UNITED STATES
                       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 (Date of earliest event reported): December 7, 2005


                              HANCOCK FABRICS, INC.
               (Exact Name of Registrant as Specified in Charter)


                         Commission File Number 1 - 9482

            Delaware                                           64-0740905
   (State or other jurisdiction                            (I. R. S. Employer
 of incorporation or organization)                         Identification No.)

     One Fashion Way, Baldwyn, MS                                 38824
(Address of principal executive offices)                        (Zip Code)


               Registrant's telephone number, including area code
                                 (662) 365-6000


Check  the  appropriate  box  below  if the  Form  8-K  filing  is  intended  to
simultaneously  satisfy the filing obligation of the Registrant under any of the
following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act
    (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
    (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b)  under the
    Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
    Act (17 CFR 240.13e-4(c))


<PAGE>

Item 1.01.  Entry into a Material Definitive Agreement.

At a meeting  held  December 7, 2005,  the  Management  Review and  Compensation
Committee  of the Board of  Directors  of Hancock  Fabrics,  Inc.  agreed with a
proposal  made  by  Jane  Aggers,  Chief  Executive  Officer,  to  exchange  her
guaranteed  first-year cash bonus of $225,000 for a restricted  stock award. The
Committee  was pleased with her offer;  however,  due to the risk of  forfeiture
associated  with  restricted  stock,  as well as the time  value of  money,  the
Committee  deemed it proper to award $300,000 of restricted stock from Hancock's
existing plan. The Board of Directors agreed with the Committee's recommendation
to award 75,000  shares of  restricted  stock,  vesting 25% on each of the first
four  anniversary  dates of the award,  to Ms. Aggers as a  replacement  for the
guaranteed bonus.

The purpose of this exchange is to increase Ms.  Aggers'  ownership  position in
Hancock  Fabrics  in order to  better  align  her  interests  with  those of the
Company's  shareholders and to expand the level of restricted stock which serves
as a retention tool for Ms. Aggers' continued employment with Hancock.

Attached  hereto  as an  exhibit  is the  amendment  to Ms.  Aggers'  Employment
Agreement, dated December 15, 2004, effectuating this exchange.

See Item 3.03 below re the  amendment of Hancock's  Amended and Restated  Rights
Agreement.

Item 3.03.  Material Modification to Rights of Security Holders

On December 9, 2005,  Hancock amended its Amended and Restated Rights  Agreement
with  Continental  Stock  Transfer  and Trust  Company  dated March 4, 2001 (the
"Rights  Agreement")  to include a three-year  independent  director  evaluation
provision (the "TIDE Provision").

The TIDE  Provision  requires an  independent  committee of  Hancock's  Board of
Directors to review the Rights  Agreement every three years and evaluate whether
the Rights Agreement still is in Hancock's and its stockholders' best interests.

Item 9.01. Financial Statements, Pro Forma Financial Information and Exhibits.

    (c)    Exhibits:

    Exhibit
    Number    Description
    -------   -----------------------------------------------------------------

     10.1     Amendment dated December 7, 2005 to the Employment Agreement of
              Jane Aggers.

     10.2     Amendment No.1 to the Amended and Restated Rights Agreement dated
              December 9, 2005.


                                       2
<PAGE>


                                    SIGNATURE

     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 thereunto duly authorized.


                                    HANCOCK FABRICS, INC.
                                    (Registrant)

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


Date:    December 9, 2005











                                       3
<PAGE>


                                                                  Exhibit 10.1

                     FIRST AMENDMENT TO EMPLOYMENT AGREEMENT


     This FIRST AMENDMENT,  dated as of December 7, 2005 (this "Amendment"),  to
the EMPLOYMENT  AGREEMENT,  dated as of December 15, 2004 (the "Agreement"),  by
and between HANCOCK FABRICS, INC., a Delaware corporation ("Company"),  and JANE
F. AGGERS ("Executive").

