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EXHIBIT 10.6
[Execution]
GUARANTEE
THIS
GUARANTEE ("Guarantee"), dated June __, 2005, is by Hancock
Fabrics,
Inc, a Delaware corporation ("Parent"), HF
Merchandising, Inc., a Delaware
corporation ("Merchandising"), Hancock
Fabrics of MI, Inc., a Delaware
corporation ("Fabrics MI"),
hancockfabrics.com, Inc., a Delaware corporation
("Fabrics.com"), Hancock Fabrics, LLC, a
Delaware limited liability
company("Fabrics LLC", and together with
Parent, Merchandising, Fabrics MI and
Fabrics.com, each individually a "Borrower"
and collectively, "Borrowers" as
hereinafter further defined), HF
Enterprises, Inc., a Delaware corporation
("Enterprises"), and HF Resources, Inc., a
Delaware corporation ("Resources" and
together with Enterprises, each
individually a "Guarantor" and collectively,
"Guarantors" as hereinafter further
defined), in favor of Wachovia Bank,
National Association, a national banking
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, "Agent"). Borrowers and
Guarantors are sometimes hereinafter
referred to hereunder individually each, as
a "Guaranteeing Party" and collectively, as
"Guaranteeing Parties".
W I T N E S S E T H :
WHEREAS,
Borrowers, Guarantors, Agent and the parties to the Loan
Agreement as lenders (each individually a
"Lender" and collectively, "Lenders")
have entered or are about to enter into
financing arrangements pursuant to which
Lenders (or Agent on behalf of Lenders) may
make loans and advances and provide
other financial accommodations to Borrowers
as set forth in the Loan and
Security Agreement, dated of even date
herewith, by and among Agent, Lenders,
Borrowers and Guarantors (as the same now
exists or may hereafter be amended,
modified, supplemented, extended, renewed,
restated or replaced, the "Loan
Agreement") and other agreements, documents
and instruments referred to therein
or at any time executed and/or delivered in
connection therewith or related
thereto, including, but not limited to,
this Guarantee (all of the foregoing,
together with the Loan Agreement, as the
same now exist or may hereafter be
amended, modified, supplemented, extended,
renewed, restated or replaced, being
collectively referred to herein as the
"Financing Agreements"); and
WHEREAS,
due to the close business and financial relationships among
Borrowers and each Guarantor, in
consideration of the benefits which will accrue
to each Guaranteeing Party and as an
inducement for and in consideration of
Lenders (or Agent on behalf of Lenders)
making loans and advances and providing
other financial accommodations to Borrowers
pursuant to the Loan Agreement and
the other Financing Agreements, the
Guaranteeing Parties desire to enter into
this Guarantee;
NOW,
THEREFORE, in consideration of the premises and for other good
and
valuable consideration, the receipt and
sufficiency of which are hereby
acknowledged, each Guaranteeing Party
hereby jointly and severally agrees in
favor of Agent and Lenders as follows:
1.
Guarantee.
(a) Each Guaranteeing Party absolutely and unconditionally,
jointly
and severally, guarantees and agrees to be
liable for the full and indefeasible
payment and performance when due of the
following (all of which are collectively
referred to herein as the "Guaranteed
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Obligations"): (i) all of the Obligations
(as such term is defined in the Loan
Agreement) and (ii) all expenses
(including, without limitation, attorneys' fees
and legal expenses) incurred by Agent or
any Lender in connection with the
preparation, execution, delivery,
recording, administration, collection,
liquidation, enforcement and defense of
each Borrower's obligations, liabilities
and indebtedness as aforesaid to Agent or
any Lender, the rights of Agent or any
Lender in any collateral or under this
Guarantee and all other Financing
Agreements or in any way involving claims
by or against Agent or any Lender
directly or indirectly arising out of or
related to the relationships between
Borrower, any Guarantor or any other
Obligor (as hereinafter defined) and Agent
or any Lender, whether such expenses are
incurred before, during or after the
initial or any renewal term of the Loan
Agreement and the other Financing
Agreements or after the commencement of any
case with respect to any Borrower or
Guarantor under the United States
Bankruptcy Code or any similar statute. The
"Guaranteed Obligations" shall not, with
respect to any Guaranteeing Party that
is a Borrower, be deemed to constitute a
guarantee by such Guaranteeing Party of
its own Obligations.
(b) This Guarantee is a guaranty of payment and not of
collection.
Each Guaranteeing Party agrees that Agent
and Lenders need not attempt to
collect any Guaranteed Obligations from any
Borrower, any Guarantor or any other
Obligor or to realize upon any collateral,
but may require any Guaranteeing
Party to make immediate payment of all of
the Guaranteed Obligations to Agent
when due, whether by maturity, acceleration
or otherwise, or at any time
thereafter. Agent and Lenders may apply any
amounts received in respect of the
Guaranteed Obligations to any of the
Guaranteed Obligations, in whole or in part
(including attorneys' fees and legal
expenses incurred by Agent or any Lender
with respect thereto or otherwise
chargeable to Borrowers or Guarantors) and in
such order as Agent may elect.
(c) Payment by Guaranteeing Parties shall be made to Agent at
the
office of Agent from time to time on demand
as Guaranteed Obligations become
due. Guaranteeing Parties shall make all
payments to Agent on the Guaranteed
Obligations free and clear of, and without
deduction or withholding for or on
account of, any setoff, counterclaim,
defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions
or conditions of any kind. One or
more successive or concurrent actions may
be brought hereon against any
Guaranteeing Party either in the same
action in which any Borrower, Guarantor,
other Guaranteeing Party or any other
Obligor is sued or in separate actions. In
the event any claim or action, or action on
any judgment, based on this
Guarantee is brought against any
Guaranteeing Party, each Guaranteeing Party
agrees not to deduct, set-off, or seek any
counterclaim for or recoup any
amounts which are or may be owed by Agent
or any other Lender to any
Guaranteeing Party.
