Document:

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                                                                    EXHIBIT 10.2

                                                                     [Execution]

                          PLEDGE AND SECURITY AGREEMENT

      THIS PLEDGE AND SECURITY AGREEMENT (this "Pledge Agreement"), dated June
__, 2005, is by HANCOCK FABRICS, INC., a Delaware corporation ("Pledgor"), to
and in favor of WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association, in its capacity as agent (in such capacity, "Pledgee") pursuant to
the Loan Agreement (as hereinafter defined) acting for and on behalf of the
Lenders (as hereinafter defined).

                              W I T N E S S E T H:

      WHEREAS, Pledgor is now the direct and beneficial owner of all of the
issued and outstanding shares of capital stock of (i) Hancock Fabrics of MI,
Inc., a Delaware corporation ("Fabrics MI"), (ii) hancockfabrics.com, Inc., a
Delaware corporation ("Fabrics.com"), and (iii) HF Resources, Inc., a Delaware
corporation ("Resources", and together with Fabrics MI and Fabrics.com, each
individually an "Issuer" and collectively, "Issuers"), all as described on
Exhibit A annexed hereto and made a part hereof (the "Pledged Securities");

      WHEREAS, Pledgee and the parties to the Loan Agreement as lenders (each
individually a "Lender" and collectively, "Lenders") have entered into or are
about to enter into financing arrangements pursuant to which Lenders (or Pledgee
on behalf of Lenders) may make loans and advances and provide other financial
accommodations to Pledgor and certain affiliates of Pledgor (each a "Borrower"
and collectively, "Borrowers") as set forth in the Loan and Security Agreement,
dated of even date herewith, by and among Borrowers, certain affiliates of
Borrowers, Pledgee and Lenders (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 Pledge Agreement (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");

      WHEREAS, in order to induce Pledgee and Lenders to enter into the Loan
Agreement and the other Financing Agreements and to make loans and advances and
provide other financial accommodations to Borrowers pursuant thereto, Pledgor
has agreed to secure the payment and performance of the Obligations (as
hereinafter defined) and to accomplish same by (i) executing and delivering to
Pledgee this Pledge Agreement, (ii) delivering to Pledgee the Pledged Securities
which are registered in the name of Pledgor, together with appropriate powers
duly executed in blank by Pledgor, and (iii) delivering to Pledgee any and all
other documents which Pledgee deems necessary to protect Pledgee's interests
hereunder.

      NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor hereby agrees as follows:

<PAGE>

      1.    GRANT OF SECURITY INTEREST

      As collateral security for the prompt performance, observance and
indefeasible payment in full of all of the Obligations, Pledgor hereby assigns,
pledges, hypothecates, transfers and sets over to Pledgee and grants to Pledgee,
for itself and for the benefit of Secured Parties (as defined in the Loan
Agreement), a security interest in and lien upon: (a) the Pledged Securities,
together with all cash dividends, stock dividends, interests, profits,
redemptions, warrants, subscription rights, stock, securities options,
substitutions, exchanges and other distributions now or hereafter distributed by
any Issuer or which may hereafter be delivered to the possession of Pledgor or
Pledgee with respect thereto, (b) Pledgor's records with respect to the
foregoing, and (c) the proceeds of all of the foregoing (all of the foregoing
being collectively referred to herein as the "Pledged Property").

      2. OBLIGATIONS SECURED

      The security interest, lien and other interests granted to Pledgee (for
itself and on behalf of Secured Parties) pursuant to this Pledge Agreement shall
secure the prompt performance and payment in full of any and all Obligations.

      3.    REPRESENTATIONS, WARRANTIES AND COVENANTS

      Pledgor hereby represents, warrants and covenants with and to Pledgee and
Lenders the following (all of such representations, warranties and covenants
being continuing so long as any of the Obligations are outstanding):

      (a) The Pledged Securities are duly authorized, validly issued, fully paid
and non-assessable capital stock of each Issuer and constitute Pledgor's entire
interest in each Issuer, and are not registered, nor has Pledgor authorized the
registration thereof, in the name of any person or entity other than Pledgor or
Pledgee.

      (b) The Pledged Property is directly, legally and beneficially owned by
Pledgor, free and clear of all claims, liens, pledges and encumbrances of any
kind, nature or description, except for the pledge and security interest in
favor of Pledgee, for itself and for the benefit of Secured Parties, and the
pledges and security interests permitted under the Loan Agreement.

      (c) The Pledged Property is not subject to any restrictions relative to
the transfer thereof and Pledgor has the right to transfer and hypothecate the
Pledged Property free and clear of any liens, encumbrances or restrictions.

      (d) The Pledged Property is duly and validly pledged to Pledgee, for
itself and for the benefit of Secured Parties, and no consent or approval of any
governmental or regulatory authority or of any securities exchange or the like,
nor any consent or approval of any other third party, was or is necessary to the
validity and enforceability of this Pledge Agreement.

      (e) Pledgor authorizes Pledgee to: (i) store, deposit and safeguard the
Pledged Property, (ii) perform any and all other acts which Pledgee in good
faith deems reasonable and/or necessary for the protection and preservation of
the Pledged Property or its value or Pledgee's security interest therein,
including, without limitation, transferring, registering or arranging for

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the transfer or registration of the Pledged Property to or in Pledgee's or any
Lender's own name and receiving the income therefrom as additional security for
the Obligations and (iii) pay any charges or expenses which Pledgee deems
necessary for the foregoing purpose, but without any obligation to do so. Any
obligation of Pledgee for reasonable care for the Pledged Property in Pledgee's
possession shall be limited to the same degree of care which Pledgee uses for
similar property pledged to Pledgee by other persons.