     WHEREAS, Company and Executive are parties to the Agreement; and

     WHEREAS,  Company and Executive desire that the Agreement be amended as set
forth herein;

     NOW  THEREFORE,  in  consideration  of the  foregoing  and  of  the  mutual
covenants herein, and for other good and valuable  consideration the receipt and
sufficiency  of which are hereby  acknowledged,  the  parties,  intending  to be
legally bound, hereby agree as follows:

     SECTION 1. Defined  Terms.  Terms  defined in the Agreement and used herein
shall have the meanings given to them in the Agreement.

     SECTION 2. Amendments to the Agreement.

     (a)  Amendment to Section  3(c).  Section  3(c) of the  Agreement is hereby
amended to read in its entirety as set forth below:

          "(c)  Performance  Bonuses.  For the fiscal year ending  January 2006,
          Executive shall be paid a guaranteed,  non-cash bonus in the form of a
          restricted  grant by Company to  Executive  of  seventy-five  thousand
          (75,000) shares of Company common stock,  vesting  twenty-five percent
          (25%)  per year on each of the next  four  (4)  anniversaries  of this
          Agreement and otherwise  subject to the standard  terms and conditions
          for such restricted  grants of common stock by the Company.  For years
          after the fiscal year ending  January 2006,  Executive  shall have the
          opportunity to earn a performance  bonus in accordance  with Company's
          Bonus  Plan  (the  "Bonus  Plan"),  as such  plan may be  modified  or
          supplanted over time. Bonus criteria for Executive for years after the
          fiscal year ending  January 2006 shall be  established by the Board in
          consultation with Executive."

     (b)  Amendment to Section  5(c)(iv).  Section  5(c)(iv) of the Agreement is
hereby amended to read in its entirety as set forth below:

          "(iv) a lump sum payment  equivalent to three (3) times the bonus paid
          under the  Bonus  Plan for the year  immediately  prior to the year in
          which the  Change  in  Control  occurred;  provided,  however,  if the
          Involuntary  Termination  During a Change  in  Control  Period  occurs
          during the fiscal year ending January 2007,  then the lump sum payment
          under this subsection shall be $675,000;"

<PAGE>

     SECTION 3.  Effectiveness  of this  Amendment.  This Amendment shall become
effective as of December 7, 2005.

     SECTION 4. Miscellaneous.

     (a) Effect. Except as expressly amended hereby, all of the representations,
warranties,  terms,  covenants  and  conditions  of the  Agreement  shall remain
unamended and not waived and shall continue to be in full force and effect.

     (b)  Counterparts.  This Amendment may be executed by Company and Executive
in  counterparts,  each of which shall be deemed an original and which  together
shall constitute one instrument.

     (c) Savings  Provision.  To the extent that any provision of this Amendment
or any paragraph,  term,  provision,  sentence,  phrase,  clause or word of this
Amendment  shall be found to be illegal or  unenforceable  for any reason,  such
paragraph,  term, provision,  sentence, phrase, clause or word shall be modified
or deleted in such a manner as to make this Amendment, as so modified, legal and
enforceable  under  applicable  laws.  The  remainder  of this  Amendment  shall
continue in full force and effect.

     (d)  Integration.  This  Amendment  represents the agreement of the parties
with  respect  to  the  subject  matter  hereof,  and  there  are  no  promises,
undertakings,  representations  or  warranties  relative to the  subject  matter
hereof not expressly set forth or referred to herein.

     (e) GOVERNING LAW. EXECUTIVE AND COMPANY AGREE THAT THIS AGREEMENT SHALL BE
INTERPRETED  IN  ACCORDANCE  WITH  AND  GOVERNED  BY THE  LAWS OF THE  STATE  OF
MISSISSIPPI.


                  [remainder of page intentionally left blank]



<PAGE>


     IN WITNESS  WHEREOF,  the parties  have  executed  this First  Amendment to
Employment Agreement as of the date first written above.


                                 HANCOCK FABRICS, INC.


