LEATHER FACTORY INC
AMENDED AND RESTATED CREDIT AGREEMENT
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>tlf8kex101032002.txt
<DESCRIPTION>AMENDED AND RESTATED CREDIT AGREEMENT
<TEXT>

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                              AMENDED AND RESTATED

                          CREDIT AND SECURITY AGREEMENT

                                  BY AND AMONG

               THE LEATHER FACTORY, INC., a Delaware corporation;
            ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation;
                THE LEATHER FACTORY, INC., a Nevada corporation;
      THE LEATHER FACTORY OF NEVADA INVESTMENTS INC., a Nevada corporation;
               TANDY LEATHER COMPANY, INC., a Nevada corporation;
         TANDY LEATHER COMPANY INVESTMENTS, INC., a Nevada corporation;
             THE LEATHER FACTORY, L.P., a Texas limited partnership;
            TANDY LEATHER COMPANY, L.P., a Texas limited partnership;
     HI-LINE LEATHER & MANUFACTURING COMPANY, a California corporation; and
                THE LEATHER FACTORY, INC., an Arizona corporation

                                       AND

                WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION

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                                 March 20, 2002

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<PAGE>

                                Table of Contents

ARTICLE I  DEFINITIONS.........................................................1
    Section 1.1 Definitions....................................................1
    Section 1.2 Other Definitional Terms; Rules of Interpretation.............12

ARTICLE II  AMOUNT AND TERMS OF THE CREDIT FACILITY...........................13
    Section 2.1 Existing Revolving Advances...................................13
    Section 2.2 Revolving Advances............................................13
    Section 2.3 Procedures for Requesting Advances............................13
    Section 2.4 LIBO Rate Advances............................................14
    Section 2.5 Letters of Credit.............................................16
    Section 2.6 Payment of Amounts Drawn Under Letters of Credit;
       Obligation of Reimbursement............................................17
    Section 2.7 Special Account...............................................17
    Section 2.8 Obligations Absolute..........................................18
    Section 2.9 Interest; Minimum Interest Charge; Default Interest;
       Participations; Clearance Days; Usury..................................18
    Section 2.10 Fees.........................................................19
    Section 2.11 Time for Interest Payments; Payment on Non-Banking Days;
       Computation of Interest and Fees.......................................21
    Section 2.12 Increased Costs; Capital Adequacy; Funding Exceptions........21
    Section 2.13 Lockbox; Collateral Account; Application of Payments.........24
    Section 2.14 Termination of Credit Facility; Automatic Renewal............25
    Section 2.15 Voluntary Prepayment; Reduction of the Maximum Line;
       Termination of the Credit Facility by the Borrowers....................25
    Section 2.16 Mandatory Prepayment.........................................25
    Section 2.17 Revolving Advances to Pay Obligations........................26
    Section 2.18 Use of Proceeds..............................................26
    Section 2.19 Liability Records............................................26

ARTICLE III  SECURITY INTEREST; OCCUPANCY; SETOFF.............................26
    Section 3.1 Grant of Security Interest....................................26
    Section 3.2 Notification of Account Debtors and Other Obligors............26
    Section 3.3 Assignment of Insurance.......................................27
    Section 3.4 Occupancy.....................................................27
    Section 3.5 License.......................................................27
    Section 3.6 Financing Statement...........................................28
    Section 3.7 Setoff........................................................28
    Section 3.8 Collateral....................................................28
    Section 3.9 Accommodation Party Defenses Waived...........................28

<PAGE>

ARTICLE IV  CONDITIONS OF LENDING.............................................29
    Section 4.1 Conditions Precedent to the Initial Revolving Advance and
       Letter of Credit.......................................................29
    Section 4.2 Conditions Precedent to All Advances and Letters
       of Credit..............................................................31

ARTICLE V  REPRESENTATIONS AND WARRANTIES.....................................31
    Section 5.1 Existence and Power; Name; Chief Executive Office;
       Inventory and Equipment Locations;
         Federal Employer Identification Number...............................31
    Section 5.2 Capitalization................................................32
    Section 5.3 Authorization of Borrowing; No Conflict as to
       Law or Agreements..................................32
    Section 5.4 Legal Agreements..............................................32
    Section 5.5 Subsidiaries..................................................32
    Section 5.6 Financial Condition; No Adverse Change........................32
    Section 5.7 Litigation....................................................33
    Section 5.8 Regulation U..................................................33
    Section 5.9 Taxes.........................................................33
    Section 5.10 Titles and Liens.............................................33
    Section 5.11 Intellectual Property Rights.................................33
    Section 5.12 Plans........................................................34
    Section 5.13 Default......................................................35
    Section 5.14 Environmental Matters........................................35
    Section 5.15 Submissions to Lender........................................36
    Section 5.16 Financing Statements.........................................36
    Section 5.17 Rights to Payment............................................36
    Section 5.18 Financial Solvency...........................................36

