Document:

EX-10.19

EXHIBIT 10.19

Information redacted pursuant to a confidential treatment request.

DEPOSIT ACCOUNT CONTROL AGREEMENT

(ELAVON DESIGNATED DEPOSIT ACCOUNT)

     THIS DEPOSIT ACCOUNT CONTROL AGREEMENT (as amended and in effect from time to time, this
“Agreement”) is dated August 1, 2008 by and among BancorpSouth Bank (together with its successors
and assigns, “Bank”), Hancock Fabrics, Inc. (together with its successors and assigns, the
“Company”) and General Electric Capital Corporation, in its capacity as agent (in such capacity,
together with its successors and assigns, “Agent”) pursuant to the Loan Agreement (as hereinafter
defined) acting for and on behalf of Lenders (as defined in the Loan Agreement).

W I T N E S S E T H

     WHEREAS, Bank maintains for the use of the Company the following deposit account:

                    —— (the “Elavon Designated Deposit Account”)

which deposit account is hereinafter referred to as the “Deposit Account”;

     WHEREAS, Bank additionally maintains for the use of the Company the following deposit account
(among others):

                    —— (the “Concentration Account”)

which deposit account is hereinafter referred to as the “Concentration Account”;

     WHEREAS, Bank additionally maintains for the use of the Company the following deposit account
(among others):

                    —— (the “Operating Account”)

which deposit account is hereinafter referred to as the “Operating Account”;

     WHEREAS, pursuant to the Loan and Security Agreement dated as of August 1, 2008, by and among
the Company, certain of Company’s affiliates and subsidiaries, Agent and Lenders (as amended,
restated, supplemented or otherwise modified and in effect, the “Loan Agreement”), Agent and the
Lenders have a security interest in, 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 Account, (b) all cash, 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 the Deposit Account, (c) all funds and cash balances or other amounts in or
attributable to the Deposit Account, and (d) any and all proceeds of any of the foregoing; and

     WHEREAS, the Company, Agent and Bank desire to enter into this Agreement in order to set forth
their relative rights and duties with respect to the Deposit Account Collateral.

     NOW, THEREFORE, in order for the Company to comply with the requirements of Agent and Lenders
under the Loan Agreement and the other financing arrangements with the Company, the Company, Bank
and Agent agree as follows:

     1. Deposit Account Collateral. Bank hereby represents, warrants and covenants with
and to Agent and Lenders that: Bank has established and will maintain the Deposit Account and has
identified the Company as the sole owner of the Deposit Account, subject to the rights of Agent
therein as provided herein; 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 Account 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; 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 Account or with respect to any other dealings with any of the Deposit Account
Collateral; Bank will not agree that any person other than the Company or Agent is Bank’s customer
with respect to the Deposit Account; the Deposit Account is a “deposit account” as such term is
defined in the UCC (as hereinafter defined); 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, subject to the terms and provisions of this Agreement; and Bank
is hereby irrevocably authorized and instructed to change the designation of the customer on the
Deposit Account to Agent upon the request of Agent and Bank shall so change the customer promptly
upon such request by Agent. The Company hereby confirms to Bank that the Company has granted to
Agent, as collateral security for the Company’s obligations to the Agent and Lenders under the Loan
Agreement, a security interest in and Lien on the Deposit Account Collateral, and Bank hereby
acknowledges such security interest in and Lien on the Deposit Account Collateral. This Agreement
shall only apply to the Deposit Account.

     2. Control.

     (a) Notwithstanding any term or provision of this Agreement or other agreement between Bank
and the Company or otherwise, the Company hereby irrevocably authorizes and directs the Bank to
comply with, and the Bank hereby agrees to comply with, all instructions originated by the Agent in
accordance with this Agreement, including directing the disposition of funds in the Deposit Account
or as to any other matter relating to the Deposit Account or 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).

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With respect to the Deposit Account, Bank shall not permit the Company or any of its affiliates or
any other person to withdraw any amounts from, to draw upon or otherwise exercise any authority or
powers with respect to the Deposit Account, and Bank shall not at any time honor, any instructions
with respect to the Deposit Account, other than those approved in writing by Agent.
Notwithstanding the foregoing, until Agent otherwise advises Bank in writing, any entity identified
by ACH company identification number 1841010148 (such entity being Elavon, Inc. f/k/a NOVA
Information Systems, Inc. as of the date of this Agreement) (hereinafter referred to as “Elavon”)
shall have access to the Deposit Account to the extent expressly provided in Section 3(b)
herein.