                                 By:  /s/ Wellford L. Sanders, Jr.
                                      ----------------------------------
                                      Name:  Wellford L. Sanders, Jr.
                                      Title: Director and Non-Executive Chairman



                                 EXECUTIVE


                                 /s/ Jane F. Aggers
                                 ----------------------------------------------
                                 Name: Jane F. Aggers



                                       6

<PAGE>


                                                                 Exhibit 10.2

                             Amendment No. 1 to the
                      Amended and Restated Rights Agreement

This Amendment No.1 to the Amended and Restated Rights  Agreement,  effective as
of December  9, 2005  ("Amendment  No.1"),  between  Hancock  Fabrics,  Inc.,  a
Delaware  corporation  (the "Company"),  and Continental  Stock Transfer & Trust
Company (the "Rights Agent"), provides as follows:

Whereas, the Company and the Rights Agent are parties to an Amended and Restated
Rights Agreement dated as of March 4, 2001 (the "Rights Agreement"),  specifying
the terms of the Rights (as  defined  therein);

Whereas,  the  Company  and the
Rights Agent now desire to amend the Rights  Agreement in order to provide for a
three-year  independent  director  evaluation of the Rights, as provided herein.

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

1. Amendment and  Restatement of Section 17:  "Determination  and Actions by the
Board Of  Directors."  Section 17 of the  Rights  Agreement  is hereby  amended,
restated and replaced in its entirety by the following:

SECTION 17. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS.

(a) 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.

(b) It is understood  that the TIDE Committee (as described  below) of the Board
of  Directors  shall  review and  evaluate  this  Agreement in order to consider
whether the maintenance of this Agreement  continues to be in the best interests
of the  Company,  its  stockholders  and other  relevant  constituencies  of the
Company at least once every three years, or sooner than that if any Person shall
have made a  proposal  to the  Company or its  stockholders,  or taken any other
action that, if effective, could cause such Person to become an Acquiring Person
hereunder,  if a majority of the members of the TIDE  Committee  shall deem such
review and  evaluation  appropriate  after  giving  due  regard to all  relevant
circumstances.  Following each such review, the TIDE Committee shall communicate
its conclusions to the full Board of Directors,  including any recommendation in
light  thereof as to whether  this  Agreement  should be  modified or the Rights
should be  redeemed.  If the  Company  has a  non-executive  chairman,  the TIDE
Committee  shall be chaired by the  non-executive  chairman and comprised of all
members of the Board of Directors who are not officers,  employees or Affiliates
of the Company. If the Company does not have a non-executive  chairman, the TIDE
Committee  shall be comprised  of the members of the  Corporate  Governance  and
Nominating  Committee of the Board of Directors (or any successor committee) who
are not officers, employees or Affiliates of the Company .

<PAGE>

(c) The TIDE Committee and the Board of
Directors,  when  considering  whether this Agreement  should be modified or the
Rights  should be redeemed,  shall have the power to set their own agenda and to
retain at the expense of the Company their choice of legal  counsel,  investment
bankers and other advisors. The TIDE Committee and the Board of Directors,  when
considering  whether this  Agreement  should be modified or the Rights should be
redeemed,  shall have the authority to review all information of the Company and
to consider any and all factors they deem  relevant to an  evaluation of whether
this Agreement should be modified or the Rights should be redeemed.

2. No Other  Amendments.  Except as expressly  amended hereby,  the terms of the
Rights Agreement will remain in full force and effect in all respects.

3.  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.

4.  Counterparts.  This  Amendment  No.1  may  be  executed  in  any  number  of
counterparts,  and each of such  counterparts will for all purposes be deemed to
be an original,  and all such counterparts will together  constitute but one and
the same instrument.


<PAGE>


IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment No.1 to be
executed  by their duly  authorized  representatives  as of the date first above
written.

Continental Stock Transfer & Trust Company

/s/ William F. Seegraber
-----------------------------------------
William F. Seegraber
Vice President



Hancock Fabrics, Inc.