      (f) If Pledgor shall become entitled to receive or acquire, or shall
receive any stock certificate, or option or right with respect to the stock of
any Issuer (including without limitation, any certificate representing a
dividend or a distribution or exchange of or in connection with reclassification
of the Pledged Securities) whether as an addition to, in substitution of, or in
exchange for any of the Pledged Property or otherwise, Pledgor agrees to accept
same as Pledgee's agent, to hold same in trust for Pledgee and to deliver same
forthwith to Pledgee or Pledgee's agent or bailee in the form received, with the
endorsement(s) of Pledgor where necessary and/or appropriate powers and/or
assignments duly executed to be held by Pledgee or Pledgee's agent or bailee
subject to the terms hereof, as further security for the Obligations.

      (g) Pledgor shall not, without the prior consent of Pledgee, directly or
indirectly, sell, assign, transfer, or otherwise dispose of, or grant any option
with respect to the Pledged Property, nor shall Pledgor create, incur or permit
any further pledge, hypothecation, encumbrance, lien, mortgage or security
interest with respect to the Pledged Property.

      (h) So long as no Event of Default (as hereinafter defined) has occurred
and is continuing Pledgor shall have the right to vote and exercise all
corporate rights with respect to the Pledged Securities, except as expressly
prohibited herein, and to receive any dividends (payable in cash or in property)
in respect of the Pledged Securities and to receive any other distributions with
respect to the Pledged Securities that are permitted by the Loan Agreement.

      (i) Pledgor shall not permit any Issuer, directly or indirectly, to issue,
sell, grant, assign, transfer or otherwise dispose of, any additional shares of
capital stock of any Issuer or any option or warrant with respect to, or other
right or security convertible into, any additional shares of capital stock of
any Issuer, now or hereafter authorized, unless all such additional shares,
options, warrants, rights or other such securities are made and shall remain
part of the Pledged Property subject to the pledge and security interest granted
herein.

      (j) Pledgor shall pay all charges and assessments of any nature against
the Pledged Property or with respect thereto prior to said charges and/or
assessments being delinquent.

      (k) Pledgor shall promptly reimburse Pledgee on demand, together with
interest at the rate then applicable to the Obligations set forth in the Loan
Agreement, for any charges, assessments or expenses paid or incurred by Pledgee
or any Lender in Pledgee's discretion for the protection, preservation and
maintenance of the Pledged Property and the enforcement of Pledgee's or Lenders'
rights hereunder, including, without limitation, attorneys' fees and legal
expenses incurred by Pledgee or any Lender in seeking to protect, collect or
enforce its rights in the Pledged Property or otherwise hereunder. Any such
amounts paid or incurred by Pledgee shall constitute part of the Obligations
under the Loan Agreement and may be charged by Pledgee to any loan account of
Pledgor maintained by Pledgee, at its option.

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      (l) Pledgor shall furnish, or cause to be furnished, to Pledgee such
information concerning any Issuer and the Pledged Property as may from time to
time be required under the Loan Agreement.

      (m) Pledgee may notify any Issuer or the appropriate transfer agent of the
Pledged Securities to register the security interest and pledge granted herein
and honor the rights of Pledgee and Lenders under this Pledge Agreement.

      (n) Pledgor waives: (i) all rights to require Pledgee or any Lender to
proceed against any other person, entity or collateral or to exercise any
remedy, (ii) the defense of the statute of limitations in any action upon any of
the Obligations, (iii) any right of subrogation or interest in the Obligations
or Pledged Property until all Obligations have been paid in full, (iv) any
rights to notice of any kind or nature whatsoever, unless specifically required
in this Pledge Agreement or non-waivable under any applicable law, and (v) to
the extent permissible, its rights under Section 9-207 of the New York Uniform
Commercial Code. Pledgor agrees that the Pledged Property, other collateral, or
any other guarantor or endorser may be released, substituted or added with
respect to the Obligations, in whole or in part, without releasing or otherwise
affecting the liability of Pledgor, the pledge and security interests granted
hereunder, or this Pledge Agreement. Pledgee, for and on behalf of itself and
Secured Parties, is entitled to all of the benefits of a secured party set forth
in Section 9-207 of the New York Uniform Commercial Code.

      4.    EVENTS OF DEFAULT

      The occurrence or existence of any Event of Default under and as defined
in any of the Financing Agreements is referred to herein individually as an
"Event of Default" and collectively as "Events of Default".

      5.    RIGHTS AND REMEDIES

      At any time an Event of Default exists or has occurred and is continuing,
in addition to all other rights and remedies of Pledgee and Lenders, whether
provided under this Pledge Agreement, the Loan Agreement, the other Financing
Agreements, applicable law or otherwise, Pledgee shall have the following rights
and remedies which may be exercised without notice to, or consent by, Pledgor
except as such notice or consent is expressly provided for hereunder:

      (a) Pledgee, at its option, shall be empowered to exercise its continuing
right to instruct any Issuer (or the appropriate transfer agent of the Pledged
Securities) to register any or all of the Pledged Securities in the name of
Pledgee or in the name of Pledgee's nominee (including, without limitation, any
Lender) and Pledgee may complete, in any manner Pledgee may deem expedient, any
and all stock powers, assignments or other documents heretofore or hereafter
executed in blank by Pledgor and delivered to Pledgee. After said instruction,
and without further notice, Pledgee shall have the exclusive right to exercise
all voting and corporate rights with respect to the Pledged Securities and other
Pledged Property, and exercise any and all rights of conversion, redemption,
exchange, subscription or any other rights, privileges, or options pertaining to
any shares of the Pledged Securities or other Pledged Property as if Pledgee
were the absolute owner thereof, including, without limitation, the right to
exchange, in its discretion,

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any and all of the Pledged Securities and other Pledged Property upon any
merger, consolidation, reorganization, recapitalization or other readjustment
with respect thereto. Upon the exercise of any such rights, privileges or
options by Pledgee, Pledgee shall have the right to deposit and deliver any and
all of the Pledged Securities and other Pledged Property to any committee,
depository, transfer agent, registrar or other designated agency upon such terms
and conditions as Pledgee may determine, all without liability, except to
account for property actually received by Pledgee. However, Pledgee shall have
no duty to exercise any of the aforesaid rights, privileges or options (all of
which are exercisable in the sole discretion of Pledgee) and shall not be
responsible for any failure to do so or delay in doing so.

