Hancock Fabrics Files for Chapter 11 Reorganization

  
    
  
  
    
      Hancock Fabrics, Inc. (NYSE: HKF), announced today it has filed a 
      voluntary petition for Chapter 11 relief in the United States Bankruptcy 
      Court for the District of Delaware. Its subsidiaries are also filing for 
      the same relief. Hancock took this action so that it can use the 
      reorganization process to improve the Company’s 
      operating performance, reduce its secured debt over time, close 
      underperforming locations, and exit Chapter 11.
    
    
      Hancock announced that it has negotiated a consensual $105 million DIP 
      (debtor-in-possession) financing arrangement with Wachovia Bank, N.A., 
      in which Hancock will gain additional borrowing capacity necessary to 
      operate successfully under Chapter 11. The Company is also in the final 
      stages of negotiating an additional loan of up to $17.5 million with 
      another lender.
    
    
      Yesterday, the Company announced that it had completed a review of each 
      of its store locations and had decided to close 104 stores, in addition 
      to the 30 store closings announced in a press release dated February 8, 
      2007.
    
    
      Jane Aggers, President and CEO, stated, “The 
      process of reorganizing Hancock Fabrics under Chapter 11 is a necessary 
      step to reposition the Company for the future. It allows us to focus our 
      attention and resources entirely on further improving our 
      better-performing stores and right-sizing our back-office operations and 
      distribution center. We intend to complete the reorganization as quickly 
      as possible, while taking the actions necessary to preserve value for 
      our creditors, customers, employees and other stakeholders.”
    
    
      Hancock has filed a number of “First Day 
      Motions” in the bankruptcy court to support 
      its employees, customers, vendors and other stakeholders. Among other 
      things, the court filings include requests to continue to pay Hancock’s 
      employees and to fulfill the needs of the Company’s 
      customers as they relate to gift cards, merchandise returns, classes and 
      other services.
    
    
      Hancock Fabrics, Inc. – America's Fabric Store – 
      is committed to serving creative enthusiasts with a complete selection 
      of fashion and home decorating textiles, sewing accessories, needlecraft 
      supplies and sewing machines, through retail stores and an Internet 
      store at www.hancockfabrics.com.
    
    
      Forward-Looking Statement
    
    
      Certain statements made in this press release may constitute “forward-looking 
      statements” within the meaning of the federal 
      securities laws. These forward-looking statements involve certain 
      risks and uncertainties. Actual results may differ materially 
      from the expected results described in the forward-looking statements. 
      There are a number of factors that could cause the Company’s 
      actual results to differ materially from the expected results described 
      in the Company’s forward-looking statements.
    
    
      There can be no assurance that the Company’s 
      restructuring will be successful. Risk factors related to the 
      restructuring efforts that could cause actual results to differ from 
      these forward-looking statements include, but are not limited to, the 
      following: (a) the Company’s ability 
      to continue as a going concern; (b) the Company’s 
      ability to obtain adequate financing; (c) the Company’s 
      success in obtaining various court approvals; (d) the ability of the 
      Company to maintain reasonable business relationships with its 
      merchandise and other vendors. Other risk factors are included in 
      the Company’s Annual Report on Form 10-K for 
      the fiscal year ended January 28, 2006 and other Company filings with 
      the Securities and Exchange Commission. The Company undertakes no 
      obligation to publicly revise or update these forward-looking 
      statements, whether as a result of new information or future events.