/s/ Bruce D. Smith
-----------------------------------------
Bruce D. Smith
Executive Vice President,
Chief Financial Officer and Treasurer
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UNITED STATES
                       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 (Date of earliest event reported): December 7, 2005

                              HANCOCK FABRICS, INC.
               (Exact Name of Registrant as Specified in Charter)

                         Commission File Number 1 - 9482

            Delaware                                           64-0740905
   (State or other jurisdiction                            (I. R. S. Employer
 of incorporation or organization)                         Identification No.)

     One Fashion Way, Baldwyn, MS                                 38824
(Address of principal executive offices)                        (Zip Code)

               Registrant's telephone number, including area code
                                 (662) 365-6000

Check  the  appropriate  box  below  if the  Form  8-K  filing  is  intended  to
simultaneously  satisfy the filing obligation of the Registrant under any of the
following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act
    (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
    (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b)  under the
    Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
    Act (17 CFR 240.13e-4(c))
Item 1.01.  Entry into a Material Definitive Agreement.

At a meeting  held  December 7, 2005,  the  Management  Review and  Compensation
Committee  of the Board of  Directors  of Hancock  Fabrics,  Inc.  agreed with a
proposal  made  by  Jane  Aggers,  Chief  Executive  Officer,  to  exchange  her
guaranteed  first-year cash bonus of $225,000 for a restricted  stock award. The
Committee  was pleased with her offer;  however,  due to the risk of  forfeiture
associated  with  restricted  stock,  as well as the time  value of  money,  the
Committee  deemed it proper to award $300,000 of restricted stock from Hancock's
existing plan. The Board of Directors agreed with the Committee's recommendation
to award 75,000  shares of  restricted  stock,  vesting 25% on each of the first
four  anniversary  dates of the award,  to Ms. Aggers as a  replacement  for the
guaranteed bonus.

The purpose of this exchange is to increase Ms.  Aggers'  ownership  position in
Hancock  Fabrics  in order to  better  align  her  interests  with  those of the
Company's  shareholders and to expand the level of restricted stock which serves
as a retention tool for Ms. Aggers' continued employment with Hancock.

Attached  hereto  as an  exhibit  is the  amendment  to Ms.  Aggers'  Employment
Agreement, dated December 15, 2004, effectuating this exchange.

See Item 3.03 below re the  amendment of Hancock's  Amended and Restated  Rights
Agreement.

Item 3.03.  Material Modification to Rights of Security Holders

On December 9, 2005,  Hancock amended its Amended and Restated Rights  Agreement
with  Continental  Stock  Transfer  and Trust  Company  dated March 4, 2001 (the
"Rights  Agreement")  to include a three-year  independent  director  evaluation
provision (the "TIDE Provision").

The TIDE  Provision  requires an  independent  committee of  Hancock's  Board of
Directors to review the Rights  Agreement every three years and evaluate whether
the Rights Agreement still is in Hancock's and its stockholders' best interests.

Item 9.01. Financial Statements, Pro Forma Financial Information and Exhibits.

    (c)    Exhibits:

    Exhibit
    Number    Description
    -------   -----------------------------------------------------------------

     10.1     Amendment dated December 7, 2005 to the Employment Agreement of
              Jane Aggers.

     10.2     Amendment No.1 to the Amended and Restated Rights Agreement dated
              December 9, 2005.

                                       2
SIGNATURE

     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 thereunto duly authorized.

                                    HANCOCK FABRICS, INC.
                                    (Registrant)

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

Date:    December 9, 2005

                                       3
Exhibit 10.1

                     FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

     This FIRST AMENDMENT,  dated as of December 7, 2005 (this "Amendment"),  to
the EMPLOYMENT  AGREEMENT,  dated as of December 15, 2004 (the "Agreement"),  by
and between HANCOCK FABRICS, INC., a Delaware corporation ("Company"),  and JANE
F. AGGERS ("Executive").