      (b) In addition to all the rights and remedies of a secured party under
the New York Uniform Commercial Code or other applicable law, Pledgee shall have
the right, at any time and without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Pledgor or any other person (all
and each of which demands, advertisements and/or notices are hereby expressly
waived to the extent permitted by applicable law), to proceed forthwith to
collect, redeem, recover, receive, appropriate, realize, sell, or otherwise
dispose of and deliver said Pledged Property or any part thereof in one or more
lots at public or private sale or sales at any exchange, broker's board or at
any of Pledgee's offices or elsewhere at such prices and on such terms as
Pledgee may deem best. The foregoing disposition(s) may be for cash or on credit
or for future delivery without assumption of any credit risk, with Pledgee
having the right to purchase all or any part of said Pledged Property so sold at
any such sale or sales, public or private, free of any right or equity of
redemption in Pledgor, which right or equity is hereby expressly waived or
released by Pledgor. The proceeds of any such collection, redemption, recovery,
receipt, appropriation, realization, sale or other disposition, after deducting
all costs and expenses of every kind incurred relative thereto or incidental to
the care, safekeeping or otherwise of any and all Pledged Property or in any way
relating to the rights of Pledgee hereunder, including attorneys' fees and legal
expenses, shall be applied first to the satisfaction of the Obligations (in such
order as Pledgee may elect and whether or not due) and then to the payment of
any other amounts required by applicable law, including Section 9-615(a)(3) of
the New York Uniform Commercial Code, with Pledgor to be and remain liable for
any deficiency. Pledgor shall be liable to Pledgee and Lenders for the payment
on demand of all such costs and expenses, together with interest at the then
applicable rate set forth in the Loan Agreement, and any attorneys' fees and
legal expenses. Pledgor agrees that ten (10) days prior written notice by
Pledgee designating the place and time of any public sale or of the time after
which any private sale or other intended disposition of any or all of the
Pledged Property is to be made, is reasonable notification of such matters.

      (c) Pledgor recognizes that Pledgee may be unable to effect a public sale
of all or part of the Pledged Property by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, as now or hereafter in
effect or in applicable Blue Sky or other state securities law, as now or
hereafter in effect, but may be compelled to resort to one or more private sales
to a restricted group of purchasers who will be obliged to agree, among other
things, to acquire such Pledged Property for their own account for investment
and not with a view to the distribution or resale thereof. If at the time of any
sale of the Pledged Property or any part thereof, the same shall not, for any
reason whatsoever, be effectively registered (if required) under the Securities
Act of 1933 (or other applicable state securities law), as then in effect,
Pledgee in its sole and

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absolute discretion is authorized to sell such Pledged Property or such part
thereof by private sale in such manner and under such circumstances as Pledgee
or its counsel may deem necessary or advisable in order that such sale may
legally be effected without registration. Pledgor agrees that private sales so
made may be at prices and other terms less favorable to the seller than if such
Pledged Property were sold at public sale, and that Pledgee has no obligation to
delay the sale of any such Pledged Property for the period of time necessary to
permit any Issuer, even if such Issuer would agree, to register such Pledged
Property for public sale under such applicable securities laws. Pledgor agrees
that any private sales made under the foregoing circumstances shall be deemed to
have been in a commercially reasonable manner.

      (d) All of the rights and remedies of Pledgee and Lenders, including, but
not limited to, the foregoing and those otherwise arising under this Pledge
Agreement, the Loan Agreement and the other Financing Agreements, the
instruments comprising the Pledged Property, applicable law or otherwise, shall
be cumulative and not exclusive and shall be enforceable alternatively,
successively or concurrently as Pledgee and Lenders may deem expedient. No
failure or delay on the part of Pledgee in exercising any of its options, powers
or rights or partial or single exercise thereof, shall constitute a waiver of
such option, power or right.

      6.    JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW

      (a) The validity, interpretation and enforcement of this Pledge Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
without regard to principles of conflicts of law, but excluding any rule of law
that would cause the application of the law of any jurisdiction other than the
laws of the State of New York.

      (b) Pledgor irrevocably consents and submits to the non-exclusive
jurisdiction of the Supreme Court of the State of New York in New York County,
New York and the United States District Court for the Southern District of New
York, whichever Pledgee may elect, and waives any objection based on venue or
forum non conveniens with respect to any action instituted therein arising under
this Pledge Agreement or any of the other Financing Agreements or in any way
connected with or related or incidental to the dealings of the parties hereto in
respect of this Pledge Agreement or any of the other Financing Agreements or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether in contract, tort, equity or otherwise, and
agrees that any dispute with respect to any such matters shall be heard only in
the courts described above (except that Pledgee shall have the right to bring
any action or proceeding against Pledgor or its property in the courts of any
other jurisdiction which Pledgee deems necessary or appropriate in order to
realize on the Pledged Property or to otherwise enforce its rights against
Pledgor or its property).

      (c) Pledgor hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by U.S. certified mail
(return receipt requested) directed to its address set forth herein and service
so made shall be deemed to be completed immediately upon receipt thereof by
Pledgor, or, at Pledgee's option, by service upon Pledgor in any other manner
provided under the rules of any such courts. Within thirty (30) days after such

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service, Pledgor shall appear in answer to such process, failing which Pledgor
shall be deemed in default and judgment may be entered by Pledgee against
Pledgor for the amount of the claim and other relief requested.

      (d) PLEDGOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS PLEDGE AGREEMENT OR ANY OF THE
OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF PLEDGOR AND PLEDGEE OR ANY LENDER IN RESPECT OF
THIS PLEDGE AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. PLEDGOR
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT PLEDGOR OR
PLEDGEE MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS PLEDGE AGREEMENT WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.

