charge not to exceed 5% above the current Federal Reserve
Discount Rate.




[*]=Information
redacted pursuant to a confidential treatment request.  Such
information


has
been filed separately with the Securities and Exchange
Commission.


12