This GUARANTEE
(this “Guarantee”), dated August 1, 2008, 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”), 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”), and such other Persons who
may become a party hereto pursuant to Section 17 hereof (such
other Persons, together with Borrowers and Guarantors, are
sometimes hereinafter referred to hereunder individually each, as a
“Guaranteeing Party” and collectively, as
“Guaranteeing Parties”) in favor of GENERAL ELECTRIC
CAPITAL CORPORATION, a Delaware corporation, in its capacity as
agent (in such capacity, “Agent”) pursuant to the Loan
Agreement (as hereinafter defined).
WHEREAS,
Borrowers, Guarantors, Agent and 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”; capitalized terms used herein without definition
shall have the meanings ascribed to such terms therein) 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:
(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 Obligations”): (i) the full and punctual
payment when due (whether at stated maturity, by required
pre-payment, by acceleration or otherwise), as well as the
performance, of all of the Obligations including all such which
would become due but for the operation of the automatic stay
pursuant to §362(a) of the Bankruptcy Code and the operation
of §§502(b) and 506(b) of the Bankruptcy Code 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 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 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 performance 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
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(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.
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 Lenders for
the obligations of any Obligor, 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
Bankruptcy Code or consent to the use of cash collateral by Agent
or any Lenders under Section 363 of the 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 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.
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(c) Unless
and until the indefeasible payment and satisfaction in full in cash
of all of the 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.
Each Guaranteeing Party acknowledges and agrees (i) that the
foregoing waiver is intended to benefit Agent and Lenders and shall
not limit or otherwise affect any Guaranteeing Party’s
liability hereunder or the enforceability of this Guarantee, and
(ii) that Agent, Lenders and their respective successors and
assigns are intended third party beneficiaries of the waivers and
agreements this Section 2(c) and their rights under this Section
2(c) shall survive payment in full of the Guaranteed
Obligations.
3.
Subordination . Payment of all amounts now or hereafter owed
to any Guaranteeing Party by any Borrower, Guarantor or any other
Obligor is hereby subordinated in right of payment to the
indefeasible payment in full in cash to Agent and Lenders of the
Guaranteed Obligations and all such amounts and any security and
guarantees therefor are hereby assigned to Agent and Lenders as
security for the Guaranteed Obligations.
4.
Acceleration . Notwithstanding anything to the contrary
contained herein or any of the terms of any of the other Financing
Agreements, the liability of the Guaranteeing Parties for the
entire Guaranteed Obligations shall mature and become immediately
due and payable, even if the liability of any Borrower, Guarantor
or any other Obligor therefor does not, upon the o
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