SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 8-K

                                 CURRENT REPORT
                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                          Date of Report: April 6, 2001
                (Date of earliest event reported: March 4, 2001)


                              HANCOCK FABRICS, INC.
             (Exact name or registrant as specified in its charter)

         Delaware                                        64-0740905
(State or other jurisdiction)                  (IRS Employer Identification No.)

                                     1-9482
                            (Commission title number)

3406 West Main Street, Tupelo, MS                                         38803
(Address of principal executive offices)                              (Zip code)

       Registrant's telephone number, including area code: (662) 842-2834










<PAGE>




Item 5.  Other Events:

The Board of Directors of Hancock Fabrics, Inc. (the "Company") on March 4, 2001
amended and  extended the  Company's  Rights  Agreement.  The term of the Rights
Agreement  was  extended to March 4, 2011,  the  Purchase  Price was adjusted to
$24.00 per share, and the Redemption Price was adjusted to $.01 per Right.

Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits.

        (c) Exhibits.

Exhibit No.                Description
-----------                -----------
    4.3                 Amended and Restated Rights Agreement between Registrant
                        and Continental Stock Transfer and Trust Company dated
                        as of March 23, 1987 and as Amended and Restated most
                        recently on March 4, 2001.










<PAGE>


                                 SIGNATURE PAGE

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                                                        HANCOCK FABRICS, INC.


Date: April 6, 2001                         By:/s/    Bruce D. Smith
                                            ----------------------------
                                            Bruce D. Smith
                                            Senior Vice President and
                                            Chief Financial Officer
                                            (Principal Financial and
                                             Accounting Officer)




<PAGE>
EXHIBIT 4.3

   --------------------------------------------------------------------------



                      AMENDED AND RESTATED RIGHTS AGREEMENT


                              HANCOCK FABRICS, INC.


                                       and


                   CONTINENTAL STOCK TRANSFER & TRUST COMPANY


                                  Rights Agent




                                Rights Agreement

                           Dated as of March 23, 1987

                                     and as

                              Amended and Restated

                                most recently on

                                  March 4, 2001

   -------------------------------------------------------------------------


<PAGE>




                                TABLE OF CONTENTS



Section 1.        Certain Definitions..........................................2

Section 2.        Rights Agent.................................................7

Section 3.        Issue of Right Certificates.................................14

Section 4.        Form of Right Certificates..................................16

Section 5.        Countersignature and Registration...........................17

Section 6.        Transfer, Split-Up, Combination and Exchange
                     of Right Certificates; Mutilated, Destroyed,
                     Lost or Stolen Right Certificates; Cancellation
                     and Destruction of Right Certificates....................18

Section 7.        Exercise of Rights; Purchase Price; Expiration
                     Date of Rights; Fractional Shares and Fractional
                     Rights...................................................20

Section 8.        Reservation and Availability of Shares of
                     Common Stock.............................................22

Section 9.        Right Holders...............................................24

Section 10.       Adjustment of Number of Shares; Exchange Option.............26

Section 11.       Consolidation, Merger or Sale or Transfer of
                     Assets or Earning Power..................................29

Section 12.       Adjustments of Purchase Price, Number of
                  Shares or Number of Rights..................................30

Section 13.       Redemption..................................................38

Section 14.       Notice of Certain Events....................................39

Section 15.       Notices.....................................................40

Section 16.       Supplements and Amendments..................................41


                                        i
Section 17.       Determinations and Actions by the Board of Directors........41

Section 18.       Successors..................................................42

Section 19.       Benefits of this Agreement..................................42

Section 20.       Severability................................................42

Section 21.       Governing Law...............................................42

Section 22.       Counterparts................................................42

Section 23.       Descriptive Headings........................................43

Signatures....................................................................43

Exhibit A -- Form of Right Certificate

Exhibit B -- Summary of Rights to Purchase Common Stock






<PAGE>


                                RIGHTS AGREEMENT


     Agreement,  dated as of March 23, 1987,  between Hancock  Fabrics,  Inc., a
Delaware  corporation  (the "Company"),  and Continental  Stock Transfer & Trust
Company, as Rights Agent (the "Rights Agent"),  and as amended and restated most
recently on March 4, 2001.

     The Board of  Directors of the Company (the  "Board")  has  authorized  and
declared a dividend of one right (a "Right")  for each share of Common Stock (as
hereinafter defined) of the Company and has authorized the issuance of one Right
with respect to each share of Common Stock that shall become outstanding between
May 4, 1987 and the earliest of the  Distribution  Date, the Redemption Date and
the Expiration Date (as such terms are hereinafter herein), each Right initially
representing the right to purchase one share of Common Stock.

     Accordingly,  in  consideration  of the premises and the mutual  agreements
herein set forth, the parties hereby agree as follows:

Section 1. Certain  Definitions.

For purposes of this Agreement, the following terms have the meanings indicated:

     (a)  "Acquiring  Person" shall mean any Person who or which,  together with
all Affiliates and Associates of such Person,  shall be the beneficial  owner of
20% or more of the Common  Stock then  outstanding  (other than as a result of a
Permitted  Offer),  but shall not include the  Company,  any  Subsidiary  of the
Company,  any employee  benefit plan of the Company or of any  Subsidiary of the
Company,  or any entity  holding  shares of capital  stock of the Company for or
pursuant  to the terms of any such plan in its  capacity  as an agent or trustee
for any such plan.  Notwithstanding  the  foregoing,  no Person  shall become an
"Acquiring  Person"  as the  result of an  acquisition  of  Common  Stock by the
Company  which,  by reducing  the number of shares  outstanding,  increases  the
proportionate  number of shares beneficially owned by such Person to 20% or more
of the Common Stock of the Company then outstanding;  provided, however, that if
a Person shall become the Beneficial Owner of 20% or more of the Common Stock of
the Company  then  outstanding  by reason of share  purchases by the Company and
shall, after such share purchases by the Company, become the Beneficial Owner of
any additional shares of Common Stock of the Company,  then such Person shall be
deemed to be an "Acquiring Person."  Notwithstanding the foregoing, if the Board
of  Directors  of the Company  determines  in good faith that a Person who would
otherwise  be  an  Acquiring  Person,  as  defined  pursuant  to  the  foregoing
provisions of this paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of shares of Common Stock
so that such Person would no longer be an Acquiring  Person, as defined pursuant
to the foregoing provisions of this paragraph (a), then such Person shall not be
deemed to be an "Acquiring Person" for any purposes of this Agreement.

     (b) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and  Regulations,  as in effect
on the date of this  Agreement,  under the  Securities  Exchange Act of 1934, as
amended (the "Exchange Act").

     (c) A Person shall be deemed the "beneficial  owner" of and shall be deemed
to "beneficially own" any securities:

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




<PAGE>


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

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

     (d) "Business Day" shall mean any day other than a Saturday,  Sunday,  or a
day on which banking institutions in either the State of New York or Mississippi
are authorized or obligated to close by law or executive order.

     (e) With  respect to any given date,  "close of  business"  shall mean 5:00
p.m., Central Time, on such date; provided,  however, that if such date is not a
Business  Day it shall  mean 5:00 p.m.,  Central  Time,  on the next  succeeding
Business Day.

     (f)  The  "closing  price"  of  the  Common  Stock  or of  the  Rights,  as
applicable,  for any day shall be the last sale price,  regular way, or, in case
no such sale takes  place on such day,  the average of the closing bid and asked
prices,  regular way, in either case as reported in the  principal  consolidated
transaction  reporting  system with respect to securities  listed or admitted to
trading on the New York Stock Exchange or, if the Common Stock or the Rights are
not listed or admitted to trading on the New York Stock Exchange, as reported in
the  principal  consolidated   transaction  reporting  system  with  respect  to
securities  listed on the principal  national  securities  exchange on which the
Common  Stock or the Rights are listed or  admitted to trading or, if the Common
Stock or the  Rights  are not listed or  admitted  to  trading  on any  national
securities exchange,  the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ")  or such other system then in use, or, if on any such date the Common
Stock or the Rights are not quoted by any such organization,  the average of the
closing bid and asked prices as furnished by a professional  market maker making
a market in the Common Stock or the Rights selected by the Board.

     (g) "Common  Stock" shall mean the shares of common stock,  $.01 par value,
of the Company.  When used with  reference to any Person other than the Company,
"common  stock"  shall  mean the  capital  stock (or equity  interest)  with the
greatest voting power of such other Person or, if such Person is a Subsidiary of
another   Person,   the  Person  or  Persons   that   ultimately   control  such
first-mentioned Person.

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

     (i) "Expiration Date" shall mean March 4, 2011.

     (j)  "Permitted  Offer" shall mean a tender or exchange  offer which is for
all outstanding  Common Stock at a price and on terms  determined,  prior to the
purchase of shares under such tender or exchange  offer,  by at least a majority
of the  members  of the  Board  of  Directors  who  are not  Acquiring  Persons,
Affiliates or Associates of an Acquiring Person or, nominees or  representatives
of any of them,  to be adequate  (taking  into  account  all  factors  that such
Directors  deem  relevant  including,  without  limitation,  prices  that  could
reasonably be achieved if the  Corporation or its assets were sold on an orderly
basis designed to realize  maximum value) and otherwise in the best interests of
the Company and its  stockholders  (other  than the Person or any  Affiliate  or
Associate  thereof on whose basis the offer is being made)  taking into  account
all factors that such directors may deem relevant.

     (k) "Person" shall mean any individual,  partnership,  firm, corporation or
other  entity,  and shall include any successor (by merger or otherwise) of such
entity.

     (l)  "Purchase  Price"  shall  mean the  price of a share of  Common  Stock
pursuant to the exercise of a Right under the terms of this Agreement.

     (m) "Redemption  Date" shall mean the date on which the Rights are redeemed
pursuant to Section 13 hereof.

     (n)  "Stock   Acquisition  Date"  shall  mean  the  first  date  of  public
announcement by the Company or any Acquiring Person that an Acquiring Person has
become such.

     (o)  "Subsidiary"  of any Person shall mean any corporation or other entity
of which a majority  of the  voting  power of the voting  equity  securities  or
equity interests is owned, directly or indirectly, by such Person.

     (p)  "Trading  Day"  shall  mean  a day on  which  the  principal  national
securities  exchange on which the Common  Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a Business Day.

Section 2. Rights Agent.

     (a) The Company  hereby  appoints  the Rights Agent to act as agent for the
Company and the holders of the Rights (who, in accordance with Section 3 hereof,
shall prior to the  Distribution  Date also be the holders of the Common Shares)
in accordance with the terms and conditions  hereof, and the Rights Agent hereby
accepts  such  appointment.  The  Company  may from  time to time  appoint  such
Co-Rights Agents as it may deem necessary or desirable.  Contemporaneously  with
such appointment, if any, the Company shall notify the Rights Agent thereof.

     (b) The Company agrees to pay to the Rights Agent  reasonable  compensation
for all services  rendered by it hereunder in accordance  with a fee schedule to
be mutually  agreed upon and,  from time to time, on demand of the Rights Agent,
its reasonable expenses and counsel fees and other disbursements incurred in the
administration  and execution of this Agreement and the exercise and performance
of its duties hereunder.

     (c) The Rights Agent undertakes the duties and obligations  imposed by this
Agreement  upon the  following  terms and  conditions,  and the  Company and the
holders of Right Certificates,  by their acceptance  thereof,  shall be bound by
all such terms and conditions:

     (i)  The Rights  Agent may  consult  with legal  counsel  (who may be legal
          counsel for the  Company),  and the opinion of such  counsel  shall be
          full and complete  authorization and protection of the Rights Agent as
          to any action  taken or omitted by it in good faith and in  accordance
          with such opinion.

     (ii) Whenever in the  performance  of its duties under this  Agreement  the
          Rights 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  certificate
          signed by the Chairman of the Board, the President, any Executive Vice
          President,  any Senior Vice President, the Treasurer, or the Secretary
          of the Company and delivered to the Rights Agent, and such certificate
          shall be full  authorization  to the Rights Agent for any action taken
          or suffered in good faith by it under the provisions of this Agreement
          in reliance upon such certificate.

     (iii) The Rights  Agent  shall  be  liable   hereunder  only  for  its  own
          negligence, bad faith or willful misconduct. The Rights Agent shall be
          protected and shall incur no liability for or in respect of any action
          taken, suffered or omitted by it in connection with its administration
          of this Agreement in reliance upon any Right Certificate,  certificate
          for shares of Common  Stock or for other  securities  of the  Company,
          instrument of assignment or transfer, power of attorney,  endorsement,
          affidavit,   letter,   notice,   instruction,    direction,   consent,
          certificate,  statement,  or other paper or document believed by it to
          be genuine and to be signed, executed and, where necessary,  verified,
          acknowledged or attested by the proper person or persons, or otherwise
          upon the advice of counsel as set forth in this Section.

          The Company  agrees to indemnify  the Rights Agent for, and to hold it
          harmless against, any loss,  liability,  or expense,  incurred without
          negligence,  bad faith or willful misconduct on the part of the Rights
          Agent,  for anything done or omitted by the Rights Agent in connection
          with the acceptance and  administration  of this Agreement,  including
          the costs and expenses of defending  against any claim of liability in
          the premises.

     (iv) The Rights  Agent shall not be liable for, or by reason of, any of the
          statements of fact or recitals  contained in this  Agreement or in the
          Right Certificates (except as to its  countersignature  thereof) or be
          required to verify the same, but all such  statements and recitals are
          and shall be deemed to have been made by the Company only.

     (v)  The Rights Agent shall not be under any  responsibility  in respect of
          the validity of this  Agreement or the execution  and delivery  hereof
          (except the due execution hereof by the Rights Agent) or in respect of
          the  validity  or  execution  of any  Right  Certificate  (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 Right Certificate; nor shall it be responsible for
          any change in the  exercisability  of the Rights or any  adjustment in
          the  terms of the  Rights  (including  the  manner,  method  or amount
          thereof)  provided  for in  Sections  3,  10,  11,  12 or  13,  or the
          ascertaining  of the  existence  of facts that would  require any such
          adjustment  or  determination  (except with respect to the exercise of
          Rights evidenced by Right  Certificates  after actual notice that such
          adjustment  or  determination  is  required);  nor shall it by any act
          hereunder be deemed to make any  representation  or warranty as to the
          authorization  or  reservation  of any  shares of  Common  Stock to be
          issued  pursuant to this  Agreement or any Right  Certificate or as to
          whether any shares of Common  Stock will,  when so issued,  be validly
          authorized and issued, fully paid and non-assessable.

     (vi) The Company  agrees that it will  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 Rights  Agent for the  carrying  out or
          performing by the Rights Agent of the provisions of this Agreement.

     (vii) The Rights  Agent  is  hereby   authorized  and  directed  to  accept
          instructions  with respect to the performance of its duties  hereunder
          from the Chairman of the Board,  the  President,  any  Executive  Vice
          President,  any Senior Vice President, the Treasurer, or the Secretary
          of  the  Company,  and  to  apply  to  such  officers  for  advice  or
          instructions   in  connection   with  its  duties  under  this  Rights
          Agreement, and it shall not be liable for any action taken or suffered
          to be taken by it in good faith in accordance with instructions of any
          such  officer or for any delay while  waiting for those  instructions.
          Any application by the Rights Agent for written  instructions from the
          Company may, at the option of the Rights  Agent,  set forth in writing
          any action  proposed  to be taken or omitted by the Rights  Agent with
          respect to its duties or obligations  under this Rights  Agreement and
          the date on or after which such  action  shall be taken or omitted and
          the Rights  Agent shall not be liable for any action  taken or omitted
          in accordance with a proposal  included in any such  application on or
          after the date  specified  therein  (which date shall not be less than
          three business days after the date any such officer actually  receives
          such  application,  unless any such  officer  shall have  consented in
          writing to an earlier  date)  unless,  prior to taking or omitting any
          such action,  the Rights Agent has received  written  instructions  in
          response  to such  application  specifying  the  action to be taken or
          omitted.

     (viii) The Rights Agent and any stockholder,  director, officer or employee
          of the  Rights  Agent  may buy,  sell or deal in any of the  Rights or
          other  securities of the Company or become  pecuniarily  interested in
          any  transaction in which the Company may be  interested,  or contract
          with or lend money to the Company or otherwise act as fully and freely
          as though it were not  Rights  Agent  under  this  Agreement.  Nothing
          herein  shall  preclude  the  Rights  Agent  from  acting in any other
          capacity for the Company or for any other legal entity.

     (ix) The Rights  Agent may execute and exercise any of the rights or powers
          hereby vested in it or perform any duty hereunder  either itself or by
          or through its attorneys or agents,  and the Rights Agent shall not be
          answerable or accountable for any act, default,  neglect or misconduct
          of any  such  attorneys  or  agents  or for any  loss  to the  Company
          resulting from any such act, default, neglect or misconduct,  provided
          reasonable   care  was   exercised  in  the  selection  and  continued
          employment thereof.

     (x)  At any time and from time to time after the  Distribution  Date,  upon
          the request of the Company, the Rights Agent shall promptly deliver to
          the Company a list, as of the most recent  practicable  date (or as of
          such earlier date as may be specified by the Company),  of the holders
          of record of Rights.

     (d) The  Rights  Agent or any  successor  Rights  Agent may  resign  and be
discharged  from its duties under this Agreement upon 30 days' notice in writing
mailed  to the  Company  and to each  transfer  agent  of the  Common  Stock  by
registered  or certified  mail and to the holders of the Right  Certificates  by
first-class  mail.  The  Company  may remove the Rights  Agent or any  successor
Rights  Agent  upon 30 days'  notice in writing  mailed to the  Rights  Agent or
successor  Rights Agent,  as the case may be, and to each transfer  agent of the
Common Stock by  registered or certified  mail,  and to the holders of the Right
Certificates by first-class mail. If the Rights Agent shall resign or be removed
or shall otherwise become incapable of acting, it shall remit to the Company, or
to any successor  Rights Agent  designated by the Company,  all books,  records,
funds,  certificates  or other  documents or instruments of any kind then in its
possession  that it acquired in  connection  with its  services as Rights  Agent
hereunder,  and shall  thereafter be discharged  from all duties and obligations
hereunder.  Following  notice of such removal,  resignation or  incapacity,  the
Company  shall  appoint a successor to such Rights  Agent.  If the Company shall
fail to make such appointment  within a period of 30 days after giving notice of
such  removal or after it has been  notified in writing of such  resignation  or
incapacity  by the resigning or  incapacitated  Rights Agent or by a holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company),  then the registered holder of any Right Certificate
may apply to any court of competent  jurisdiction  for the  appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation organized and doing business under the laws
of the United  States or of any state of the United  States,  in good  standing,
that  either has a combined  capital  and  surplus of at least $50 million or is
otherwise financially sufficient, in the judgement of the Board, to enable it to
serve  as  Rights  Agent,  that  has an  office  in the  State of New York or an
affiliate  with an  office  in the  State of New York  and  that is  subject  to
supervision or examination by Federal or state authority. After appointment, the
successor Rights Agent shall be vested with the same powers,  rights, duties and
responsibilities  without further act or deed as if it had been originally named
as Rights Agent; but the predecessor  Rights Agent shall deliver and transfer to
the successor  Rights Agent any property at the time held by it  hereunder,  and
execute and deliver any further assurance, conveyance, act or deed necessary for
the  purpose.  Not later than the  effective  date of any such  appointment  the
Company shall file notice thereof in writing with the  predecessor  Rights Agent
and each  transfer  agent of the  Common  Stock,  and mail a notice  thereof  in
writing to the registered holders of the Right Certificates. Failure to give any
notice provided for in this paragraph, however, or any defect therein, shall not
affect the  legality  or validity  of the  resignation  or removal of the Rights
Agent or the appointment of the successor Rights Agent.