      (e) Pledgee and Lenders shall not have any liability to Pledgor (whether
in tort, contract, equity or otherwise) for losses suffered by Pledgor in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Pledge Agreement, or any act, omission or
event occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Pledgee or such Lender, that
the losses were the result of acts or omissions constituting gross negligence or
willful misconduct by Pledgee or Lenders. In any such litigation, Pledgee and
Lenders shall be entitled to the benefit of the rebuttable presumption that it
acted in good faith and with the exercise of ordinary care in the performance by
it of the terms of this Pledge Agreement.

      7.    MISCELLANEOUS

      (a) Pledgor agrees that at any time and from time to time upon the written
request of Pledgee, Pledgor shall execute and deliver such further documents,
including, but not limited to, irrevocable proxies or stock powers, in form
satisfactory to counsel for Pledgee, and will take or cause to be taken such
further acts as Pledgee may request in order to effect the purposes of this
Pledge Agreement and perfect or continue the perfection of the security interest
in the Pledged Property granted to Pledgee hereunder.

      (b) Beyond the exercise of reasonable care to assure the safe custody of
the Pledged Property (whether such custody is exercised by Pledgee, or Pledgee's
nominee, agent or bailee) Pledgee or Pledgee's nominee agent or bailee shall
have no duty or liability to protect or preserve any rights pertaining thereto
and shall be relieved of all responsibility for the Pledged Property upon
surrendering it to Pledgor or foreclosure with respect thereto.

      (c) All notices, requests and demands to or upon the respective parties
hereto shall be in writing and shall be deemed to have been duly given or made:
if delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon

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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 registered or certified mail, return
receipt requested, five (5) days after mailing by deposit (postage prepaid) in
the U.S. mail. All notices, requests and demands upon the parties are to be
given to the following addresses (or to such other address as any party may
designate by notice in accordance with this Section):

      If to Pledgor       Hancock Fabrics, Inc.
                          One Fashion Way
                          Baldwyn, Mississippi 38824
                          Attention: Bruce D. Smith
                          Telephone No.: 662-365-6112
                          Telecopy No.: 662-365-6025

      If to Pledgee:      Wachovia Bank, National Association, as Agent
                          Heritage Square II
                          5001 LBJ Freeway, Suite 1050
                          Dallas, Texas 75244
                          Attention: Portfolio Manager
                          Telephone No.: 214-761-9044
                          Telecopy No.: 214-748-9118

      (d) All references to the plural herein shall also mean the singular and
to the singular shall also mean the plural. All references to Pledgor, Pledgee,
Borrowers, any Lender and any Issuer pursuant to the definitions set forth in
the recitals hereto, or to any other person herein, shall include their
respective successors and assigns. The words "hereof," "herein," "hereunder,"
"this Pledge Agreement" and words of similar import when used in this Pledge
Agreement shall refer to this Pledge Agreement as a whole and not any particular
provision of this Pledge Agreement and as this Pledge Agreement now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced. An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 7(g) hereof or the
provisions of the Loan Agreement. All references to the term "Person" or
"Persons" herein shall mean any individual, sole proprietorship, partnership,
corporation (including, without limitation, any corporation which elects
subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock company, trust, joint venture or other
entity or any government or any agency, instrumentality or political subdivision
thereof. Unless otherwise defined herein, capitalized terms used herein and not
defined herein shall have the meanings given to such terms in the Loan
Agreement.

      (e) This Pledge Agreement, the other Financing Agreements and any other
document referred to herein or therein shall be binding upon Pledgor and its
successors and assigns and inure to the benefit of and be enforceable by Pledgee
and its successors and assigns.

      (f) If any provision of this Pledge Agreement is held to be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate this
Pledge Agreement as a whole, but this Pledge Agreement shall be construed as
though it did not contain the particular provision held to

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be invalid or unenforceable and the rights and obligations of the parties shall
be construed and enforced only to such extent as shall be permitted by
applicable law.

      (g) Neither this Pledge Agreement nor any provision hereof shall be
amended, modified, waived or discharged orally or by course of conduct, but only
by a written agreement signed by an authorized officer of Pledgee and Pledgor.
Neither Pledgee nor Lenders shall, by any act, delay, omission or otherwise be
deemed to have expressly or impliedly waived any of their respective rights,
powers and/or remedies unless such waiver shall be in writing and signed by an
authorized officer of Pledgee. Any such waiver shall be enforceable only to the
extent specifically set forth therein. A waiver by Pledgee or any Lender of any
right, power and/or remedy on any one occasion shall not be construed as a bar
to or waiver of any such right, power and/or remedy which Pledgee or such Lender
would otherwise have on any future occasion, whether similar in kind or
otherwise.

      (h) This Pledge 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 Pledge 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 Pledge Agreement. Any party delivering an executed
counterpart of this Pledge 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 this Pledge Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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<PAGE>

      IN WITNESS WHEREOF, Pledgor has executed this Pledge and Security
Agreement as of the day and year first above written.

                                                   HANCOCK FABRICS, INC.

                                                   By: _________________________

                                                   Title: ______________________

<PAGE>

                                    EXHIBIT A
                                       TO
                          PLEDGE AND SECURITY AGREEMENT

<TABLE>
<CAPTION>
Issuer                       Certificate No.  No. of Shares                 Type                Percentage
------                       ---------------  -------------                 ----                ----------
<S>                          <C>              <C>             <C>                               <C>
Hancock Fabrics of MI, Inc.         1             1,000       Common Stock, one-cent par value     100%
                                                              per share

hancockfabrics.com, Inc.            1             1,000       Common Stock, one-cent par value     100%
                                                              per share

HF Resources, Inc.                  1             1,000       Common Stock, one-cent par value     100%
                                                              per share
</TABLE>

                                      A-1<PAGE>

                                                                    EXHIBIT 10.3

                                                                     [Execution]

                          PLEDGE AND SECURITY AGREEMENT

      THIS PLEDGE AND SECURITY AGREEMENT (this "Pledge Agreement"), dated June
__, 2005, is by HF RESOURCES, INC., a Delaware corporation ("Pledgor"), to and
in favor of WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association,
in its capacity as agent (in such capacity, "Pledgee") pursuant to the Loan
Agreement (as hereinafter defined) acting for and on behalf of the Lenders (as
hereinafter defined).

