Document:

Unassociated Document

    EXHIBIT
10.9

    

    HANCOCK
FABRICS, INC.

    2001
STOCK INCENTIVE PLAN

     

    AMENDED
AND RESTATED

    

    1.            Purpose.

     

    The
purpose of the HANCOCK FABRICS, INC. 2001 STOCK INCENTIVE PLAN (the "Plan") is
to further the earnings of HANCOCK FABRICS, INC., a Delaware corporation, and
its subsidiaries (collectively, the "Company") by assisting the Company in
attracting, retaining and motivating key employees and directors of high caliber
and potential.  The Plan provides for the award of long-term
incentives to those key employees and directors who make substantial
contributions to the Company by their loyalty, industry and
invention.

     

    2.           
Administration.

     

    The Plan
shall be administered by the Stock Plan Committee (the "Committee") selected by
the Board of Directors of the Company (the "Board of Directors") consisting
solely of two or more members who are "outside directors" as described in
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code").  Except to the extent permitted under paragraph 6(g) hereof
or Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "1934
Act") (or any successor rule of similar import), each Committee member shall be
ineligible to receive, and shall not have been, during the one-year period prior
to appointment thereto, granted or awarded stock options or restricted stock
pursuant to this Plan or any other similar plan of the Company or any affiliate
of the Company.  Without limiting the foregoing, the Committee shall
have full and final authority in its discretion to interpret the provisions of
the Plan and to decide all questions of fact arising in its
application.  Subject to the provisions hereof, the Committee shall
have full and final authority in its discretion to determine the employees and
directors to whom awards shall be made under the Plan; to determine the type of
awards to be made and the amount, size and terms and conditions of each such
award; to determine the time when awards shall be granted; to determine the
provisions of each agreement evidencing an award; and to make all other
determinations necessary or advisable for the administration of the
Plan.

     

    3.            Stock
Subject to the Plan.

     

    The
Company may grant awards under the Plan with respect to not more than a total of
6,300,000 shares of $.01 par value common stock of the Company (the "Shares"),
(subject to adjustment as provided in paragraph 18, below).  Such
Shares may be authorized and unissued Shares or treasury
Shares.  Except as otherwise provided herein, any Shares subject to an
option which for any reason is surrendered before exercise or expires or is
terminated unexercised as to such Shares shall again be available for the
granting of awards under the Plan.  Similarly, if any Shares granted
pursuant to restricted stock awards are forfeited, such forfeited Shares shall
again be available for the granting of awards under the Plan.

     

    
      
        
        

      

      
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    4.            Eligibility
to Receive Awards.

    

    Persons
eligible to receive awards under the Plan shall be limited to those officers,
other key employees and directors of the Company who are in positions in which
their decisions, actions and counsel have a significant impact upon the
profitability and success of the Company (but excluding members of the
Committee, except as provided in paragraph 6(g)).

     

    5.           
Form of Awards.

     

    Awards
may be made from time to time by the Committee in the form of stock options to
purchase Shares, restricted stock, or any combination of the above. Stock
options shall be limited to options which do not qualify (“Nonqualified Stock
Options”) as incentive stock options within the meaning of Section 422(b) of the
Code.

     

    6.            Stock
Options.

     

    Stock
options for the purchase of Shares shall be evidenced by written agreements in
such form not inconsistent with the Plan as the Committee shall approve from
time to time; provided that the maximum number of options which may be granted
to any one grantee during any twelve-month period is 100,000 (except that (i) the Committee in its
discretion may exceed such limitation as to executive officers of the Company
and (ii) such
limitation shall be adjusted pursuant to paragraph 18 below).  Such
agreement shall contain the terms and conditions applicable to the options,
including in substance the following terms and conditions:

     

    
      	
               
      

            	
              (a)

            	
              Number
      of Shares.  Each option agreement shall identify the options
      represented as Nonqualified Stock Options, and shall set forth the number
      of Shares subject to the option (as adjusted pursuant to paragraph 18,
      below).

            

    

     

    
      	
               
      

            	
              (b)

            	
              Option
      Price.  The option exercise price to be paid by the optionee to
      the Company for each Share purchased upon the exercise of an option shall
      be determined by the Committee, but shall in no event be less than 100
      percent of the fair market value per Share on the date the option is
      granted, as determined by the Committee.  Notwithstanding
      anything herein to the contrary, the Committee shall not reprice any
      options to a lower exercise price at any time during the term of any
      option granted under this Plan.

            

    

     

    
      	
               
      

            	
              (c)

            	
              Exercise
      Term. Each option agreement shall state the period or periods of time
      within which the option may be exercised, in whole or in part, as
      determined by the Committee and subject to such terms and conditions as
      are prescribed for such purpose by the Committee  The Committee,
      in its discretion, may provide in the option agreement that the option
      shall become immediately exercisable, in whole or in part, in the event of
      Retirement, death or Disability.  Notwithstanding the foregoing,
      no option shall be exercisable after seven years from the date of
      grant.

            

    

     

    
      
        
        

      

      
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              (d)

            	
              Payment
      for Shares.  The purchase price of the Shares with respect to
      which an option is exercised shall be payable in full at the time of
      exercise in cash, Shares at fair market value (i.e., in either a “net”
      exercise or a “cashless” exercise), or by delivery of an executed
      promissory note secured by the shares so purchased, or a combination
      thereof, as the Committee may determine and all subject to such terms and
      conditions as may be prescribed by the Committee for such
      purpose.  If the purchase price is paid by tendering Shares, the
      Committee in its discretion may grant the optionee a new stock option for
      the number of Shares used to pay the purchase
  price.