     (e) Any  corporation  with which the Rights Agent or any  successor  Rights
Agent is merged or  consolidated,  or any  corporation  resulting  from any such
merger or  consolidation,  or any corporation  succeeding to the corporate trust
business  of the  Rights  Agent  or any  successor  Rights  Agent,  shall be the
successor  to the Rights  Agent under this  Agreement  without the  execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation  would be eligible for appointment as a successor
Rights Agent under the  provisions of paragraph  (d) of this Section.  If any of
the Right  Certificates  shall have been  countersigned but not delivered at the
time such  successor  Rights Agent shall  succeed to the agency  created by this
Agreement,  such successor  Rights Agent may adopt the  countersignature  of the
predecessor Right Agent and deliver such Right Certificates so countersigned; if
at that time any of the Right  Certificates  shall not have been  countersigned,
any successor Rights Agent may countersign such Right Certificates either in the
name of the  predecessor  Rights Agent or in its own name; and in all such cases
such  Right  Certificates  shall  have  the full  force  provided  in the  Right
Certificates and in this Agreement.

     (f) If the name of the Rights  Agent is changed and at such time any of the
Right Certificates  shall have been countersigned but not delivered,  the Rights
Agent may adopt the  countersignature  under its prior  name and  deliver  Right
Certificates so countersigned; and if at that time any of the Right Certificates
shall not have been  countersigned,  the Rights Agent may countersign such Right
Certificates  either in its prior name or in its changed  name;  and in all such
cases such Right  Certificates  shall have the full force  provided in the Right
Certificates and in this Agreement.

Section 3. Issue of Right Certificates.

     (a) Until the Distribution  Date, the Rights shall be evidenced (subject to
the provisions of paragraph (b) of this Section) by the  certificates for shares
of  Common  Stock  registered  in  the  names  of  the  holders  thereof  (which
Certificates  for Common  Shares shall also be deemed to be Right  Certificates)
and  not by  separate  Right  Certificates,  and  the  right  to  receive  Right
Certificates will be transferable only in connection with the transfer of Common
Stock.  As soon as  practicable  after the  Distribution  Date, the Company will
prepare  and  execute,  the Rights  Agent will send or cause to be sent (and the
Rights Agent will, if requested, send), by first-class, insured, postage-prepaid
mail,  to each record  holder of Common Stock as of the close of business on the
Distribution  Date,  at the address of such  holder  shown on the records of the
Company,  a Right  Certificate,  in substantially  the form of Exhibit A hereto,
evidencing  one  Right  for each  share  of  Common  Stock  so  held.  As of the
Distribution   Date,  the  Rights  will  be  evidenced   solely  by  such  Right
Certificates.

     (b) The Company will send or cause to be sent a copy of a Summary of Rights
to Purchase Common Stock, in substantially the form attached hereto as Exhibit B
(the "Summary of Rights"), by first-class,  postage-prepaid mail, to each holder
of a share of Common Stock that shall become outstanding between May 4, 1987 and
the earliest of the  Distribution  Date, the Redemption  Date and the Expiration
Date. Until the Distribution Date, the Rights shall be evidenced by certificates
for Common Stock registered in the names of the holders thereof (together with a
copy of the Summary of Rights), registered holders of Common Stock shall also be
the registered  holders of the associated Rights, and the surrender for transfer
of any  certificate  for Common Stock,  with or without a copy of the Summary of
Rights  attached  thereto,  shall also constitute the transfer of the associated
Rights.  Certificates  issued for Common Stock (including,  without  limitation,
certificates  issued upon  transfer or  exchange of Common  Stock)  prior to the
earliest of the  Distribution  Date, the Redemption  Date or the Expiration Date
shall have impressed on, printed on, written on or otherwise affixed to them the
following legend:


<PAGE>


This certificate also evidences and entitles the holder hereof to certain Rights
as set forth in a Rights Agreement between Hancock Fabrics, Inc. and Continental
Stock Transfer & Trust Company, dated as of March 23, 1987, as from time to time
amended,  (the "Rights  Agreement"),  the terms of which are hereby incorporated
herein by reference  and a copy of which is on file at the  principal  executive
offices of Hancock Fabrics,  Inc. Under certain  circumstances,  as set forth in
the Rights Agreement, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. Hancock Fabrics, Inc. will mail
to the holder of this certificate a copy of the Rights Agreement  without charge
after receipt of a written request therefor. Under certain circumstances, Rights
issued to Acquiring  Persons or Associates or Affiliates  thereof (as defined in
the Rights Agreement) may become null and void.



<PAGE>


     (c) In the event  that the  Company  purchases  or  acquires  any shares of
Common Stock prior to the  Distribution  Date, any Rights  associated  with such
shares of Common Stock shall be deemed  canceled and retired so that the Company
shall not be entitled to exercise  any Rights  associated  with shares of Common
Stock that are no longer outstanding.

Section 4. Form of Right Certificates.

     (a) The Right  Certificates  (and the form of election to purchase  shares,
certification  and  assignment  to be printed on the reverse  thereof)  shall be
substantially  in the form of  Exhibit  A  hereto  and may  have  such  marks of
identification  or  designation  and such  legends,  summaries  or  endorsements
printed thereon as the Company may deem  appropriate and as are not inconsistent
with the provisions of this Agreement,  or as may be required to comply with any
applicable law or with any rule or regulation made pursuant  thereto or with any
rule or  regulation  of any stock  exchange on which the Rights may from time to
time be  listed,  or to  conform to usage.  The Right  Certificates  shall be in
machine  printable form and in a format  reasonably  satisfactory  to the Rights
Agent.  Subject to the  provisions of paragraph  (b) of this Section,  the Right
Certificates,  whenever  issued,  shall be dated as of March 23, 1987, and shall
show the date of  countersignature  by the Rights Agent, and on their face shall
entitle the holders thereof to purchase such number of shares of Common Stock as
shall be set forth  therein at the  Purchase  Price set forth  therein,  but the
number  and kind of such  shares  and the  Purchase  Price  shall be  subject to
adjustment as provided herein.

     (b)  Notwithstanding  any of the  provisions  of this  Agreement  or of the
Rights  to the  contrary,  the  Company  may,  at its  option,  issue  new Right
Certificates  evidencing  Rights in such form as may be approved by the Board to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other  securities  or  property  purchasable  under the Right
Certificates made in accordance with the provisions of this Agreement.

Section 5.  Countersignature  and Registration.

The  Right  Certificates  shall be  executed  on behalf  of the  Company  by the
Chairman of the Board,  President or any Vice  President and by its Secretary or
an Assistant  Secretary,  either manually or by facsimile  signature,  and shall
have  affixed  thereto  the  Company's  seal or a facsimile  thereof.  The Right
Certificates shall be manually  countersigned by an authorized  signatory of the
Rights  Agent,  but  it  shall  not be  necessary  for  the  same  signatory  to
countersign all of the Right Certificates  hereunder. No Right Certificate shall
be valid for any  purpose  unless so  countersigned.  In case any officer of the
Company  who shall have signed any of the Right  Certificates  shall cease to be
such  officer of the Company  before  countersignature  by the Rights  Agent and
issuance and delivery by the Company, such Right Certificates,  may nevertheless
be  countersigned  by the Rights Agent,  and issued and delivered by the Company
with the same  force and  effect as though  the  person  who  signed  such Right
Certificates had not ceased to be such officer of the Company.

     Following the Distribution  Date, the Rights Agent will keep or cause to be
kept,  at its  principal  office in the Borough of  Manhattan in the City of New
York,  books for  registration  and  transfer of the Right  Certificates  issued
hereunder.  Such books  shall  show the names and  addresses  of the  respective
holders of the Right Certificates, the number of Rights evidenced on its face by
each of the Right Certificates and the date of each of the Right Certificates.

Section 6. Transfer,  Split-Up,  Combination and Exchange of Right Certificates;
     Mutilated,  Destroyed, Lost or Stolen Right Certificates;  Cancellation and
     Destruction of Right Certificates.

     (a) Subject to the  provisions of Section 7(f) and (g) hereof,  at any time
after the close of business  on the  Distribution  Date,  and at or prior to the
close of business on the earlier of the Redemption Date or the Expiration  Date,
any  Right  Certificate  or Right  Certificates  may be  transferred,  split up,
combined or  exchanged  for another  Right  Certificate  or Right  Certificates,
entitling  the  registered  holder to purchase a like number of shares of Common
Stock as the Right Certificate or Right  Certificates  surrendered then entitled
such holder to purchase.  Any registered holder desiring to transfer,  split up,
combine or exchange  any Right  Certificate  shall make such  request in writing
delivered to the Rights Agent,  and shall  surrender  such Right  Certificate or
Right  Certificates at the principal  office of the Rights Agent.  Thereupon the
Rights  Agent shall  countersign  and deliver to the person  entitled  thereto a
Right  Certificate or Right  Certificates,  as the case may be, as so requested.
The Company may require payment from the holders of Right  Certificates of a sum
sufficient  to cover  any tax or  governmental  charge  that may be  imposed  in
connection  with any transfer,  split-up,  combination or exchange of such Right
Certificates.

     Upon  receipt by the  Company and the Rights  Agent of evidence  reasonably
satisfactory  to them of the loss,  theft,  destruction or mutilation of a Right
Certificate,  and,  in case of  loss,  theft or  destruction,  of  indemnity  or
security  reasonably  satisfactory  to  them,  and,  at the  Company's  request,
reimbursement  to the Company and the Rights  Agent of all  reasonable  expenses
incidental  thereto,  and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated,  the Company shall execute and deliver a new
Right  Certificate  of like  tenor  to the  Rights  Agent  for  delivery  to the
registered owner in lieu of the Right Certificate so lost, stolen,  destroyed or
mutilated.

     All Right Certificates  surrendered for the purpose of exercise,  transfer,
split-up, combination or exchange shall, if surrendered to the Company or to any
of its agents,  be delivered to the Rights Agent for cancellation or in canceled
form, or, if  surrendered  to the Rights Agent,  shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of the Rights  Agreement.  The Company shall deliver to
the Rights Agent for cancellation and retirement,  and the Rights Agent shall so
cancel and retire,  any other  Right  Certificate  purchased  or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.

Section 7.  Exercise  of  Rights;  Purchase  Price;  Expiration  Date of Rights;
     Fractional Rights and Fractional Shares of Stock.

     (a) The registered  holder of any Right Certificate may exercise the Rights
evidenced  thereby (except as otherwise  provided herein) in whole or in part at
any time after the  Distribution  Date upon surrender of the Right  Certificate,
with the form of election  to purchase  and  certification  on the reverse  side
thereof duly executed, to the Rights Agent at the principal office of the Rights
Agent in the Borough of Manhattan in the City of New York, together with payment
of the Purchase  Price for each share of Common Stock as to which the Rights are
exercised,  at or prior to the  earlier  of (i) the  close  of  business  on the
Expiration Date or (ii) the Redemption Date.

     (b) The Purchase Price for each share of Common Stock purchased pursuant to
the exercise of a Right shall be $24,  shall be subject to adjustment  from time
to time as  hereinafter  provided  and shall be payable  in lawful  money of the
United States of America in accordance with paragraph (c) of this Section.

     (c) Upon receipt of a Right Certificate  representing  exercisable  Rights,
with  the  form  of  election  to  purchase  and  certification  duly  executed,
accompanied  by payment of the Purchase  Price for the shares of Common Stock to
be purchased and an amount equal to any  applicable  transfer tax required to be
paid by the  holder of such  Right  Certificate  in  accordance  with  Section 8
hereof,  in cash, or by certified  check or cashier's check payable to the order
of the Company,  the Rights Agent shall thereupon  promptly (i) requisition from
any transfer agent of the Common Stock (or make  available,  if the Rights Agent
is the transfer agent)  certificates for the number of shares of Common Stock to
be purchased and the Company hereby irrevocably authorizes its transfer agent to
comply  with all such  requests,  (ii) when  appropriate,  requisition  from the
Company the amount of cash to be paid in lieu of issuance of  fractional  shares
of Common Stock in accordance with paragraph (g) of this Section, (iii) promptly
after  receipt of such  certificates,  cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such
name or names as may be  designated by such holder,  and (iv) when  appropriate,
after receipt, promptly deliver such cash to or upon the order of the registered
holder of such Right Certificate.

     (d) In case the registered  holder of any Right  Certificate shall exercise
less than all the Rights evidenced thereby,  a new Right Certificate  evidencing
Rights  equivalent to the Rights  remaining  unexercised  shall be issued by the
Rights Agent to the registered  holder of such Right  Certificate or to his duly
authorized assigns, subject to the provisions of paragraph (f) of this Section.

     (e) Notwithstanding anything in this Agreement to the contrary, neither the
Rights Agent nor the Company  shall be  obligated  to undertake  any action with
respect to a registered holder upon the occurrence of any purported  exercise as
set forth in this Section unless the certification  contained in the appropriate
form of  election  to  purchase  set  forth  on the  reverse  side of the  Right
Certificate  surrendered  for such exercise shall have been completed and signed
by the  registered  holder thereof and the Company shall have been provided with
such  additional  evidence of the  identity of the  beneficial  owner (or former
beneficial  owner) or  Affiliates  or  Associates  thereof as the Company  shall
reasonably request.

     (f) The Company  shall not be required to issue  fractions  of Rights or to
distribute  Right  Certificates  that  evidence  fractional  Rights.  In lieu of
fractional  Rights, the Company shall pay to the registered holders of the Right
Certificates  with regard to which such  fractional  Rights  would  otherwise be
issuable  an amount in cash equal to the same  fraction  of the  current  market
value of a whole Right.  For the purposes of this paragraph,  the current market
value of a whole Right shall be the closing  price (as defined in Section  1(f))
of the Rights for the  Trading Day  immediately  prior to the date on which such
fractional  Rights  would have been  otherwise  issuable.  If the Rights are not
publicly held or not so listed or traded,  the "current  market value of a whole
Right" shall mean the fair value of a Right on such date as  determined  in good
faith by the Board.

     (g) The  Company  shall not be  required  to issue  fractions  of shares of
Common Stock upon  exercise of the Rights or to  distribute  certificates  which
evidence  fractional  shares of Common Stock.  In lieu of  fractional  shares of
Common  Stock,  the  Company  may  pay  to  the  registered   holders  of  Right
Certificates  at the time such Rights are exercised as herein provided an amount
in cash equal to the same  fraction of the current  market value of one share of
Common Stock.  For purposes of this  paragraph,  the current market value of the
Common Stock shall be the closing  price (as defined in Section 1(f)) of a share
of  Common  Stock  for the  Trading  Day  immediately  prior to the date of such
exercise.

Section 8. Reservation and Availability of Shares of Common Stock.

The Company  covenants  and agrees  that it will cause to be  reserved  and kept
available out of its authorized and unissued Common Stock, or any authorized and
issued Common Stock held in its  treasury,  the number of shares of Common Stock
that  will be  sufficient  to permit  the  exercise  in full of all  outstanding
Rights.  In the event  that  there  shall not be  sufficient  treasury  stock or
authorized  but  unissued  Common  Stock to permit the  exercise  in full of the
Rights in accordance  with the provisions of this  Agreement,  the Company shall
take all such  action as may be  necessary  to  authorize  additional  shares of
Common Stock for issuance upon exercise of the Rights.

     So long as the Common  Stock  issuable  upon the  exercise of Rights may be
listed on any  national  securities  exchange,  the  Company  shall use its best
efforts to cause, from and after such time as the Rights become exercisable, all
shares of Common Stock  reserved for such issuance to be listed on such exchange
upon official notice of issuance upon such exercise.

     The Company  covenants  and agrees that it will take all such action as may
be necessary to ensure that all Common Stock  delivered  upon exercise of Rights
shall,  at the time of delivery of the  certificates  for such stock (subject to
payment of the Purchase  Price),  be duly and validly  authorized and issued and
fully paid and non-assessable stock.

     The  Company  further  covenants  and agrees  that it will pay when due and
payable any and all Federal and state  transfer  taxes and charges  which may be
payable in respect of the issuance or delivery of the Right  Certificates  or of
any Common Stock upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right  Certificates  to a person  other than,  or the issuance or
delivery  of  certificates  for  Common  Stock in a name other than that of, the
registered holder of the Right Certificate evidencing the Rights surrendered for
exercise  or to issue or deliver  any  certificates  for  Common  Stock upon the
exercise  of any  Rights  until any such tax shall  have been paid (any such tax
being payable by the holder of such Right  Certificate at the time of surrender)
or until it has been established to the Company's  satisfaction that so such tax
is due.

Section 9. Right Holders.

     (a) Every holder of a Right by accepting  the same consents and agrees with
the Company and the Rights Agent and with every other holder of a Right that:

     (i)  prior to the Distribution  Date, the Rights shall be transferable only
          in connection with the transfer of Common Stock;

     (ii) after  the  Distribution   Date,  the  Right   Certificates  shall  be
          transferable  only  on the  registry  books  of the  Rights  Agent  if
          surrendered at the principal office of the Rights Agent, duly endorsed
          or accompanied by a proper instrument of transfer;

     (iii) the Company  and the  Rights  Agent may deem and treat the  person in
          whose name the Right Certificate (or, prior to the Distribution  Date,
          the associated Common Stock certificate) is registered as the absolute
          owner thereof and of the Rights evidenced thereby (notwithstanding any
          notations  of ownership  or writing on the Right  Certificates  or the
          associated  Common  Stock  certificate  made my anyone  other than the
          Company or the Rights Agent) for all purposes whatsoever,  and neither
          the  Company  nor the Rights  Agent shall be affected by any notice to
          the contrary; and

     (iv) he has  waived  his  right to  receive  any  fractional  Rights or any
          fractional shares of stock upon exercise of a Right.

     (b) No holder, as such, of any Right Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of Common Stock or any
other  securities  of the  Company  which  may at any  time be  issuable  on the
exercise of the Rights represented  thereby, nor shall anything contained herein
or in any Right  Certificate be construed to confer upon the holder of any Right
Certificate,  as such,  any of the rights of a stockholder of the Company or any
right to vote for the  election of  directors  or upon any matter  submitted  to
stockholders at any meeting  thereof,  or to receive notice of meetings or other
actions affecting  stockholders (except as provided in Section 14 hereof), or to
receive  dividends or  subscription  rights,  or  otherwise,  until the Right or
Rights  evidenced  by such  Right  Certificate  shall  have  been  exercised  in
accordance with the provisions hereof.

     (c) Each person in whose name any  certificate  for Common  Stock is issued
upon the  exercise of Rights shall for all purposes be deemed to have become the
holder  of  record  of  the  Common  Stock  represented  thereby  on,  and  such
certificate shall be dated, the date upon which the Right Certificate evidencing
such  Rights was duly  surrendered  and payment of the  Purchase  Price (and any
applicable transfer taxes) was made; provided, however, that if the date of such
surrender  and payment is a date upon which the Common Stock  transfer  books of
the Company are  closed,  such person  shall be deemed to have become the record
holder  of such  stock  on,  and  such  certificate  shall  be  dated,  the next
succeeding  Business Day on which the Common Stock transfer books of the Company
are open.

     (d) All rights of action in respect of this Agreement, except the rights of
action given to the Rights Agent under Section 2 (b) and (c) hereof,  are vested
in each registered holder of a Right Certificate (and, prior to the Distribution
Date, each registered holder of Common Stock); and any such holder,  without the
consent of the Rights Agent or of the holder of any other Right Certificate (or,
prior to the Distribution Date, of the Common Stock), may, in his own behalf and
for his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, this Agreement,  or otherwise enforce
or act in respect of his right to exercise  the Rights  evidenced  by such Right
Certificate  in the  manner  provided  in  such  Right  Certificate  and in this
Agreement.  Without  limiting the  foregoing  or any  remedies  available to the
holders of Rights,  it is specifically  acknowledged  that the holders of Rights
would not have an adequate  remedy at law for any breach of this  Agreement  and
will  be  entitled  to  specific  performance  of  the  obligations  under,  and
injunctive relief against actual or threatened violations of, the obligations of
any Person subject to this Agreement.

Section 10. Adjustment of Number of Shares; Exchange Option.

