hancock8k111309ex41.htm


    Exhibit 4.1


      AMENDMENT
TO

      AMENDED
AND RESTATED RIGHTS AGREEMENT

       

      This
AMENDMENT TO AMENDED AND RESTATED RIGHTS AGREEMENT (this “Amendment”), is
entered into as of November 13, 2009, between Hancock Fabrics, Inc., a Delaware
Company (the “Company”), and
Continental Stock Transfer & Trust Company, as Rights Agent (the “Rights
Agent”).

       

      RECITALS

       

      A.           The
Board of Directors of the Company (the “Board”) authorized
and declared a dividend of one right (a “Right”) for each
share of Common Stock of the Company outstanding on May 4, 1987, and authorized
the issuance of one Right with respect to each share of Common Stock that has
become outstanding since May 4, 1987, each Right initially representing the
right to purchase one share of Common Stock.

       

      B.           The
Company and the Rights Agent are parties to that certain Rights Agreement dated
as of March 23, 1987, as amended and restated from time to time and currently in
the form of that certain Amended and Restated Rights Agreement dated as of March
20, 2006 (the “Rights
Agreement”).

       

      C.           The
Company has generated net operating loss carryforwards for United States federal
income tax purposes, and such net operating loss carryforwards may potentially
provide significant tax benefits to the Company.

       

      D.           The
Company desires to avoid an “ownership change” as contemplated by Section 382 of
the Internal Revenue Code of 1986, as amended, and the Treasury Regulations
promulgated thereunder, which could detrimentally impact the ability of the
Company to realize tax benefits associated with the net operating loss
carryforwards.

       

      E.           The
Company desires to amend the Rights Agreement pursuant to the terms of this
Amendment.

       

      NOW,
THEREFORE, in consideration of the premises and the mutual agreements herein set
forth, the parties hereto agree as follows:

       

       

       

       

       

       

       

       

       

       

       

      
        
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      Section
1. The
language contained in Section 1(a) of the Rights Agreement is deleted in its
entirety and restated as follows:

       

      “Acquiring
Person” shall mean any Person who or which, together with all Affiliates and
Associates of such Person, shall be the beneficial owner of 4.95% or more of the
then outstanding Common Stock (other than as a result of a Permitted Offer (as
hereinafter defined)), but shall not include (i) the Company, (ii) any
Subsidiary of the Company, (iii) any employee benefit plan of the Company or of
any Subsidiary of the Company, (iv) any entity holding shares of Common Stock
for or pursuant to the terms of any such plan in its capacity as an agent or
trustee for any such plan, or (v) an Exempt Person; provided, however, that not
Person shall become an “Acquiring Person” solely as a result of an Exempt
Transaction.  Notwithstanding the foregoing, no Person shall become an
“Acquiring Person” as a result of an acquisition of Common Stock by the Company
which, by reducing the number of shares outstanding, increases the proportionate
number of shares beneficially owned by such Person to 4.95% or more of the
Common Stock of the Company then outstanding; provided, however, that if a
Person shall become the beneficial owner of 4.95% or more of the then
outstanding Common Stock by reason of share purchases by the Company and shall,
after such share purchases by the Company, become the beneficial owner of any
additional shares of Common Stock, then such Person shall be deemed to be an
“Acquiring Person.” Notwithstanding the foregoing, if the Board determines in
good faith that a Person who would otherwise be an Acquiring Person, as defined
pursuant to the foregoing provisions of this paragraph (a), has become such
inadvertently, such inadvertent acquisition did not result in the loss or
impairment of Tax Benefits, and such Person divests as promptly as practicable a
sufficient number of shares of Common Stock so that such Person would no longer
be an Acquiring Person, then such Person shall not be deemed to be an “Acquiring
Person” for any purposes of this Agreement.

       

      Section
2. The
language contained in Section 1(b) of the Rights Agreement is deleted in its
entirety and restated as follows:

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      
        
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      “Affiliate”
and “Associate” shall have the respective meanings ascribed to such terms in
Rule 12b-2 of the General Rules and Regulations, as in effect on the date of
this Agreement, under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and to the extent not included within the foregoing, shall also
include with respect to any Person, any other Person whose Common Stock would be
deemed to be constructively owned by such first Person, owned by a single
“entity” as defined in Section 1.382-3(a)(1) of the Treasury Regulations, or
otherwise aggregated with Common Stock owned by such first Person, pursuant to
the provisions of the Code, or any successor or replacement provision, and the
Treasury Regulations thereunder.