ARTICLE VI  COVENANTS.........................................................37
    Section 6.1 Reporting Requirements........................................37
    Section 6.2 Financial Covenants...........................................41
    Section 6.3 Permitted Liens; Financing Statements.........................42
    Section 6.4 Indebtedness..................................................43
    Section 6.5 Guaranties....................................................43
    Section 6.6 Investments and Subsidiaries..................................43
    Section 6.7 Dividends and Distributions...................................44
    Section 6.8 Salaries......................................................44
    Section 6.9 Books and Records; Inspection and Examination.................44
    Section 6.10 Account Verification.........................................45
    Section 6.11 Compliance with Laws.........................................45
    Section 6.12 Payment of Taxes and Other Claims............................45
    Section 6.13 Maintenance of Properties....................................45
    Section 6.14 Insurance....................................................46
    Section 6.15 Preservation of Existence....................................46
    Section 6.16 Delivery of Instruments, etc.................................46

                                       ii

<PAGE>

    Section 6.17 Sale or Transfer of Assets; Suspension of
       Business Operations....................................................46
    Section 6.18 Consolidation and Merger; Asset Acquisitions.................47
    Section 6.19 Sale and Leaseback...........................................47
    Section 6.20 Restrictions on Nature of Business...........................47
    Section 6.21 Accounting...................................................47
    Section 6.22 Discounts, etc...............................................47
    Section 6.23 Plans........................................................47
    Section 6.24 Place of Business; Name......................................47
    Section 6.25 Constituent Documents; S Corporation Status..................48
    Section 6.26 Performance by the Lender....................................48

ARTICLE VII  EVENTS OF DEFAULT, RIGHTS AND REMEDIES...........................48
    Section 7.1 Events of Default.............................................48
    Section 7.2 Rights and Remedies...........................................51
    Section 7.3 Certain Notices...............................................52

ARTICLE VIII  MISCELLANEOUS...................................................52
    Section 8.1 Restatement of Old Credit Agreement...........................52
    Section 8.2 Release.......................................................52
    Section 8.3 No Waiver; Cumulative Remedies; Compliance with Laws..........52
    Section 8.4 Amendments, Etc...............................................53
    Section 8.5 Addresses for Notices; Requests for Accounting................53
    Section 8.6 Servicing of Credit Facility..................................53
    Section 8.7 Further Documents.............................................54
    Section 8.8 Costs and Expenses............................................54
    Section 8.9 Indemnity.....................................................55
    Section 8.10 Participants.................................................56
    Section 8.11 Execution in Counterparts; Telefacsimile Execution...........56
    Section 8.12 Retention of Borrowers' Records..............................56
    Section 8.13 Binding Effect; Assignment; Complete Agreement;
       Exchanging Information..........................56
    Section 8.14 Severability of Provisions...................................56
    Section 8.15 Headings.....................................................57
    Section 8.16 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.....57

                                      -iii-

<PAGE>

               AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

                           Dated as of March 20, 2002

         This  Agreement  is made by and  among The  Leather  Factory,  Inc.,  a
Delaware corporation;  Roberts, Cushman & Company, Inc., a New York corporation;
The Leather Factory,  Inc., a Nevada corporation;  The Leather Factory of Nevada
Investments Inc., a Nevada  corporation;  Tandy Leather Company,  Inc., a Nevada
corporation;  Tandy Leather Company Investments, Inc., a Nevada corporation; The
Leather Factory, L.P., a Texas limited partnership; Tandy Leather Company, L.P.,
a  Texas  limited  partnership;  Hi-Line  Leather  &  Manufacturing  Company,  a
California  corporation;  and The Leather Factory,  Inc., an Arizona corporation
(collectively,  the  "Borrowers"  and each a  "Borrower"),  and WELLS FARGO BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association (the "Lender").

                                    RECITALS

         Capitalized  terms used in the  following  recitals  have the  meanings
given in Section 1.1 below.

         The  Borrowers  and the  Old  Lender  are  parties  to the  Old  Credit
Documents.  Pursuant to an Assignment of Indebtedness and Loan Documents of even
date herewith, the Old Lender has assigned to the Lender all of its right, title
and interest in the Old Credit Documents.

         As a condition to providing financial  accommodations to the Borrowers,
the  Lender has  required  the  Borrowers  to amend and  restate  the Old Credit
Agreement and the Old Note subject to the terms and conditions set forth in this
Agreement.