     (a) Subject to the  provisions  of paragraph  (b) of this  Section,  in the
event any Person shall become an Acquiring  Person,  proper  provision  shall be
made so that each holder of a Right,  except as provided below, shall thereafter
have a right to receive,  upon exercise  thereof in accordance with the terms of
this Agreement,  such number of shares of Common Stock as shall equal the result
obtained by (x)  multiplying  the  then-current  Purchase Price by the number of
shares of Common  Stock for which a Right is then  exercisable  and (y) dividing
that  product by 50% of the current per share  market  price of the Common Stock
(determined  pursuant  to  Section  12(d)),  on the date such  Person  became an
Acquiring  Person. In the event that any Person shall become an Acquiring Person
and the Rights shall then be outstanding,  the Company shall not take any action
that would  substantially  diminish or otherwise eliminate the benefits intended
to be afforded by the Rights.

     (b) The Board of Directors  of the Company may, at its option,  at any time
after any Person becomes an Acquiring  Person,  exchange all or part of the then
outstanding  and  exercisable  Rights (which shall not include  Rights that have
become void  pursuant to the  provisions  of paragraph  (c) of this Section) for
Common  Stock at an  exchange  ratio of one  share of Common  Stock  per  Right,
appropriately  adjusted to reflect any stock  split,  stock  dividend or similar
transaction   occurring  after  the  date  hereof  (such  exchange  ratio  being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors  shall not be  empowered  to effect such  exchange at any
time that a majority of the members of the Board of Directors shall be Acquiring
Persons,  Affiliates  or  Associates  of an  Acquiring  Person,  or  nominees or
representatives  of any of them.  Immediately  upon the  action  of the Board of
Directors of the Company  ordering  the exchange of any Rights  pursuant to this
paragraph (b) and without any further  action and without any notice,  the right
to exercise  such Rights  shall  terminate  and the only right  thereafter  of a
holder of such Rights  shall be to receive that number of shares of Common Stock
equal  to the  number  of such  Rights  held by such  holder  multiplied  by the
Exchange  Ratio.  The Company  shall  promptly  give  public  notice of any such
exchange;  provided,  however,  that the failure to give, or any defect in, such
notice  shall not affect the  validity of such  exchange.  The Company  promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein  provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the  method by which the  exchange  of  Common  Stock for  Rights  will be
effected  and, in the event of any partial  exchange,  the number of Rights that
will be exchanged.  Any partial exchange shall be effected pro rata based on the
number of Rights  (other  than  Rights  that have  become  void  pursuant to the
provisions of paragraph  (c) of this Section) held by each holder of Rights.  In
the event that there shall not be  sufficient  shares of Common Stock issued but
not  outstanding  or authorized but unissued to permit any exchange of Rights as
contemplated  in accordance  with this paragraph (b), the Company shall take all
such action as may be necessary to authorize  additional  shares of Common Stock
for issuance upon exchange of the Rights.

     (c) Anything in this  Agreement to the contrary  notwithstanding,  from and
after the time any Person becomes an Acquiring Person,  any Rights  beneficially
owned by (i) an  Acquiring  Person or an  Associate or Affiliate of an Acquiring
Person,  (ii) a  transferee  of an  Acquiring  Person  (or of any  Affiliate  or
Associate  thereof) who becomes a transferee  after the Acquiring Person becomes
such,  or (iii) a  transferee  of an  Acquiring  Person (or of any  Affiliate or
Associate  thereof) who becomes a transferee  prior to or concurrently  with the
Acquiring Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person to holders
of equity  interests  in such  Acquiring  Person or to any Person  with whom the
Acquiring  Person  has a  continuing  agreement,  arrangement  or  understanding
regarding the transferred  Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan,  arrangement  or  understanding
which has a primary purpose or effect the avoidance of this paragraph (c), shall
become null and void  without  any  further  action and no holder of such Rights
shall have any rights whatsoever with respect to such Rights,  whether under any
provision of this Agreement or otherwise.  No Right  Certificate shall be issued
pursuant  to the  provisions  of  this  Agreement  that  represents  any  Rights
beneficially  owned  by  any  Person  whose  Rights  are  void  pursuant  to the
provisions of this paragraph  (c). The Company shall use all reasonable  efforts
to ensure that the provisions of this paragraph (c) are complied with, but shall
have no  liability  to any  holder of Right  Certificates  or other  Person as a
result of its failure to make any  determinations  with  respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder.

Section 11.  Consolidation,  Merger or Sale or  Transfer  of  Assets or  Earning
     Power.

     At any time after a Person  shall have become an Acquiring  Person,  in the
event that,  directly or indirectly,  (a) the Company shall consolidate with, or
merge with and into,  any  Person,  (b) any Person  shall  consolidate  with the
Company,  or  merge  with  and into the  Company  and the  Company  shall be the
continuing or surviving  corporation of such merger and, in connection with such
merger,  all or part of the Common Stock shall be changed into or exchanged  for
stock or other  securities  of any other  Person (or the Company) or cash or any
other property,  or (c) the Company shall sell or otherwise  transfer (or one or
more of its  Subsidiaries  shall  sell or  otherwise  transfer),  in one or more
transactions, assets or earning power aggregating more than 50% of the assets or
earning  power of the  Company  and its  Subsidiaries  (taken as a whole) to any
other Person,  then, and in each such case,  proper  provision  shall be made so
that (i) each holder of a Right  (except as  otherwise  provided  herein)  shall
thereafter  have the right to receive,  upon the exercise  thereof in accordance
with the terms of this Agreement,  such number of shares of common stock of such
other Person  (including  the Company as successor  thereto or as the  surviving
corporation)  as shall be equal to the result  obtained by (x)  multiplying  the
then-current  Purchase Price by the number of shares of Common Stock for which a
Right is then exercisable (without taking into account any adjustment previously
made pursuant to Section 10) and (y) dividing that product by 50% of the current
per  share  market  price of the  shares of common  stock of such  other  Person
(determined  pursuant to Section  12(d) hereof) on the date of  consummation  of
such consolidation,  merger, sale or transfer; (ii) such Person shall thereafter
be liable for, and shall assume, by virtue of such  consolidation,  merger, sale
or  transfer,  all the  obligations  and duties of the Company  pursuant to this
Agreement;  (iii) the term "Company" shall thereafter be deemed to refer to such
Person;  and (iv) such Person shall take such steps (including,  but not limited
to, the  reservation  of a  sufficient  number of shares of its common  stock in
accordance with Section 8 hereof) in connection with such consummation as may be
necessary to ensure that the provisions  hereof shall  thereafter be applicable,
as nearly as  reasonably  may be, in  relation  to its common  stock  thereafter
deliverable  upon the exercise of the Rights.  The Company shall not  consummate
any such  consolidation,  merger,  sale or  transfer  unless  prior  thereto the
Company and such Person shall have  executed and delivered to the Rights Agent a
supplemental  agreement  so  providing.  The  Company  shall not enter  into any
transaction  of the  kind  referred  to in this  Section  if at the time of such
transaction   there  are  any  rights,   warrants,   instruments  or  securities
outstanding  or  any  agreements  or  arrangements  which,  as a  result  of the
consummation  of such  transaction,  would  substantially  diminish or otherwise
eliminate the benefits intended to be afforded by the Rights.  The provisions of
this Section shall similarly apply to successive  mergers or  consolidations  or
sales or other transfers.

Section 12. Adjustments of Purchase Price, Number of Shares or Number of Rights.

     (a) In the  event  the  Company  shall at any time  after  the date of this
Agreement (A) declare a dividend on the Common Stock payable in shares of Common
Stock,  (B) subdivide the  outstanding  shares of Common Stock,  (c) combine the
outstanding  shares of Common Stock into a smaller number of shares or (D) issue
any  shares of its  capital  stock in a  reclassification  of the  Common  Stock
(including  any such  reclassification  in connection  with a  consolidation  or
merger in which the Company is the continuing or surviving corporation),  except
as otherwise  provided in Section 10 hereof, the Purchase Price in effect at the
time of the  record  date for such  dividend  or of the  effective  date of such
subdivision, combination or reclassification,  and the number and kind of shares
of capital stock  issuable on such date,  shall be  proportionately  adjusted so
that the holder of any Right  exercised  after such time  shall be  entitled  to
receive,  upon  payment of the Purchase  Price then in effect and in  compliance
with other  applicable  conditions,  the aggregate  number and kind of shares of
capital stock which, if such Right had been exercised  immediately prior to such
date and at a time when the Common  Stock  transfer  books of the  Company  were
open,  he would have owned upon such  exercise  and been  entitled to receive by
virtue of such dividend,  subdivision,  combination or  reclassification.  If an
event occurs that would  require an  adjustment  under both this  paragraph  and
Section 10 hereof,  the adjustment  provided for in this  paragraph  shall be in
addition  to, and shall be made prior to, any  adjustment  required  pursuant to
Section 10 hereof.

     (b) In case the Company  shall fix a record date for the issuance of rights
or warrants to all holders of Common Stock entitling them (for a period expiring
within 45 calendar  days after such record  date) to  subscribe  for or purchase
Common Stock (or securities  convertible into Common Stock) at a price per share
of Common Stock (or having a conversion  price per share of Common  Stock,  if a
security  convertible  into Common Stock) less than the current per share market
price of the Common Stock (as defined in paragraph  (d) of this Section) on such
record date,  the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction,  the numerator of which shall be the number of shares
of Common  Stock  outstanding  on such  record date plus the number of shares of
Common Stock that the aggregate  offering price of the total number of shares of
Common Stock so to be offered (and/or the aggregate initial  conversion price of
the  convertible  securities  so to be offered)  would  purchase at such current
market  price  and the  denominator  of which  shall be the  number of shares of
Common  Stock  outstanding  on such  record  date plus the number of  additional
shares of Common Stock to be offered for subscription or purchase (or into which
the convertible securities so to be offered are initially convertible).  In case
such subscription  price may be paid in a consideration  part or all of which is
in a form  other  than  cash,  the  value  of  such  consideration  shall  be as
determined in good faith by the Board, whose determination shall be described in
a statement  filed with the Rights Agent.  Common Stock owned by or held for the
account of the Company  shall not be deemed  outstanding  for the purpose of any
such computation.  Such adjustments  shall be made successively  whenever such a
record date is fixed;  and in the event that such rights or warrants  are not so
issued,  the  Purchase  Price shall be adjusted to be the  Purchase  Price which
would then be in effect if such record date had not been fixed.

     (c) In case the  Company  shall  fix a  record  date  for the  making  of a
distribution  to all holders of Common Stock  (including  any such  distribution
made in connection  with a  consolidation  or merger in which the Company is the
continuing  or surviving  corporation)  of evidences of  indebtedness  or assets
(other than a regular  periodic cash dividend at a rate not in excess of 125% of
the  rate of the last  regular  periodic  cash  dividend  theretofore  paid or a
dividend  payable in shares of Common Stock) or subscription  rights or warrants
(excluding  those  referred to in paragraph (b) of this  Section),  the Purchase
Price to be in effect after such record date shall be determined by  multiplying
the  Purchase  Price  in  effect  immediately  prior  to such  record  date by a
fraction,  the numerator of which shall be the current per share market price of
the Common  Stock (as defined in paragraph  (d) of this  Section) on such record
date,  less the fair  market  value (as  determined  in good faith by the Board,
whose  determination  shall be  described  in a statement  filed with the Rights
Agent) of the  portion  of the  assets or  evidences  of  indebtedness  so to be
distributed or of such subscription  rights or warrants  applicable to one share
of Common  Stock and the  denominator  of which shall be such  current per share
market price of the Common Stock.  Such adjustments  shall be made  successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.

     (d) For the purpose of any  computation  hereunder,  the "current per share
market  price" of the Common Stock on any date shall be deemed to be the average
of the daily  closing  prices (as defined in Section  1(f)  hereof) per share of
such Common Stock for the 30 consecutive  Trading Days immediately prior to such
date;  provided,  however,  that in the event that the current per share  market
price  of  the  Common  Stock  is  determined  during  a  period  following  the
announcement  by  the  issuer  of  such  Common  Stock  of  (i)  a  dividend  or
distribution  on such Common Stock  payable in such Common  Stock or  securities
convertible  into such  Common  Stock or (ii) any  subdivision,  combination  or
reclassification of such Common Stock, and prior to the expiration of 30 Trading
Days after the ex-dividend date for such dividend or distribution, or the record
date for such subdivision,  combination or  reclassification,  then, and in each
such case, the "current market price" shall be appropriately adjusted to reflect
the current  market  price per share of Common Stock  equivalent.  If the Common
Stock is not  publicly  held or not so listed or traded,  the "current per share
market  price" shall mean the fair value per share of Common Stock as determined
in good  faith  by the  Board,  whose  determination  shall  be  described  in a
statement filed with the Rights Agent.

     (e) An adjustment in the Purchase  Price  requiring an increase or decrease
of less than 1% in such price  shall not be  required  immediately  following  a
transaction, but any such adjustment shall be carried forward and made not later
than the  earlier of the  Expiration  Date and three years after the date of the
transaction or shall be taken into account in any subsequent adjustment if prior
to the  earlier of such dates.  All  calculations  under this  Section and under
Section 10 shall be made to the nearest cent or to the nearest ten-thousandth of
a share as the case may be.

     (f) If as a result of an adjustment  made pursuant to paragraph (a) of this
Section or Section 10(a),  the holder of any Right  thereafter  exercised  shall
become entitled to receive any shares of capital stock of the Company other than
shares of Common Stock,  thereafter  the number of such other shares of stock so
receivable  upon exercise of any Right 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 paragraphs (a) through
(c), inclusive,  of this Section,  and the provisions of Sections 7, 8, 9(c) and
11 hereof with respect to the Common Stock shall apply on like terms to any such
other shares of stock.

     (g) All Rights issued by the Company  subsequent  to any  adjustment to the
Purchase Price hereunder  shall evidence the right to purchase,  at the adjusted
Purchase Price,  the number of shares of Common Stock  purchasable  from time to
time hereunder upon exercise of the Rights, all subject to further adjustment as
provided herein.

     (h) Unless the Company  shall have  exercised  its  election as provided in
paragraph (i) of this Section,  upon each  adjustment of the Purchase Price as a
result of the calculations made in paragraphs (b) and (c) of this Section,  each
Right  outstanding  immediately  prior to the  making of such  adjustment  shall
thereafter evidence the right to purchase,  at the adjusted Purchase Price, that
number of shares of stock (calculated to the nearest ten-thousandth) obtained by
(i) multiplying (x) the number of shares of stock covered by a Right immediately
prior to this adjustment by (y) the Purchase Price in effect  immediately  prior
to such  adjustment  of the  Purchase  Price and (ii)  dividing  the  product so
obtained by the Purchase Price in effect  immediately  after such  adjustment of
the Purchase Price.

     (i) The  Company  may elect on or after the date of any  adjustment  of the
Purchase  Price  to  adjust  the  number  of  Rights,  in  substitution  for any
adjustment in the number of shares of Common Stock issuable upon the exercise of
a Right.  Each of the Rights  outstanding after such adjustment of the number of
Rights shall be exercisable for the number of shares of Common Stock for which a
Right was exercisable  immediately prior to such adjustment.  Each Right held of
record prior to such adjustment of the number of Rights shall become that number
of Rights  (calculated to the nearest  ten-thousandth)  obtained by dividing the
Purchase Price in effect  immediately  prior to adjustment of the Purchase Price
by the Purchase  Price in effect  immediately  after  adjustment of the Purchase
Price.  The Company shall make a public  announcement  of its election to adjust
the number of Rights,  indicating  the record date for the  adjustment,  and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter,  but,
if the Right Certificates have been issued, shall be at least 10 days later than
the date of the public  announcement.  If Right  Certificates  have been issued,
upon each  adjustment of the number of Rights  pursuant to this  paragraph,  the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates  evidencing,
subject to Section  7(f)  hereof,  the  additional  Rights to which such holders
shall be  entitled  as a result of such  adjustment,  or,  at the  option of the
Company, shall cause to be distributed to such holders of record in substitution
and  replacement  for the Right  Certificates  held by such holders prior to the
date of adjustment,  and upon surrender thereof, if required by the Company, new
Right  Certificates  evidencing  all the Rights to which such  holders  shall be
entitled after such adjustment. Right Certificates so to be distributed shall be
issued,  executed and  countersigned in the manner provided for herein and shall
be registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.

     (j)  Irrespective  of any adjustment or change in the Purchase Price or the
number of shares of Common Stock  issuable upon the exercise of the Rights,  the
Right Certificates theretofore and thereafter issued may continue to express the
Purchase  Price per share of stock and the  number of shares of stock  that were
expressed in the initial Right Certificates issued hereunder.

     (k) Before  taking any action that would cause an  adjustment  reducing the
Purchase  Price below the then par value,  if any, of the Common Stock  issuable
upon exercise of the Rights,  the Company shall take any corporate  action which
may, in the opinion of its  counsel,  be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock at
such adjusted Purchase Price.

     (l) In any case in which this  Section or Section 10 shall  require that an
adjustment  in the  Purchase  Price be made  effective as of a record date for a
specified  event,  the Company may elect to defer until the  occurrence  of such
event the  issuing to the holder of any Right  exercised  after such record date
the Common Stock and other capital  stock or securities of the Company,  if any,
issuable  upon such  exercise  over and above the Common Stock and other capital
stock or securities of the Company,  if any,  issuable upon such exercise on the
basis of the  Purchase  Price in  effect  prior  to such  adjustment;  provided,
however,  that the  Company  shall  deliver  to such  holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.

     (m) Anything in this Section or Section 10 to the contrary notwithstanding,
the Company shall be entitled to make such  reductions in the Purchase Price, in
addition to those adjustments  expressly required by this Section or Section 10,
as and to the  extent  that it in its  sole  discretion  shall  determine  to be
advisable in order that any  consolidation  or  subdivision of the shares of the
Common  Stock,  issuance  wholly for cash of any shares of Common  Stock at less
than the  current  market  price,  issuance  wholly for cash of Common  Stock or
securities  which by their terms are convertible into or exchangeable for Common
Stock,  stock dividends or issuance of rights,  options or warrants  referred to
hereinabove  in this  Section,  hereafter  made by the Company to holders of its
Common Stock shall not be taxable to such stockholders.

     (n)  Whenever an  adjustment  is made as provided in Sections  10, 11 or 12
hereof, the Company shall (a) promptly prepare a certificate  setting forth such
adjustment,  and a brief statement of the facts  accounting for such adjustment,
(b)  promptly  file with the Rights Agent and with each  transfer  agent for the
Common Stock a copy of such certificate, and (c) mail a brief summary thereof to
each holder of a Right  Certificate  in accordance  with Section 15 hereof.  The
Rights Agent shall be fully protected in relying on any such  certificate and on
any  adjustment  therein  contained and shall not be deemed to have knowledge of
any such adjustment unless and until it shall have received such certificate.

Section 13. Redemption.

     (a) The Board  may,  at its  option,  at any time prior to such time as any
Person  becomes an Acquiring  Person,  redeem all but not less than all the then
outstanding  Rights at a redemption  price of $.01 per Right, as such amount may
be appropriately  adjusted to reflect any stock split, stock dividend or similar
transaction  occurring  after the date hereof  (such  amount  being  hereinafter
referred to as the "Redemption Price").

     (b) Immediately upon the action of the Board ordering the redemption of the
Rights,  and  without any  further  action and without any notice,  the right to
exercise the Rights shall  terminate and the only right of the holders of Rights
shall be to receive the Redemption Price. Within 10 days after the action of the
Board  ordering the  redemption of the Rights,  the Company shall give notice of
such  redemption to the holders of the then  outstanding  Rights by mailing such
notice to each such holder at its last  address as it appears  upon the registry
books of the Rights Agent or, prior to the  Distribution  Date,  on the registry
books of the Transfer Agent for the Common Stock.  Any notice which is mailed in
the manner  herein  provided  shall be deemed  given,  whether or not the holder
receives the notice.  Each such notice of  redemption  shall state the method by
which the payment of the Redemption Price will be made.  Neither the Company nor
any of its  Affiliates or Associates  may redeem,  acquire or purchase for value
any Rights at any time in any manner other than that  specifically  set forth in
this  Section or in  connection  with the  purchase of Common Stock prior to the
Distribution Date.

Section 14. Notice of Certain Events.