            

    

     

    
      	
               
      

            	
              (e)

            	
              Rights
      Upon Termination.  In the event of Termination (as defined
      below) of an optionee's status as an employee or director of the Company
      for any cause other than Retirement, death or Disability, all unexercised
      options shall terminate immediately unless otherwise specified in the
      Option Grant Agreement or unless the Committee shall determine otherwise.
      (As used herein, "Termination" means, (i) in the case of an employee, the
      cessation of the grantee's employment by the Company for any reason, and
      (ii) in the case of a director, the cessation of the grantee's service as
      a director of the Company; and "Terminates" has the corresponding
      meaning.  As used  herein, "Retirement" means (in the
      case of an employee) termination of employment under circumstances
      entitling the participant to elect immediate payment of retirement
      benefits under the Hancock Fabrics, Inc. Consolidated Retirement Plan or
      any successor plan, or (in the case of a director), the same meaning as
      Termination or Terminates and “Retires” has the corresponding
      meaning.  As used herein, "Disability" means failure to return
      to full-time employment duties immediately after the participant has
      exhausted the short term disability benefits under the then applicable
      short term disability policy or procedures of the Company, and "Disabled"
      has the corresponding meaning).  In the event that an optionee
      Retires, dies or becomes Disabled prior to the expiration of his option
      and without having fully exercised his option, the optionee or his
      Beneficiary (as defined below) shall have the right to exercise the option
      during its term within a period of (i) one year after Termination due to
      Retirement, death or Disability, or (ii) one year after death if death
      occurs either within one year after Termination due to Retirement or
      Disability to the extent that the option was exercisable at the time of
      death or Termination, or within such other period, and subject to such
      terms and conditions, as may be specified by the Committee.  (As
      used herein, "Beneficiary" means the person or persons designated in
      writing by the grantee as his Beneficiary with respect to an award under
      the Plan; or, in the absence of an effective designation or if the
      designated person or persons predecease the grantee, the grantee's
      Beneficiary shall be the person or persons who acquire by bequest or
      inheritance the grantee's rights in respect of an award).  In
      order to be effective, a grantee's designation of a Beneficiary must be on
      file with the Committee before the grantee's death, but any such
      designation may be revoked and a new designation substituted therefor at
      any time before the grantee's
death.

            

    

     

    
      
        
        

      

      
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              (f)

            	
              Nontransferability.  Except
      as provided in paragraph 14(b), options granted under the Plan shall not
      be sold, assigned, transferred, exchanged, pledged, hypothecated, or
      otherwise encumbered, other than by will or by the laws of descent and
      distribution.  Except as provided in paragraph 14(b), during the
      lifetime of the optionee the option is exercisable only by the
      optionee.

            

    

     

    
      	
               
      

            	
              (g)

            	
              Grants
      to Nonemployee Directors.  Notwithstanding any other provision
      of the Plan, the grant of options and/or restricted stock hereunder to
      directors who are not also employees of the Company ("Nonemployee
      Directors") shall be subject to the following terms and
      conditions:

            

    

     

    
      	
               
      

            	
              (i)

            	
              The
      Nonemployee Directors of the Company installed pursuant to the Company’s
      Plan of Reorganization approved on August 1, 2008, shall receive an
      initial grant of 50,000 Shares of restricted stock (granted at August 4,
      2008), vesting to the extent of 50% of the shares so granted on the first
      anniversary of the date of grant, and 25% and 25% on the successive second
      and third such anniversary dates.  Subsequent grants of
      restricted stock and/or Nonqualified Stock Options to Nonemployee
      Directors may be made at the discretion of the Compensation Committee,
      subject to any limitations under Section 16 of the Securities Exchange Act
      of 1934.

            

    

    
      	
               
      

            	
              (ii)

            	
              Each
      Nonemployee Director of the Company may elect annually (at the time of his
      initial election and subsequently at the time of the annual meeting of
      stockholders for the election of directors), in advance, to receive all or
      a portion of his compensation for services rendered as a Nonemployee
      Director in Shares of restricted stock issued under this Plan in lieu of
      cash, which Shares shall be granted at the time of such annual election,
      vesting to the extent of 1/12th
      of the shares so awarded on the same date of each subsequent
      month..

            

    

    
      	
               
      

            	
              (iii)

            	
              The
      exercise price of stock subject to an option granted to Nonemployee
      Directors and the price used to calculate the number of Shares of
      restricted stock to be issued in lieu of cash consideration under this
      paragraph 6(g) shall be equal to 100 percent of the fair market value of
      such stock on the date the option is granted or the compensation would
      otherwise have been paid in cash, all as determined by the
      Committee.

            

    

    
      	
               
      

            	
              (iv)

            	
              Except
      as provided in paragraph 16, each option granted to Nonemployee Directors
      under this paragraph 6(g) shall not be exercisable until one year after
      the date of grant; provided, however, that no portion of the option shall
      be exercisable any earlier than the date the Plan is approved by the
      stockholders of the Company.

            

    

     

    
      
        
        

      

      
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              (v)

            	
              Unless
      otherwise provided in the Plan, all provisions with respect to the terms
      of Nonqualified Stock Options hereunder shall be applicable to options
      granted to Nonemployee Directors under this paragraph
  6(g).

            

    

    
      	
               
      

            	
              (vi)

            	
              The
      grants described in this paragraph 6(g) shall constitute the only awards
      under the Plan permitted to be made to Nonemployee
    Directors.