     3. Remittance of Funds; Use of Cash Management Facilities.

     (a) Unless the Bank is otherwise directed by Agent, each banking day the Bank shall cause all
Deposit Account Collateral in excess of $200,000 in the aggregate to be deposited into the
Concentration Account in immediately available funds.

     (b) Notwithstanding any provision of this Agreement to the contrary, until Agent otherwise
advises Bank in writing, Elavon shall have access to the Deposit Account via ACH Debit Entry
(assuming sufficient funds are available therein on the Effective Entry Date). As used in this
subsection (b), the terms “ACH”, “Debit”, “Entry” and “Effective Entry Date” shall have the
respective meanings ascribed in Bank’s cash management agreements with the Company.

     (c) Until Agent otherwise advises Bank in writing, Company shall have access to the Deposit
Account via Bank’s cash management facilities solely for the purposes of viewing all transactions
on the Deposit Account and for retrieving all balance information concerning the Deposit Account.

     4. Indemnity; Bank’s Responsibility. The Company agrees to indemnify, defend and hold
harmless Bank against any loss, liability or expense (including reasonable fees and disbursements
of counsel) incurred in connection with this Agreement, including any action taken by Bank pursuant
to the instructions of Agent, except to the extent due to the gross negligence or willful
misconduct of Bank or breach of any of the provisions hereof. The Company confirms and agrees that
neither Bank nor Agent or Lenders shall have any liability to the Company for wrongful dishonor of
any items or transaction as a result of any instructions of Agent or otherwise in accordance with
the terms of this Agreement. Bank shall have no duty to inquire or determine whether the
obligations of the Company to Agent or Lenders are in default, or whether Agent or Lenders are
authorized by the Loan Agreement, applicable law or otherwise to take any action, or whether Agent
is entitled to give any such instructions, and Bank is fully entitled to rely upon such
instructions from Agent (even if such instructions are contrary or inconsistent with any
instructions or demands given by the Company).

     5. Statements, Confirmations and Notices of Adverse Claims. At such time or times as
Agent may request, Bank will promptly report to Agent the amounts received in and held in the
Deposit Account and will furnish to Agent any copies of bank statements, deposit tickets, deposited
items, debit and credit advices and other records maintained by Bank under the terms of its
arrangements with the Company (as in effect on the date hereof). Agent will reimburse

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Bank for its reasonable expenses in providing such items to Agent. Upon receipt of notice of
any lien, encumbrance or adverse claim against the Deposit Account Collateral, Bank will promptly
notify Agent and the Company thereof.

     6. Subordination of Bank’s Security Interest; Setoff Rights; Bank’s Fees and Expenses.

     (a) In the event that at any time Bank has a security interest in or lien upon any of the
Deposit Account Collateral, such security interest and lien of Bank shall be subject and
subordinate to the security interest and lien of Agent therein. Bank shall not for any reason
charge, debit, deduct or offset, or exercise any security interest or lien rights, against any
checks, automated clearinghouse transfers or other form of remittances at any time deposited in or
credited to the Deposit Account, except that Bank may setoff against funds in the
Deposit Account (i) for all amounts due to Bank in respect of its fees and expenses as provided in
Section 6(c) hereof that are unpaid and outstanding, (ii) for the amount of any checks,
automated clearinghouse transfers, items or other form of remittances that have been credited to
the Deposit Account and subsequently returned unpaid or lawfully demanded to be refunded by any
paying or collecting bank (whether for insufficient funds or any other reason), (iii) for the
amount of any checks, automated clearinghouse transfers, items or other form of remittances which
have been credited to the Deposit Account incorrectly by reason of inadvertent error which is
corrected as soon as practicable after the discovery of such error, and (iv) for any overdrafts
arising as a result of any of the foregoing; provided, that, Bank shall first
setoff for such amounts due to it against funds held in the Operating Account before the Deposit
Account.

     (b) In the event that the funds in the Operating Account or the Deposit Account are
insufficient to reimburse Bank for any amounts specified in Section 6(a) above, Agent shall
reimburse Bank upon demand for all such amounts; provided, that, (i) in respect of
amounts specified under clause (i) of Section 6(a) above, Agent shall have first
received written demand from Bank for payment of such fees and expenses prior to the date that is
60 days after the date such fees or expenses were due and payable to Bank, and (ii) in respect of
amounts specified in clauses (ii), (iii) and (iv) of Section 6(a)
above, Agent received final payment in respect thereof and Agent has received notice of failure of
the Company to pay Bank prior to the date that is 90 days after such check, automated clearinghouse
transfer items, or other form of remittance is returned to Bank or such demand is made to Bank or
such error was discovered by Bank. The Company shall reimburse Agent for any amounts paid by Agent
to Bank under this Section 6(b) or otherwise under this Agreement promptly upon demand by
Agent (without inquiry as to, and regardless of, any dispute between the Company and Bank). Such
amounts shall be paid to Agent by Company (or at Agent’s option, Agent may charge any loan account
of the Company or its affiliates maintained by Agent) without offset, defense or counterclaim.