In case the Company shall propose,  at any time after the Distribution Date, (a)
to pay any dividend payable in stock of any class to the holders of Common Stock
or to make any other  distribution  to the holders of Common Stock (other than a
regular  periodic  cash  dividend at a rate not in excess of 125% of the rate of
the last regular periodic cash dividend  theretofore  paid), (b) to offer to the
holders of Common Stock  rights or warrants to subscribe  for or to purchase any
additional Common Stock or shares of stock of any class or any other securities,
rights or options, (c) to effect any reclassification of its Common Stock (other
than a reclassification  involving only the subdivision of outstanding shares of
Common  Stock),  (d) to effect any  consolidation  or merger into or with, or to
effect any sale or other transfer (or to permit one or more of its  Subsidiaries
to effect any sale or other transfer), in one or more transactions, of more than
50% of the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to, any other Person, or (e) to effect the liquidation,  dissolution or
winding up of the Company,  then,  in each such case,  the Company shall give to
the Rights Agent and to each holder of a Right  Certificate,  in accordance with
Section 15 hereof,  a notice of such  proposed  action,  which shall specify the
record date for the purposes of such stock  dividend,  distribution of rights or
warrants,  or the date on which such  reclassification,  consolidation,  merger,
sale, transfer, liquidation, dissolution, or winding up is to take place and the
date of  participation  therein by the holders of the Common Stock,  if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (a) or (b) above at least 10 days prior to the record date for
determining  holders of the Common Stock for purposes of such action, and in the
case of any such other action,  at least 10 days prior to the date of the taking
of such proposed action or the date of  participation  therein by the holders of
the Common Stock whichever shall be the earlier.

     In case  any of the  events  set  forth  in  Section  10(a)  or (b) of this
Agreement  shall occur,  then,  in any such case,  the Company  shall as soon as
practicable  thereafter  give to the Rights  Agent and to each holder of a Right
Certificate, in accordance with Section 15 hereof, a notice of the occurrence of
such event,  which shall specify the event and the  consequences of the event to
holders of Rights under Section 10(a) or (b) hereof.

Section 15. Notices.

Notices  or  demands  authorized  by this  Agreement  to be given or made by the
Rights  Agent or by the  holder of any Right  Certificate  to or on the  Company
shall  be  sufficiently  given  or made if sent  by  first-class  mail,  postage
prepaid,  addressed  (until another  address is filed in writing with the Rights
Agent) as follows:

                         Hancock Fabrics, Inc.
                         P.O. Box 2400
                         Tupelo, Mississippi 38803-2400
                         Attention: Secretary

Subject  to the  provisions  of  Section  2(d)  hereof,  any  notice  or  demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Right  Certificate to or on the Rights Agent shall be sufficiently  given
or made if sent by first-class mail,  postage prepaid,  addressed (until another
address is filed in writing with the Company) as follows:

                         Continental Stock Transfer & Trust Company
                         2 Broadway
                         New York, New York 10004
                         Attention: Investor Services Department

Notices  or  demands  authorized  by this  Agreement  to be given or made by the
Company or the  Rights  Agent to the  holder of any Right  Certificate  shall be
sufficiently  given  or  made  if sent by  first-class  mail,  postage  prepaid,
addressed  to such holder at the address of such holder as shown on the registry
books of the Company.

Section 16. Supplements and Amendments.

The Company and the Rights Agent may from time to time  supplement or amend this
Agreement without the approval of any holders of Right Certificates,  so long as
the  interests  of the  holders  of the  Right  Certificates  are not  adversely
affected thereby,  in order to cure any ambiguity,  to correct or supplement any
provision contained herein that the Board may, upon the advice of counsel,  from
time to time determine to be defective or inconsistent with any other provisions
herein or with  applicable  law,  or to make any other  provisions  in regard to
matters or questions arising  hereunder,  which the Company and the Rights Agent
may deem  necessary or  desirable,  including  but not limited to extending  the
Expiration  Date and,  provided that at the time of such  amendment  there is no
Acquiring Person,  the period of time during which or the conditions under which
the Rights may be redeemed.

Section 17. Determinations and Actions by the Board of Directors.

The Board shall have the  exclusive  power and  authority to exercise all rights
and  powers  specifically  granted  to the Board or to the  Company,  including,
without limitation,  the right and power to (i) interpret the provisions of this
Agreement,  and (ii) make all  determinations  deemed  necessary or advisable to
carry out the intent of this Agreement  (including a determination  to redeem or
not  redeem  the  Rights  or  to  amend  the   Agreement).   All  such  actions,
calculations,  interpretations  and determinations  done or made by the Board in
good faith shall be final,  conclusive  and binding on the  Company,  the Rights
Agent,  the holders of the Rights,  and all other  parties and shall not subject
the Board to any liability to the holders of the Rights.

Section 18. Successors.

All the covenants and  provisions of this Agreement by or for the benefit of the
Company  or the  Rights  Agent  shall  bind and  inure to the  benefit  of their
respective successors and assigns hereunder.

Section 19. Benefits of this Agreement.

Nothing in this  Agreement  shall be  construed to give to any Person other than
the  Company,  the  Rights  Agent  and  the  registered  holders  of  the  Right
Certificates  (and, prior to the Distribution  Date, the Common Stock) any legal
or equitable  right,  remedy or claim under this  Agreement;  but this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Stock).

Section 20. Severability.

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

Section 21. Governing Law.

This Agreement and each Right Certificate issued hereunder shall be deemed to be
a contract  made under the laws of the State of  Delaware  and for all  purposes
shall be governed by and  construed  in  accordance  with the laws of such State
applicable to contracts to be made and performed entirely within such State.

Section 22. Counterparts.

This  Agreement may be executed in any number of  counterparts  and each of such
counterparts  shall for all purposes be deemed to be an  original,  and all such
counterparts shall together constitute but one and the same instrument.

Section 23. Descriptive Headings.

Descriptive  headings of the several Sections of this Agreement are inserted for
convenience  only and shall not control or affect the meaning or construction of
any of the provisions hereof.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed and their respective  corporate seals to be hereunto affixed,  all
as of the day and year first above written.

                                                    HANCOCK FABRICS, INC.

                                                    By:  /s/   Larry G. Kirk
                                                    ----------------------------
                                                    Larry G. Kirk
                                                    Chief Executive Officer

                                                    CONTINENTAL STOCK TRANSFER
                                                    & TRUST COMPANY


                                                    By:  /s/   Steven Nelson
                                                    ----------------------------
                                                    Steven Nelson
                                                    Chairman, President,
                                                        Secretary
<PAGE>


                                                                       Exhibit A

                           [Form of Right Certificate]

Certificate No. R-                                          ______________Rights

                           NOT EXERCISABLE AFTER MARCH 4, 2011 OR EARLIER IF
                           NOTICE OF REDEMPTION IS GIVEN. THE RIGHTS ARE SUBJECT
                           TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01
                           PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS
                           AGREEMENT.

                                Right Certificate

                              HANCOCK FABRICS, INC.

     This certifies that  _________________________,  or registered  assigns, is
the  registered  owner of the  number of Rights set forth  above,  each of which
entitles the owner thereof,  subject to the terms,  provisions and conditions of
the Rights Agreement dated as of March 23, 1987 between Hancock Fabrics, Inc., a
Delaware  corporation  (the "Company"),  and Continental  Stock Transfer & Trust
Company, as Rights Agent (the "Rights Agent"),  and as amended and restated most
recently on March 4, 2001 (the "Rights Agreement"), to purchase from the Company
at any time after the  Distribution  Date (as such term is defined in the Rights
Agreement)  and  prior to 5:00  p.m.  (Central  Time) on March 4,  2011,  at the
principal  office of the Rights Agent, or its successors as Rights Agent, in the
Borough of  Manhattan  in the City of New York,  one fully paid,  non-assessable
share of common stock of the Company (the "Common  Stock"),  at a purchase price
of $24 per share (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase and  certification  duly
executed.  The number of Rights  evidenced  by this Right  Certificate  (and the
number of shares of Common Stock that may be purchased  upon  exercise  thereof)
set forth  above,  and the Purchase  Price set forth  above,  are the number and
Purchase Price as of March 4, 2001,  based on the Common Stock as constituted at
such date.

     As provided in the Rights  Agreement,  the Purchase Price and the number of
shares of Common  Stock which may be  purchased  upon the exercise of the Rights
evidenced by this Right  Certificate are subject to modification  and adjustment
upon the happening of certain events.

     This Right  Certificate  is subject  to all of the  terms,  provisions  and
conditions of the Rights Agreement,  which terms,  provisions and conditions are
hereby  incorporated  herein by  reference  and made a part  hereof and to which
Rights Agreement  reference is hereby made for a full description of the rights,
limitations  of rights,  obligations,  duties and  immunities  hereunder  of the
Rights Agent, the Company and the holders of the Right  Certificates.  Copies of
the Rights Agreement are on file at the principal offices of the Company and the
Rights Agent.

     This Right  Certificate,  with or without  other Right  Certificates,  upon
surrender at the  principal  office of the Rights  Agent,  may be exchanged  for
another  Right  Certificate  or  Right  Certificates  of  like  tenor  and  date
evidencing  Rights  entitling the holder to purchase a like aggregate  number of
shares of Common Stock as the Rights evidenced by the Right Certificate or Right
Certificates  surrendered  shall have entitled such holder to purchase.  If this
Right  Certificate  shall be exercised in part,  the holder shall be entitled to
receive upon surrender  hereof another Right  Certificate or Right  Certificates
for the number of whole Rights not exercised.

     Subject to the provisions of the Rights Agreement,  the Rights evidenced by
this  Certificate  may be redeemed by the Company at its option at a  redemption
price of $.01 per Right.



<PAGE>


     No  fractional  shares of Common Stock shall be issued upon the exercise of
any Right or Rights evidenced hereby, but in lieu thereof of a cash payment will
be made, as provided in the Rights Agreement.

     No holder of this Right Certificate,  as such, shall be entitled to vote or
receive  dividends or be deemed for any purpose the holder of Common Stock or of
any other  securities  of the  Company  which may at any time be issuable on the
exercise hereof,  nor shall anything contained in the Rights Agreement or herein
be construed to confer upon to the holder hereof,  as such, any of the rights of
a stockholder  of the Company or any right to vote for the election of directors
or upon any matter  submitted  to  stockholders  at any meeting  thereof,  or to
receive notice of meetings or other actions  affecting  stockholders  (except as
provided  in the Rights  Agreement),  or to receive  dividends  or  subscription
rights,  or  otherwise,  until  the  Right or  Rights  evidenced  by this  Right
Certificate shall have been exercised as provided in the Rights Agreement.

     The Company and the Rights Agent may from time to time  supplement or amend
the Rights Agreement without the approval of any holders of Right  Certificates,
so long as the interests of the holders of Right  Certificates are not adversely
affected thereby,  in order to cure any ambiguity,  to correct or supplement any
provision contained therein that the Board may from time to time determine to be
defective or inconsistent  with any other provisions  therein or with applicable
law, or to make any other  provisions in regard to matters or questions  arising
thereunder  that  the  Company  and the  Rights  Agent  may  deem  necessary  or
desirable,  including but not limited to extending the Expiration  Date (as such
term is defined in the Rights Agreement) and, providing that at the time of such
amendment  there is no  Acquiring  Person (as such term is defined in the Rights
Agreement),  extending the period during which or the conditions under which the
Rights may be redeemed.

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

     This Right  Certificate  shall not be valid or  obligatory  for any purpose
until it shall have been countersigned by the Rights Agent.

     WITNESS the facsimile  signature of the proper  officers of the Company and
its corporate seal. Dated as of ________________.

                                                     HANCOCK FABRICS, INC.

                                               By_______________________________
                                               Title

                                               By_______________________________
                                               Title



Countersigned:

CONTINENTAL STOCK TRANSFER & TRUST COMPANY


By_____________________________     Date: _____________________________
 Authorized Signature



<PAGE>


                                    [Form of Reverse Side of Right Certificate]

                               FORM OF ASSIGNMENT

                          (To          be executed by the registered holder if
                                       such holder desires to transfer the Right
                                       Certificates.)

     FOR VALUE  RECEIVED  _______________________________________  hereby sells,
assigns and transfers unto______________________________________________________
________________________________________________________________________________

                  (Please print name and address of transferee)

this Right  Certificate  and the Rights  evidenced  thereby,  together  with all
right, title and interest therein,  and does hereby  irrevocably  constitute and
appoint  ____________________________  Attorney,  to transfer  the within  Right
Certificate  on the  books  of the  within-named  Company,  with  full  power of
substitution.

Dated: _____________________________
                                                ________________________________
                                                Signature
Signature Guaranteed:

--------------------------------------------------------------------------------

The undersigned hereby certifies by checking the appropriate boxes that:

     (1) the  Rights  evidenced  by this Right  Certificate  [ ] are [ ] are not
beneficially  owned by an  Acquiring  Person  or an  Affiliate  or an  Associate
thereof (as defined in the Rights Agreement); and

     (2) after due inquiry and to the best  knowledge  of the  undersigned,  the
undersigned  [ ] did [ ] did not  acquire  the  Rights  evidenced  by this Right
Certificate  from any  person who is, was or  subsequently  became an  Acquiring
Person or an Affiliate or Associate thereof.

Date: _______________________

                                                ________________________________
                                                Signature



<PAGE>


                          FORM OF ELECTION TO PURCHASE

                      (To be executed if holder desires to
                         exercise the Right Certificate)

To HANCOCK FABRICS, INC.:


     The     undersigned     hereby     irrevocably     elects    to    exercise
______________________  Rights represented by this Right Certificate to purchase
the  shares of Common  Stock  issuable  upon the  exercise  of such  Rights  and
requests that certificates for such Common Stock be issued in the name of:

Please insert social security
or other identifying number

________________________________________________________________________________
                         (Please print name and address)

________________________________________________________________________________
If such  number of Rights  shall not be all the Rights  evidenced  by this Right
Certificate,  a new Right  Certificate for the balance  remaining of such Rights
shall be registered in the name of and delivered to:

Please insert social security
or other identifying number

________________________________________________________________________________
                         (Please print name and address)

________________________________________________________________________________

Dated: ______________________________

                                                ________________________________
                                                Signature



<PAGE>


Signature Guaranteed:

         Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
--------------------------------------------------------------------------------

The undersigned hereby certifies by checking the appropriate boxes that:

     (1) the  Rights  evidenced  by this Right  Certificate  [ ] are [ ] are not
beneficially  owned by an  Acquiring  Person  or an  Affiliate  or an  Associate
thereof (as defined in the Rights Agreement); and

     (2) after due inquiry and to the best  knowledge  of the  undersigned,  the
undersigned  [ ] did [ ] did not  acquire  the  Rights  evidenced  by this Right
Certificate  from any  person who is, was or  subsequently  became an  Acquiring
Person or an Affiliate or Associate thereof.

Dated: __________________________
                                                ________________________________
                                                Signature

--------------------------------------------------------------------------------

                                     NOTICE

     The  signature in the  foregoing  Forms of  Assignment  and  Election  must
conform to the name as written upon the face of this Right  Certificate in every
particular, without alteration or enlargement or any change whatsoever.

     In the event the  certification  set forth above in the Forms of Assignment
and Election is not completed, the Company will deem the beneficial owner of the
Rights  evidenced  by this Right  Certificate  to be an  Acquiring  Person or an
Affiliate or Associate  thereof (as defined in the Rights Agreement) and, in the
case  of an  Assignment,  will  affix  a  legend  to that  effect  on any  Right
Certificates issued in exchange for this Right Certificate.


<PAGE>


                                                                       Exhibit B

                   SUMMARY OF RIGHTS TO PURCHASE COMMON STOCK


     On March 23, 1987,  the Board of Directors of Hancock  Fabrics,  Inc.  (the
"Company") declared a dividend of one Right for each outstanding share of common
stock, $.01 par value, of the Company (the "Common Stock").  The description and
terms of the  Rights are set forth in a Rights  Agreement  dated as of March 23,
1987 and as amended and  restated  most  recently on March 4, 2001 (the  "Rights
Agreement")  between the Company and Continental Stock Transfer & Trust Company,
as Rights Agent (the "Rights Agent"). Each Right, when exercisable, will entitle
the registered  holder to purchase from the Company one share of Common Stock at
a price of $24.00 per share (the "Purchase Price"), subject to adjustment.

     Initially,  the Rights will be attached  to all  certificates  representing
outstanding   Common  Stock,  and  no  separate  Right   Certificates   will  be
distributed.  The Rights will separate from the Common Stock upon the earlier to
occur of (i) 10 days following a public  announcement  that a person or group of
affiliated or  associated  persons  acquired,  or obtained the right to acquire,
beneficial  ownership of 20% or more of the Common Stock (an "Acquiring Person")
or (ii) 10 days (or such later  date as the Board of  Directors  may  determine)
following  the  commencement  or  announcement  of an intention to make a tender
offer or exchange offer the consummation of which would result in the beneficial
ownership  by a person or group of 30% or more of the Common  Stock (the earlier
of such dates being called the "Distribution Date").

     Until the  Distribution  Date,  the Rights will be evidenced by each Common
Stock  certificate with a copy of this Summary of Rights attached  thereto.  The
Rights Agreement  provides that, until the Distribution Date, the Rights will be
transferred with and only with the Common Stock. Until the Distribution Date (or
earlier  redemption or expiration of the Rights),  the surrender for transfer of
any certificates for Common Stock, even without a copy of this Summary of Rights
attached  thereto,  will also  constitute the transfer of the Rights  associated
with the Common Stock  represented by such  certificate.  As soon as practicable
following the Distribution  Date,  separate  certificates  evidencing the Rights
("Right  Certificates")  will be mailed to holders of record of the Common Stock
as of the close of business on the  Distribution  Date and such  separate  Right
Certificates alone will evidence the Rights.

     A person  or group  that  acquires  Common  Stock  pursuant  to a tender or
exchange offer for all the outstanding  Common Stock that is approved in advance
by a majority of the  disinterested  members of the Board of Directors shall not
be deemed an Acquiring  Person and the  consummation  of such an offer shall not
result in the occurrence of the Distribution Date.

     The Rights are not exercisable until the Distribution Date. The Rights will
expire on March 4, 2011 (the "Expiration  Date"),  unless the Expiration Date is
extended or unless the Rights are earlier redeemed by the Company. Until a Right
is exercised, the holder thereof, as such, shall have no rights as a stockholder
of the Company,  including,  without limitation, the right to vote or to receive
dividends.

     In the event that any person becomes an Acquiring Person, each Right (other
than the Rights of an  Acquiring  Person,  which  become  void) will  thereafter
entitle the holder to receive,  upon the  exercise  thereof of the then  current
exercise  price of the Right,  that  number of shares of Common  Stock  having a
market  value  of two  times  the  exercise  price  of  the  Right.  Under  such
circumstances,  the Board, at its option, may issue one share of Common Stock in
exchange for each Right  (other than those of the  Acquiring  Person),  provided
that at such time a majority of the members of the Board of Directors  shall not
be Acquiring Persons or affiliates or representatives of an Acquiring Person.

     In the event that,  at any time after  there is an  Acquiring  Person,  the
Company is acquired in a merger or other  business  combination  transaction  or
more than 50% of its assets or earning power are sold,  proper provision will be
made so that each holder of a Right will  thereafter  have the right to receive,
upon the exercise thereof at the then current exercise price of the Right,  that
number of shares of common stock of the  acquiring  company which at the time of
such  transaction  would have a market value of two times the exercise  price of
the Right.

     At any time  prior to the time  that  there  is an  Acquiring  Person,  the
Company may redeem the Rights in whole,  but not in part, at a price of $.01 per
Right  (the  "Redemption  Price").  Immediately  upon the action of the Board of
Directors  of the Company  electing to redeem the Rights,  the Company will make
announcement  thereof, and upon such election,  the right to exercise the Rights
will  terminate  and the only right of the  holders of Rights will be to receive
the Redemption Price.

