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EXHIBIT 10.7
DEPOSIT ACCOUNT CONTROL AGREEMENT
THIS
DEPOSIT ACCOUNT CONTROL AGREEMENT ("Agreement") is dated June
29,
2005 by and among BancorpSouth Bank
(together with its successors and assigns,
"Bank"), Hancock Fabrics, Inc. (together
with its successors and assigns, the
"Company") and Wachovia Bank, National
Association, in its capacity as agent
pursuant to the Loan Agreement (as
hereinafter defined) acting for and on behalf
of the parties thereto as lenders (in such
capacity, together with its
successors and assigns, "Agent").
W I T N E S S E T H
WHEREAS,
Bank maintains or will maintain for the use of the Company the
deposit account listed on Schedule 1 hereto
as the collection account (the
"Collection Account") and in addition, Bank
maintains the other deposit accounts
used by or on behalf of the Company listed
on Schedule 1 hereto (the "Operating
Accounts", and together with the Collection
Account and any other deposit
accounts at any time established or
maintained at Bank by or for the benefit of
the Company or to which any funds of the
Company are at any time remitted or
deposited, but excluding deposit accounts
specifically and exclusively used for
payroll, payroll taxes and other employee
wage and benefit payments, being
collectively, the "Deposit Accounts", and
individually, each a "Deposit
Account");
WHEREAS,
the Company has entered or is about to enter into financing
arrangements with Agent and the parties to
the Loan Agreement as lenders
(collectively, together with their
respective successors and assigns, "Lenders")
pursuant to which the Company may from time
to time have certain indebtedness or
other obligations to Agent and Lenders as
set forth in the Loan and Security
Agreement by and among Agent, Lenders, the
Company and certain of its affiliates
(as the same now exists or may hereafter be
amended, modified, supplemented,
extended, renewed, restated or replaced,
the "Loan Agreement");
WHEREAS,
such indebtedness and other obligations of the Company to Agent
and Lenders are secured by, among other
things, all right, title and interest of
the Company in and to the following,
whether now or hereafter existing or
arising (collectively, the "Deposit Account
Collateral"): (a) the Deposit
Accounts, (b) all checks, money orders,
drafts, instruments, electronic funds
transfers and other items and forms of
remittances and all funds and other
amounts at any time paid, deposited or
credited (whether for collection,
provisionally or otherwise), held or
otherwise in the possession or under the
control of, or in transit to, Bank or any
agent or custodian thereof for credit
to or to be deposited in any Deposit
Account, (c) all funds and cash balances or
other amounts in or attributable to any
Deposit Account, and (d) any and all
proceeds of any of the foregoing;
WHEREAS,
in connection with such financing arrangements, Agent and
Lenders
require that Bank and the Company enter
into this Agreement to establish certain
rights and benefits with respect to the
Deposit Accounts;
NOW,
THEREFORE, in order for the Company to comply with the
requirements
of Agent and Lenders under their financing
arrangements with the Company, the
Company, Bank and Agent agree as
follows:
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1. Deposit
Account Collateral. Bank hereby represents, warrants and
covenants with and to Agent and Lenders
that: (a) Bank has established and will
maintain the Deposit Accounts and has
identified the Company as the sole owner
of the Deposit Accounts, subject to the
rights of Agent therein as provided
herein; (b) the records of Bank do not
reflect, and it has not received any
notice of, any assignment or pledge of, or
security interest in the Deposit
Accounts or any of the other Deposit
Account Collateral (other than the pledge
and security interest of Agent referred to
herein), or any notice of any adverse
claim with respect to any of the same; (c)
Bank has not entered and will not
enter into any agreement with any person
other than Agent by which it is
obligated for any reason to comply with
instructions from such other person as
to the disposition of funds in or from the
Deposit Accounts or with respect to
any other dealings with any of the Deposit
Account Collateral; (d) Bank will not
agree that any person other than the
Company or Agent is the Bank's customer
with respect to any Deposit Account; (e)
Schedule 1 is a correct and complete
list of the Deposit Accounts as of the date
hereof and each of them constitutes
a "deposit account" as such term is defined
in the UCC; (f) effective as of the
Effective Date (as hereinafter defined),
the title of the Collection Account
shall be changed to "Hancock Fabrics, Inc.
-- Wachovia Bank, National
Association as Agent Blocked Account"; (g)
Bank acknowledges that it holds and
will hold possession of the Deposit Account
Collateral consisting of instruments
and money as bailee for Agent and for the
benefit of Agent; and (h) Bank is
hereby irrevocably authorized and
instructed to change the designation of the
customer on any Deposit Account to Agent
upon the request of Agent and Bank
shall so change the customer promptly upon
such request by Agent.
2.
Control.
(a) Notwithstanding any other term or provision of this Agreement
or
any other agreement between Bank and the
Company or otherwise, Bank is hereby
irrevocably authorized and directed to, and
Bank agrees that it will, comply
with instructions originated by Agent
directing the disposition of funds from
time to time in any Deposit Account or as
to any other matters relating to any
Deposit Account or any of the other Deposit
Account Collateral without further
consent by the Company (which instructions
may include the giving of stop
payment orders for any items being
presented to a Deposit Account for payment).
(b) Effective upon the receipt by Bank of written notice from
Agent
that Agent is exercising exclusive control
over any Deposit Account (each such
notice being referred to as a "Notice of
Exclusive Control"), Bank shall not
permit the Company or any of its affiliates
to withdraw any amounts from, to
draw upon or otherwise exercise any
authority or powers with respect to the
Deposit Account and all Deposit Account
Collateral related thereto specified in
any such Notice of Exclusive Control and
Bank shall not at any time honor, any
instructions with respect to the such
Deposit Account and Deposit Account
Collateral, other than those approved in
writing by Agent. Until the receipt by
Bank of a Notice of Exclusive Control, the
Company shall be entitled to present
items drawn on and otherwise to withdraw or
direct the disposition of funds from
the Deposit Accounts.
3.
Remittance of Funds. Unless and until Bank shall receive
written
instruction from Agent to the contrary,
effective as of the Effective Date, all
checks, money orders, drafts, instruments,
electronic funds transfers and other
items and forms of remittances received for
deposit in the Collection Account
shall be deposited only in the Collection
Account on the date received. On and
after the date of the receipt by Bank of a
Notice of Exclusive Control as to any
2
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Deposit Account, all available funds in
such Deposit Account shall automatically
and without further direction on each
business day be remitted, at the Company's
cost and expense, by federal funds wire
transfer solely to Wachovia Bank,
National Association, ABA No. 053-000-219,
for credit to Wachovia Bank, National
Association,