         NOW, THEREFORE, in consideration of the premises and for other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, the Borrowers and the Lender hereby agree as follows:


                                    ARTICLE I

                                   DEFINITIONS
                                   -----------

         Section 1.1 Definitions.  For all purposes of this Agreement, except as
otherwise  expressly  provided,  the  following  terms  shall have the  meanings
assigned to them in this Section or in the Section referenced after such term:

<PAGE>

         "Accounts" means as to any Person,  all of that Person's  accounts,  as
such term is defined in the UCC,  including  each and every right of that Person
to the payment of money,  whether  such right to payment now exists or hereafter
arises,  whether  such  right to payment  arises  out of a sale,  lease or other
disposition of goods or other property, out of a rendering of services, out of a
loan, out of the overpayment of taxes or other liabilities,  or otherwise arises
under any  contract  or  agreement,  whether  such right to payment is  created,
generated  or earned by the  Person or by some  other  person  who  subsequently
transfers such person's interest to the Person, whether such right to payment is
or is not already earned by performance, and howsoever such right to payment may
be evidenced, together with all other rights and interests (including all Liens)
which the Person may at any time have by law or  agreement  against  any account
debtor or other  obligor  obligated  to make any such  payment  or  against  any
property of such account debtor or other obligor;  all including but not limited
to all present  and future  accounts,  contract  rights,  loans and  obligations
receivable, chattel papers, bonds, notes and other debt instruments, tax refunds
and rights to payment in the nature of general intangibles.

         "Advance" means a Revolving Advance.

         "Affiliate"  or  "Affiliates"  means TLF  Canada  and any other  Person
controlled by, controlling or under common control with any Borrower,  including
any Subsidiary of any Borrower. For purposes of this definition, "control," when
used with  respect  to any  specified  Person,  means  the  power to direct  the
management and policies of such Person, directly or indirectly,  whether through
the ownership of voting securities, by contract or otherwise.

         "Agreement"  means  this  Amended  and  Restated  Credit  and  Security
Agreement.

         "Availability"  means the  difference of (a) the Borrowing Base and (b)
the sum of (i) the outstanding  principal balance of the Revolving Note and (ii)
the L/C Amount.

         "Banking Day" means a day on which the Federal Reserve Bank of New York
is open for business and, if such day relates to a LIBO Rate  Advance,  a day on
which dealings are carried on in the London interbank eurodollar market.

         "Base Rate" means the rate of interest publicly  announced from time to
time by Wells Fargo Bank,  National  Association at its principal  office in San
Francisco as its "prime rate", with the  understanding  that the "prime rate" is
one of Wells Fargo's base rates (not  necessarily  the lowest of such rates) and
serves as the basis upon which  effective  rates of interest are  calculated for
loans making reference thereto.


                                       2
<PAGE>


         "Book Net  Worth"  means the  aggregate  of the  common  and  preferred
stockholders' equity in the Borrower,  determined in accordance with GAAP and on
a consolidated basis.

         "Borrowing Base" means at any time the lesser of:

         (a)      the Maximum Line; or

         (b)      subject  to  change  from  time to time in the  Lender's  sole
                  discretion, the sum of:

                  (i)      85% of Eligible Accounts, plus

                  (ii)     the lesser of (A) 60% of  Eligible  Inventory  or (B)
                           $5,000,000.

         "Capital  Expenditures",  as to any  Person,  means for a  period,  any
expenditure  of money  during  such  period  for the  lease,  purchase  or other
acquisition  of any capital  asset,  or for the lease of any other asset whether
payable currently or in the future.

         "Collateral"  means  all of the  Borrowers'  Accounts,  chattel  paper,
deposit accounts, documents, Equipment, General Intangibles, goods, instruments,
Inventory, Investment Property,  letter-of-credit rights, letters of credit, all
sums on  deposit  in any  Collateral  Account,  and any  items  in any  Lockbox;
together with (a) all  substitutions and replacements for and products of any of
the  foregoing;  (b)  in  the  case  of  all  goods,  all  accessions;  (c)  all
accessories, attachments, parts, equipment and repairs now or hereafter attached
or affixed to or used in connection with any goods; (d) all warehouse  receipts,
bills of lading and other  documents  of title now or  hereafter  covering  such
goods; (e) all collateral subject to the Lien of any Security Document;  (f) any
money,  or other assets of the  Borrowers  that now or  hereafter  come into the
possession,  custody,  or control of the Lender;  (g) all sums on deposit in the
Special Account; and (h) proceeds of any and all of the foregoing.

         "Collateral  Account"  means the  "Lender  Account"  as  defined in the
Collection Account Agreement.

         "Collection   Account   Agreement"   means  the  Amended  and  Restated
Collection  Account  Agreement by and among the Borrowers,  the Lender and Wells
Fargo Bank Texas, of even date herewith.

         "Commitment" means the Lender's  commitment to make Advances to, and to
cause the Issuer to issue  Letters of Credit for the account  of, the  Borrowers
pursuant to Article II.

         "Constituent   Documents"   means  with  respect  to  any  Person,   as
applicable,   such   Person's   certificate   of   incorporation,   articles  of
incorporation,  by-laws,  certificate  of formation,  articles of  organization,
limited liability company agreement,  management agreement, operating agreement,


                                       3
<PAGE>

shareholder  agreement,  partnership  agreement or similar document or agreement
governing  such  Person's  existence,  organization  or management or concerning
disposition  of ownership  interests of such Person or voting  rights among such
Person's owners.