     A copy of the  Rights  Agreement  is  available  free of  charge  from  the
Company.  This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement,  which is
hereby incorporated herein by reference.
[{"type": "8-K", "sequence": "1", "filename": "hf8k04-01.txt", "description": "CURRENT REPORT", "secsgml_size_bytes": 108693}]
{"company-data": {"conformed-name": "HANCOCK FABRICS INC", "cik": "0000812906", "assigned-sic": "5940", "irs-number": "640740905", "state-of-incorporation": "DE", "fiscal-year-end": "0129"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-09482", "film-number": "1596656"}, "business-address": {"street1": "3406 W MAIN ST", "city": "TUPELO", "state": "MS", "zip": "38803", "phone": "6018422834"}, "mail-address": {"street1": "P O BOX 2400", "city": "TUPELO", "state": "MS", "zip": "38803-2400"}}
SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT
                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                          Date of Report: April 6, 2001
                (Date of earliest event reported: March 4, 2001)

                              HANCOCK FABRICS, INC.
             (Exact name or registrant as specified in its charter)

         Delaware                                        64-0740905
(State or other jurisdiction)                  (IRS Employer Identification No.)

                                     1-9482
                            (Commission title number)

3406 West Main Street, Tupelo, MS                                         38803
(Address of principal executive offices)                              (Zip code)

       Registrant's telephone number, including area code: (662) 842-2834
Item 5.  Other Events:

The Board of Directors of Hancock Fabrics, Inc. (the "Company") on March 4, 2001
amended and  extended the  Company's  Rights  Agreement.  The term of the Rights
Agreement  was  extended to March 4, 2011,  the  Purchase  Price was adjusted to
$24.00 per share, and the Redemption Price was adjusted to $.01 per Right.

Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits.

        (c) Exhibits.

Exhibit No.                Description
-----------                -----------
    4.3                 Amended and Restated Rights Agreement between Registrant
                        and Continental Stock Transfer and Trust Company dated
                        as of March 23, 1987 and as Amended and Restated most
                        recently on March 4, 2001.
SIGNATURE PAGE

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                                                        HANCOCK FABRICS, INC.

Date: April 6, 2001                         By:/s/    Bruce D. Smith
                                            ----------------------------
                                            Bruce D. Smith
                                            Senior Vice President and
                                            Chief Financial Officer
                                            (Principal Financial and
                                             Accounting Officer)
EXHIBIT 4.3

   --------------------------------------------------------------------------

                      AMENDED AND RESTATED RIGHTS AGREEMENT

                              HANCOCK FABRICS, INC.

                                       and

                   CONTINENTAL STOCK TRANSFER & TRUST COMPANY

                                  Rights Agent

                                Rights Agreement

                           Dated as of March 23, 1987

                                     and as

                              Amended and Restated

                                most recently on

                                  March 4, 2001

   -------------------------------------------------------------------------
TABLE OF CONTENTS

Section 1.        Certain Definitions..........................................2

Section 2.        Rights Agent.................................................7

Section 3.        Issue of Right Certificates.................................14

Section 4.        Form of Right Certificates..................................16

Section 5.        Countersignature and Registration...........................17

Section 6.        Transfer, Split-Up, Combination and Exchange
                     of Right Certificates; Mutilated, Destroyed,
                     Lost or Stolen Right Certificates; Cancellation
                     and Destruction of Right Certificates....................18

Section 7.        Exercise of Rights; Purchase Price; Expiration
                     Date of Rights; Fractional Shares and Fractional
                     Rights...................................................20

Section 8.        Reservation and Availability of Shares of
                     Common Stock.............................................22

Section 9.        Right Holders...............................................24

Section 10.       Adjustment of Number of Shares; Exchange Option.............26

Section 11.       Consolidation, Merger or Sale or Transfer of
                     Assets or Earning Power..................................29

Section 12.       Adjustments of Purchase Price, Number of
                  Shares or Number of Rights..................................30

Section 13.       Redemption..................................................38

Section 14.       Notice of Certain Events....................................39

Section 15.       Notices.....................................................40

Section 16.       Supplements and Amendments..................................41

                                        i
Section 17.       Determinations and Actions by the Board of Directors........41

Section 18.       Successors..................................................42

Section 19.       Benefits of this Agreement..................................42

Section 20.       Severability................................................42

Section 21.       Governing Law...............................................42

Section 22.       Counterparts................................................42

Section 23.       Descriptive Headings........................................43

Signatures....................................................................43

Exhibit A -- Form of Right Certificate

Exhibit B -- Summary of Rights to Purchase Common Stock
RIGHTS AGREEMENT

     Agreement,  dated as of March 23, 1987,  between Hancock  Fabrics,  Inc., a
Delaware  corporation  (the "Company"),  and Continental  Stock Transfer & Trust
Company, as Rights Agent (the "Rights Agent"),  and as amended and restated most
recently on March 4, 2001.

     The Board of  Directors of the Company (the  "Board")  has  authorized  and
declared a dividend of one right (a "Right")  for each share of Common Stock (as
hereinafter defined) of the Company and has authorized the issuance of one Right
with respect to each share of Common Stock that shall become outstanding between
May 4, 1987 and the earliest of the  Distribution  Date, the Redemption Date and
the Expiration Date (as such terms are hereinafter herein), each Right initially
representing the right to purchase one share of Common Stock.

     Accordingly,  in  consideration  of the premises and the mutual  agreements
herein set forth, the parties hereby agree as follows:

Section 1. Certain  Definitions.

For purposes of this Agreement, the following terms have the meanings indicated:

     (a)  "Acquiring  Person" shall mean any Person who or which,  together with
all Affiliates and Associates of such Person,  shall be the beneficial  owner of
20% or more of the Common  Stock then  outstanding  (other than as a result of a
Permitted  Offer),  but shall not include the  Company,  any  Subsidiary  of the
Company,  any employee  benefit plan of the Company or of any  Subsidiary of the
Company,  or any entity  holding  shares of capital  stock of the Company for or
pursuant  to the terms of any such plan in its  capacity  as an agent or trustee
for any such plan.  Notwithstanding  the  foregoing,  no Person  shall become an
"Acquiring  Person"  as the  result of an  acquisition  of  Common  Stock by the
Company  which,  by reducing  the number of shares  outstanding,  increases  the
proportionate  number of shares beneficially owned by such Person to 20% or more
of the Common Stock of the Company then outstanding;  provided, however, that if
a Person shall become the Beneficial Owner of 20% or more of the Common Stock of
the Company  then  outstanding  by reason of share  purchases by the Company and
shall, after such share purchases by the Company, become the Beneficial Owner of
any additional shares of Common Stock of the Company,  then such Person shall be
deemed to be an "Acquiring Person."  Notwithstanding the foregoing, if the Board
of  Directors  of the Company  determines  in good faith that a Person who would
otherwise  be  an  Acquiring  Person,  as  defined  pursuant  to  the  foregoing
provisions of this paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of shares of Common Stock
so that such Person would no longer be an Acquiring  Person, as defined pursuant
to the foregoing provisions of this paragraph (a), then such Person shall not be
deemed to be an "Acquiring Person" for any purposes of this Agreement.

     (b) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and  Regulations,  as in effect
on the date of this  Agreement,  under the  Securities  Exchange Act of 1934, as
amended (the "Exchange Act").

     (c) A Person shall be deemed the "beneficial  owner" of and shall be deemed
to "beneficially own" any securities:

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

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

     (d) "Business Day" shall mean any day other than a Saturday,  Sunday,  or a
day on which banking institutions in either the State of New York or Mississippi
are authorized or obligated to close by law or executive order.

     (e) With  respect to any given date,  "close of  business"  shall mean 5:00
p.m., Central Time, on such date; provided,  however, that if such date is not a
Business  Day it shall  mean 5:00 p.m.,  Central  Time,  on the next  succeeding
Business Day.

     (f)  The  "closing  price"  of  the  Common  Stock  or of  the  Rights,  as
applicable,  for any day shall be the last sale price,  regular way, or, in case
no such sale takes  place on such day,  the average of the closing bid and asked
prices,  regular way, in either case as reported in the  principal  consolidated
transaction  reporting  system with respect to securities  listed or admitted to
trading on the New York Stock Exchange or, if the Common Stock or the Rights are
not listed or admitted to trading on the New York Stock Exchange, as reported in
the  principal  consolidated   transaction  reporting  system  with  respect  to
securities  listed on the principal  national  securities  exchange on which the
Common  Stock or the Rights are listed or  admitted to trading or, if the Common
Stock or the  Rights  are not listed or  admitted  to  trading  on any  national
securities exchange,  the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ")  or such other system then in use, or, if on any such date the Common
Stock or the Rights are not quoted by any such organization,  the average of the
closing bid and asked prices as furnished by a professional  market maker making
a market in the Common Stock or the Rights selected by the Board.

     (g) "Common  Stock" shall mean the shares of common stock,  $.01 par value,
of the Company.  When used with  reference to any Person other than the Company,
"common  stock"  shall  mean the  capital  stock (or equity  interest)  with the
greatest voting power of such other Person or, if such Person is a Subsidiary of
another   Person,   the  Person  or  Persons   that   ultimately   control  such
first-mentioned Person.

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

     (i) "Expiration Date" shall mean March 4, 2011.

     (j)  "Permitted  Offer" shall mean a tender or exchange  offer which is for
all outstanding  Common Stock at a price and on terms  determined,  prior to the
purchase of shares under such tender or exchange  offer,  by at least a majority
of the  members  of the  Board  of  Directors  who  are not  Acquiring  Persons,
Affiliates or Associates of an Acquiring Person or, nominees or  representatives
of any of them,  to be adequate  (taking  into  account  all  factors  that such
Directors  deem  relevant  including,  without  limitation,  prices  that  could
reasonably be achieved if the  Corporation or its assets were sold on an orderly
basis designed to realize  maximum value) and otherwise in the best interests of
the Company and its  stockholders  (other  than the Person or any  Affiliate  or
Associate  thereof on whose basis the offer is being made)  taking into  account
all factors that such directors may deem relevant.

     (k) "Person" shall mean any individual,  partnership,  firm, corporation or
other  entity,  and shall include any successor (by merger or otherwise) of such
entity.

     (l)  "Purchase  Price"  shall  mean the  price of a share of  Common  Stock
pursuant to the exercise of a Right under the terms of this Agreement.

     (m) "Redemption  Date" shall mean the date on which the Rights are redeemed
pursuant to Section 13 hereof.

     (n)  "Stock   Acquisition  Date"  shall  mean  the  first  date  of  public
announcement by the Company or any Acquiring Person that an Acquiring Person has
become such.

     (o)  "Subsidiary"  of any Person shall mean any corporation or other entity
of which a majority  of the  voting  power of the voting  equity  securities  or
equity interests is owned, directly or indirectly, by such Person.

     (p)  "Trading  Day"  shall  mean  a day on  which  the  principal  national
securities  exchange on which the Common  Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a Business Day.

Section 2. Rights Agent.

     (a) The Company  hereby  appoints  the Rights Agent to act as agent for the
Company and the holders of the Rights (who, in accordance with Section 3 hereof,
shall prior to the  Distribution  Date also be the holders of the Common Shares)
in accordance with the terms and conditions  hereof, and the Rights Agent hereby
accepts  such  appointment.  The  Company  may from  time to time  appoint  such
Co-Rights Agents as it may deem necessary or desirable.  Contemporaneously  with
such appointment, if any, the Company shall notify the Rights Agent thereof.

     (b) The Company agrees to pay to the Rights Agent  reasonable  compensation
for all services  rendered by it hereunder in accordance  with a fee schedule to
be mutually  agreed upon and,  from time to time, on demand of the Rights Agent,
its reasonable expenses and counsel fees and other disbursements incurred in the
administration  and execution of this Agreement and the exercise and performance
of its duties hereunder.

     (c) The Rights Agent undertakes the duties and obligations  imposed by this
Agreement  upon the  following  terms and  conditions,  and the  Company and the
holders of Right Certificates,  by their acceptance  thereof,  shall be bound by
all such terms and conditions:

     (i)  The Rights  Agent may  consult  with legal  counsel  (who may be legal
          counsel for the  Company),  and the opinion of such  counsel  shall be
          full and complete  authorization and protection of the Rights Agent as
          to any action  taken or omitted by it in good faith and in  accordance
          with such opinion.

     (ii) Whenever in the  performance  of its duties under this  Agreement  the
          Rights 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  certificate
          signed by the Chairman of the Board, the President, any Executive Vice
          President,  any Senior Vice President, the Treasurer, or the Secretary
          of the Company and delivered to the Rights Agent, and such certificate
          shall be full  authorization  to the Rights Agent for any action taken
          or suffered in good faith by it under the provisions of this Agreement
          in reliance upon such certificate.

     (iii) The Rights  Agent  shall  be  liable   hereunder  only  for  its  own
          negligence, bad faith or willful misconduct. The Rights Agent shall be
          protected and shall incur no liability for or in respect of any action
          taken, suffered or omitted by it in connection with its administration
          of this Agreement in reliance upon any Right Certificate,  certificate
          for shares of Common  Stock or for other  securities  of the  Company,
          instrument of assignment or transfer, power of attorney,  endorsement,
          affidavit,   letter,   notice,   instruction,    direction,   consent,
          certificate,  statement,  or other paper or document believed by it to
          be genuine and to be signed, executed and, where necessary,  verified,
          acknowledged or attested by the proper person or persons, or otherwise
          upon the advice of counsel as set forth in this Section.

          The Company  agrees to indemnify  the Rights Agent for, and to hold it
          harmless against, any loss,  liability,  or expense,  incurred without
          negligence,  bad faith or willful misconduct on the part of the Rights
          Agent,  for anything done or omitted by the Rights Agent in connection
          with the acceptance and  administration  of this Agreement,  including
          the costs and expenses of defending  against any claim of liability in
          the premises.

     (iv) The Rights  Agent shall not be liable for, or by reason of, any of the
          statements of fact or recitals  contained in this  Agreement or in the
          Right Certificates (except as to its  countersignature  thereof) or be
          required to verify the same, but all such  statements and recitals are
          and shall be deemed to have been made by the Company only.

     (v)  The Rights Agent shall not be under any  responsibility  in respect of
          the validity of this  Agreement or the execution  and delivery  hereof
          (except the due execution hereof by the Rights Agent) or in respect of
          the  validity  or  execution  of any  Right  Certificate  (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 Right Certificate; nor shall it be responsible for
          any change in the  exercisability  of the Rights or any  adjustment in
          the  terms of the  Rights  (including  the  manner,  method  or amount
          thereof)  provided  for in  Sections  3,  10,  11,  12 or  13,  or the
          ascertaining  of the  existence  of facts that would  require any such
          adjustment  or  determination  (except with respect to the exercise of
          Rights evidenced by Right  Certificates  after actual notice that such
          adjustment  or  determination  is  required);  nor shall it by any act
          hereunder be deemed to make any  representation  or warranty as to the
          authorization  or  reservation  of any  shares of  Common  Stock to be
          issued  pursuant to this  Agreement or any Right  Certificate or as to
          whether any shares of Common  Stock will,  when so issued,  be validly
          authorized and issued, fully paid and non-assessable.

     (vi) The Company  agrees that it will  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 Rights  Agent for the  carrying  out or
          performing by the Rights Agent of the provisions of this Agreement.

     (vii) The Rights  Agent  is  hereby   authorized  and  directed  to  accept
          instructions  with respect to the performance of its duties  hereunder
          from the Chairman of the Board,  the  President,  any  Executive  Vice
          President,  any Senior Vice President, the Treasurer, or the Secretary
          of  the  Company,  and  to  apply  to  such  officers  for  advice  or
          instructions   in  connection   with  its  duties  under  this  Rights
          Agreement, and it shall not be liable for any action taken or suffered
          to be taken by it in good faith in accordance with instructions of any
          such  officer or for any delay while  waiting for those  instructions.
          Any application by the Rights Agent for written  instructions from the
          Company may, at the option of the Rights  Agent,  set forth in writing
          any action  proposed  to be taken or omitted by the Rights  Agent with
          respect to its duties or obligations  under this Rights  Agreement and
          the date on or after which such  action  shall be taken or omitted and
          the Rights  Agent shall not be liable for any action  taken or omitted
          in accordance with a proposal  included in any such  application on or
          after the date  specified  therein  (which date shall not be less than
          three business days after the date any such officer actually  receives
          such  application,  unless any such  officer  shall have  consented in
          writing to an earlier  date)  unless,  prior to taking or omitting any
          such action,  the Rights Agent has received  written  instructions  in
          response  to such  application  specifying  the  action to be taken or
          omitted.

     (viii) The Rights Agent and any stockholder,  director, officer or employee
          of the  Rights  Agent  may buy,  sell or deal in any of the  Rights or
          other  securities of the Company or become  pecuniarily  interested in
          any  transaction in which the Company may be  interested,  or contract
          with or lend money to the Company or otherwise act as fully and freely
          as though it were not  Rights  Agent  under  this  Agreement.  Nothing
          herein  shall  preclude  the  Rights  Agent  from  acting in any other
          capacity for the Company or for any other legal entity.

     (ix) The Rights  Agent may execute and exercise any of the rights or powers
          hereby vested in it or perform any duty hereunder  either itself or by
          or through its attorneys or agents,  and the Rights Agent shall not be
          answerable or accountable for any act, default,  neglect or misconduct
          of any  such  attorneys  or  agents  or for any  loss  to the  Company
          resulting from any such act, default, neglect or misconduct,  provided
          reasonable   care  was   exercised  in  the  selection  and  continued
          employment thereof.

     (x)  At any time and from time to time after the  Distribution  Date,  upon
          the request of the Company, the Rights Agent shall promptly deliver to
          the Company a list, as of the most recent  practicable  date (or as of
          such earlier date as may be specified by the Company),  of the holders
          of record of Rights.

     (d) The  Rights  Agent or any  successor  Rights  Agent may  resign  and be
discharged  from its duties under this Agreement upon 30 days' notice in writing
mailed  to the  Company  and to each  transfer  agent  of the  Common  Stock  by
registered  or certified  mail and to the holders of the Right  Certificates  by
first-class  mail.  The  Company  may remove the Rights  Agent or any  successor
Rights  Agent  upon 30 days'  notice in writing  mailed to the  Rights  Agent or
successor  Rights Agent,  as the case may be, and to each transfer  agent of the
Common Stock by  registered or certified  mail,  and to the holders of the Right
Certificates by first-class mail. If the Rights Agent shall resign or be removed
or shall otherwise become incapable of acting, it shall remit to the Company, or
to any successor  Rights Agent  designated by the Company,  all books,  records,
funds,  certificates  or other  documents or instruments of any kind then in its
possession  that it acquired in  connection  with its  services as Rights  Agent
hereunder,  and shall  thereafter be discharged  from all duties and obligations
hereunder.  Following  notice of such removal,  resignation or  incapacity,  the
Company  shall  appoint a successor to such Rights  Agent.  If the Company shall
fail to make such appointment  within a period of 30 days after giving notice of
such  removal or after it has been  notified in writing of such  resignation  or
incapacity  by the resigning or  incapacitated  Rights Agent or by a holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company),  then the registered holder of any Right Certificate
may apply to any court of competent  jurisdiction  for the  appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation organized and doing business under the laws
of the United  States or of any state of the United  States,  in good  standing,
that  either has a combined  capital  and  surplus of at least $50 million or is
otherwise financially sufficient, in the judgement of the Board, to enable it to
serve  as  Rights  Agent,  that  has an  office  in the  State of New York or an
affiliate  with an  office  in the  State of New York  and  that is  subject  to
supervision or examination by Federal or state authority. After appointment, the
successor Rights Agent shall be vested with the same powers,  rights, duties and
responsibilities  without further act or deed as if it had been originally named
as Rights Agent; but the predecessor  Rights Agent shall deliver and transfer to
the successor  Rights Agent any property at the time held by it  hereunder,  and
execute and deliver any further assurance, conveyance, act or deed necessary for
the  purpose.  Not later than the  effective  date of any such  appointment  the
Company shall file notice thereof in writing with the  predecessor  Rights Agent
and each  transfer  agent of the  Common  Stock,  and mail a notice  thereof  in
writing to the registered holders of the Right Certificates. Failure to give any
notice provided for in this paragraph, however, or any defect therein, shall not
affect the  legality  or validity  of the  resignation  or removal of the Rights
Agent or the appointment of the successor Rights Agent.