                              W I T N E S S E T H:

      WHEREAS, Pledgor is now the direct and beneficial owner of all of the
issued and outstanding shares of capital stock of (i) HF Merchandising, Inc., a
Delaware corporation ("Merchandising") and (ii) HF Enterprises, Inc., a Delaware
corporation ("Enterprises", and together with Merchandising, each individually
an "Issuer" and collectively, "Issuers"), all as described on Exhibit A annexed
hereto and made a part hereof (the "Pledged Securities");

      WHEREAS, Pledgee and the parties to the Loan Agreement as lenders (each
individually a "Lender" and collectively, "Lenders") have entered into or are
about to enter into financing arrangements pursuant to which Lenders (or Pledgee
on behalf of Lenders) may make loans and advances and provide other financial
accommodations to Hancock Fabrics, Inc, a Delaware corporation ("Parent"),
Merchandising, Hancock Fabrics of MI, Inc., a Delaware corporation ("Fabrics
MI"), hancockfabrics.com, Inc., a Delaware corporation ("Fabrics.com"), and
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 set forth in the
Loan and Security Agreement, dated of even date herewith, by and among
Borrowers, certain affiliates of Borrowers (including Pledgor), Pledgee and
Lenders (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, the Guarantee (as hereinafter defined) and this Pledge
Agreement (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");

      WHEREAS, Pledgor has absolutely and unconditionally guaranteed the payment
and performance of the Obligations (as hereinafter defined) as set forth in the
Guarantee, dated of even date herewith, by Pledgor and certain of its affiliates
in favor of Pledgee and Lenders (as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, the
"Guarantee"); and

      WHEREAS, in order to induce Pledgee and Lenders to enter into the Loan
Agreement and the other Financing Agreements and to make loans and advances and
provide other financial accommodations to Borrowers pursuant thereto, Pledgor
has agreed to secure the payment and performance of the Obligations and to
accomplish same by (i) executing and delivering to Pledgee this Pledge
Agreement, (ii) delivering to Pledgee the Pledged Securities which are
registered in the name of Pledgor, together with appropriate powers duly
executed in blank by

<PAGE>

Pledgor, and (iii) delivering to Pledgee any and all other
documents which Pledgee deems necessary to protect Pledgee's interests
hereunder.

      NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor hereby agrees as follows:

      1.    GRANT OF SECURITY INTEREST

      As collateral security for the prompt performance, observance and
indefeasible payment in full of all of the Obligations, Pledgor hereby assigns,
pledges, hypothecates, transfers and sets over to Pledgee and grants to Pledgee,
for itself and for the benefit of Secured Parties (as defined in the Loan
Agreement), a security interest in and lien upon: (a) the Pledged Securities,
together with all cash dividends, stock dividends, interests, profits,
redemptions, warrants, subscription rights, stock, securities options,
substitutions, exchanges and other distributions now or hereafter distributed by
any Issuer or which may hereafter be delivered to the possession of Pledgor or
Pledgee with respect thereto, (b) Pledgor's records with respect to the
foregoing, and (c) the proceeds of all of the foregoing (all of the foregoing
being collectively referred to herein as the "Pledged Property").

      2.    OBLIGATIONS SECURED

      The security interest, lien and other interests granted to Pledgee (for
itself and on behalf of Secured Parties) pursuant to this Pledge Agreement shall
secure the prompt performance and payment in full of any and all Obligations.

      3. REPRESENTATIONS, WARRANTIES AND COVENANTS

      Pledgor hereby represents, warrants and covenants with and to Pledgee and
Lenders the following (all of such representations, warranties and covenants
being continuing so long as any of the Obligations are outstanding):

      (a) The Pledged Securities are duly authorized, validly issued, fully paid
and non-assessable capital stock of each Issuer and constitute Pledgor's entire
interest in each Issuer, and are not registered, nor has Pledgor authorized the
registration thereof, in the name of any person or entity other than Pledgor or
Pledgee.

      (b) The Pledged Property is directly, legally and beneficially owned by
Pledgor, free and clear of all claims, liens, pledges and encumbrances of any
kind, nature or description, except for the pledge and security interest in
favor of Pledgee, for itself and for the benefit of Secured Parties, and the
pledges and security interests permitted under the Loan Agreement.

      (c) The Pledged Property is not subject to any restrictions relative to
the transfer thereof and Pledgor has the right to transfer and hypothecate the
Pledged Property free and clear of any liens, encumbrances or restrictions.

      (d) The Pledged Property is duly and validly pledged to Pledgee, for
itself and for the benefit of Secured Parties, and no consent or approval of any
governmental or regulatory

                                       2
<PAGE>

authority or of any securities exchange or the like, nor any consent or approval
of any other third party, was or is necessary to the validity and enforceability
of this Pledge Agreement.

      (e) Pledgor authorizes Pledgee to: (i) store, deposit and safeguard the
Pledged Property, (ii) perform any and all other acts which Pledgee in good
faith deems reasonable and/or necessary for the protection and preservation of
the Pledged Property or its value or Pledgee's security interest therein,
including, without limitation, transferring, registering or arranging for the
transfer or registration of the Pledged Property to or in Pledgee's or any
Lender's own name and receiving the income therefrom as additional security for
the Obligations and (iii) pay any charges or expenses which Pledgee deems
necessary for the foregoing purpose, but without any obligation to do so. Any
obligation of Pledgee for reasonable care for the Pledged Property in Pledgee's
possession shall be limited to the same degree of care which Pledgee uses for
similar property pledged to Pledgee by other persons.