         "Copyright  Security  Agreement" means the Copyright Security Agreement
by the Borrowers in favor of the Lender dated as of November 22, 2000.

         "Credit Facility" means the credit facility being made available to the
Borrowers by the Lender under Article II.

         "Default" means an event that, with giving of notice or passage of time
or both, would constitute an Event of Default.

         "Default  Period"  means  any  period  of time  beginning  on the day a
Default  or Event of Default  occurs and ending on the date the Lender  notifies
the  Borrower in writing that such Default or Event of Default has been cured or
waived.

         "Default  Rate" means an annual  interest  rate equal to three  percent
(3%) over the Floating  Rate,  which  interest rate shall change when and as the
Floating Rate changes.

         "Director"  means with  respect  to any  Borrower,  a  director  if the
Borrower is a  corporation,  a governor if the  Borrower is a limited  liability
company, or a general partner if the Borrower is a partnership.

         "ERISA" means the Employee Retirement Income Security Act of 1974.

         "ERISA   Affiliate"  means  any  trade  or  business  (whether  or  not
incorporated)  that is a member of a group which includes any Borrower and which
is treated as a single employer under Section 414 of the IRC.

         "Eligible  Accounts"  means all unpaid  Accounts  owed to any  Eligible
Borrower arising from the sale or lease of goods or the performance of services,
net of any credits,  but excluding any such Accounts having any of the following
characteristics:

         (i)      That  portion  of  Accounts  unpaid 90 days or more  after the
         invoice date;

         (ii)     That  portion of  Accounts  that is  disputed  or subject to a
         claim of offset or a contra account;

         (iii)    That portion of Accounts not yet earned by the final  delivery
         of goods or rendition of services,  as  applicable,  by the  applicable
         Eligible Borrower to the customer,  including  progress  billings,  and
         that  portion of Accounts for which an invoice has not been sent to the
         applicable account debtor;


                                       4
<PAGE>

         (iv)     Accounts  constituting (i) proceeds of copyrightable  material
         unless such copyrightable  material shall have been registered with the
         United  States  Copyright   Office,  or  (ii)  proceeds  of  patentable
         inventions unless such patentable  inventions have been registered with
         the United States Patent and Trademark Office;

         (v)      Accounts owed by any unit of  government,  whether  foreign or
         domestic (provided,  however,  that there shall be included in Eligible
         Accounts that portion of Accounts owed by such units of government  for
         which  the   applicable   Eligible   Borrower  has  provided   evidence
         satisfactory  to the Lender  that (A) the  Lender has a first  priority
         perfected  security  interest and (B) such  Accounts may be enforced by
         the  Lender  directly   against  such  unit  of  government  under  all
         applicable laws);

         (vi)     Accounts owed by an account debtor located  outside the United
         States  which are not (A) backed by a bank letter of credit  naming the
         Lender as  beneficiary  or  assigned  to the  Lender,  in the  Lender's
         possession  or control,  and with respect to which a control  agreement
         concerning the letter-of-credit  rights is in effect, and acceptable to
         the Lender in all respects, in its sole discretion, or (B) covered by a
         foreign  receivables  insurance policy  acceptable to the Lender in its
         sole discretion;

         (vii)    Accounts  owed by an account  debtor  that is  insolvent,  the
         subject of bankruptcy proceedings or has gone out of business;

         (viii)   Accounts owed by an Owner, Subsidiary,  Affiliate,  Officer or
                  employee of any Borrower or TLF Canada;

         (ix)     Accounts not subject to a duly perfected  security interest in
         the  Lender's  favor or which are  subject  to any Lien in favor of any
         Person other than the Lender;

         (x)      That portion of Accounts that has been restructured, extended,
         amended or modified;

         (xi)     That portion of Accounts that constitutes advertising, finance
                  charges, service charges or sales or excise taxes;

         (xii)    Accounts  owed by an  account  debtor,  regardless  of whether
         otherwise  eligible,  if 15% or  more of the  total  amount  due  under
         Accounts from such debtor is ineligible  under clauses (i), (ii) or (x)
         above; and

         (xiii)   Accounts, or portions thereof,  otherwise deemed ineligible by
         the Lender in its sole discretion.

         "Eligible Borrower" means Roberts Cushman, TLF Texas LP, or Tandy Texas
LP and "Eligible Borrowers" means Roberts Cushman, TLF Texas LP, and Tandy Texas
LP.