     (e) Any  corporation  with which the Rights Agent or any  successor  Rights
Agent is merged or  consolidated,  or any  corporation  resulting  from any such
merger or  consolidation,  or any corporation  succeeding to the corporate trust
business  of the  Rights  Agent  or any  successor  Rights  Agent,  shall be the
successor  to the Rights  Agent under this  Agreement  without the  execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation  would be eligible for appointment as a successor
Rights Agent under the  provisions of paragraph  (d) of this Section.  If any of
the Right  Certificates  shall have been  countersigned but not delivered at the
time such  successor  Rights Agent shall  succeed to the agency  created by this
Agreement,  such successor  Rights Agent may adopt the  countersignature  of the
predecessor Right Agent and deliver such Right Certificates so countersigned; if
at that time any of the Right  Certificates  shall not have been  countersigned,
any successor Rights Agent may countersign such Right Certificates either in the
name of the  predecessor  Rights Agent or in its own name; and in all such cases
such  Right  Certificates  shall  have  the full  force  provided  in the  Right
Certificates and in this Agreement.

     (f) If the name of the Rights  Agent is changed and at such time any of the
Right Certificates  shall have been countersigned but not delivered,  the Rights
Agent may adopt the  countersignature  under its prior  name and  deliver  Right
Certificates so countersigned; and if at that time any of the Right Certificates
shall not have been  countersigned,  the Rights Agent may countersign such Right
Certificates  either in its prior name or in its changed  name;  and in all such
cases such Right  Certificates  shall have the full force  provided in the Right
Certificates and in this Agreement.

Section 3. Issue of Right Certificates.

     (a) Until the Distribution  Date, the Rights shall be evidenced (subject to
the provisions of paragraph (b) of this Section) by the  certificates for shares
of  Common  Stock  registered  in  the  names  of  the  holders  thereof  (which
Certificates  for Common  Shares shall also be deemed to be Right  Certificates)
and  not by  separate  Right  Certificates,  and  the  right  to  receive  Right
Certificates will be transferable only in connection with the transfer of Common
Stock.  As soon as  practicable  after the  Distribution  Date, the Company will
prepare  and  execute,  the Rights  Agent will send or cause to be sent (and the
Rights Agent will, if requested, send), by first-class, insured, postage-prepaid
mail,  to each record  holder of Common Stock as of the close of business on the
Distribution  Date,  at the address of such  holder  shown on the records of the
Company,  a Right  Certificate,  in substantially  the form of Exhibit A hereto,
evidencing  one  Right  for each  share  of  Common  Stock  so  held.  As of the
Distribution   Date,  the  Rights  will  be  evidenced   solely  by  such  Right
Certificates.

     (b) The Company will send or cause to be sent a copy of a Summary of Rights
to Purchase Common Stock, in substantially the form attached hereto as Exhibit B
(the "Summary of Rights"), by first-class,  postage-prepaid mail, to each holder
of a share of Common Stock that shall become outstanding between May 4, 1987 and
the earliest of the  Distribution  Date, the Redemption  Date and the Expiration
Date. Until the Distribution Date, the Rights shall be evidenced by certificates
for Common Stock registered in the names of the holders thereof (together with a
copy of the Summary of Rights), registered holders of Common Stock shall also be
the registered  holders of the associated Rights, and the surrender for transfer
of any  certificate  for Common Stock,  with or without a copy of the Summary of
Rights  attached  thereto,  shall also constitute the transfer of the associated
Rights.  Certificates  issued for Common Stock (including,  without  limitation,
certificates  issued upon  transfer or  exchange of Common  Stock)  prior to the
earliest of the  Distribution  Date, the Redemption  Date or the Expiration Date
shall have impressed on, printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences and entitles the holder hereof to certain Rights
as set forth in a Rights Agreement between Hancock Fabrics, Inc. and Continental
Stock Transfer & Trust Company, dated as of March 23, 1987, as from time to time
amended,  (the "Rights  Agreement"),  the terms of which are hereby incorporated
herein by reference  and a copy of which is on file at the  principal  executive
offices of Hancock Fabrics,  Inc. Under certain  circumstances,  as set forth in
the Rights Agreement, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. Hancock Fabrics, Inc. will mail
to the holder of this certificate a copy of the Rights Agreement  without charge
after receipt of a written request therefor. Under certain circumstances, Rights
issued to Acquiring  Persons or Associates or Affiliates  thereof (as defined in
the Rights Agreement) may become null and void.
(c) In the event  that the  Company  purchases  or  acquires  any shares of
Common Stock prior to the  Distribution  Date, any Rights  associated  with such
shares of Common Stock shall be deemed  canceled and retired so that the Company
shall not be entitled to exercise  any Rights  associated  with shares of Common
Stock that are no longer outstanding.

Section 4. Form of Right Certificates.

     (a) The Right  Certificates  (and the form of election to purchase  shares,
certification  and  assignment  to be printed on the reverse  thereof)  shall be
substantially  in the form of  Exhibit  A  hereto  and may  have  such  marks of
identification  or  designation  and such  legends,  summaries  or  endorsements
printed thereon as the Company may deem  appropriate and as are not inconsistent
with the provisions of this Agreement,  or as may be required to comply with any
applicable law or with any rule or regulation made pursuant  thereto or with any
rule or  regulation  of any stock  exchange on which the Rights may from time to
time be  listed,  or to  conform to usage.  The Right  Certificates  shall be in
machine  printable form and in a format  reasonably  satisfactory  to the Rights
Agent.  Subject to the  provisions of paragraph  (b) of this Section,  the Right
Certificates,  whenever  issued,  shall be dated as of March 23, 1987, and shall
show the date of  countersignature  by the Rights Agent, and on their face shall
entitle the holders thereof to purchase such number of shares of Common Stock as
shall be set forth  therein at the  Purchase  Price set forth  therein,  but the
number  and kind of such  shares  and the  Purchase  Price  shall be  subject to
adjustment as provided herein.

     (b)  Notwithstanding  any of the  provisions  of this  Agreement  or of the
Rights  to the  contrary,  the  Company  may,  at its  option,  issue  new Right
Certificates  evidencing  Rights in such form as may be approved by the Board to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other  securities  or  property  purchasable  under the Right
Certificates made in accordance with the provisions of this Agreement.

Section 5.  Countersignature  and Registration.

The  Right  Certificates  shall be  executed  on behalf  of the  Company  by the
Chairman of the Board,  President or any Vice  President and by its Secretary or
an Assistant  Secretary,  either manually or by facsimile  signature,  and shall
have  affixed  thereto  the  Company's  seal or a facsimile  thereof.  The Right
Certificates shall be manually  countersigned by an authorized  signatory of the
Rights  Agent,  but  it  shall  not be  necessary  for  the  same  signatory  to
countersign all of the Right Certificates  hereunder. No Right Certificate shall
be valid for any  purpose  unless so  countersigned.  In case any officer of the
Company  who shall have signed any of the Right  Certificates  shall cease to be
such  officer of the Company  before  countersignature  by the Rights  Agent and
issuance and delivery by the Company, such Right Certificates,  may nevertheless
be  countersigned  by the Rights Agent,  and issued and delivered by the Company
with the same  force and  effect as though  the  person  who  signed  such Right
Certificates had not ceased to be such officer of the Company.

     Following the Distribution  Date, the Rights Agent will keep or cause to be
kept,  at its  principal  office in the Borough of  Manhattan in the City of New
York,  books for  registration  and  transfer of the Right  Certificates  issued
hereunder.  Such books  shall  show the names and  addresses  of the  respective
holders of the Right Certificates, the number of Rights evidenced on its face by
each of the Right Certificates and the date of each of the Right Certificates.

Section 6. Transfer,  Split-Up,  Combination and Exchange of Right Certificates;
     Mutilated,  Destroyed, Lost or Stolen Right Certificates;  Cancellation and
     Destruction of Right Certificates.

     (a) Subject to the  provisions of Section 7(f) and (g) hereof,  at any time
after the close of business  on the  Distribution  Date,  and at or prior to the
close of business on the earlier of the Redemption Date or the Expiration  Date,
any  Right  Certificate  or Right  Certificates  may be  transferred,  split up,
combined or  exchanged  for another  Right  Certificate  or Right  Certificates,
entitling  the  registered  holder to purchase a like number of shares of Common
Stock as the Right Certificate or Right  Certificates  surrendered then entitled
such holder to purchase.  Any registered holder desiring to transfer,  split up,
combine or exchange  any Right  Certificate  shall make such  request in writing
delivered to the Rights Agent,  and shall  surrender  such Right  Certificate or
Right  Certificates at the principal  office of the Rights Agent.  Thereupon the
Rights  Agent shall  countersign  and deliver to the person  entitled  thereto a
Right  Certificate or Right  Certificates,  as the case may be, as so requested.
The Company may require payment from the holders of Right  Certificates of a sum
sufficient  to cover  any tax or  governmental  charge  that may be  imposed  in
connection  with any transfer,  split-up,  combination or exchange of such Right
Certificates.

     Upon  receipt by the  Company and the Rights  Agent of evidence  reasonably
satisfactory  to them of the loss,  theft,  destruction or mutilation of a Right
Certificate,  and,  in case of  loss,  theft or  destruction,  of  indemnity  or
security  reasonably  satisfactory  to  them,  and,  at the  Company's  request,
reimbursement  to the Company and the Rights  Agent of all  reasonable  expenses
incidental  thereto,  and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated,  the Company shall execute and deliver a new
Right  Certificate  of like  tenor  to the  Rights  Agent  for  delivery  to the
registered owner in lieu of the Right Certificate so lost, stolen,  destroyed or
mutilated.

     All Right Certificates  surrendered for the purpose of exercise,  transfer,
split-up, combination or exchange shall, if surrendered to the Company or to any
of its agents,  be delivered to the Rights Agent for cancellation or in canceled
form, or, if  surrendered  to the Rights Agent,  shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of the Rights  Agreement.  The Company shall deliver to
the Rights Agent for cancellation and retirement,  and the Rights Agent shall so
cancel and retire,  any other  Right  Certificate  purchased  or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.

Section 7.  Exercise  of  Rights;  Purchase  Price;  Expiration  Date of Rights;
     Fractional Rights and Fractional Shares of Stock.

     (a) The registered  holder of any Right Certificate may exercise the Rights
evidenced  thereby (except as otherwise  provided herein) in whole or in part at
any time after the  Distribution  Date upon surrender of the Right  Certificate,
with the form of election  to purchase  and  certification  on the reverse  side
thereof duly executed, to the Rights Agent at the principal office of the Rights
Agent in the Borough of Manhattan in the City of New York, together with payment
of the Purchase  Price for each share of Common Stock as to which the Rights are
exercised,  at or prior to the  earlier  of (i) the  close  of  business  on the
Expiration Date or (ii) the Redemption Date.

     (b) The Purchase Price for each share of Common Stock purchased pursuant to
the exercise of a Right shall be $24,  shall be subject to adjustment  from time
to time as  hereinafter  provided  and shall be payable  in lawful  money of the
United States of America in accordance with paragraph (c) of this Section.

     (c) Upon receipt of a Right Certificate  representing  exercisable  Rights,
with  the  form  of  election  to  purchase  and  certification  duly  executed,
accompanied  by payment of the Purchase  Price for the shares of Common Stock to
be purchased and an amount equal to any  applicable  transfer tax required to be
paid by the  holder of such  Right  Certificate  in  accordance  with  Section 8
hereof,  in cash, or by certified  check or cashier's check payable to the order
of the Company,  the Rights Agent shall thereupon  promptly (i) requisition from
any transfer agent of the Common Stock (or make  available,  if the Rights Agent
is the transfer agent)  certificates for the number of shares of Common Stock to
be purchased and the Company hereby irrevocably authorizes its transfer agent to
comply  with all such  requests,  (ii) when  appropriate,  requisition  from the
Company the amount of cash to be paid in lieu of issuance of  fractional  shares
of Common Stock in accordance with paragraph (g) of this Section, (iii) promptly
after  receipt of such  certificates,  cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such
name or names as may be  designated by such holder,  and (iv) when  appropriate,
after receipt, promptly deliver such cash to or upon the order of the registered
holder of such Right Certificate.

     (d) In case the registered  holder of any Right  Certificate shall exercise
less than all the Rights evidenced thereby,  a new Right Certificate  evidencing
Rights  equivalent to the Rights  remaining  unexercised  shall be issued by the
Rights Agent to the registered  holder of such Right  Certificate or to his duly
authorized assigns, subject to the provisions of paragraph (f) of this Section.

     (e) Notwithstanding anything in this Agreement to the contrary, neither the
Rights Agent nor the Company  shall be  obligated  to undertake  any action with
respect to a registered holder upon the occurrence of any purported  exercise as
set forth in this Section unless the certification  contained in the appropriate
form of  election  to  purchase  set  forth  on the  reverse  side of the  Right
Certificate  surrendered  for such exercise shall have been completed and signed
by the  registered  holder thereof and the Company shall have been provided with
such  additional  evidence of the  identity of the  beneficial  owner (or former
beneficial  owner) or  Affiliates  or  Associates  thereof as the Company  shall
reasonably request.

     (f) The Company  shall not be required to issue  fractions  of Rights or to
distribute  Right  Certificates  that  evidence  fractional  Rights.  In lieu of
fractional  Rights, the Company shall pay to the registered holders of the Right
Certificates  with regard to which such  fractional  Rights  would  otherwise be
issuable  an amount in cash equal to the same  fraction  of the  current  market
value of a whole Right.  For the purposes of this paragraph,  the current market
value of a whole Right shall be the closing  price (as defined in Section  1(f))
of the Rights for the  Trading Day  immediately  prior to the date on which such
fractional  Rights  would have been  otherwise  issuable.  If the Rights are not
publicly held or not so listed or traded,  the "current  market value of a whole
Right" shall mean the fair value of a Right on such date as  determined  in good
faith by the Board.

     (g) The  Company  shall not be  required  to issue  fractions  of shares of
Common Stock upon  exercise of the Rights or to  distribute  certificates  which
evidence  fractional  shares of Common Stock.  In lieu of  fractional  shares of
Common  Stock,  the  Company  may  pay  to  the  registered   holders  of  Right
Certificates  at the time such Rights are exercised as herein provided an amount
in cash equal to the same  fraction of the current  market value of one share of
Common Stock.  For purposes of this  paragraph,  the current market value of the
Common Stock shall be the closing  price (as defined in Section 1(f)) of a share
of  Common  Stock  for the  Trading  Day  immediately  prior to the date of such
exercise.

Section 8. Reservation and Availability of Shares of Common Stock.

The Company  covenants  and agrees  that it will cause to be  reserved  and kept
available out of its authorized and unissued Common Stock, or any authorized and
issued Common Stock held in its  treasury,  the number of shares of Common Stock
that  will be  sufficient  to permit  the  exercise  in full of all  outstanding
Rights.  In the event  that  there  shall not be  sufficient  treasury  stock or
authorized  but  unissued  Common  Stock to permit the  exercise  in full of the
Rights in accordance  with the provisions of this  Agreement,  the Company shall
take all such  action as may be  necessary  to  authorize  additional  shares of
Common Stock for issuance upon exercise of the Rights.

     So long as the Common  Stock  issuable  upon the  exercise of Rights may be
listed on any  national  securities  exchange,  the  Company  shall use its best
efforts to cause, from and after such time as the Rights become exercisable, all
shares of Common Stock  reserved for such issuance to be listed on such exchange
upon official notice of issuance upon such exercise.

     The Company  covenants  and agrees that it will take all such action as may
be necessary to ensure that all Common Stock  delivered  upon exercise of Rights
shall,  at the time of delivery of the  certificates  for such stock (subject to
payment of the Purchase  Price),  be duly and validly  authorized and issued and
fully paid and non-assessable stock.

     The  Company  further  covenants  and agrees  that it will pay when due and
payable any and all Federal and state  transfer  taxes and charges  which may be
payable in respect of the issuance or delivery of the Right  Certificates  or of
any Common Stock upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right  Certificates  to a person  other than,  or the issuance or
delivery  of  certificates  for  Common  Stock in a name other than that of, the
registered holder of the Right Certificate evidencing the Rights surrendered for
exercise  or to issue or deliver  any  certificates  for  Common  Stock upon the
exercise  of any  Rights  until any such tax shall  have been paid (any such tax
being payable by the holder of such Right  Certificate at the time of surrender)
or until it has been established to the Company's  satisfaction that so such tax
is due.

Section 9. Right Holders.

     (a) Every holder of a Right by accepting  the same consents and agrees with
the Company and the Rights Agent and with every other holder of a Right that:

     (i)  prior to the Distribution  Date, the Rights shall be transferable only
          in connection with the transfer of Common Stock;

     (ii) after  the  Distribution   Date,  the  Right   Certificates  shall  be
          transferable  only  on the  registry  books  of the  Rights  Agent  if
          surrendered at the principal office of the Rights Agent, duly endorsed
          or accompanied by a proper instrument of transfer;

     (iii) the Company  and the  Rights  Agent may deem and treat the  person in
          whose name the Right Certificate (or, prior to the Distribution  Date,
          the associated Common Stock certificate) is registered as the absolute
          owner thereof and of the Rights evidenced thereby (notwithstanding any
          notations  of ownership  or writing on the Right  Certificates  or the
          associated  Common  Stock  certificate  made my anyone  other than the
          Company or the Rights Agent) for all purposes whatsoever,  and neither
          the  Company  nor the Rights  Agent shall be affected by any notice to
          the contrary; and

     (iv) he has  waived  his  right to  receive  any  fractional  Rights or any
          fractional shares of stock upon exercise of a Right.

     (b) No holder, as such, of any Right Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of Common Stock or any
other  securities  of the  Company  which  may at any  time be  issuable  on the
exercise of the Rights represented  thereby, nor shall anything contained herein
or in any Right  Certificate be construed to confer upon the holder of any Right
Certificate,  as such,  any of the rights of a stockholder of the Company or any
right to vote for the  election of  directors  or upon any matter  submitted  to
stockholders at any meeting  thereof,  or to receive notice of meetings or other
actions affecting  stockholders (except as provided in Section 14 hereof), or to
receive  dividends or  subscription  rights,  or  otherwise,  until the Right or
Rights  evidenced  by such  Right  Certificate  shall  have  been  exercised  in
accordance with the provisions hereof.

     (c) Each person in whose name any  certificate  for Common  Stock is issued
upon the  exercise of Rights shall for all purposes be deemed to have become the
holder  of  record  of  the  Common  Stock  represented  thereby  on,  and  such
certificate shall be dated, the date upon which the Right Certificate evidencing
such  Rights was duly  surrendered  and payment of the  Purchase  Price (and any
applicable transfer taxes) was made; provided, however, that if the date of such
surrender  and payment is a date upon which the Common Stock  transfer  books of
the Company are  closed,  such person  shall be deemed to have become the record
holder  of such  stock  on,  and  such  certificate  shall  be  dated,  the next
succeeding  Business Day on which the Common Stock transfer books of the Company
are open.

     (d) All rights of action in respect of this Agreement, except the rights of
action given to the Rights Agent under Section 2 (b) and (c) hereof,  are vested
in each registered holder of a Right Certificate (and, prior to the Distribution
Date, each registered holder of Common Stock); and any such holder,  without the
consent of the Rights Agent or of the holder of any other Right Certificate (or,
prior to the Distribution Date, of the Common Stock), may, in his own behalf and
for his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, this Agreement,  or otherwise enforce
or act in respect of his right to exercise  the Rights  evidenced  by such Right
Certificate  in the  manner  provided  in  such  Right  Certificate  and in this
Agreement.  Without  limiting the  foregoing  or any  remedies  available to the
holders of Rights,  it is specifically  acknowledged  that the holders of Rights
would not have an adequate  remedy at law for any breach of this  Agreement  and
will  be  entitled  to  specific  performance  of  the  obligations  under,  and
injunctive relief against actual or threatened violations of, the obligations of
any Person subject to this Agreement.

Section 10. Adjustment of Number of Shares; Exchange Option.