      (f) If Pledgor shall become entitled to receive or acquire, or shall
receive any stock certificate, or option or right with respect to the stock of
any Issuer (including without limitation, any certificate representing a
dividend or a distribution or exchange of or in connection with reclassification
of the Pledged Securities) whether as an addition to, in substitution of, or in
exchange for any of the Pledged Property or otherwise, Pledgor agrees to accept
same as Pledgee's agent, to hold same in trust for Pledgee and to deliver same
forthwith to Pledgee or Pledgee's agent or bailee in the form received, with the
endorsement(s) of Pledgor where necessary and/or appropriate powers and/or
assignments duly executed to be held by Pledgee or Pledgee's agent or bailee
subject to the terms hereof, as further security for the Obligations.

      (g) Pledgor shall not, without the prior consent of Pledgee, directly or
indirectly, sell, assign, transfer, or otherwise dispose of, or grant any option
with respect to the Pledged Property, nor shall Pledgor create, incur or permit
any further pledge, hypothecation, encumbrance, lien, mortgage or security
interest with respect to the Pledged Property.

      (h) So long as no Event of Default (as hereinafter defined) has occurred
and is continuing Pledgor shall have the right to vote and exercise all
corporate rights with respect to the Pledged Securities, except as expressly
prohibited herein, and to receive any dividends (payable in cash or in property)
in respect of the Pledged Securities and to receive any other distributions with
respect to the Pledged Securities that are permitted by the Loan Agreement.

      (i) Pledgor shall not permit any Issuer, directly or indirectly, to issue,
sell, grant, assign, transfer or otherwise dispose of, any additional shares of
capital stock of any Issuer or any option or warrant with respect to, or other
right or security convertible into, any additional shares of capital stock of
any Issuer, now or hereafter authorized, unless all such additional shares,
options, warrants, rights or other such securities are made and shall remain
part of the Pledged Property subject to the pledge and security interest granted
herein.

      (j) Pledgor shall pay all charges and assessments of any nature against
the Pledged Property or with respect thereto prior to said charges and/or
assessments being delinquent.

      (k) Pledgor shall promptly reimburse Pledgee on demand, together with
interest at the rate then applicable to the Obligations set forth in the Loan
Agreement, for any charges,

                                       3
<PAGE>

assessments or expenses paid or incurred by Pledgee or any Lender in Pledgee's
discretion for the protection, preservation and maintenance of the Pledged
Property and the enforcement of Pledgee's or Lenders' rights hereunder,
including, without limitation, attorneys' fees and legal expenses incurred by
Pledgee or any Lender in seeking to protect, collect or enforce its rights in
the Pledged Property or otherwise hereunder. Any such amounts paid or incurred
by Pledgee shall constitute part of the Obligations under the Loan Agreement and
may be charged by Pledgee to any loan account of Pledgor maintained by Pledgee,
at its option.

      (l) Pledgor shall furnish, or cause to be furnished, to Pledgee such
information concerning any Issuer and the Pledged Property as may from time to
time be required under the Loan Agreement.

      (m) Pledgee may notify any Issuer or the appropriate transfer agent of the
Pledged Securities to register the security interest and pledge granted herein
and honor the rights of Pledgee and Lenders under this Pledge Agreement.

      (n) Pledgor waives: (i) all rights to require Pledgee or any Lender to
proceed against any other person, entity or collateral or to exercise any
remedy, (ii) the defense of the statute of limitations in any action upon any of
the Obligations, (iii) any right of subrogation or interest in the Obligations
or Pledged Property until all Obligations have been paid in full, (iv) any
rights to notice of any kind or nature whatsoever, unless specifically required
in this Pledge Agreement or non-waivable under any applicable law, and (v) to
the extent permissible, its rights under Section 9-207 of the New York Uniform
Commercial Code. Pledgor agrees that the Pledged Property, other collateral, or
any other guarantor or endorser may be released, substituted or added with
respect to the Obligations, in whole or in part, without releasing or otherwise
affecting the liability of Pledgor, the pledge and security interests granted
hereunder, or this Pledge Agreement. Pledgee, for and on behalf of itself and
Secured Parties, is entitled to all of the benefits of a secured party set forth
in Section 9-207 of the New York Uniform Commercial Code.

      4.    EVENTS OF DEFAULT

      The occurrence or existence of any Event of Default under and as defined
in any of the Financing Agreements is referred to herein individually as an
"Event of Default" and collectively as "Events of Default".

      5.    RIGHTS AND REMEDIES

      At any time an Event of Default exists or has occurred and is continuing,
in addition to all other rights and remedies of Pledgee and Lenders, whether
provided under this Pledge Agreement, the Loan Agreement, the other Financing
Agreements, applicable law or otherwise, Pledgee shall have the following rights
and remedies which may be exercised without notice to, or consent by, Pledgor
except as such notice or consent is expressly provided for hereunder:

      (a) Pledgee, at its option, shall be empowered to exercise its continuing
right to instruct any Issuer (or the appropriate transfer agent of the Pledged
Securities) to register any or all of the Pledged Securities in the name of
Pledgee or in the name of Pledgee's nominee (including, without limitation, any
Lender) and Pledgee may complete, in any manner Pledgee may deem

                                       4
<PAGE>

expedient, any and all stock powers, assignments or other documents heretofore
or hereafter executed in blank by Pledgor and delivered to Pledgee. After said
instruction, and without further notice, Pledgee shall have the exclusive right
to exercise all voting and corporate rights with respect to the Pledged
Securities and other Pledged Property, and exercise any and all rights of
conversion, redemption, exchange, subscription or any other rights, privileges,
or options pertaining to any shares of the Pledged Securities or other Pledged
Property as if Pledgee were the absolute owner thereof, including, without
limitation, the right to exchange, in its discretion, any and all of the Pledged
Securities and other Pledged Property upon any merger, consolidation,
reorganization, recapitalization or other readjustment with respect thereto.
Upon the exercise of any such rights, privileges or options by Pledgee, Pledgee
shall have the right to deposit and deliver any and all of the Pledged
Securities and other Pledged Property to any committee, depository, transfer
agent, registrar or other designated agency upon such terms and conditions as
Pledgee may determine, all without liability, except to account for property
actually received by Pledgee. However, Pledgee shall have no duty to exercise
any of the aforesaid rights, privileges or options (all of which are exercisable
in the sole discretion of Pledgee) and shall not be responsible for any failure
to do so or delay in doing so.