     WHEREAS, Company and Executive are parties to the Agreement; and

     WHEREAS,  Company and Executive desire that the Agreement be amended as set
forth herein;

     NOW  THEREFORE,  in  consideration  of the  foregoing  and  of  the  mutual
covenants herein, and for other good and valuable  consideration the receipt and
sufficiency  of which are hereby  acknowledged,  the  parties,  intending  to be
legally bound, hereby agree as follows:

     SECTION 1. Defined  Terms.  Terms  defined in the Agreement and used herein
shall have the meanings given to them in the Agreement.

     SECTION 2. Amendments to the Agreement.

     (a)  Amendment to Section  3(c).  Section  3(c) of the  Agreement is hereby
amended to read in its entirety as set forth below:

          "(c)  Performance  Bonuses.  For the fiscal year ending  January 2006,
          Executive shall be paid a guaranteed,  non-cash bonus in the form of a
          restricted  grant by Company to  Executive  of  seventy-five  thousand
          (75,000) shares of Company common stock,  vesting  twenty-five percent
          (25%)  per year on each of the next  four  (4)  anniversaries  of this
          Agreement and otherwise  subject to the standard  terms and conditions
          for such restricted  grants of common stock by the Company.  For years
          after the fiscal year ending  January 2006,  Executive  shall have the
          opportunity to earn a performance  bonus in accordance  with Company's
          Bonus  Plan  (the  "Bonus  Plan"),  as such  plan may be  modified  or
          supplanted over time. Bonus criteria for Executive for years after the
          fiscal year ending  January 2006 shall be  established by the Board in
          consultation with Executive."

     (b)  Amendment to Section  5(c)(iv).  Section  5(c)(iv) of the Agreement is
hereby amended to read in its entirety as set forth below:

          "(iv) a lump sum payment  equivalent to three (3) times the bonus paid
          under the  Bonus  Plan for the year  immediately  prior to the year in
          which the  Change  in  Control  occurred;  provided,  however,  if the
          Involuntary  Termination  During a Change  in  Control  Period  occurs
          during the fiscal year ending January 2007,  then the lump sum payment
          under this subsection shall be $675,000;"
SECTION 3.  Effectiveness  of this  Amendment.  This Amendment shall become
effective as of December 7, 2005.

     SECTION 4. Miscellaneous.

     (a) Effect. Except as expressly amended hereby, all of the representations,
warranties,  terms,  covenants  and  conditions  of the  Agreement  shall remain
unamended and not waived and shall continue to be in full force and effect.

     (b)  Counterparts.  This Amendment may be executed by Company and Executive
in  counterparts,  each of which shall be deemed an original and which  together
shall constitute one instrument.

     (c) Savings  Provision.  To the extent that any provision of this Amendment
or any paragraph,  term,  provision,  sentence,  phrase,  clause or word of this
Amendment  shall be found to be illegal or  unenforceable  for any reason,  such
paragraph,  term, provision,  sentence, phrase, clause or word shall be modified
or deleted in such a manner as to make this Amendment, as so modified, legal and
enforceable  under  applicable  laws.  The  remainder  of this  Amendment  shall
continue in full force and effect.

     (d)  Integration.  This  Amendment  represents the agreement of the parties
with  respect  to  the  subject  matter  hereof,  and  there  are  no  promises,
undertakings,  representations  or  warranties  relative to the  subject  matter
hereof not expressly set forth or referred to herein.

     (e) GOVERNING LAW. EXECUTIVE AND COMPANY AGREE THAT THIS AGREEMENT SHALL BE
INTERPRETED  IN  ACCORDANCE  WITH  AND  GOVERNED  BY THE  LAWS OF THE  STATE  OF
MISSISSIPPI.

                  [remainder of page intentionally left blank]
IN WITNESS  WHEREOF,  the parties  have  executed  this First  Amendment to
Employment Agreement as of the date first written above.

                                 HANCOCK FABRICS, INC.