            

    

    

    7.            Restricted
Stock Awards.

     

    Restricted
stock awards under the Plan shall consist of Shares free of any purchase price,
or for such purchase price as may be established by the Committee, restricted
against transfer, subject to forfeiture, and subject to such other terms and
conditions (including attainment of performance objectives) as may be determined
by the Committee.  Shares of restricted stock issued to Nonemployee
Directors shall be governed by Section 6(g) above if that section is
inconsistent with this Section 7.  Restricted stock shall be evidenced
by written restricted stock agreements in such form not inconsistent with the
Plan as the Committee shall approve from time to time, which agreement shall
contain the terms and conditions applicable to such awards, including in
substance the following terms and conditions:

     

    
      	
               
      

            	
              (a)

            	
              Restriction
      Period.  Restrictions shall be imposed for such period or
      periods as may be determined by the Committee.  The Committee,
      in its discretion, may provide in the agreement circumstances under which
      the restricted stock shall become immediately transferable and
      nonforfeitable, or under which the restricted stock shall be forfeited,
      provided that no restricted stock award shall become immediately
      transferable and nonforfeitable, except as provided in paragraph 16 or in
      the event of Retirement, death or Disability, any more rapidly than from
      (i) the first anniversary of the date of grant thereof, to the extent of
      50% of the Shares covered thereby, (ii) the second anniversary of the date
      of grant thereof, to the extent of an additional 25% of the Shares covered
      thereby, and (iii) the third anniversary of the date of grant thereof, to
      the extent of an additional 25% of the Shares covered
    thereby.

            

    

    
      	
               
      

            	
              (b)

            	
              Restrictions
      Upon Transfer.  Restricted stock and the right to vote such
      Shares and to receive dividends thereon, may not be sold, assigned,
      transferred, exchanged, pledged, hypothecated, or otherwise encumbered,
      except as herein provided, during the restriction period applicable to
      such Shares.  Notwithstanding the foregoing, and except as
      otherwise provided in the Plan, the grantee shall have all of the other
      rights of a stockholder, including, but not limited to, the right to
      receive dividends and the right to vote such Shares.  Any right
      to receive dividends shall be limited to a right to receive such dividends
      at the same time and in the same amount as dividends which are paid to
      holders of unrestricted shares of capital stock of the
      Company.

            

    

     

    
      
        
        

      

      
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              (c)

            	
              Certificates.  A
      certificate or certificates representing the number of restricted Shares
      granted shall be registered in the name of the grantee.  The
      Committee, in its sole discretion, shall determine when the certificate or
      certificates shall be delivered to the grantee (or, in the event of the
      grantee's death, to his Beneficiary), may provide for the holding of such
      certificate or certificates in escrow or in custody by the Company or its
      designee pending their delivery to the grantee or Beneficiary, and may
      provide for any appropriate legend to be borne by the certificate or
      certificates.

            

    

    
      	
               
      

            	
              (d)

            	
              Lapse
      of Restrictions.  The restricted stock agreement shall specify
      the terms and conditions upon which any restriction upon restricted stock
      awarded under the Plan shall expire, lapse, or be removed, as determined
      by the Committee.  Upon the expiration, lapse, or removal of
      such restrictions, Shares free of the restrictive legend shall be issued
      to the grantee or his legal
representative.

            

    

    

    8.           
Loans and Supplemental Cash.

     

    The
Committee, in its sole discretion to further the purpose of the Plan, may
provide for supplemental cash payments or loans to individuals in connection
with all or any part of an award under the Plan.  Supplemental cash
payments shall be subject to such terms and conditions as shall be prescribed by
the Committee at the time of grant, provided that in no event shall the amount
of payment exceed:

     

    
      	
               
      

            	
              (a)

            	
              In
      the case of an option, the excess fair market value of a Share on the date
      of exercise over the option price multiplied by the number of Shares for
      which such option is exercised, or

            

    

     

    
      	
               
      

            	
              (b)

            	
              In
      the case of a restricted stock award, the value of the Shares issued in
      payment of such award.

            

    

     

    Any loan
shall be evidenced by a written loan agreement or other instrument in such form
and containing such terms and conditions (including, without limitation,
provisions for interest, payment schedules, collateral, forgiveness or
acceleration) as the Committee may prescribe from time to time.

     

    9.           
General Restrictions.

     

    Each
award under the Plan shall be subject to the requirement that if at any time the
Company shall determine that (i) the listing, registration or qualification of
the Shares subject or related thereto upon any securities exchange or under any
state or federal law, or (ii) the consent or approval of any regulatory body, or
(iii) an agreement by the recipient of an award with respect to the disposition
of Shares, or (iv) the satisfaction of withholding tax or other withholding
liabilities is necessary or desirable as a condition of or in connection with
the granting of such award or the issuance or purchase of Shares thereunder,
such award shall be consummated in whole or in part only if such listing,
registration, qualification, consent, approval, agreement, or withholding shall
have been effected or obtained on terms acceptable to the
Company.  Any such restriction affecting an award shall not extend the
time within which the award may be exercised; and neither the Company nor its
directors or officers nor the Committee shall have any obligation or liability
to the grantee or to a Beneficiary with respect to any Shares with respect to
which an award shall lapse or with respect to which the grant, issuance or
purchase of Shares shall not be effected, because of any such
restriction.

     

    
      
        
        

      

      
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    10.          Single
or Multiple Agreements.

     

    Multiple
awards, multiple forms of awards, or combinations thereof may be evidenced by a
single agreement or multiple agreements, as determined by the
Committee.

     

    11.          Rights
of the Shareholder.

     

    The
recipient of any award under the Plan, shall have no rights as a shareholder,
except as provided in Paragraph 7(b), with respect thereto unless and until
certificates for Shares are issued to him, and the issuance of Shares shall
confer no retroactive right to dividends.

     

    12.          Rights
to Terminate.

     

    Nothing
in the Plan or in any agreement entered into pursuant to the Plan shall confer
upon any person the right to continue in the employment of the Company or to
serve as a director, or affect any right which the Company may have to terminate
the employment or directorship of such person.