                                       5
<PAGE>

         "Eligible Inventory" means all Inventory of the Eligible Borrowers,  at
the lower of cost or market value as  determined in  accordance  with GAAP;  but
excluding any Inventory having any of the following characteristics:

         (i)      Inventory that is: in-transit;  located at any warehouse,  job
         site or other  premises not approved by the Lender in writing;  located
         outside of the  states,  or  localities,  as  applicable,  in which the
         Lender  has filed  financing  statements  to  perfect a first  priority
         security  interest  in such  Inventory;  covered by any  negotiable  or
         non-negotiable  warehouse receipt,  bill of lading or other document of
         title; on consignment from any Person;  on consignment to any Person or
         subject to any bailment unless such consignee or bailee has executed an
         agreement with the Lender;

         (ii)     Supplies, packaging or maintenance parts;

         (iii)    Sample Inventory owned by TLF Texas LP or Tandy Texas LP;

         (iv)     Work-in-process Inventory;

         (v)      Inventory  that  is  damaged,  obsolete,  slow  moving  or not
         currently  saleable  in the normal  course of the  applicable  Eligible
         Borrower's operations;

         (vi)     Inventory that the applicable  Eligible Borrower has returned,
         has  attempted to return,  is in the process of returning or intends to
         return to the vendor thereof;

         (vii)    Inventory that is perishable or live;

         (viii)   Inventory  manufactured  by the applicable  Eligible  Borrower
         pursuant to a license  unless the  applicable  licensor has agreed in a
         writing  acceptable to the Lender in its sole  discretion to permit the
         Lender to exercise its rights and remedies against such Inventory;

         (ix)     Inventory  that is  subject  to a Lien in favor of any  Person
         other than the Lender; and

         (x)      Inventory  otherwise  deemed  ineligible  by the Lender in its
         sole discretion.

         "Environmental   Law"  means  any  federal,   state,   local  or  other
governmental statute,  regulation,  law or ordinance dealing with the protection
of human health and the environment.

         "Equipment" means, as to any Person, all of that Person's equipment, as
such  term is  defined  in the UCC,  whether  now owned or  hereafter  acquired,
including  but not  limited  to all  present  and  future  machinery,  vehicles,
furniture,  fixtures,   manufacturing  equipment,  shop  equipment,  office  and
recordkeeping equipment,  parts, tools, supplies, and including specifically the
goods  described  in any  equipment  schedule  or  list  herewith  or  hereafter
furnished to the Lender by a Borrower.


                                       6
<PAGE>

         "Event of Default" has the meaning specified in Section 7.1.

         "Existing Revolving Advances" has the meaning given in Section 2.1.

         "Financial Covenants" means the covenants set forth in Section 6.2.

         "Floating  Rate" means an annual  interest rate equal to the Base Rate,
which interest rate shall change when and as the Base Rate changes.

         "Floating  Rate  Advance"  means an  Advance  bearing  interest  at the
Floating Rate.

         "Funding Date" has the meaning given in Section 2.2.

         "GAAP" means generally  accepted  accounting  principles,  applied on a
basis  consistent  with  the  accounting  practices  applied  in  the  financial
statements described in Section 5.6.

         "General  Intangibles"  means,  as to any Person,  all of that Person's
general  intangibles,  as such term is defined in the UCC,  whether now owned or
hereafter  acquired,  including  all  present and future  Intellectual  Property
Rights,   customer  or  supplier   lists  and  contracts,   manuals,   operating
instructions,  permits, franchises, the right to use that Person's name, and the
goodwill of that Person's business.

         "Guarantor"  means TLF  Canada and any other  Person  now or  hereafter
guaranteeing the Obligations.

         "Hazardous  Substances"  means  pollutants,   contaminants,   hazardous
substances,  hazardous wastes,  petroleum and fractions  thereof,  and all other
chemicals,   wastes,  substances  and  materials  listed  in,  regulated  by  or
identified in any Environmental Law.

         "IRC" means the Internal Revenue Code of 1986.

         "Infringe" means when used with respect to Intellectual Property Rights
any infringement or other violation of Intellectual Property Rights.

         "Intellectual  Property Rights" means all actual or prospective  rights
arising  in  connection  with any  intellectual  property  or other  proprietary
rights,  including all rights arising in connection  with  copyrights,  patents,
service  marks,  trade dress,  trade  secrets,  trademarks,  trade names or mask
works.

         "Interest  Period" means relative to any LIBO Rate Advance,  the period
beginning on (and  including)  the date on which such LIBO Rate Advance is made,
or  continued  as, or converted  into, a LIBO Rate Advance  pursuant to Sections
2.3(a),  2.4(a)  or  2.4(b)  and  shall  end on  (but  exclude)  the  day  which


                                       7
<PAGE>

numerically  corresponds  to such date one (1),  two (2),  three (3), or six (6)
months  thereafter (or, if such month has no numerically  corresponding  day, on
the last  Banking Day of such month),  as the Parent  Borrower may select in its
relevant  notice  pursuant  to  Sections  2.3(a),  2.4(a) or  2.4(b);  provided,
however, that:

         (a)      no more  than  three (3)  different  Interest  Periods  may be
outstanding at any one time;

         (b)      if an Interest  Period would  otherwise  end on a day which is
not a Banking Day, such Interest Period shall end on the next following  Banking
Day (unless such next following Banking Day is the first Banking Day of a month,
in which case such Interest Period shall end on the next preceding Banking Day);
and

         (c)      no Interest Period applicable to an Advance may end later than
thirty (30) days before a Maturity Date.