     (c) As compensation for Bank’s services rendered to Agent and to Company under this Agreement,
Bank shall be entitled to the fees and expenses set forth in Exhibit “A” hereto.

     7. Termination.

     (a) This Agreement may be terminated by Bank at any time on not less than thirty (30) days’
prior written notice to each of the Company and Agent. This Agreement may be

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terminated by Agent at any time upon receipt by Bank of Agent’s written notice of termination.
This Agreement may not be terminated by the Company without the express prior written consent of
Agent and, in that case, Agent and the Company shall jointly notify Bank in writing of such
termination.

     (b) In the event that this Agreement is terminated for any reason, unless otherwise instructed
by Agent, Bank will, on the effective dated of such termination, transfer all available funds in
the Deposit Account to the Concentration Account.

     8. Notices. All notices hereunder to Bank shall be in writing, sent by telecopier and
by nationally recognized overnight courier with instructions to deliver the next business day, and
shall be deemed to have been given or made when Bank has had a reasonable period of time to act
thereon (but in no event longer than two business days after Bank has received such notice). All
notices to any other party hereunder shall be in writing and deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight
courier service with instructions to deliver the next business day, one (1) business day after
sending; and if by certified mail, return receipt requested, five (5) days after mailing. All
notices to any party shall be given to its address set forth below (or to such other address as any
party may designate by notice in accordance with this Section).

     9. Customer Agreements. This Agreement supplements all other agreements between the
Company and Bank with respect to the Deposit Account, as such agreements may now exist or may
hereafter be amended and whether now existing or hereafter arising, including, but not limited to,
all agreements pertaining to use of Bank’s cash management facilities and the daily transmission
limits set forth therein. No consent of Agent or the Lenders shall be required to amend any such
other agreement or for the Company and Bank to enter into any additional agreement. In the event
of any inconsistency between this Agreement and the terms of such other agreements of the Company
or its affiliates with Bank, the terms of this Agreement control.

     10. Governing Law. This Agreement shall be governed by the laws of the State of
Mississippi. Notwithstanding anything to the contrary contained in any other agreement among any
of the parties hereto, for purposes of the UCC, the State of Mississippi shall be deemed to be
Bank’s jurisdiction within the meaning of Section 9-304 of the UCC. All references to the “UCC”
herein shall mean the Uniform Commercial Code as in effect on the date hereof in the State of
Mississippi.

     11. Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be an original, but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of this Agreement by telefacsimile or other means of
electronic transmission shall have the same force and effect as the delivery of an original
executed counterpart of this Agreement. Any party delivering an executed counterpart of any such
agreement by telefacsimile or other means of electronic transmission shall also deliver an original
executed counterpart, but the failure to do so shall not affect the validity, enforceability or
binding effect of such agreement.

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     12. Successors and Assigns. Agent and Lenders are relying upon this Agreement in
providing financing to the Company and this Agreement shall be binding upon the Company and Bank
and their respective successors and assigns and inure to the benefit of Agent and Lenders and their
respective successors and assigns.

[SIGNATURE PAGE FOLLOWS]

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DEPOSIT ACCOUNT CONTROL AGREEMENT

SIGNATURE PAGE

	 	 	 	 	 	 	 
	HANCOCK FABRICS, INC.
	 	BANCORPSOUTH BANK
	 
	 	 	 	 	 	 
	By:

	 	/s/ Robert W. Driskell	 	By:	 	/s/ Coy Livingston
	 

	 	 
	 	 	 	 
	Name:
	 	Robert W. Driskell	 	Name:	 	Coy Livingston
	Title:

	 	Senior Vice President and

Chief Financial Officer	 	Title:	 	Executive Vice President
	 

	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	Address for Notices:
	 	Address for Notices:
	 

	One Fashion Way
	 	Corporate Banking Department
	Baldwyn, MS 38824
	 	201 South Spring Street
	Attention: Larry D. Fair
	 	Tupelo, Mississippi 38804
	Telecopy: 662-365-6025
	 	Attention: Corporate Banking Dept.
	 