       

      Section
3. The
language contained in Section 1(c) of the Rights Agreement is deleted in its
entirety and restated as follows:

       

      A Person
shall be deemed the “beneficial owner” of and shall be deemed to “beneficially
own” any securities:

       

      (i)           that
such Person or any Affiliate or Associate of such Person beneficially owns,
directly or indirectly;

       

      (ii)           that
such Person or any Affiliate or Associate of such Person has (A) the right to
acquire (whether such right is exercisable immediately or only after the passage
of time) pursuant to any agreement, arrangement or understanding (whether or not
in writing) (other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange rights, rights
(other than the Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the beneficial owner of securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any Affiliate or Associate of such Person until such tendered securities are
accepted for purchase or exchange; or (B) the right to vote or to dispose of
securities pursuant to any agreement, arrangement or understanding (whether or
not in writing); provided, however, that a Person shall not be deemed the
beneficial owner of, or to beneficially own, any security if the agreement,
arrangement or understanding (whether or not in writing) to vote such security
(1) arises solely from a revocable proxy or consent given to such Person in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations promulgated under the
Exchange Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report);

       

       

       

       

       

       

       

       

       

       

       

       

       

      
        
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      (iii)           that
are beneficially owned, directly or indirectly, by any other Person (or any
Affiliate or Associate thereof) with which such Person (or any of such Person’s
Affiliates or Associates) has any agreement, arrangement or understanding
(whether or not in writing, and other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities) relating to the acquisition, holding, voting (except to
the extent contemplated by the proviso to clause (B) of subparagraph (ii) of
this paragraph) or disposing of any securities of the Company; or

       

      (iv)           if
such Person would be deemed to constructively own securities or such securities
otherwise would be aggregated with shares owned by such Person pursuant to
Section 382 of the Code or any successor or replacement provision, and the
Treasury Regulations thereunder.

       

      Section
4. The
language contained in Section 1(h) of the Rights Agreement is deleted in its
entirety and restated as follows:

       

      “Distribution
Date” shall mean the earlier of (i) the tenth Business Day after the Stock
Acquisition Date, or (ii) the tenth Business Day (or such later date as may be
determined by an action of the Board) after the date of the commencement of, or
first public announcement of the intention of any Person (other than the
Company, a Subsidiary of the Company, an employee benefit plan of the Company or
of a Subsidiary of the Company, or any entity holding shares of capital stock of
the Company for or pursuant to the terms of any such plan in its capacity as an
agent or trustee for any such plan) to commence, a tender or exchange offer
(other than a Permitted Offer) the consummation of which would result in
beneficial ownership by a Person of 30% or more of the outstanding Common
Stock.

       

       

       

       

       

       

       

       

       

       

       

       

       

      
        
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      Section
5. The
language contained in Section 1(i) of the Rights Agreement is deleted in its
entirety and restated as follows:

       

      “Expiration
Date” shall mean March 4, 2021.

       

      Section
6. The
language contained in Section 1(k) of the Rights Agreement is deleted in its
entirety and restated as follows:

       

      “Person”
means any individual, partnership, firm, Company, limited liability company,
limited liability partnership, company, association, trust, unincorporated
organization, joint venture, syndicate or group (the existence of a “group”
being determined in accordance with Rule 13d-5 under the Exchange Act, as the
Rule is in effect on the date of this Agreement including, but not limited to, a
Person having any agreement, arrangement or understanding, whether formal or
informal and whether or not in writing with any other Person to act together to
acquire, offer to acquire, hold, vote or dispose of any Common Stock of the
Company), or any group of Persons making a “coordinated acquisition” of Stock or
otherwise treated as an entity within the meaning of Section 1.382-3(a)(1) of
the Treasury Regulations or otherwise, and shall include any successor (by
merger or otherwise) of such entity.