     

    13.          Withholding.

     

    Prior to
the issuance or transfer of Shares under the Plan, the recipient shall remit to
the Company an amount sufficient to satisfy any federal, state or local
withholding tax requirements. The amount to be withheld shall be determined by
the Company and shall be the based on the minimum statutory requirements. The
recipient may satisfy the withholding requirement in whole or in part by
electing to have the Company withhold Shares having a value equal to the amount
required to be withheld.  The value of the Shares to be withheld shall
be the fair market value, as determined by the Committee, of the stock on the
date that the amount of tax to be withheld is determined (the "Tax
Date").  Such election must be made prior to the Tax Date, must comply
with all applicable securities law and other legal requirements, as interpreted
by the Committee, and may not be made unless approved by the Committee, in its
discretion.

     

    
      
        
        

      

      
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    14.          Non-Assignability.

    

    
      	
               
      

            	
              (a)

            	
              Except
      as provided in paragraph 14(b), no award under the Plan shall be sold,
      assigned, transferred, exchanged, pledged, hypothecated, or otherwise
      encumbered, other than by will or by the laws of descent and distribution,
      or by such other means as the Committee may approve.  Except as
      provided in paragraph 14(b), or as otherwise provided herein, during the
      life of the recipient, such award shall be exercisable only by such person
      or by such person's guardian or legal
  representative.

            

    

    
      	
               
      

            	
              (b)

            	
              The
      Committee may, in its sole discretion from time to time, permit the
      assignment of any Nonqualified Stock Option to one or more of an
      optionee’s “Immediate Family” (as defined herein).  As used
      herein, members of an optionee’s “Immediate Family” shall include only (i)
      persons who, at the time of transfer, are the optionee’s spouse or natural
      or adoptive lineal ancestors or descendants, and (ii) trusts established
      for the exclusive benefit of the optionee and/or one or more of the
      persons described in clause (i) of this paragraph
  14(b).

            

    

    

    15.          Non-Uniform
Determinations.

     

    The
Committee's determinations under the Plan (including without limitation
determinations of the persons to receive awards, the form, amount and timing of
such awards, the terms and provisions of such awards and the agreements
evidencing same, and the establishment of values and performance targets) need
not be uniform and may be made selectively among persons who receive, or are
eligible to receive, awards under the Plan, whether or not such persons are
similarly situated.

     

    16.          Change
In Control Provisions.

    

    
      	
               
      

            	
              (a)

            	
              In
      the event of a Change in Control (as defined below), the Committee in its
      sole discretion may cause any stock options awarded under the Plan to vest
      and restrictions on restricted stock granted under the Plan to lapse, all
      in accordance with terms determined by the Committee in such event, even
      though such determination is made after the date of award or grant (so
      long as such terms are not more restrictive than those contained in any
      prior agreement with the optionees/grantees relating to the affected
      options or restricted stock).  The Committee may provide in
      grant/award agreements issued pursuant to this Plan that the following
      acceleration and valuation provisions shall be available in the event of a
      Change in Control (provided that more restrictive provisions may be
      applicable in the discretion of the Committee) for individual officers who
      (i) are involuntarily terminated upon a Change in Control as a direct
      result of the Change in Control or (ii) terminate their own employment for
      cause upon a Change in Control (e.g., material increase in duties,
      reduction of authority, reduction of compensation or change in location)
      (which determination of causation in (i) and (ii) is to be made by the
      Board of Directors):

            

    

     

    
      
        
        

      

      
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              (i)

            	
              Any
      stock options awarded under the Plan not previously exercisable and vested
      shall become fully exercisable and
vested.

            

    

    
      	
               
      

            	
              (ii)

            	
              Any
      restrictions and deferral limitations applicable to any restricted stock
      to the extent not already vested under the Plan, shall lapse and such
      shares shall be deemed fully
vested.

            

    

    
      	
               
      

            	
              (iii)

            	
              The
      value of all outstanding stock options and restricted stock, in each case
      to the extent vested, shall, unless otherwise determined by the Committee
      in its sole discretion at or after grant but prior to any Change in
      Control, be cashed out on the basis of the Change in Control Price (as
      defined) as of the date such Change in Control is determined to have
      occurred or such other date as the Committee may determine prior to the
      Change in Control.

            

    

    
      	
               
      

            	
              (b)

            	
              As
      used herein, the term "Change in Control" means the happening of any of
      the following:

            

    

    
      	
               
      

            	
              (i)

            	
              Any
      person or entity, including a "group" as defined in Section 13(d)(3) of
      the 1934 Act, other than the Company, a subsidiary of the Company, or any
      employee benefit plan of the Company or its subsidiaries, becomes the
      beneficial owner of the Company's securities having 51 percent or more of
      the combined voting power of the then outstanding securities of the
      Company that may be cast for the election for directors of the Company
      (other than as a result of an issuance of securities initiated by the
      Company in the ordinary course of business),
or

            

    

    
      	
               
      

            	
              (ii)

            	
              As
      the result of, or in connection with, any cash tender or exchange offer,
      merger or other business combination, sale of assets or contested
      election, or any combination of the foregoing transactions, less than a
      majority of the combined voting power of the then outstanding securities
      of the Company or any successor corporation or entity entitled to vote
      generally in the election of directors of the Company or such other
      corporation or entity after such transaction, are held in the aggregate by
      holders of the Company's securities entitled to vote generally in the
      election of directors of the Company immediately prior to such
      transactions.

            

    

    
      	
               
      

            	
              (c)

            	
              As
      used herein, the term "Change in Control Price" means, as to (b)(i) above,
      the average closing price per share as reported on the exchange on which
      the Shares are then traded during the 60 day period immediately preceding
      the occurrence of the Change in Control, or as to (b)(ii) above, the
      actual price paid in any transaction (or the weighted average price paid
      in the case of a combination of transactions) related to the Change in
      Control, in each case as determined by the
  Committee.