     (a) Subject to the  provisions  of paragraph  (b) of this  Section,  in the
event any Person shall become an Acquiring  Person,  proper  provision  shall be
made so that each holder of a Right,  except as provided below, shall thereafter
have a right to receive,  upon exercise  thereof in accordance with the terms of
this Agreement,  such number of shares of Common Stock as shall equal the result
obtained by (x)  multiplying  the  then-current  Purchase Price by the number of
shares of Common  Stock for which a Right is then  exercisable  and (y) dividing
that  product by 50% of the current per share  market  price of the Common Stock
(determined  pursuant  to  Section  12(d)),  on the date such  Person  became an
Acquiring  Person. In the event that any Person shall become an Acquiring Person
and the Rights shall then be outstanding,  the Company shall not take any action
that would  substantially  diminish or otherwise eliminate the benefits intended
to be afforded by the Rights.

     (b) The Board of Directors  of the Company may, at its option,  at any time
after any Person becomes an Acquiring  Person,  exchange all or part of the then
outstanding  and  exercisable  Rights (which shall not include  Rights that have
become void  pursuant to the  provisions  of paragraph  (c) of this Section) for
Common  Stock at an  exchange  ratio of one  share of Common  Stock  per  Right,
appropriately  adjusted to reflect any stock  split,  stock  dividend or similar
transaction   occurring  after  the  date  hereof  (such  exchange  ratio  being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors  shall not be  empowered  to effect such  exchange at any
time that a majority of the members of the Board of Directors shall be Acquiring
Persons,  Affiliates  or  Associates  of an  Acquiring  Person,  or  nominees or
representatives  of any of them.  Immediately  upon the  action  of the Board of
Directors of the Company  ordering  the exchange of any Rights  pursuant to this
paragraph (b) and without any further  action and without any notice,  the right
to exercise  such Rights  shall  terminate  and the only right  thereafter  of a
holder of such Rights  shall be to receive that number of shares of Common Stock
equal  to the  number  of such  Rights  held by such  holder  multiplied  by the
Exchange  Ratio.  The Company  shall  promptly  give  public  notice of any such
exchange;  provided,  however,  that the failure to give, or any defect in, such
notice  shall not affect the  validity of such  exchange.  The Company  promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein  provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the  method by which the  exchange  of  Common  Stock for  Rights  will be
effected  and, in the event of any partial  exchange,  the number of Rights that
will be exchanged.  Any partial exchange shall be effected pro rata based on the
number of Rights  (other  than  Rights  that have  become  void  pursuant to the
provisions of paragraph  (c) of this Section) held by each holder of Rights.  In
the event that there shall not be  sufficient  shares of Common Stock issued but
not  outstanding  or authorized but unissued to permit any exchange of Rights as
contemplated  in accordance  with this paragraph (b), the Company shall take all
such action as may be necessary to authorize  additional  shares of Common Stock
for issuance upon exchange of the Rights.

     (c) Anything in this  Agreement to the contrary  notwithstanding,  from and
after the time any Person becomes an Acquiring Person,  any Rights  beneficially
owned by (i) an  Acquiring  Person or an  Associate or Affiliate of an Acquiring
Person,  (ii) a  transferee  of an  Acquiring  Person  (or of any  Affiliate  or
Associate  thereof) who becomes a transferee  after the Acquiring Person becomes
such,  or (iii) a  transferee  of an  Acquiring  Person (or of any  Affiliate or
Associate  thereof) who becomes a transferee  prior to or concurrently  with the
Acquiring Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person to holders
of equity  interests  in such  Acquiring  Person or to any Person  with whom the
Acquiring  Person  has a  continuing  agreement,  arrangement  or  understanding
regarding the transferred  Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan,  arrangement  or  understanding
which has a primary purpose or effect the avoidance of this paragraph (c), shall
become null and void  without  any  further  action and no holder of such Rights
shall have any rights whatsoever with respect to such Rights,  whether under any
provision of this Agreement or otherwise.  No Right  Certificate shall be issued
pursuant  to the  provisions  of  this  Agreement  that  represents  any  Rights
beneficially  owned  by  any  Person  whose  Rights  are  void  pursuant  to the
provisions of this paragraph  (c). The Company shall use all reasonable  efforts
to ensure that the provisions of this paragraph (c) are complied with, but shall
have no  liability  to any  holder of Right  Certificates  or other  Person as a
result of its failure to make any  determinations  with  respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder.

Section 11.  Consolidation,  Merger or Sale or  Transfer  of  Assets or  Earning
     Power.

     At any time after a Person  shall have become an Acquiring  Person,  in the
event that,  directly or indirectly,  (a) the Company shall consolidate with, or
merge with and into,  any  Person,  (b) any Person  shall  consolidate  with the
Company,  or  merge  with  and into the  Company  and the  Company  shall be the
continuing or surviving  corporation of such merger and, in connection with such
merger,  all or part of the Common Stock shall be changed into or exchanged  for
stock or other  securities  of any other  Person (or the Company) or cash or any
other property,  or (c) the Company shall sell or otherwise  transfer (or one or
more of its  Subsidiaries  shall  sell or  otherwise  transfer),  in one or more
transactions, assets or earning power aggregating more than 50% of the assets or
earning  power of the  Company  and its  Subsidiaries  (taken as a whole) to any
other Person,  then, and in each such case,  proper  provision  shall be made so
that (i) each holder of a Right  (except as  otherwise  provided  herein)  shall
thereafter  have the right to receive,  upon the exercise  thereof in accordance
with the terms of this Agreement,  such number of shares of common stock of such
other Person  (including  the Company as successor  thereto or as the  surviving
corporation)  as shall be equal to the result  obtained by (x)  multiplying  the
then-current  Purchase Price by the number of shares of Common Stock for which a
Right is then exercisable (without taking into account any adjustment previously
made pursuant to Section 10) and (y) dividing that product by 50% of the current
per  share  market  price of the  shares of common  stock of such  other  Person
(determined  pursuant to Section  12(d) hereof) on the date of  consummation  of
such consolidation,  merger, sale or transfer; (ii) such Person shall thereafter
be liable for, and shall assume, by virtue of such  consolidation,  merger, sale
or  transfer,  all the  obligations  and duties of the Company  pursuant to this
Agreement;  (iii) the term "Company" shall thereafter be deemed to refer to such
Person;  and (iv) such Person shall take such steps (including,  but not limited
to, the  reservation  of a  sufficient  number of shares of its common  stock in
accordance with Section 8 hereof) in connection with such consummation as may be
necessary to ensure that the provisions  hereof shall  thereafter be applicable,
as nearly as  reasonably  may be, in  relation  to its common  stock  thereafter
deliverable  upon the exercise of the Rights.  The Company shall not  consummate
any such  consolidation,  merger,  sale or  transfer  unless  prior  thereto the
Company and such Person shall have  executed and delivered to the Rights Agent a
supplemental  agreement  so  providing.  The  Company  shall not enter  into any
transaction  of the  kind  referred  to in this  Section  if at the time of such
transaction   there  are  any  rights,   warrants,   instruments  or  securities
outstanding  or  any  agreements  or  arrangements  which,  as a  result  of the
consummation  of such  transaction,  would  substantially  diminish or otherwise
eliminate the benefits intended to be afforded by the Rights.  The provisions of
this Section shall similarly apply to successive  mergers or  consolidations  or
sales or other transfers.

Section 12. Adjustments of Purchase Price, Number of Shares or Number of Rights.

     (a) In the  event  the  Company  shall at any time  after  the date of this
Agreement (A) declare a dividend on the Common Stock payable in shares of Common
Stock,  (B) subdivide the  outstanding  shares of Common Stock,  (c) combine the
outstanding  shares of Common Stock into a smaller number of shares or (D) issue
any  shares of its  capital  stock in a  reclassification  of the  Common  Stock
(including  any such  reclassification  in connection  with a  consolidation  or
merger in which the Company is the continuing or surviving corporation),  except
as otherwise  provided in Section 10 hereof, the Purchase Price in effect at the
time of the  record  date for such  dividend  or of the  effective  date of such
subdivision, combination or reclassification,  and the number and kind of shares
of capital stock  issuable on such date,  shall be  proportionately  adjusted so
that the holder of any Right  exercised  after such time  shall be  entitled  to
receive,  upon  payment of the Purchase  Price then in effect and in  compliance
with other  applicable  conditions,  the aggregate  number and kind of shares of
capital stock which, if such Right had been exercised  immediately prior to such
date and at a time when the Common  Stock  transfer  books of the  Company  were
open,  he would have owned upon such  exercise  and been  entitled to receive by
virtue of such dividend,  subdivision,  combination or  reclassification.  If an
event occurs that would  require an  adjustment  under both this  paragraph  and
Section 10 hereof,  the adjustment  provided for in this  paragraph  shall be in
addition  to, and shall be made prior to, any  adjustment  required  pursuant to
Section 10 hereof.

     (b) In case the Company  shall fix a record date for the issuance of rights
or warrants to all holders of Common Stock entitling them (for a period expiring
within 45 calendar  days after such record  date) to  subscribe  for or purchase
Common Stock (or securities  convertible into Common Stock) at a price per share
of Common Stock (or having a conversion  price per share of Common  Stock,  if a
security  convertible  into Common Stock) less than the current per share market
price of the Common Stock (as defined in paragraph  (d) of this Section) on such
record date,  the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction,  the numerator of which shall be the number of shares
of Common  Stock  outstanding  on such  record date plus the number of shares of
Common Stock that the aggregate  offering price of the total number of shares of
Common Stock so to be offered (and/or the aggregate initial  conversion price of
the  convertible  securities  so to be offered)  would  purchase at such current
market  price  and the  denominator  of which  shall be the  number of shares of
Common  Stock  outstanding  on such  record  date plus the number of  additional
shares of Common Stock to be offered for subscription or purchase (or into which
the convertible securities so to be offered are initially convertible).  In case
such subscription  price may be paid in a consideration  part or all of which is
in a form  other  than  cash,  the  value  of  such  consideration  shall  be as
determined in good faith by the Board, whose determination shall be described in
a statement  filed with the Rights Agent.  Common Stock owned by or held for the
account of the Company  shall not be deemed  outstanding  for the purpose of any
such computation.  Such adjustments  shall be made successively  whenever such a
record date is fixed;  and in the event that such rights or warrants  are not so
issued,  the  Purchase  Price shall be adjusted to be the  Purchase  Price which
would then be in effect if such record date had not been fixed.

     (c) In case the  Company  shall  fix a  record  date  for the  making  of a
distribution  to all holders of Common Stock  (including  any such  distribution
made in connection  with a  consolidation  or merger in which the Company is the
continuing  or surviving  corporation)  of evidences of  indebtedness  or assets
(other than a regular  periodic cash dividend at a rate not in excess of 125% of
the  rate of the last  regular  periodic  cash  dividend  theretofore  paid or a
dividend  payable in shares of Common Stock) or subscription  rights or warrants
(excluding  those  referred to in paragraph (b) of this  Section),  the Purchase
Price to be in effect after such record date shall be determined by  multiplying
the  Purchase  Price  in  effect  immediately  prior  to such  record  date by a
fraction,  the numerator of which shall be the current per share market price of
the Common  Stock (as defined in paragraph  (d) of this  Section) on such record
date,  less the fair  market  value (as  determined  in good faith by the Board,
whose  determination  shall be  described  in a statement  filed with the Rights
Agent) of the  portion  of the  assets or  evidences  of  indebtedness  so to be
distributed or of such subscription  rights or warrants  applicable to one share
of Common  Stock and the  denominator  of which shall be such  current per share
market price of the Common Stock.  Such adjustments  shall be made  successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.

     (d) For the purpose of any  computation  hereunder,  the "current per share
market  price" of the Common Stock on any date shall be deemed to be the average
of the daily  closing  prices (as defined in Section  1(f)  hereof) per share of
such Common Stock for the 30 consecutive  Trading Days immediately prior to such
date;  provided,  however,  that in the event that the current per share  market
price  of  the  Common  Stock  is  determined  during  a  period  following  the
announcement  by  the  issuer  of  such  Common  Stock  of  (i)  a  dividend  or
distribution  on such Common Stock  payable in such Common  Stock or  securities
convertible  into such  Common  Stock or (ii) any  subdivision,  combination  or
reclassification of such Common Stock, and prior to the expiration of 30 Trading
Days after the ex-dividend date for such dividend or distribution, or the record
date for such subdivision,  combination or  reclassification,  then, and in each
such case, the "current market price" shall be appropriately adjusted to reflect
the current  market  price per share of Common Stock  equivalent.  If the Common
Stock is not  publicly  held or not so listed or traded,  the "current per share
market  price" shall mean the fair value per share of Common Stock as determined
in good  faith  by the  Board,  whose  determination  shall  be  described  in a
statement filed with the Rights Agent.

     (e) An adjustment in the Purchase  Price  requiring an increase or decrease
of less than 1% in such price  shall not be  required  immediately  following  a
transaction, but any such adjustment shall be carried forward and made not later
than the  earlier of the  Expiration  Date and three years after the date of the
transaction or shall be taken into account in any subsequent adjustment if prior
to the  earlier of such dates.  All  calculations  under this  Section and under
Section 10 shall be made to the nearest cent or to the nearest ten-thousandth of
a share as the case may be.

     (f) If as a result of an adjustment  made pursuant to paragraph (a) of this
Section or Section 10(a),  the holder of any Right  thereafter  exercised  shall
become entitled to receive any shares of capital stock of the Company other than
shares of Common Stock,  thereafter  the number of such other shares of stock so
receivable  upon exercise of any Right 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 paragraphs (a) through
(c), inclusive,  of this Section,  and the provisions of Sections 7, 8, 9(c) and
11 hereof with respect to the Common Stock shall apply on like terms to any such
other shares of stock.

     (g) All Rights issued by the Company  subsequent  to any  adjustment to the
Purchase Price hereunder  shall evidence the right to purchase,  at the adjusted
Purchase Price,  the number of shares of Common Stock  purchasable  from time to
time hereunder upon exercise of the Rights, all subject to further adjustment as
provided herein.

     (h) Unless the Company  shall have  exercised  its  election as provided in
paragraph (i) of this Section,  upon each  adjustment of the Purchase Price as a
result of the calculations made in paragraphs (b) and (c) of this Section,  each
Right  outstanding  immediately  prior to the  making of such  adjustment  shall
thereafter evidence the right to purchase,  at the adjusted Purchase Price, that
number of shares of stock (calculated to the nearest ten-thousandth) obtained by
(i) multiplying (x) the number of shares of stock covered by a Right immediately
prior to this adjustment by (y) the Purchase Price in effect  immediately  prior
to such  adjustment  of the  Purchase  Price and (ii)  dividing  the  product so
obtained by the Purchase Price in effect  immediately  after such  adjustment of
the Purchase Price.

     (i) The  Company  may elect on or after the date of any  adjustment  of the
Purchase  Price  to  adjust  the  number  of  Rights,  in  substitution  for any
adjustment in the number of shares of Common Stock issuable upon the exercise of
a Right.  Each of the Rights  outstanding after such adjustment of the number of
Rights shall be exercisable for the number of shares of Common Stock for which a
Right was exercisable  immediately prior to such adjustment.  Each Right held of
record prior to such adjustment of the number of Rights shall become that number
of Rights  (calculated to the nearest  ten-thousandth)  obtained by dividing the
Purchase Price in effect  immediately  prior to adjustment of the Purchase Price
by the Purchase  Price in effect  immediately  after  adjustment of the Purchase
Price.  The Company shall make a public  announcement  of its election to adjust
the number of Rights,  indicating  the record date for the  adjustment,  and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter,  but,
if the Right Certificates have been issued, shall be at least 10 days later than
the date of the public  announcement.  If Right  Certificates  have been issued,
upon each  adjustment of the number of Rights  pursuant to this  paragraph,  the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates  evidencing,
subject to Section  7(f)  hereof,  the  additional  Rights to which such holders
shall be  entitled  as a result of such  adjustment,  or,  at the  option of the
Company, shall cause to be distributed to such holders of record in substitution
and  replacement  for the Right  Certificates  held by such holders prior to the
date of adjustment,  and upon surrender thereof, if required by the Company, new
Right  Certificates  evidencing  all the Rights to which such  holders  shall be
entitled after such adjustment. Right Certificates so to be distributed shall be
issued,  executed and  countersigned in the manner provided for herein and shall
be registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.

     (j)  Irrespective  of any adjustment or change in the Purchase Price or the
number of shares of Common Stock  issuable upon the exercise of the Rights,  the
Right Certificates theretofore and thereafter issued may continue to express the
Purchase  Price per share of stock and the  number of shares of stock  that were
expressed in the initial Right Certificates issued hereunder.

     (k) Before  taking any action that would cause an  adjustment  reducing the
Purchase  Price below the then par value,  if any, of the Common Stock  issuable
upon exercise of the Rights,  the Company shall take any corporate  action which
may, in the opinion of its  counsel,  be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock at
such adjusted Purchase Price.

     (l) In any case in which this  Section or Section 10 shall  require that an
adjustment  in the  Purchase  Price be made  effective as of a record date for a
specified  event,  the Company may elect to defer until the  occurrence  of such
event the  issuing to the holder of any Right  exercised  after such record date
the Common Stock and other capital  stock or securities of the Company,  if any,
issuable  upon such  exercise  over and above the Common Stock and other capital
stock or securities of the Company,  if any,  issuable upon such exercise on the
basis of the  Purchase  Price in  effect  prior  to such  adjustment;  provided,
however,  that the  Company  shall  deliver  to such  holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.

     (m) Anything in this Section or Section 10 to the contrary notwithstanding,
the Company shall be entitled to make such  reductions in the Purchase Price, in
addition to those adjustments  expressly required by this Section or Section 10,
as and to the  extent  that it in its  sole  discretion  shall  determine  to be
advisable in order that any  consolidation  or  subdivision of the shares of the
Common  Stock,  issuance  wholly for cash of any shares of Common  Stock at less
than the  current  market  price,  issuance  wholly for cash of Common  Stock or
securities  which by their terms are convertible into or exchangeable for Common
Stock,  stock dividends or issuance of rights,  options or warrants  referred to
hereinabove  in this  Section,  hereafter  made by the Company to holders of its
Common Stock shall not be taxable to such stockholders.

     (n)  Whenever an  adjustment  is made as provided in Sections  10, 11 or 12
hereof, the Company shall (a) promptly prepare a certificate  setting forth such
adjustment,  and a brief statement of the facts  accounting for such adjustment,
(b)  promptly  file with the Rights Agent and with each  transfer  agent for the
Common Stock a copy of such certificate, and (c) mail a brief summary thereof to
each holder of a Right  Certificate  in accordance  with Section 15 hereof.  The
Rights Agent shall be fully protected in relying on any such  certificate and on
any  adjustment  therein  contained and shall not be deemed to have knowledge of
any such adjustment unless and until it shall have received such certificate.

Section 13. Redemption.

     (a) The Board  may,  at its  option,  at any time prior to such time as any
Person  becomes an Acquiring  Person,  redeem all but not less than all the then
outstanding  Rights at a redemption  price of $.01 per Right, as such amount may
be appropriately  adjusted to reflect any stock split, stock dividend or similar
transaction  occurring  after the date hereof  (such  amount  being  hereinafter
referred to as the "Redemption Price").

     (b) Immediately upon the action of the Board ordering the redemption of the
Rights,  and  without any  further  action and without any notice,  the right to
exercise the Rights shall  terminate and the only right of the holders of Rights
shall be to receive the Redemption Price. Within 10 days after the action of the
Board  ordering the  redemption of the Rights,  the Company shall give notice of
such  redemption to the holders of the then  outstanding  Rights by mailing such
notice to each such holder at its last  address as it appears  upon the registry
books of the Rights Agent or, prior to the  Distribution  Date,  on the registry
books of the Transfer Agent for the Common Stock.  Any notice which is mailed in
the manner  herein  provided  shall be deemed  given,  whether or not the holder
receives the notice.  Each such notice of  redemption  shall state the method by
which the payment of the Redemption Price will be made.  Neither the Company nor
any of its  Affiliates or Associates  may redeem,  acquire or purchase for value
any Rights at any time in any manner other than that  specifically  set forth in
this  Section or in  connection  with the  purchase of Common Stock prior to the
Distribution Date.