	 	 	 	Telecopy: 662-680-2261
	 
	 	 	 	 	 	 
	 

	 	 	 	with a copy to:
	 
	 	 	 	 	 	 
	GENERAL ELECTRIC CAPITAL
	 	Cash Management Department
	CORPORATION, as Agent
	 	6363 Poplar Avenue, Suite 429
	 

	 	 	 	Memphis, Tennessee 38119
	By:

	 	/s/ Charles D. Chiodo	 	Attention: Cash Management Department
	 

	 	 	 	 	 	 
	Name:

	 	Charles D. Chiodo	 	Telecopy: 901-374-0866
	Title:
	 	Its Duly Authorized Signatory	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	with a copy to:
	 
	 	 	 	 	 	 
	Address for Notices:
	 	Cash Management Department
	 

	 	 	 	2830 West Jackson Street, Building B
	401 Merritt 7 P.O. Box 5201
	 	Tupelo, Mississippi 38801
	Norwalk, CT 06856-5201
	 	Attention: Cash Management Dept.
	Attn: Hancock Fabrics Account Manager
	 	Telecopy: 662-620-4029
	Telecopy: 203-956-4002	 	 	 	 

7EX-10.26

EXHIBIT 10.26

AMENDMENT TO THE

DEFERRED COMPENSATION AGREEMENT ENTERED INTO BY

HANCOCK FABRICS, INC. AND                      AS OF JUNE 19, 1996.

     THIS AMENDMENT TO THE DEFERRED COMPENSATION Agreement entered into by Hancock Fabrics, Inc.
(the “Company”) and                      (the “Employee”) as of June 19, 1996 (the “Agreement”) is
made by the Company and the Employee.

     The Agreement is hereby amended as follows:

     1. Paragraph 2 of the Agreement is hereby amended by deleting “If such employment
ceases” and by substituting “If the Employee incurs a Separation From Service” and by
adding at the end of the existing provision the following:

“For purposes of this Agreement, “Separation From Service” means the time at which
the parties reasonably anticipate that no further services will be performed by the
Employee after a certain date, or that the level of bona fide services the Employee
would perform after such date (whether as an employee or as an independent
contractor) would permanently decrease to no more than 20 percent of the average
level of bona fide services performed (whether as an employee or an independent
contractor) by the individual over the immediately preceding 36-month period. If the
Employee provides services both as an employee and as an independent contractor, the
Employee must separate from service both as an employee and as an independent
contractor to be treated as having a Separated From Service. If the Employee ceases
providing services an employee and begins providing services as an independent
contractor, the Employee will not be considered to have a Separation From Service
until the Employee has ceased providing services in both capacities. The provisions
and application of this paragraph will be construed and applied in a manner
consistent with Code Section 409A and Treasury Regulations of other guidance issued
thereunder.”

     2. Paragraph 15(a) of the Agreement is hereby amended by deleting from the first
sentence “If the Employee ceases employment with the Company” and by substituting “If the
Employee incurs a Separation From Service with the Company”, by deleting “ceases employment
with the Company” from the second sentence and substituting “incurs a Separation From
Service”.

     3. The Agreement is hereby amended by adding, as a new Paragraph 17, the
following:

“In the case of any compensation or benefits under this Agreement which is subject
to Code Section 409A, if the Employee is a Specified Employee at the time of a
Separation From Service and the payment or provision of such compensation is made as
a result of the Separation From Service, then no portion of such benefits or other
such compensation shall be made before the date that is six (6) months after the
date of the Separation from Service or, if earlier, the date of death of the
Specified Employee. Any compensation which would otherwise be paid within such six
(6) month period after a Separation From

 

Service shall be paid on the date which is six (6) months and one day after the
Separation From Service, or the first business day thereafter. For such purposes,
“Specified Employee” means a service provider who, as of the date of the service
provider’s Separation from Service, is a key employee of a service recipient any
stock of which is publicly traded on an established securities market or otherwise.
A key employee is any individual who is described in Code Section 416(i)(1)(A)(i),
(ii), or (iii) (applied in accordance with the Regulations thereunder and
disregarding section 416(i)(5)) at any time during the 12-month period ending on a
Specified Employee identification date. The provisions and application of this
paragraph will be construed and applied in a manner consistent with Code Section
409A and Treasury Regulations of other guidance issued thereunder.”

     IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Amendment and the Employee has executed this Amendment.

     DATED the                      day of December, 2008.

	 	 	 	 	 	 	 
	 

	 	HANCOCK FABRICS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Employee

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