            

    

    

    17.          Non-Competition
Provision.

     

    Unless
the award agreement relating to a stock option or restricted stock specifies
otherwise, a grantee shall forfeit all unexercised, unearned and/or unpaid
awards, including, but not by way of limitation, awards earned but not yet paid,
all unpaid dividends and dividend equivalents, and all interest, if any, accrued
on the foregoing, if the grantee, without the written consent of the Company,
engages directly or indirectly in any manner or capacity as principal, agent,
partner, officer, director, employee or otherwise, in any business or activity
which is, in the opinion of the Committee, (i) competitive with the business
conducted by the Company or any of its subsidiaries, or (ii) inimical to the
best interests of the Company or any of its subsidiaries.

     

    
      
        
        

      

      
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    18.          Adjustments.

     

    In the
event of any change in the outstanding common stock of the Company, by reason of
a stock dividend or distribution, recapitalization, merger, consolidation,
reorganization, split-up, combination, exchange of Shares or the like, the Board
of Directors, in its discretion, may adjust proportionately the number of Shares
which may be issued under the Plan, the number of Shares subject to outstanding
awards, and the option exercise price of each outstanding option, and may make
such other changes in outstanding options and restricted stock awards, as it
deems equitable in its absolute discretion to prevent dilution or enlargement of
the rights of grantees, provided that any fractional Shares resulting from such
adjustments shall be eliminated.  Provided, however, that no change in
the terms may provide the holder of options with a direct or indirect reduction
in the ratio of the option exercise price to the fair market value of the
Shares.

     

    19.          Amendment.

     

    The Board
of Directors may terminate, amend, modify or suspend the Plan at any time,
except that the Board shall not, without the authorization of the holders of a
majority of Company's voting securities, modify existing awards respecting the
number of shares, exercise price or extension of terms, issue new awards in
exchange for the cancellation of outstanding awards, increase the maximum number
of Shares which may be issued under the Plan (other than pursuant to paragraph
18 hereof), extend the last date on which awards may be granted under the Plan,
extend the date on which the Plan expires, change the class of persons eligible
to receive awards, or change the minimum option price.  In no event,
however, shall the provisions of paragraph 6(g) be amended more often than once
every six months, other than to comport with changes in the Code, the Employment
Retirement Income Security Act of 1974, as amended, or the rules
thereunder.  No termination, modification, amendment or suspension of
the Plan shall adversely affect the rights of any grantee or Beneficiary under
an award previously granted, unless the grantee or Beneficiary shall consent;
but it shall be conclusively presumed that any adjustment pursuant to paragraph
18 hereof does not adversely affect any such right.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    20.          Effect
on Other Plans.

     

    Participation
in this Plan shall not affect a grantee's eligibility to participate in any
other benefit or incentive plan of the Company.  Any awards made
pursuant to this Plan shall not be used in determining the benefits provided
under any other plan of the Company unless specifically provided
therein.

     

    21.          Effective
Date and Duration of the Plan.

     

    The Plan
shall become effective when adopted by the Board of Directors, provided that the
Plan is approved by the holders of a majority of the Company's voting securities
on the date of its adoption by the Board or before the first anniversary of that
date.  Unless it is sooner terminated in accordance with paragraph 19
hereof, the Plan shall remain in effect until all awards under the Plan have
been satisfied by the issuance of Shares or payment of cash or have expired or
otherwise terminated, but no award shall be granted more than ten years after
the earlier of the date the Plan is adopted by the Board of Directors or is
approved by the holders of the Company's voting securities.

     

    22.          Unfunded
Plan.

     

    The Plan
shall be unfunded, except to the extent otherwise provided in accordance with
Section 7 hereof.  Neither the Company nor any affiliate shall be
required to segregate any assets that may be represented by stock options and
neither the Company nor any affiliate shall be deemed to be a trustee of any
amounts to be paid under any stock option.  Any liability of the
Company or any affiliate to pay any grantee or Beneficiary with respect to an
option shall be based solely upon any contractual obligations created pursuant
to the provisions of the Plan; no such obligations will be deemed to be secured
by a pledge or encumbrance on any property of the Company or an
affiliate.

     

    23.          Governing
Law.

     

    The Plan
shall be construed and its provisions enforced and administered in accordance
with the laws of the State of Delaware except to the extent that such laws may
be superseded by any federal law.

     

    ADOPTED
BY THE BOARD OF DIRECTORS OF HANCOCK FABRICS, INC., ON THE 16th DAY OF
APRIL 2009.

     

    
      
        
          
            
              
                
                  
                    	
                            By:

                          	 
	 
      	 
      
	 
      	 
      
	
                            As
      amended June 9, 2005, June 7, 2006, August 4, 2008 and April 16,
      2009

                          

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        11Unassociated Document

    EXHIBIT
10.30

     

    CHANGE IN CONTROL
AGREEMENT

     

    AGREEMENT
dated as of May 5, 2009, between HANCOCK FABRICS, INC., a Delaware corporation
("Corporation"), and Susan D. Zewicke ("Executive"), whose address is 7780
Sunset Ct., Saline, MI 48176.

     

    WHEREAS:

     

    A.  Corporation
wishes to attract and retain well ­qualified executive and key personnel
and, in the event of any Change in Control (as defined in Section 2) of
Corporation, to assure both itself and Executive of continuity of management;
and

     

    B.  Corporation,
wishes to enter into this Agreement until March 31, 2010 (“the Expiration
Date”), though This Agreement may be renewed for additional one year periods as
of the Expiration Date and each subsequent expiration, by mutual written consent
of the parties hereto; and

     

    C.  No
benefits shall be payable under this Agreement unless the Effective Date shall
occur and thereafter Executive's employment is terminated; and

     

    D.  The
employment of Executive is "at will" and may be terminated by Corporation
without payment of any benefits hereunder until the occurrence of a Change in
Control;

     

    NOW,
THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is hereby agreed by and between Corporation and Executive as
follows:

     

    1.           Operation of
Agreement.  No benefits shall be payable hereunder unless a
Change in Control (as defined in Section 2) occurs during the Change in
Control Period (as defined in Section 3).  For the purposes of
this Agreement the date on which such a Change in Control occurs is referred to
herein as the "Effective Date."

