NEW YORK, NY--(Marketwire - June 11, 2008) - Hancock Fabrics, Inc., a specialty retailer of fashion and home decorating textiles, sewing accessories and needlecraft supplies, announced it has filed a Plan of Reorganization (Plan) under Chapter 11 of the bankruptcy code with the United States Bankruptcy Court for the District of Delaware. The filing has the support of its creditors and equity committees.

Under the Plan, Hancock, which currently operates 270 stores in 37 states and had sales of $276 million last year, is poised to emerge from Chapter 11 bankruptcy as a stand-alone, fully reorganized entity. General unsecured creditors will receive cash equal to 104.93% of their claims. Hancock, which filed for bankruptcy along with its related affiliates on March 21, 2007, is expected to emerge from bankruptcy in August 2008. The Mississippi-based company has been a public company since 1987. A hearing is scheduled before Bankruptcy Judge Brendon Shannon next week to set the date for the hearing on confirmation of Hancock's Plan. Hancock will emerge with the assistance of new exit financing from GE Capital, as well as mezzanine financing provided by existing equity holders through a rights offering of notes and warrants.

"We believe Hancock will be the first retailer to emerge successfully from bankruptcy as a reorganized entity since the new bankruptcy amendments were enacted in 2005," said Jay Indyke of Cooley Godward Kronish, who is acting as lead counsel for the creditors committee. Hancock downsized from approximately 440 stores at the time of filing to its present configuration with the help of "creative real estate strategies," as noted by Mr. Indyke.

"This is a very successful case not only because of the extraordinary recovery creditors are receiving, but also because the company will survive as an ongoing entity and many employee jobs will be preserved," said Cathy Hershcopf, also a partner at Cooley working on the engagement.

Other attorneys working on the matter at Cooley with Mr. Indyke and Ms. Hershcopf are Greg Plotko and Brent Weisenberg.

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