                                 By:  /s/ Wellford L. Sanders, Jr.
                                      ----------------------------------
                                      Name:  Wellford L. Sanders, Jr.
                                      Title: Director and Non-Executive Chairman

                                 EXECUTIVE

                                 /s/ Jane F. Aggers
                                 ----------------------------------------------
                                 Name: Jane F. Aggers

                                       6
Exhibit 10.2

                             Amendment No. 1 to the
                      Amended and Restated Rights Agreement

This Amendment No.1 to the Amended and Restated Rights  Agreement,  effective as
of December  9, 2005  ("Amendment  No.1"),  between  Hancock  Fabrics,  Inc.,  a
Delaware  corporation  (the "Company"),  and Continental  Stock Transfer & Trust
Company (the "Rights Agent"), provides as follows:

Whereas, the Company and the Rights Agent are parties to an Amended and Restated
Rights Agreement dated as of March 4, 2001 (the "Rights Agreement"),  specifying
the terms of the Rights (as  defined  therein);

Whereas,  the  Company  and the
Rights Agent now desire to amend the Rights  Agreement in order to provide for a
three-year  independent  director  evaluation of the Rights, as provided herein.

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

1. Amendment and  Restatement of Section 17:  "Determination  and Actions by the
Board Of  Directors."  Section 17 of the  Rights  Agreement  is hereby  amended,
restated and replaced in its entirety by the following:

SECTION 17. DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS.

(a) 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.

(b) It is understood  that the TIDE Committee (as described  below) of the Board
of  Directors  shall  review and  evaluate  this  Agreement in order to consider
whether the maintenance of this Agreement  continues to be in the best interests
of the  Company,  its  stockholders  and other  relevant  constituencies  of the
Company at least once every three years, or sooner than that if any Person shall
have made a  proposal  to the  Company or its  stockholders,  or taken any other
action that, if effective, could cause such Person to become an Acquiring Person
hereunder,  if a majority of the members of the TIDE  Committee  shall deem such
review and  evaluation  appropriate  after  giving  due  regard to all  relevant
circumstances.  Following each such review, the TIDE Committee shall communicate
its conclusions to the full Board of Directors,  including any recommendation in
light  thereof as to whether  this  Agreement  should be  modified or the Rights
should be  redeemed.  If the  Company  has a  non-executive  chairman,  the TIDE
Committee  shall be chaired by the  non-executive  chairman and comprised of all
members of the Board of Directors who are not officers,  employees or Affiliates
of the Company. If the Company does not have a non-executive  chairman, the TIDE
Committee  shall be comprised  of the members of the  Corporate  Governance  and
Nominating  Committee of the Board of Directors (or any successor committee) who
are not officers, employees or Affiliates of the Company .
(c) The TIDE Committee and the Board of
Directors,  when  considering  whether this Agreement  should be modified or the
Rights  should be redeemed,  shall have the power to set their own agenda and to
retain at the expense of the Company their choice of legal  counsel,  investment
bankers and other advisors. The TIDE Committee and the Board of Directors,  when
considering  whether this  Agreement  should be modified or the Rights should be
redeemed,  shall have the authority to review all information of the Company and
to consider any and all factors they deem  relevant to an  evaluation of whether
this Agreement should be modified or the Rights should be redeemed.

2. No Other  Amendments.  Except as expressly  amended hereby,  the terms of the
Rights Agreement will remain in full force and effect in all respects.

3.  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.

4.  Counterparts.  This  Amendment  No.1  may  be  executed  in  any  number  of
counterparts,  and each of such  counterparts will for all purposes be deemed to
be an original,  and all such counterparts will together  constitute but one and
the same instrument.
IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment No.1 to be
executed  by their duly  authorized  representatives  as of the date first above
written.

Continental Stock Transfer & Trust Company

/s/ William F. Seegraber
-----------------------------------------
William F. Seegraber
Vice President

Hancock Fabrics, Inc.

/s/ Bruce D. Smith
-----------------------------------------
Bruce D. Smith
Executive Vice President,
Chief Financial Officer and Treasurer