HANCOCK FABRICS, INC. 2001 STOCK INCENTIVE PLAN AMENDED AND RESTATED

 

(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.

 

(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 P lan 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 Te rmination, 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.

 

(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.

 

(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.

 

(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 the reby.

 

(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.

 

(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.

 

(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.

 

(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).

 

(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):

 

(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.