Document:

EX-4.4 Indenture between Hancock Fabrics, Inc.

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	 
	(b) (2)
	 	 	7.6, 7.7	 
	(c)
	 	 	7.6, 12.2	 
	(d)
	 	 	7.6	 
	 
	314 (a)
	 	 	N/A	 
	(b)
	 	 	4.6, 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.

	 	 	 	 	 
	Term	 	Defined in Section
	“Additional Amounts”
	 	 	4.3	 
	“Change of Control Offer”
	 	 	3.8	 
	“Change of Control Offer Period”
	 	 	3.8	 

16

 

	 	 	 	 	 
	Term	 	Defined in 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.

26

 

          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.

34

 

          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.

35

 

          (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.

42

 

     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.

46

 

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

48

 

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.

49

 

     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

51

 

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).

54

 

     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.

55

 

          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

57

 

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

58

 

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.

	 	 	 
	SECTION 8.4 	 	DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER
MISCELLANEOUS 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

59

 

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;

60

 

     (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):

61

 

     (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.

62

 

          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.

63

 

     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

64

 

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.

65

 

     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.

	 	 	 
	 SECTION 11.10	  	
 THIRD PARTY BENEFICIARY STATUS AND AMENDMENTS AND OTHER MODIFICATIONS TO
INDENTURE 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-5EX-4.5 Master Warrant Agreement

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:

Title:
	 	Robert W. Driskell

 Senior Vice President and

Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	CONTINENTAL STOCK TRANSFER & TRUST COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:

Title:
	 	/s/ Alexandra Albrecht
 

Alexandra Albrecht

 Vice President
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:

Title:
	 	/s/ John W. Comer, Jr.
 

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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00143-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00143-of-00352.parquet"}]]