         "Inventory" means as to any Person, all of that Person's inventory,  as
such  term is  defined  in the UCC,  whether  now owned or  hereafter  acquired,
whether  consisting  of whole  goods,  spare  parts or  components,  supplies or
materials,  whether  acquired,  held or furnished  for sale,  for lease or under
service contracts or for manufacture or processing, and wherever located.

         "Investment  Property"  means  as to any  Person  all of that  Person's
investment  property,  as such term is defined in the UCC,  whether now owned or
hereafter  acquired,  including  but not  limited  to all  securities,  security
entitlements,  securities  accounts,  commodity  contracts,  commodity accounts,
stocks,  bonds,  mutual fund  shares,  money market  shares and U.S.  Government
securities.

         "Issuer" means the issuer of any Letter of Credit.

         "L/C  Amount"  means the sum of (i) the  aggregate  face  amount of any
issued and  outstanding  Letters  of Credit  and (ii) the  unpaid  amount of the
Obligation of Reimbursement.

         "L/C  Application"  means an  application  and agreement for letters of
credit in a form acceptable to the Issuer and the Lender.

         "LIBO Base Rate" means with respect to an Interest Period, the rate per
annum equal to the rate (rounded up to the nearest  one-sixteenth of one percent
(1/16%)) determined by the Lender in accordance with Section 2.4(c) to be a rate
at which United States Dollar  deposits are offered to major banks in the London
interbank  eurodollar  market for funds to be made available on the first day of
such Interest Period and maturing at the end of such Interest Period.


                                       8
<PAGE>

         "LIBO Rate" means with respect to an Interest Period, the rate obtained
by adding (a) two and sixty  hundredths  of one percent  (2.60%) to (b) the rate
obtained  by dividing  (i) the  applicable  LIBO Base Rate by (ii) a  percentage
equal to one (1.00) minus the  applicable  percentage  (expressed  as a decimal)
prescribed  by the Board of  Governors  of the  Federal  Reserve  System (or any
successor thereto) for determining the maximum reserve  requirements  applicable
to eurodollar fundings  (currently referred to as "Eurocurrency  Liabilities" in
Regulation D) or any other maximum reserve  requirements  applicable to a member
bank of the Federal Reserve System with respect to LIBO Rate Advances.

         "LIBO Rate Advance"  means any Advance  which bears  interest at a rate
determined by reference to a LIBO Rate.

         "Letter of Credit" has the meaning specified in Section 2.5.

         "Licensed  Intellectual  Property"  has the  meaning  given in  Section
5.11(c).

         "Lien" means any security interest,  mortgage,  deed of trust,  pledge,
lien, charge, encumbrance,  title retention agreement or analogous instrument or
device,  including the interest of each lessor under any  capitalized  lease and
the interest of any bondsman under any payment or performance bond, in, of or on
any assets or  properties of a Person,  whether now owned or hereafter  acquired
and whether arising by agreement or operation of law.

         "Loan Documents" means this Agreement, the Note, the Security Documents
and any L/C Application.

         "Lockbox" has the meaning given in Section 2.13(a).

         "Maturity Date" has the meaning given in Section 2.14.

         "Maximum Line" means $7,500,000  unless said amount is reduced pursuant
to Section 2.15, in which event it means such lower amount.

         "Minimum Interest Charge" has the meaning given in Section 2.9(b).

         "Multiemployer  Plan" means a multiemployer plan (as defined in Section
4001(a)(3) of ERISA) to which any Borrower or any ERISA Affiliate contributes or
is obligated to contribute.

         "Net Income" means after-tax net income from  continuing  operations as
determined in accordance with GAAP.

         "Note" means the Revolving Note.

         "Obligation of Reimbursement" has the meaning given in Section 2.6(a).


                                       9
<PAGE>

         "Obligations"  means the Note, the Obligation of Reimbursement and each
and every other debt,  liability and  obligation  of every type and  description
which any Borrower may now or at any time  hereafter owe to the Lender,  whether
such  debt,  liability  or  obligation  now  exists or is  hereafter  created or
incurred,  whether it arises in a transaction involving the Lender alone or in a
transaction involving other creditors of such Borrower, and whether it is direct
or indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated,  or sole, joint,  several or joint and several,  and
including all indebtedness of the Borrowers arising under any Credit Document or
guaranty between any Borrower and the Lender, whether now in effect or hereafter
entered into.