     

    2.           Change in
Control.  For the purposes of this Agreement, the term "Change
in Control" means the happening of any of the following:  (i) any
person or entity, including a "group" as defined in Section 13(d)(3) of the 1934
Act, other than the Company, a subsidiary of the Company, or any employee
benefit plan of the Company or its subsidiaries, becomes the beneficial owner of
the Company's securities having 51 percent or more of the combined voting power
of the then outstanding securities of the Company that may be cast for the
election for directors of the Company (other than as a result of an issuance of
securities initiated by the Company in the ordinary course of business); or (ii)
as the result of, or in connection with, any cash tender or exchange offer,
merger or other business combination, sale of assets or contested election, or
any combination of the foregoing transactions, less than a majority of the
combined voting power of the then outstanding securities of the Company or any
successor corporation or entity entitled to vote generally in the election of
directors of the Company or such other corporation or entity after such
transaction, are held in the aggregate by holders of the Company's securities
entitled to vote generally in the election of directors of the Company
immediately prior to such transactions.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    3.           Change in Control
Period.  The "Change in Control Period" is the period
commencing on the date of this Agreement and ending on the earlier to occur of
(i) the Expiration Date, or (ii) the first day of the month coinciding
with or next following Executive's 65th birthday.  The expiration of
the Change in Control Period shall not limit Corporation's obligation to
provide, or Executive's right to collect, payments and benefits pursuant to
Section 5 and Section 10 hereof.

     

    4.           Certain
Definitions.

     

    (a) Death or
Disability.  Executive's employment shall terminate
automatically upon Executive's death ("Death").  Corporation will be
considered to have terminated Executive's employment for Disability, if after
having established Executive's Disability (as defined below), Executive receives
written notice given in accordance with Section 9(b) of Corporation's
intention to terminate his employment.  Executive's employment will
terminate for Disability effective on the 90th day after receipt of such notice
(the "Disability Effective Date") if within such 90-day period after such
receipt Executive shall fail to return to full-time performance of his
duties.  For purposes of this Agreement, "Disability" means a
disability that, after the expiration of more than 180 days after its
commencement, is determined to be total and permanent by a physician selected by
Corporation or its insurers and acceptable to Executive or his legal
representative (such agreement as to acceptability not to be withheld
unreasonably).

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    Consistent
with, and not in limitation of, the provisions of Section 6 of this
Agreement, neither a termination for, nor a determination of, Disability
pursuant to this Section 4(a) shall be deemed in and of itself a
termination for or determination of disability with respect to Executive's
eligibility to receive long-term disability benefits, continued medical, dental,
or life insurance coverage, retirement benefits, or benefits under any other
plan or program provided by Corporation or one of its affiliated companies and
for which Executive may qualify.

     

    (b) 
Cause.  Executive's
employment will be terminated for Cause if the majority of the Incumbent Board
determines that Cause (as defined in this Agreement) exists.  For
purposes of this Agreement, "Cause" means (i) an act or acts of fraud or
misappropriation on Executive's part that result in or are intended to result in
his personal enrichment or the enrichment of a competitor of Corporation at the
expense of Corporation or one of its affiliated companies, (ii) moral turpitude,
or (iii) conviction of a felony or misdemeanor.  For purposes of this
Agreement, “moral turpitude” is defined for the purposes of this Severance
Agreement as the following:

     

    
      	
              (1)

            	
              That
      element and personal misconduct in the private and social duties which a
      person owes to his fellow human beings or to society in general, which
      characterizes the act done as an act of baseness, vileness or depravity,
      and contrary to the accepted and customary rule of right and duty between
      two human beings.

            

    

     

    
      	
              (2)

            	
              Conduct
      done knowingly contrary to justice, honesty or good
  morals.

            

    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    
      	
              (3)

            	
              Intentional,
      knowing or reckless conduct causing bodily injury to another or
      intentional, knowing or reckless conduct which, by physical menace, put
      another in fear of imminent serious bodily
  injury.

            

    

     

    (c)  Good
Reason.  For purposes of this Agreement, "Good Reason"
means

     

    (i)  without
the express written consent of Executive, (A) the assignment to Executive
of any duties inconsistent in any substantial respect with Executive's position,
authority or responsibilities as in effect during the 90-day period
im­mediately preceding the Effective Date, or (B) any other substantial
adverse change in such position (including titles and reporting requirements),
authority or responsibilities;

     

    (ii)  any
failure by Corporation to furnish Executive and/or, where applicable, his family
with compensation (including annual bonus) and benefits at a level equal to or
exceeding those received (on an annual basis) by Executive from Corporation
during the 90-day period preceding the Effective Date, including a failure by
Corporation to main­tain Corporation's incentive compensation plans or any
subsequent plans (including the right to defer the receipt of payments
thereunder), other than an insubstantial and inadvertent failure remedied by
Corporation promptly after receipt of notice thereof given by
Executive;

     

    (iii) Corporation's
requiring Executive to be based or to perform services at any office or location
other than that at which Executive is primarily based during the 90-day period
preceding the Effective Date, except for travel reasonably required in the
performance of Executive's responsibilities; or

     

    (iv) any
failure by Corporation to obtain the assumption and agreement to perform this
Agreement by a successor as contemplated by Section 8(b).

     

    For the
purposes of this Section 4(c), any good faith determination of "Good
Reason" made by Executive shall be con­clusive.