Section 14. Notice of Certain Events.

In case the Company shall propose,  at any time after the Distribution Date, (a)
to pay any dividend payable in stock of any class to the holders of Common Stock
or to make any other  distribution  to the holders of Common Stock (other than a
regular  periodic  cash  dividend at a rate not in excess of 125% of the rate of
the last regular periodic cash dividend  theretofore  paid), (b) to offer to the
holders of Common Stock  rights or warrants to subscribe  for or to purchase any
additional Common Stock or shares of stock of any class or any other securities,
rights or options, (c) to effect any reclassification of its Common Stock (other
than a reclassification  involving only the subdivision of outstanding shares of
Common  Stock),  (d) to effect any  consolidation  or merger into or with, or to
effect any sale or other transfer (or to permit one or more of its  Subsidiaries
to effect any sale or other transfer), in one or more transactions, of more than
50% of the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to, any other Person, or (e) to effect the liquidation,  dissolution or
winding up of the Company,  then,  in each such case,  the Company shall give to
the Rights Agent and to each holder of a Right  Certificate,  in accordance with
Section 15 hereof,  a notice of such  proposed  action,  which shall specify the
record date for the purposes of such stock  dividend,  distribution of rights or
warrants,  or the date on which such  reclassification,  consolidation,  merger,
sale, transfer, liquidation, dissolution, or winding up is to take place and the
date of  participation  therein by the holders of the Common Stock,  if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (a) or (b) above at least 10 days prior to the record date for
determining  holders of the Common Stock for purposes of such action, and in the
case of any such other action,  at least 10 days prior to the date of the taking
of such proposed action or the date of  participation  therein by the holders of
the Common Stock whichever shall be the earlier.

     In case  any of the  events  set  forth  in  Section  10(a)  or (b) of this
Agreement  shall occur,  then,  in any such case,  the Company  shall as soon as
practicable  thereafter  give to the Rights  Agent and to each holder of a Right
Certificate, in accordance with Section 15 hereof, a notice of the occurrence of
such event,  which shall specify the event and the  consequences of the event to
holders of Rights under Section 10(a) or (b) hereof.

Section 15. Notices.

Notices  or  demands  authorized  by this  Agreement  to be given or made by the
Rights  Agent or by the  holder of any Right  Certificate  to or on the  Company
shall  be  sufficiently  given  or made if sent  by  first-class  mail,  postage
prepaid,  addressed  (until another  address is filed in writing with the Rights
Agent) as follows:

                         Hancock Fabrics, Inc.
                         P.O. Box 2400
                         Tupelo, Mississippi 38803-2400
                         Attention: Secretary

Subject  to the  provisions  of  Section  2(d)  hereof,  any  notice  or  demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Right  Certificate to or on the Rights Agent shall be sufficiently  given
or made if sent by first-class mail,  postage prepaid,  addressed (until another
address is filed in writing with the Company) as follows:

                         Continental Stock Transfer & Trust Company
                         2 Broadway
                         New York, New York 10004
                         Attention: Investor Services Department

Notices  or  demands  authorized  by this  Agreement  to be given or made by the
Company or the  Rights  Agent to the  holder of any Right  Certificate  shall be
sufficiently  given  or  made  if sent by  first-class  mail,  postage  prepaid,
addressed  to such holder at the address of such holder as shown on the registry
books of the Company.

Section 16. Supplements and Amendments.

The Company and the Rights Agent may from time to time  supplement or amend this
Agreement without the approval of any holders of Right Certificates,  so long as
the  interests  of the  holders  of the  Right  Certificates  are not  adversely
affected thereby,  in order to cure any ambiguity,  to correct or supplement any
provision contained herein that the Board may, upon the advice of counsel,  from
time to time determine to be defective or inconsistent with any other provisions
herein or with  applicable  law,  or to make any other  provisions  in regard to
matters or questions arising  hereunder,  which the Company and the Rights Agent
may deem  necessary or  desirable,  including  but not limited to extending  the
Expiration  Date and,  provided that at the time of such  amendment  there is no
Acquiring Person,  the period of time during which or the conditions under which
the Rights may be redeemed.

Section 17. Determinations and Actions by the Board of Directors.

The Board shall have the  exclusive  power and  authority to exercise all rights
and  powers  specifically  granted  to the Board or to the  Company,  including,
without limitation,  the right and power to (i) interpret the provisions of this
Agreement,  and (ii) make all  determinations  deemed  necessary or advisable to
carry out the intent of this Agreement  (including a determination  to redeem or
not  redeem  the  Rights  or  to  amend  the   Agreement).   All  such  actions,
calculations,  interpretations  and determinations  done or made by the Board in
good faith shall be final,  conclusive  and binding on the  Company,  the Rights
Agent,  the holders of the Rights,  and all other  parties and shall not subject
the Board to any liability to the holders of the Rights.

Section 18. Successors.

All the covenants and  provisions of this Agreement by or for the benefit of the
Company  or the  Rights  Agent  shall  bind and  inure to the  benefit  of their
respective successors and assigns hereunder.

Section 19. Benefits of this Agreement.

Nothing in this  Agreement  shall be  construed to give to any Person other than
the  Company,  the  Rights  Agent  and  the  registered  holders  of  the  Right
Certificates  (and, prior to the Distribution  Date, the Common Stock) any legal
or equitable  right,  remedy or claim under this  Agreement;  but this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Stock).

Section 20. Severability.

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

Section 21. Governing Law.

This Agreement and each Right Certificate issued hereunder shall be deemed to be
a contract  made under the laws of the State of  Delaware  and for all  purposes
shall be governed by and  construed  in  accordance  with the laws of such State
applicable to contracts to be made and performed entirely within such State.

Section 22. Counterparts.

This  Agreement may be executed in any number of  counterparts  and each of such
counterparts  shall for all purposes be deemed to be an  original,  and all such
counterparts shall together constitute but one and the same instrument.

Section 23. Descriptive Headings.

Descriptive  headings of the several Sections of this Agreement are inserted for
convenience  only and shall not control or affect the meaning or construction of
any of the provisions hereof.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed and their respective  corporate seals to be hereunto affixed,  all
as of the day and year first above written.

                                                    HANCOCK FABRICS, INC.

                                                    By:  /s/   Larry G. Kirk
                                                    ----------------------------
                                                    Larry G. Kirk
                                                    Chief Executive Officer

                                                    CONTINENTAL STOCK TRANSFER
                                                    & TRUST COMPANY

                                                    By:  /s/   Steven Nelson
                                                    ----------------------------
                                                    Steven Nelson
                                                    Chairman, President,
                                                        Secretary
Exhibit A

                           [Form of Right Certificate]

Certificate No. R-                                          ______________Rights

                           NOT EXERCISABLE AFTER MARCH 4, 2011 OR EARLIER IF
                           NOTICE OF REDEMPTION IS GIVEN. THE RIGHTS ARE SUBJECT
                           TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01
                           PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS
                           AGREEMENT.

                                Right Certificate

                              HANCOCK FABRICS, INC.

     This certifies that  _________________________,  or registered  assigns, is
the  registered  owner of the  number of Rights set forth  above,  each of which
entitles the owner thereof,  subject to the terms,  provisions and conditions of
the Rights Agreement dated as of March 23, 1987 between Hancock Fabrics, Inc., a
Delaware  corporation  (the "Company"),  and Continental  Stock Transfer & Trust
Company, as Rights Agent (the "Rights Agent"),  and as amended and restated most
recently on March 4, 2001 (the "Rights Agreement"), to purchase from the Company
at any time after the  Distribution  Date (as such term is defined in the Rights
Agreement)  and  prior to 5:00  p.m.  (Central  Time) on March 4,  2011,  at the
principal  office of the Rights Agent, or its successors as Rights Agent, in the
Borough of  Manhattan  in the City of New York,  one fully paid,  non-assessable
share of common stock of the Company (the "Common  Stock"),  at a purchase price
of $24 per share (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase and  certification  duly
executed.  The number of Rights  evidenced  by this Right  Certificate  (and the
number of shares of Common Stock that may be purchased  upon  exercise  thereof)
set forth  above,  and the Purchase  Price set forth  above,  are the number and
Purchase Price as of March 4, 2001,  based on the Common Stock as constituted at
such date.

     As provided in the Rights  Agreement,  the Purchase Price and the number of
shares of Common  Stock which may be  purchased  upon the exercise of the Rights
evidenced by this Right  Certificate are subject to modification  and adjustment
upon the happening of certain events.

     This Right  Certificate  is subject  to all of the  terms,  provisions  and
conditions of the Rights Agreement,  which terms,  provisions and conditions are
hereby  incorporated  herein by  reference  and made a part  hereof and to which
Rights Agreement  reference is hereby made for a full description of the rights,
limitations  of rights,  obligations,  duties and  immunities  hereunder  of the
Rights Agent, the Company and the holders of the Right  Certificates.  Copies of
the Rights Agreement are on file at the principal offices of the Company and the
Rights Agent.

     This Right  Certificate,  with or without  other Right  Certificates,  upon
surrender at the  principal  office of the Rights  Agent,  may be exchanged  for
another  Right  Certificate  or  Right  Certificates  of  like  tenor  and  date
evidencing  Rights  entitling the holder to purchase a like aggregate  number of
shares of Common Stock as the Rights evidenced by the Right Certificate or Right
Certificates  surrendered  shall have entitled such holder to purchase.  If this
Right  Certificate  shall be exercised in part,  the holder shall be entitled to
receive upon surrender  hereof another Right  Certificate or Right  Certificates
for the number of whole Rights not exercised.

     Subject to the provisions of the Rights Agreement,  the Rights evidenced by
this  Certificate  may be redeemed by the Company at its option at a  redemption
price of $.01 per Right.
No  fractional  shares of Common Stock shall be issued upon the exercise of
any Right or Rights evidenced hereby, but in lieu thereof of a cash payment will
be made, as provided in the Rights Agreement.

     No holder of this Right Certificate,  as such, shall be entitled to vote or
receive  dividends or be deemed for any purpose the holder of Common Stock or of
any other  securities  of the  Company  which may at any time be issuable on the
exercise hereof,  nor shall anything contained in the Rights Agreement or herein
be construed to confer upon to the holder hereof,  as such, any of the rights of
a stockholder  of the Company or any right to vote for the election of directors
or upon any matter  submitted  to  stockholders  at any meeting  thereof,  or to
receive notice of meetings or other actions  affecting  stockholders  (except as
provided  in the Rights  Agreement),  or to receive  dividends  or  subscription
rights,  or  otherwise,  until  the  Right or  Rights  evidenced  by this  Right
Certificate shall have been exercised as provided in the Rights Agreement.

     The Company and the Rights Agent may from time to time  supplement or amend
the Rights Agreement without the approval of any holders of Right  Certificates,
so long as the interests of the holders of Right  Certificates are not adversely
affected thereby,  in order to cure any ambiguity,  to correct or supplement any
provision contained therein that the Board may from time to time determine to be
defective or inconsistent  with any other provisions  therein or with applicable
law, or to make any other  provisions in regard to matters or questions  arising
thereunder  that  the  Company  and the  Rights  Agent  may  deem  necessary  or
desirable,  including but not limited to extending the Expiration  Date (as such
term is defined in the Rights Agreement) and, providing that at the time of such
amendment  there is no  Acquiring  Person (as such term is defined in the Rights
Agreement),  extending the period during which or the conditions under which the
Rights may be redeemed.

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

     This Right  Certificate  shall not be valid or  obligatory  for any purpose
until it shall have been countersigned by the Rights Agent.

     WITNESS the facsimile  signature of the proper  officers of the Company and
its corporate seal. Dated as of ________________.

                                                     HANCOCK FABRICS, INC.

                                               By_______________________________
                                               Title

                                               By_______________________________
                                               Title

Countersigned:

CONTINENTAL STOCK TRANSFER & TRUST COMPANY

By_____________________________     Date: _____________________________
 Authorized Signature
[Form of Reverse Side of Right Certificate]

                               FORM OF ASSIGNMENT

                          (To          be executed by the registered holder if
                                       such holder desires to transfer the Right
                                       Certificates.)

     FOR VALUE  RECEIVED  _______________________________________  hereby sells,
assigns and transfers unto______________________________________________________
________________________________________________________________________________

                  (Please print name and address of transferee)

this Right  Certificate  and the Rights  evidenced  thereby,  together  with all
right, title and interest therein,  and does hereby  irrevocably  constitute and
appoint  ____________________________  Attorney,  to transfer  the within  Right
Certificate  on the  books  of the  within-named  Company,  with  full  power of
substitution.

Dated: _____________________________
                                                ________________________________
                                                Signature
Signature Guaranteed:

--------------------------------------------------------------------------------

The undersigned hereby certifies by checking the appropriate boxes that:

     (1) the  Rights  evidenced  by this Right  Certificate  [ ] are [ ] are not
beneficially  owned by an  Acquiring  Person  or an  Affiliate  or an  Associate
thereof (as defined in the Rights Agreement); and

     (2) after due inquiry and to the best  knowledge  of the  undersigned,  the
undersigned  [ ] did [ ] did not  acquire  the  Rights  evidenced  by this Right
Certificate  from any  person who is, was or  subsequently  became an  Acquiring
Person or an Affiliate or Associate thereof.

Date: _______________________

                                                ________________________________
                                                Signature
FORM OF ELECTION TO PURCHASE

                      (To be executed if holder desires to
                         exercise the Right Certificate)

To HANCOCK FABRICS, INC.:

     The     undersigned     hereby     irrevocably     elects    to    exercise
______________________  Rights represented by this Right Certificate to purchase
the  shares of Common  Stock  issuable  upon the  exercise  of such  Rights  and
requests that certificates for such Common Stock be issued in the name of:

Please insert social security
or other identifying number

________________________________________________________________________________
                         (Please print name and address)

________________________________________________________________________________
If such  number of Rights  shall not be all the Rights  evidenced  by this Right
Certificate,  a new Right  Certificate for the balance  remaining of such Rights
shall be registered in the name of and delivered to:

Please insert social security
or other identifying number

________________________________________________________________________________
                         (Please print name and address)

________________________________________________________________________________

Dated: ______________________________

                                                ________________________________
                                                Signature
Signature Guaranteed:

         Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
--------------------------------------------------------------------------------

The undersigned hereby certifies by checking the appropriate boxes that:

     (1) the  Rights  evidenced  by this Right  Certificate  [ ] are [ ] are not
beneficially  owned by an  Acquiring  Person  or an  Affiliate  or an  Associate
thereof (as defined in the Rights Agreement); and

     (2) after due inquiry and to the best  knowledge  of the  undersigned,  the
undersigned  [ ] did [ ] did not  acquire  the  Rights  evidenced  by this Right
Certificate  from any  person who is, was or  subsequently  became an  Acquiring
Person or an Affiliate or Associate thereof.

Dated: __________________________
                                                ________________________________
                                                Signature

--------------------------------------------------------------------------------

                                     NOTICE

     The  signature in the  foregoing  Forms of  Assignment  and  Election  must
conform to the name as written upon the face of this Right  Certificate in every
particular, without alteration or enlargement or any change whatsoever.

     In the event the  certification  set forth above in the Forms of Assignment
and Election is not completed, the Company will deem the beneficial owner of the
Rights  evidenced  by this Right  Certificate  to be an  Acquiring  Person or an
Affiliate or Associate  thereof (as defined in the Rights Agreement) and, in the
case  of an  Assignment,  will  affix  a  legend  to that  effect  on any  Right
Certificates issued in exchange for this Right Certificate.
Exhibit B

                   SUMMARY OF RIGHTS TO PURCHASE COMMON STOCK

     On March 23, 1987,  the Board of Directors of Hancock  Fabrics,  Inc.  (the
"Company") declared a dividend of one Right for each outstanding share of common
stock, $.01 par value, of the Company (the "Common Stock").  The description and
terms of the  Rights are set forth in a Rights  Agreement  dated as of March 23,
1987 and as amended and  restated  most  recently on March 4, 2001 (the  "Rights
Agreement")  between the Company and Continental Stock Transfer & Trust Company,
as Rights Agent (the "Rights Agent"). Each Right, when exercisable, will entitle
the registered  holder to purchase from the Company one share of Common Stock at
a price of $24.00 per share (the "Purchase Price"), subject to adjustment.

     Initially,  the Rights will be attached  to all  certificates  representing
outstanding   Common  Stock,  and  no  separate  Right   Certificates   will  be
distributed.  The Rights will separate from the Common Stock upon the earlier to
occur of (i) 10 days following a public  announcement  that a person or group of
affiliated or  associated  persons  acquired,  or obtained the right to acquire,
beneficial  ownership of 20% or more of the Common Stock (an "Acquiring Person")
or (ii) 10 days (or such later  date as the Board of  Directors  may  determine)
following  the  commencement  or  announcement  of an intention to make a tender
offer or exchange offer the consummation of which would result in the beneficial
ownership  by a person or group of 30% or more of the Common  Stock (the earlier
of such dates being called the "Distribution Date").

     Until the  Distribution  Date,  the Rights will be evidenced by each Common
Stock  certificate with a copy of this Summary of Rights attached  thereto.  The
Rights Agreement  provides that, until the Distribution Date, the Rights will be
transferred with and only with the Common Stock. Until the Distribution Date (or
earlier  redemption or expiration of the Rights),  the surrender for transfer of
any certificates for Common Stock, even without a copy of this Summary of Rights
attached  thereto,  will also  constitute the transfer of the Rights  associated
with the Common Stock  represented by such  certificate.  As soon as practicable
following the Distribution  Date,  separate  certificates  evidencing the Rights
("Right  Certificates")  will be mailed to holders of record of the Common Stock
as of the close of business on the  Distribution  Date and such  separate  Right
Certificates alone will evidence the Rights.

     A person  or group  that  acquires  Common  Stock  pursuant  to a tender or
exchange offer for all the outstanding  Common Stock that is approved in advance
by a majority of the  disinterested  members of the Board of Directors shall not
be deemed an Acquiring  Person and the  consummation  of such an offer shall not
result in the occurrence of the Distribution Date.

     The Rights are not exercisable until the Distribution Date. The Rights will
expire on March 4, 2011 (the "Expiration  Date"),  unless the Expiration Date is
extended or unless the Rights are earlier redeemed by the Company. Until a Right
is exercised, the holder thereof, as such, shall have no rights as a stockholder
of the Company,  including,  without limitation, the right to vote or to receive
dividends.

     In the event that any person becomes an Acquiring Person, each Right (other
than the Rights of an  Acquiring  Person,  which  become  void) will  thereafter
entitle the holder to receive,  upon the  exercise  thereof of the then  current
exercise  price of the Right,  that  number of shares of Common  Stock  having a
market  value  of two  times  the  exercise  price  of  the  Right.  Under  such
circumstances,  the Board, at its option, may issue one share of Common Stock in
exchange for each Right  (other than those of the  Acquiring  Person),  provided
that at such time a majority of the members of the Board of Directors  shall not
be Acquiring Persons or affiliates or representatives of an Acquiring Person.

     In the event that,  at any time after  there is an  Acquiring  Person,  the
Company is acquired in a merger or other  business  combination  transaction  or
more than 50% of its assets or earning power are sold,  proper provision will be
made so that each holder of a Right will  thereafter  have the right to receive,
upon the exercise thereof at the then current exercise price of the Right,  that
number of shares of common stock of the  acquiring  company which at the time of
such  transaction  would have a market value of two times the exercise  price of
the Right.

     At any time  prior to the time  that  there  is an  Acquiring  Person,  the
Company may redeem the Rights in whole,  but not in part, at a price of $.01 per
Right  (the  "Redemption  Price").  Immediately  upon the action of the Board of
Directors  of the Company  electing to redeem the Rights,  the Company will make
announcement  thereof, and upon such election,  the right to exercise the Rights
will  terminate  and the only right of the  holders of Rights will be to receive
the Redemption Price.

     A copy of the  Rights  Agreement  is  available  free of  charge  from  the
Company.  This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement,  which is
hereby incorporated herein by reference.