       

      Section
7. The
language contained in Section 1(m) of the Rights Agreement is deleted in its
entirety and restated as follows:

       

      “Stock
Acquisition Date” shall mean the first date of public announcement by the
Company or any Acquiring Person that an Acquiring Person has become such or such
earlier date as the Board becomes aware of the existence of an Acquiring Person;
provided, however that, if such Person is determined by the Board not to have
become an Acquiring Person or that such Person is an Exempt Person, then no
Stock Acquisition Date shall be deemed to have occurred.

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      
        
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      Section
8. The
following new definitions are added to Section 1 of the Rights
Agreement:

       

      (u)           “Amendment
Date” means November 13, 2009.

       

      (v)           “Code”
means the Internal Revenue Code of 1986, as amended.

       

      (w)           “Exempt
Person” means any Person who, together with all Affiliates and Associates of
such Person,

       

      (i)           is
the beneficial owner of securities representing 4.95% or more of the shares of
Common Stock at the close of business on the Amendment Date; provided, however,
that any such Person described in this clause (i) shall no longer be deemed to
be an Exempt Person and shall be deemed an Acquiring Person if such Person,
together with all Affiliates and Associates of such Person, becomes the
beneficial owner of securities representing a percentage of Common Stock that
exceeds by one-half of one percent (0.5%) or more the lowest percentage of
beneficial ownership of Common Stock that such Person had at any time since the
Amendment Date, except solely (x) pursuant to equity compensation awards granted
to such Person by the Company or as a result of an adjustment to the number of
shares of Common Stock represented by such equity compensation award pursuant to
the terms thereof; (y) as a result of a redemption of shares of Common Stock by
the Company; or (z) pursuant to the exercise of warrants to purchase Common
Stock that are beneficially owned by such Person on the Amendment Date;
or

       

      (ii)           becomes
the beneficial owner of securities representing 4.95% or more of the shares of
Common Stock then outstanding because of a reduction in the number of
outstanding shares of Common Stock then outstanding as a result of the purchase
by the Company or a Subsidiary of the Company of shares of Common Stock,
provided, however, that any such Person described in this clause (ii) shall no
longer be deemed to be an Exempt Person and shall be deemed an Acquiring Person
if such Person, together with all Affiliates and Associates of such Person,
becomes the beneficial owner, at any time after the date such Person became the
beneficial owner of 4.95% or more of the then outstanding shares of Common
Stock, of securities representing a percentage of Common Stock that exceeds by
one-half of one percent (0.5%) or more the lowest percentage of beneficial
ownership of Common Stock that such Person had at any time since the date such
Person first became the beneficial owner of 4.95% or more of the then
outstanding shares of Common Stock, except solely (x) pursuant to equity
compensation awards granted to such Person by the Company or as a result of an
adjustment to the number of shares of Common Stock represented by such equity
compensation award pursuant to the terms thereof; (y) as a result of a
redemption of shares of Common Stock by the Company; or (z)  pursuant
to the exercise of warrants to purchase Common Stock that are beneficially owned
by such Person on the Amendment Date; or

       

       

       

       

       

       

       

       

       

      
        
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      (iii)           who
is a beneficial owner of 4.95% or more of the shares of Common Stock outstanding
and whose beneficial ownership, as determined by the Board in its sole
discretion, (x) would not jeopardize or endanger the availability to the Company
of Tax Benefits or (y) is otherwise in the best interests of the Company,
provided, however, that if a Person is an Exempt Person solely by reason of this
clause (iii), then such Person shall cease to be an Exempt Person if (A) such
Person ceases to beneficially own 4.95% or more of the shares of the then
outstanding Common Stock, (B) after the date of such determination by the Board,
such Person, together with all Affiliates and Associates of such Person, becomes
the beneficial owner of securities representing a percentage of Common Stock
that exceeds by one-half of one percent (0.5%) or more the lowest percentage of
beneficial ownership of Common Stock that such Person had at any time since the
date such Person first became the beneficial owner of 4.95% or more of the then
outstanding shares of Common Stock, except solely (I) pursuant to equity
compensation awards granted to such Person by the Company or as a result of an
adjustment to the number of shares of Common Stock represented by such equity
compensation award pursuant to the terms thereof; (II) as a result of a
redemption of shares of Common Stock by the Company; or (III) pursuant to the
exercise of warrants to purchase Common Stock that are beneficially owned by
such Person on the Amendment Date; or (C) the Board, in its sole discretion,
makes a contrary determination with respect to the effect of such Person’s
beneficial ownership (together with all Affiliates and Associates of such
Person) with respect to the availability to the Company of Tax
Benefits.