      (b) In addition to all the rights and remedies of a secured party under
the New York Uniform Commercial Code or other applicable law, Pledgee shall have
the right, at any time and without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Pledgor or any other person (all
and each of which demands, advertisements and/or notices are hereby expressly
waived to the extent permitted by applicable law), to proceed forthwith to
collect, redeem, recover, receive, appropriate, realize, sell, or otherwise
dispose of and deliver said Pledged Property or any part thereof in one or more
lots at public or private sale or sales at any exchange, broker's board or at
any of Pledgee's offices or elsewhere at such prices and on such terms as
Pledgee may deem best. The foregoing disposition(s) may be for cash or on credit
or for future delivery without assumption of any credit risk, with Pledgee
having the right to purchase all or any part of said Pledged Property so sold at
any such sale or sales, public or private, free of any right or equity of
redemption in Pledgor, which right or equity is hereby expressly waived or
released by Pledgor. The proceeds of any such collection, redemption, recovery,
receipt, appropriation, realization, sale or other disposition, after deducting
all costs and expenses of every kind incurred relative thereto or incidental to
the care, safekeeping or otherwise of any and all Pledged Property or in any way
relating to the rights of Pledgee hereunder, including attorneys' fees and legal
expenses, shall be applied first to the satisfaction of the Obligations (in such
order as Pledgee may elect and whether or not due) and then to the payment of
any other amounts required by applicable law, including Section 9-615(a)(3) of
the New York Uniform Commercial Code, with Pledgor to be and remain liable for
any deficiency. Pledgor shall be liable to Pledgee and Lenders for the payment
on demand of all such costs and expenses, together with interest at the then
applicable rate set forth in the Loan Agreement, and any attorneys' fees and
legal expenses. Pledgor agrees that ten (10) days prior written notice by
Pledgee designating the place and time of any public sale or of the time after
which any private sale or other intended disposition of any or all of the
Pledged Property is to be made, is reasonable notification of such matters.

      (c) Pledgor recognizes that Pledgee may be unable to effect a public sale
of all or part of the Pledged Property by reason of certain prohibitions
contained in the Securities Act of 1933,

                                       5
<PAGE>

as amended, as now or hereafter in effect or in applicable Blue Sky or other
state securities law, as now or hereafter in effect, but may be compelled to
resort to one or more private sales to a restricted group of purchasers who will
be obliged to agree, among other things, to acquire such Pledged Property for
their own account for investment and not with a view to the distribution or
resale thereof. If at the time of any sale of the Pledged Property or any part
thereof, the same shall not, for any reason whatsoever, be effectively
registered (if required) under the Securities Act of 1933 (or other applicable
state securities law), as then in effect, Pledgee in its sole and absolute
discretion is authorized to sell such Pledged Property or such part thereof by
private sale in such manner and under such circumstances as Pledgee or its
counsel may deem necessary or advisable in order that such sale may legally be
effected without registration. Pledgor agrees that private sales so made may be
at prices and other terms less favorable to the seller than if such Pledged
Property were sold at public sale, and that Pledgee has no obligation to delay
the sale of any such Pledged Property for the period of time necessary to permit
any Issuer, even if such Issuer would agree, to register such Pledged Property
for public sale under such applicable securities laws. Pledgor agrees that any
private sales made under the foregoing circumstances shall be deemed to have
been in a commercially reasonable manner.

      (d) All of the rights and remedies of Pledgee and Lenders, including, but
not limited to, the foregoing and those otherwise arising under this Pledge
Agreement, the Loan Agreement and the other Financing Agreements, the
instruments comprising the Pledged Property, applicable law or otherwise, shall
be cumulative and not exclusive and shall be enforceable alternatively,
successively or concurrently as Pledgee and Lenders may deem expedient. No
failure or delay on the part of Pledgee in exercising any of its options, powers
or rights or partial or single exercise thereof, shall constitute a waiver of
such option, power or right.

      6.    JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW

      (a) The validity, interpretation and enforcement of this Pledge Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
without regard to principles of conflicts of law, but excluding any rule of law
that would cause the application of the law of any jurisdiction other than the
laws of the State of New York.

      (b) Pledgor irrevocably consents and submits to the non-exclusive
jurisdiction of the Supreme Court of the State of New York in New York County,
New York and the United States District Court for the Southern District of New
York, whichever Pledgee may elect, and waives any objection based on venue or
forum non conveniens with respect to any action instituted therein arising under
this Pledge Agreement or any of the other Financing Agreements or in any way
connected with or related or incidental to the dealings of the parties hereto in
respect of this Pledge Agreement or any of the other Financing Agreements or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether in contract, tort, equity or otherwise, and
agrees that any dispute with respect to any such matters shall be heard only in
the courts described above (except that Pledgee shall have the right to bring
any action or proceeding against Pledgor or its property in the courts of any
other jurisdiction which Pledgee

                                       6
<PAGE>

deems necessary or appropriate in order to realize on the Pledged Property or to
otherwise enforce its rights against Pledgor or its property).

      (c) Pledgor hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by U.S. certified mail
(return receipt requested) directed to its address set forth herein and service
so made shall be deemed to be completed immediately upon receipt thereof by
Pledgor, or, at Pledgee's option, by service upon Pledgor in any other manner
provided under the rules of any such courts. Within thirty (30) days after such
service, Pledgor shall appear in answer to such process, failing which Pledgor
shall be deemed in default and judgment may be entered by Pledgee against
Pledgor for the amount of the claim and other relief requested.