(d) Notwithstanding anything to the contrary contained herein,
the
amount of the obligations payable by any
Guaranteeing Party under this Guarantee
shall be the aggregate amount of the
Guaranteed Obligations unless a court of
competent jurisdiction adjudicates such
Guaranteeing Party's obligations to be
invalid, avoidable or unenforceable for any
reason (including, without
limitation, because of any applicable state
or federal law relating to
fraudulent conveyances or transfers), in
which case the amount of the Guaranteed
Obligations payable by such Guaranteeing
Party hereunder shall be limited to the
maximum amount that could be guaranteed by
such Guaranteeing Party without
rendering such Guaranteeing Party's
obligations under this Guarantee invalid,
avoidable or unenforceable under such
applicable law.
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2. Waivers
and Consents.
(a) Notice of acceptance of this Guarantee, the making of loans
and
advances and providing other financial
accommodations to Borrowers and
presentment, demand, protest, notice of
protest, notice of nonpayment or default
and all other notices to which any Borrower
or any Guarantor are entitled are
hereby waived by each Guaranteeing Party.
Each Guaranteeing Party also waives
notice of and hereby consents to, (i) any
amendment, modification, supplement,
extension, renewal, or restatement of the
Loan Agreement and any of the other
Financing Agreements, including, without
limitation, extensions of time of
payment of or increase or decrease in the
amount of any of the Guaranteed
Obligations, the interest rate, fees, other
charges, or any collateral, and the
guarantee made herein shall apply to the
Loan Agreement and the other Financing
Agreements and the Guaranteed Obligations
as so amended, modified, supplemented,
renewed, restated or extended, increased or
decreased, (ii) the taking,
exchange, surrender and releasing of
collateral or guarantees now or at any time
held by or available to Agent for itself
and the benefit of Secured Parties (as
defined in the Loan Agreement) for the
obligations of any Borrower or any other
party at any time liable on or in respect
of the Guaranteed Obligations or who
is the owner of any property which is
security for the Guaranteed Obligations
(individually, an "Obligor" and
collectively, the "Obligors"), including,
without limitation, the surrender or
release by Agent of any Guaranteeing Party
hereunder, (iii) the exercise of, or
refraining from the exercise of any rights
against any Borrower, Guarantor, any
Guaranteeing Party or any other Obligor or
any collateral, (iv) the settlement,
compromise or release of, or the waiver of
any default with respect to, any of the
Guaranteed Obligations and (v) any
financing by Agent or any Lender of any
Borrower under Section 364 of the United
States Bankruptcy Code or consent to the
use of cash collateral by Agent or any
Lenders under Section 363 of the United
States Bankruptcy Code. Each
Guaranteeing Party agrees that the amount
of the Guaranteed Obligations shall
not be diminished and the liability of
Guaranteeing Parties hereunder shall not
be otherwise impaired or affected by any of
the foregoing.
(b) No invalidity, irregularity or unenforceability of all or
any
part of the Guaranteed Obligations shall
affect, impair or be a defense to this
Guarantee, nor shall any other circumstance
which might otherwise constitute a
defense available to or legal or equitable
discharge of any Borrower in respect
of any of the Guaranteed Obligations, or
any Guaranteeing Party in respect of
this Guarantee, affect, impair or be a
defense to this Guarantee. Without
limitation of the foregoing, the liability
of the Guaranteeing Parties hereunder
shall not be discharged or impaired in any
respect by reason of any failure by
Agent to perfect or continue perfection of
any lien or security interest in any
collateral or any delay by Agent in
perfecting any such lien or security
interest. As to interest, fees and
expenses, whether arising before or after the
commencement of any case with respect to
any Borrower under the United States
Bankruptcy Code or any similar statute,
Guaranteeing Parties shall be liable
therefor, even if such Borrower's liability
for such amounts does not, or ceases
to, exist by operation of law. Each
Guaranteeing Party acknowledges that Agent
has not made any representations to any
Guaranteeing Party with respect to any
Borrower, Guarantor, any other Obligor or
otherwise in connection with the
execution and delivery by Guaranteeing
Parties of this Guarantee and
Guaranteeing Parties are not in any respect
relying upon Agent or any statements
by Agent in connection with this
Guarantee.
(c) Unless and until the indefeasible payment and satisfaction
in
full of all of the
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Guaranteed Obligations in immediately
available funds and the termination of the
financing arrangements of Agent and Lenders
with Borrowers, each Guaranteeing
Party hereby irrevocably and
unconditionally waives and relinquishes (i) all
statutory, contractual, common law,
equitable and all other claims against any
Borrower, any collateral for the Guaranteed
Obligations or other assets of any
Borrower, Guarantor or any other Obligor,
for subrogation, reimbursement,
exoneration, contribution, indemnification,
setoff or other recourse in respect
to sums paid or payable to Agent or any
Lender by any Guaranteeing Party
hereunder and (ii) any and all other
benefits which any Guaranteeing Party might
otherwise directly or indirectly receive or
be entitled to receive by reason of
any amounts paid by or collected or due
from Guarantors, Borrowers or any other
Obligor upon the Guaranteed Obligations or
realized from their property.
3.
Subordination. Payment of all amounts now or hereaf