       

      A
purchaser, assignee or transferee of the shares of Common Stock (or warrants or
options exercisable for Common Stock) from an Exempt Person shall not thereby
become an Exempt Person, except that a transferee from the estate of an Exempt
Person who receives Common Stock as a bequest or inheritance from an Exempt
Person shall be an Exempt Person so long as such Person continues to be the
beneficial owner of 4.95% or more of the then outstanding shares of Common
Stock.

       

       

       

       

       

       

       

       

       

      
        
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      (x)           “Exempt
Transaction” means any transaction that the Board determines, in its sole
discretion, is exempt from this Agreement, which determination shall be made in
the sole and absolute discretion of the Board prior to the date of such
transaction or within ten Business Days after such transaction, including,
without limitation, if the Board determines that (i) neither the beneficial
ownership of shares of Common Stock by any Person, directly or indirectly, as a
result of such transaction nor any other aspect of such transaction would
jeopardize or endanger the availability to the Company of the Tax Benefits or
(ii) such transaction is otherwise in the best interests of the Company. In
granting an exemption under this definition, the Board may require any Person
who would otherwise be an Acquiring Person to make certain representations or
undertakings or to agree that any violation or attempted violation of such
representations or undertakings will result in such consequences and subject to
such conditions as the Board may determine in its sole discretion, including
that any such violation shall result in such Person becoming an Acquiring
Person.

       

      (y)           “Tax
Benefits” means the net operating loss carryforwards, capital loss
carryforwards, general business credit carryforwards, alternative minimum tax
credit carryforwards, foreign tax credit carryforwards, any loss or deduction
attributable to a “net unrealized built-in loss” within the meaning of Section
382 of the Code, and the Treasury Regulations, of the Company or any Subsidiary
of the Company.

       

      (z)           “Treasury
Regulations” means the final, temporary and proposed income tax regulations
promulgated under the Code, as amended.

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      
        
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      Section
9. The
address for the Company contained in Section 15 shall be deleted and replaced
with the following address:

       

      Hancock
Fabrics, Inc.

      One
Fashion Way

      Baldwyn,
Mississippi 38824

      Attention:  Secretary

       

      Section
10. The
following new subsection shall be added to Section 17 of the Rights
Agreement:

       

      (d)           In
addition to the review and evaluation otherwise required by this Agreement, from
and after the Amendment Date and for so long as the threshold for determining
whether a Person, together with all Affiliates and Associates of such Person, is
an Acquiring Person is 4.95%, the Board shall review the calculation for
determining whether an ownership change has occurred under Section 382 of the
Code once per year. The Board shall determine after such review whether the
ownership structure of the Company poses an undue risk of the loss of or
inability to use all or a substantial portion of the Tax Benefits. If the
ownership structure of the Company no longer poses an undue risk of the loss of
or the inability to use all or a substantial portion of the Tax Benefits, the
Board shall consider whether maintenance of the 4.95% threshold continues to be
in the best interests of the Company, its stockholders and other relevant
constituencies.

       

      Section
11. This
Amendment shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      
        
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      Section
12. This
Amendment may be executed in any number of 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.

       

      Section
13. If any
term, provision, covenant or restriction of this Amendment is held by a court of
competent jurisdiction or other authority to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of this
Amendment shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.

       

      Section
14. Capitalized
terms used herein but not defined shall have the meanings given to them in the
Rights Agreement.

       

      


       

      [signature
page(s) follow(s)]

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      
        
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      IN
WITNESS WHEREOF, the parties to this Amendment have caused this Amendment to be
duly executed as of the date first written above.

       

      HANCOCK
FABRICS, INC.

       

      By: /s/                                                
                                                              

       

      Name: 
_____________________                                                               

       

      Title: ______________________                                                               

       

       

       

      CONTINENTAL
STOCK TRANSFER & TRUST COMPANY

       

      By:   /s/                                                                                                              

       

      Name: _____________________                                                               

       

      Title:   _____________________                                                             

       

       

       

       

       

       

       

       

       

      
 

      
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