      (d) PLEDGOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS PLEDGE AGREEMENT OR ANY OF THE
OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF PLEDGOR AND PLEDGEE OR ANY LENDER IN RESPECT OF
THIS PLEDGE AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. PLEDGOR
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT PLEDGOR OR
PLEDGEE MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS PLEDGE AGREEMENT WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.

      (e) Pledgee and Lenders shall not have any liability to Pledgor (whether
in tort, contract, equity or otherwise) for losses suffered by Pledgor in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Pledge Agreement, or any act, omission or
event occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Pledgee or such Lender, that
the losses were the result of acts or omissions constituting gross negligence or
willful misconduct by Pledgee or Lenders. In any such litigation, Pledgee and
Lenders shall be entitled to the benefit of the rebuttable presumption that it
acted in good faith and with the exercise of ordinary care in the performance by
it of the terms of this Pledge Agreement.

      7.    MISCELLANEOUS

      (a) Pledgor agrees that at any time and from time to time upon the written
request of Pledgee, Pledgor shall execute and deliver such further documents,
including, but not limited to, irrevocable proxies or stock powers, in form
satisfactory to counsel for Pledgee, and will take or cause to be taken such
further acts as Pledgee may request in order to effect the purposes of this
Pledge Agreement and perfect or continue the perfection of the security interest
in the Pledged Property granted to Pledgee hereunder.

                                       7
<PAGE>

      (b) Beyond the exercise of reasonable care to assure the safe custody of
the Pledged Property (whether such custody is exercised by Pledgee, or Pledgee's
nominee, agent or bailee) Pledgee or Pledgee's nominee agent or bailee shall
have no duty or liability to protect or preserve any rights pertaining thereto
and shall be relieved of all responsibility for the Pledged Property upon
surrendering it to Pledgor or foreclosure with respect thereto.

      (c) All notices, requests and demands to or upon the respective parties
hereto shall be in writing and shall be deemed to have been duly 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
registered or certified mail, return receipt requested, five (5) days after
mailing by deposit (postage prepaid) in the U.S. mail. All notices, requests and
demands upon the parties are to be given to the following addresses (or to such
other address as any party may designate by notice in accordance with this
Section):

      If to Pledgor       HF Resources, Inc.
                          One Fashion Way
                          Baldwyn, Mississippi 38824
                          Attention: Bruce D. Smith
                          Telephone No.: 662-365-6112
                          Telecopy No.: 662-365-6025

      If to Pledgee:      Wachovia Bank, National Association, as Agent
                          Heritage Square II
                          5001 LBJ Freeway, Suite 1050
                          Dallas, Texas 75244
                          Attention: Portfolio Manager
                          Telephone No.: 214-761-9044
                          Telecopy No.: 214-748-9118

      (d) All references to the plural herein shall also mean the singular and
to the singular shall also mean the plural. All references to Pledgor, Pledgee,
Borrowers, any Lender and any Issuer pursuant to the definitions set forth in
the recitals hereto, or to any other person herein, shall include their
respective successors and assigns. The words "hereof," "herein," "hereunder,"
"this Pledge Agreement" and words of similar import when used in this Pledge
Agreement shall refer to this Pledge Agreement as a whole and not any particular
provision of this Pledge Agreement and as this Pledge Agreement now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced. An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 7(g) hereof or the
provisions of the Loan Agreement. All references to the term "Person" or
"Persons" herein shall mean any individual, sole proprietorship, partnership,
corporation (including, without limitation, any corporation which elects
subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock company, trust, joint venture or other
entity or any government or any agency, instrumentality or political subdivision
thereof.

                                       8
<PAGE>

Unless otherwise defined herein, capitalized terms used herein and not defined
herein shall have the meanings given to such terms in the Loan Agreement.

      (e) This Pledge Agreement, the other Financing Agreements and any other
document referred to herein or therein shall be binding upon Pledgor and its
successors and assigns and inure to the benefit of and be enforceable by Pledgee
and its successors and assigns.

      (f) If any provision of this Pledge Agreement is held to be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate this
Pledge Agreement as a whole, but this Pledge Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.

      (g) Neither this Pledge Agreement nor any provision hereof shall be
amended, modified, waived or discharged orally or by course of conduct, but only
by a written agreement signed by an authorized officer of Pledgee and Pledgor.
Neither Pledgee nor Lenders shall, by any act, delay, omission or otherwise be
deemed to have expressly or impliedly waived any of their respective rights,
powers and/or remedies unless such waiver shall be in writing and signed by an
authorized officer of Pledgee. Any such waiver shall be enforceable only to the
extent specifically set forth therein. A waiver by Pledgee or any Lender of any
right, power and/or remedy on any one occasion shall not be construed as a bar
to or waiver of any such right, power and/or remedy which Pledgee or such Lender
would otherwise have on any future occasion, whether similar in kind or
otherwise.

      (h) This Pledge 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 Pledge 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 Pledge Agreement. Any party delivering an executed
counterpart of this Pledge 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 this Pledge Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       9
<PAGE>

      IN WITNESS WHEREOF, Pledgor has executed this Pledge and Security
Agreement as of the day and year first above written.

                                                    HF RESOURCES, INC.

                                                    By: ________________________

                                                    Title: _____________________

<PAGE>

                                    EXHIBIT A
                                       TO
                          PLEDGE AND SECURITY AGREEMENT

<TABLE>
<CAPTION>
Issuer                  Certificate No.  No. of Shares                   Type               Percentage
------                  ---------------  -------------                   ----               ----------
<S>                     <C>              <C>             <C>                                <C>
HF Enterprises, Inc.           2             1,000       Common Stock, one-cent par value      100%
                                                         per share

HF Merchandising, Inc.         2             1,000       Common Stock, one-cent par value      100%
                                                         per share
</TABLE>

                                      A-1

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