     

    (d)  Notice of
Termination.  Any termination by Corporation for Cause or by
Executive for Good Reason shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 9(b).  Any
notice of termination by Corporation for Disability shall be given in accordance
with Section 4(a).  For purposes of this Agreement, a "Notice of
Termination" means a written notice that (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated and
(iii) if the termination date is other than the date of receipt of such
notice, specifies the termination date (which date shall not be more than 15
days after the giving of such notice).

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    (e)  Date of
Termination.  Date of Termination means the date of receipt of
the Notice of Termination or any later date specified therein as the termination
date, as the case may be, or if Executive's employment is terminated by
Corporation for any reason other than Cause, Death or Disability, the date on
which Corporation notifies Executive of such
termination.  Notwithstanding any contrary provision in this
Section 4(e), if Executive's employment terminates due to Disability, the
Date of Termination shall be the Disability Effective
Date.  Notwithstanding any contrary provision in this Agreement,
Executive’s Date of Termination will be the date on which Executive has a
“separation from service” (within the meaning of such term under Section 409A of
the Code) with Corporation and all other companies that would be aggregated with
Corporation under Sections 414(b) or 414(c) of the Code.

     

    5.          
Obligations of
Corporation Upon Termination.

     

    (a)  Good Reason Other Than For
Cause, Death or Disability.  Regardless of whether the Change
in Control Period has expired, if, within one year after the Effective Date,
(i) Corporation shall terminate Executive's employment for any reason other
than for Cause, Death or Disability, or (ii) Executive shall terminate his
employment for Good Reason:

     

    (I)  Corporation
shall pay to Executive in a lump sum in cash within 20 days after the 6-month
anniversary of the Date of Termination the aggregate of the amounts determined
pursuant to the following clauses (A) and (B):

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    (A) if
not theretofore paid, Executive's base salary through the  Date of
Termination at the rate in effect at the time the Notice of Termination was
given; and

     

    (B)  the
product of the sum of (x) Executive's annual base salary at the rate in
effect at the time the Notice of Termination was given, or if higher, at the
highest rate in effect at any time within the 90-day period preceding the
Effective Date and (y) an amount equal to the bonus(if any) paid or payable
to Executive pursuant to the applicable cash incentive compensations plan(s)
with respect to the last full fiscal year completed prior to the Date of
Termination, multiplied by 1.5; provided, however, if Executive’s Date of
Termination occurs after Executive’s 64th birthday, the amount provided in
clause (B) above shall be prorated by multiplying such amount by a fraction, the
numerator of which shall be the number of months (including fractions of a
month) that at the Date of Termination remain until the first day of the month
coinciding with or next following Executive's 65th birthday and denominator of
which shall be twelve (12); and

     

    (II)  until
the earlier to occur of (i) the date eighteen (18) months following the
Date of Termination, or (ii) the first day of the first month coinciding
with or next following Executive's 65th birthday (the period of time from the
Date of Termination until the earlier of (i) or (ii) is hereinafter
referred to as the "Unexpired Period"), Corporation shall continue to provide
all benefits that Executive and/or his family is or would have been entitled to
receive under all medical, dental, vision, disability, executive life, group
life, accidental death and travel accident insurance plans and programs of
Corporation and its affiliated companies, in each case on a basis providing
Executive and/or his family with the opportunity to receive benefits at least
equal to those provided by Corporation and its affiliated companies for
Executive under such plans and programs if and as in effect at any time during
the 90-day period preceding the Effective Date.  Notwithstanding
anything in this Agreement to the contrary, Corporation shall not provide
medical, dental or vision benefits to Executive pursuant to this paragraph (II)
for longer than the period of time during which Executive would be entitled (or
would, but for such benefits, be entitled) to continuation coverage under a
group health plan of Corporation or one of its affiliated companies under
Section 4980B of the Code (“COBRA”) if Executive elected such coverage and paid
the applicable premiums.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    6.           Non-exclusivity of
Rights.  Nothing in this Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plan or program provided by Corporation or any of its affiliated
companies and for which Executive may qualify, nor shall anything herein limit
or otherwise affect such rights as Executive may have under any employment,
stock option or other agreements with Corporation or any of its affiliated
companies.  Amounts that are vested benefits or that Executive is
otherwise entitled to receive under any plan or program of Corporation or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.

     

    7.           Full
Settlement.  The payments provided for in this Agreement are in
full settlement of any claims Executive may have against Corporation arising out
of his termination, including, but not limited to, any claims for wrongful
discharge.  Corporation's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any circumstances, including, without limitation, any setoff,
counterclaim, recoupment, defense or other right that Corporation may have
against Executive or others; provided, however, that Corporation's failure to
make any such setoff shall not constitute a waiver of any claim of Corporation
against Executive.  In no event shall Executive be obligated to seek
other employment by way of mitigation of the amounts payable to Executive under
any of the provisions of this Agreement.  Corporation agrees to pay,
to the full extent permitted by law, all legal fees and expenses Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by Corporation or others of the validity or enforceability of, or liability
under, any provision of this Agreement or any guarantee of performance thereof,
in each case plus interest, compounded monthly, on the total unpaid amount
determined to be payable under this Agreement, such interest to be calculated on
the basis of the prime commercial lending rate announced by First Tennessee
Bank, N.A. in effect from time to time during the period of such non-payment,
provided that any such payment shall be made on or before the last day of
Executive’s taxable year following the taxable year in which the expense was
incurred and no payment shall be made pursuant to this Section 7 more than 10
years after Executive’s Date of Termination.  Notwithstanding anything
in this Agreement to the contrary, if any payment under this Section 7 or any
other Section of this Agreement constitutes deferred compensation under Section
409A of the Code and is payable on account of Executive’s separation from
service (within the meaning of such term under Section 409A of the Code), such
payment shall be made no earlier than the 6-month anniversary of Executive’s
Date of Termination.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    8.           Successors.