         "Officer"  means  with  respect to any  Borrower a (a) Chief  Executive
Officer, President, Treasurer, Secretary or Assistant Secretary, if the Borrower
is a corporation, (b) manager if the Borrower is a limited liability company, or
(c) partner if the Borrower is a partnership.

         "Old Credit Agreement" means the Credit and Security Agreement dated as
of  November  22, 1999 by and among  certain  Borrowers  and the Old Lender,  as
amended before the date of this Agreement.

         "Old  Credit  Documents"  means  the  Old  Credit  Agreement,  the  Old
Revolving  Note and all other  related  documents  as set forth in that  certain
Assignment  of  Indebtedness  and Loan  Documents  of even date  herewith by and
between the Old Lender and the Lender.

         "Old Lender" means Wells Fargo Business  Credit,  Inc., in its capacity
as lender under the Old Credit Documents.

         "Old Revolving Note" means certain Borrowers' revolving promissory note
dated as of  November  22,  1999,  payable to the order of the Old Lender in the
original principal amount of $8,500,000.

         "Original Maturity Date" means November 30, 2004.

         "Owned Intellectual Property" has the meaning given in Section 5.11(a).

         "Owner" means with respect to any Borrower, each Person having legal or
beneficial title to an ownership  interest in any Borrower or a right to acquire
such an interest.

         "Parent Borrower" means TLF Delaware.

         "Pension  Plan"  means a pension  plan (as  defined in Section  3(2) of
ERISA)  maintained  for  employees  of any Borrower or any ERISA  Affiliate  and
covered by Title IV of ERISA.


                                       10
<PAGE>

         "Permitted Lien" has the meaning given in Section 6.3(a).

         "Person" means any individual, corporation, partnership, joint venture,
limited   liability   company,   association,    joint-stock   company,   trust,
unincorporated organization or government or any agency or political subdivision
thereof.

         "Plan"  means an employee  benefit  plan (as defined in Section 3(3) of
ERISA) maintained for employees of any Borrower or any ERISA Affiliate.

         "Premises"  means  all  premises  where  the  Borrowers  conduct  their
businesses  and have any rights of  possession,  including the premises  legally
described in Exhibit C attached hereto.

         "Reportable Event" means a reportable event (as defined in Section 4043
of ERISA),  other than an event for which the 30-day  notice  requirement  under
ERISA has been  waived in  regulations  issued by the Pension  Benefit  Guaranty
Corporation.

         "Revolving Advance" has the meaning given in Section 2.2.

         "Revolving  Note"  means  the  Borrowers'  revolving  promissory  note,
payable  to the  order of the  Lender  in  substantially  the form of  Exhibit A
hereto.

         "Roberts  Cushman" means Roberts,  Cushman & Company,  Inc., a New York
corporation.

         "Security  Documents"  means this  Agreement,  the  Collection  Account
Agreement,  and  the  Copyright  Security  Agreement,  and  any  other  document
delivered to the Lender from time to time to secure the Obligations.

         "Security Interest" has the meaning given in Section 3.1.

         "Servicer"  means  Wells  Fargo  Business  Credit,  Inc.,  a  Minnesota
corporation, or such other person as the Lender may from time to time designate.

         "Special Account" means a specified cash collateral  account maintained
by a financial  institution  acceptable to the Lender in connection with Letters
of Credit, as contemplated by Section 2.7.

         "Subsidiary"  means  any  corporation  of  which  more  than 50% of the
outstanding  shares of capital stock having  general voting power under ordinary
circumstances to elect a majority of the board of Directors of such corporation,
irrespective  of whether or not at the time stock of any other  class or classes
shall  have or  might  have  voting  power by  reason  of the  happening  of any
contingency, is at the time directly or indirectly owned by any Borrower, by any
Borrower  and  one  or  more  other  Subsidiaries,  or  by  one  or  more  other
Subsidiaries.


                                       11
<PAGE>

         "TLF  Canada"  means The Leather  Factory of Canada,  Ltd.,  a Manitoba
corporation.

         "TLF Delaware" means The Leather Factory, Inc., a Delaware corporation.

         "TLF  Texas  LP" means  The  Leather  Factory,  L.P.,  a Texas  limited
partnership.

         "Tandy Texas LP" means Tandy  Leather  Company,  L.P., a Texas  limited
partnership.

         "Termination Date" means the earliest of (a) the Maturity Date, (b) the
date the  Borrowers  terminate the Credit  Facility,  or (c) the date the Lender
demands payment of the Obligations after an Event of Default pursuant to Section
7.2.

         "UCC"  means  the  Uniform  Commercial  Code as in  effect in the state
designated in Section 8.16 as the state whose laws shall govern this  Agreement,
or in any other  state  whose  laws are held to  govern  this  Agreement  or any
portion hereof.

         "Wells  Fargo  Bank  Texas"  means  Wells  Fargo Bank  Texas,  National
Association, a national banking association.