     

    (a)  This
Agreement is personal to Executive and without the prior written consent of
Corporation shall not be assignable by Executive otherwise than by will or the
laws of descent and distribution.  This Agreement shall inure to the
benefit of and be enforceable by Executive's legal representatives, executors,
heirs and legatees.

     

    (b)  This
Agreement shall inure to the benefit of and be binding upon Corporation and its
successors.  Corporation shall require any successor to all or
substantially all of the business and/or assets of Corporation, whether directly
or indirectly, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as Corporation would be required to perform if no such
succession had taken place.

     

    9.           Miscellaneous.

     

    (a)  The
captions of this Agreement are not part of the provisions hereof and
shall  have  no force or effect.  This Agreement
may not be amended or modified otherwise than by a written agreement executed by
the parties hereto or their respective successors and legal
representatives.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    (b)  All
notices and other communications hereunder shall be in writing and shall be
given by hand delivery to the other party or by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:

     

    If to
Executive:

    

    At the
address first herein above written.

    

    

    If to
Corporation:

    

    Hancock
Fabrics, Inc.

    One
Fashion Way

    Baldwyn,
Mississippi 38824

    Attn:
Corporate Secretary

    

    or to
such other address as either party shall have furnished to the other in writing
in accordance herewith.  Notice and communications shall be effective
when actually received by the addressee.

     

    (c)  The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this
Agreement.

     

    (d)  Corporation
may withhold from any amounts payable under this Agreement such federal, state
or local taxes as shall be required to be withheld pursuant to any applicable
law or regulation.

     

    (e)  This
Agreement contains the entire understanding with Executive with respect to the
subject matter hereof.

     

    (f)  Whenever
used in this Agreement, the masculine gender shall include the feminine or
neuter wherever necessary or appropriate and vice versa and the singular shall
include the plural
and vice versa.

     

    (g)  Executive
and Corporation acknowledge that the employment of Executive by Corporation is
"at will" and may be terminated by either Executive or Corporation at any time
and for any reason.  Nothing contained in the Agreement shall affect
such rights to terminate, it being agreed, however, that nothing in this
Section 9(g) shall prevent Executive from receiving any amounts payable
pursuant to Section 5(a), or 10 of this Agreement in the event of a
termination described in such Section 5(a), or 10 on or after the Effective
Date.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    (h)  Executive
agrees that Executive, during employment by Corporation, has learned valuable
information concerning the business, operations, employees, vendors and
customers of Corporation, and has established valuable relationships with such
vendors and customers of Corporation, and that use of such information and
relationships other than for the benefit of Corporation would materially damage
Corporation.  Therefore, Executive covenants and agrees that Executive
shall not, directly or indirectly, for eighteen (18) months from and after
Executive’s  Date of Termination, reveal any such information to any
person (except as required by law) or solicit any vendor, customer or employee
to cease being same as to Corporation or to change its relationship to
Corporation in any material respect.

     

    10.           Penalty
Taxes.  In the event that any payment or other compensation or
benefits made or provided to or for the benefit of Executive in any way
connected with employment of Executive by Corporation becomes subject to tax
pursuant to section 4999 of the Code or any successor provision or any
counterpart provision of state or local  tax law (the “Penalty
Taxes”), Corporation shall reimburse Executive for any Penalty Taxes and any
additional Federal, state and local taxes (including, without limitation, income
taxes and additional Penalty Taxes) required to be paid by Executive in respect
of receipt of such reimbursement, provided any such reimbursement will be made
by the end of Executive’s taxable year next following Executive’s taxable year
in which Executive remits the related taxes.  In addition, Corporation
shall reimburse Executive for any expenses incurred by Executive due to a tax
audit or litigation addressing the existence or amount of a tax liability,
whether Federal, state, local, or foreign, relating to any Penalty Taxes,
provided any such reimbursement will be made by the end of Executive’s taxable
year following Executive’s taxable year in which the taxes that are the subject
of the audit or litigation are remitted to the taxing authority, or where as a
result of such audit or litigation no taxes are remitted, the end of Executive’s
taxable year following Executive’s taxable year in which the audit is completed
or there is a final and non-appealable settlement or other resolution of the
litigation.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    11.           Loss of Executive Officer
Status.  In the event that Executive ceases to be an executive
officer of Corporation for any reason and at any time, other than during either
(i) one year immediately preceding the Effective Date or (ii) one year
immediately following the Effective Date, this Agreement shall immediately be
terminated such that Executive shall be entitled to no payments hereunder and
Corporation shall have no additional obligations hereunder.

     

    12.           Revocation of Contingent
Payments Agreement.  Executive and Corporation previously
entered into an Agreement to Secure Certain Contingent Payments (the “Contingent
Payments Agreement”) to provide for certain benefits in connection with this
Agreement, including an obligation of Corporation to fund benefits under certain
conditions.  Executive and Corporation hereby agree that the
Contingent Payments Agreement be and hereby is revoked and terminated in its
entirety, effective as of September 30, 2008, such that (i) no benefits
shall be payable under the Contingent Payments Agreement after such date and
(ii) neither Corporation nor Executive shall have any obligations under the
Contingent Payments Agreement after such date

     

    IN
WITNESS WHEREOF, Executive has executed this Agreement and, pursuant to the
authorization of its Board of Directors, Corporation has caused this Agreement
to be executed in its name on its behalf, all as of the day and year first above
written.

     

     

    
      
        
          
            
              
                
                  	Executive 	 	HANCOCK FABRICS,
      INC.	 
	 	 	 	 	 
	
                          /s/
      Susan D. Zewicke

                        	 	
                          By

                        	/s/
      James M. Britz	 
	 	 	 	Name:
      James M. Britz	 
	 	 	 	Title:
      V-P Human Resources	 

                

              

            

          

        

      

    

     

    
      
         

      

      
        11

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