         Section 1.2 Other  Definitional  Terms;  Rules of  Interpretation.  The
words  "hereof",  "herein" and "hereunder" and words of similar import when used
in this  Agreement  shall  refer  to this  Agreement  as a whole  and not to any
particular  provision of this  Agreement.  All  accounting  terms not  otherwise
defined herein have the meanings  assigned to them in accordance  with GAAP. All
terms  defined in the UCC and not  otherwise  defined  herein have the  meanings
assigned to them in the UCC.  References  to  Articles,  Sections,  subsections,
Exhibits,  Schedules and the like, are to Articles, Sections and subsections of,
or Exhibits or Schedules attached to, this Agreement unless otherwise  expressly
provided. The words "include",  "includes" and "including" shall be deemed to be
followed by the phrase  "without  limitation".  Unless the context in which used
herein otherwise clearly requires, "or" has the inclusive meaning represented by
the phrase "and/or". Defined terms include in the singular number the plural and
in the plural number the singular.  Reference to any  agreement  (including  the
Loan  Documents),  document  or  instrument  means such  agreement,  document or
instrument  as amended or modified and in effect from time to time in accordance
with the terms thereof (and, if applicable,  in accordance with the terms hereof
and the other Loan Documents),  except where otherwise explicitly provided,  and
reference  to any  promissory  note  includes  any  promissory  note which is an
extension or renewal thereof or a substitute or replacement therefor.  Reference
to any law, rule, regulation,  order, decree,  requirement,  policy,  guideline,
directive or interpretation means as amended,  modified,  codified,  replaced or
reenacted,  in  whole or in  part,  and in  effect  on the  determination  date,
including rules and regulations promulgated thereunder.


                                       12
<PAGE>

                                   ARTICLE II

                     AMOUNT AND TERMS OF THE CREDIT FACILITY

         Section  2.1  Existing  Revolving  Advances.  The Old  Lender  has made
various  revolving  advances  to  certain  Borrowers  (the  "Existing  Revolving
Advances"),  the  Borrowers'  obligation  to pay which is  evidenced  by the Old
Revolving Note. As of the date hereof, the outstanding  principal balance of the
Existing Revolving Advances was $__________, with interest paid through February
28, 2002. Upon execution and delivery of this Agreement,  the Existing Revolving
Advances  shall be deemed to be Revolving  Advances made pursuant to Section 2.2
hereof and  repayable in accordance  with the Revolving  Note. To the extent the
Revolving Note  evidences the Existing  Revolving  Advances,  the Revolving Note
shall be issued in substitution for and replacement of but not in payment of the
Old Revolving Note.

         Section 2.2 Revolving  Advances.  The Lender  agrees,  on the terms and
subject to the  conditions  herein set forth,  to make advances to the Borrowers
from time to time from the date all of the  conditions  set forth in Section 4.1
are  satisfied  (the "Funding  Date") to the  Termination  Date (the  "Revolving
Advances").  The Lender shall have no obligation to make a Revolving  Advance to
the extent the amount of the requested  Revolving Advance exceeds  Availability.
The  Borrowers'  obligation to pay the Revolving  Advances shall be evidenced by
the Revolving Note and shall be secured by the Collateral. Within the limits set
forth in this Section 2.2, the Borrowers may borrow,  prepay pursuant to Section
2.15 and reborrow.

         Section 2.3  Procedures for Requesting  Advances.  The Borrowers  shall
comply with the following procedures in requesting Revolving Advances:

         (a)      Type of  Advances.  Each  Advance  shall be funded as either a
loating  Rate  Advance  or a LIBO Rate  Advance,  as the Parent  Borrower  shall
specify in the related  notice of borrowing or notice of conversion  pursuant to
this Subsection (a) or Section 2.4(a),  provided that during Default Periods, no
LIBO Rate Advances shall be made.  Floating Rate Advances and LIBO Rate Advances
may be outstanding at the same time.  Each request for a LIBO Rate Advance shall
be in an amount equal to $500,000 or a higher integral multiple of $250,000.

         (b)      Time for  Requests.  The Parent  Borrower  shall  request each
Advance not later than 11:00 a.m., Dallas,  Texas time on the Banking Day which,
in the case of a Floating Rate  Advance,  is the date the Advance is to be made,
and in the case of a LIBO  Rate  Advance,  is at least  three (3)  Banking  Days
before the date the Advance is to be made.  Each such request shall be effective
upon  receipt by the  Lender,  shall be in writing or by  telephone  or telecopy
transmission,  to be confirmed in writing by the Parent Borrower if so requested
by the  Lender  (in the form of  Exhibit  D),  shall be by (i) an Officer of the
Parent Borrower;  or (ii) a person  designated as the Parent Borrower's agent by
an Officer of the Parent Borrower in a writing delivered to the Lender; or (iii)


                                       13
<PAGE>

a person  whom the  Lender  reasonably  believes  to be an Officer of the Parent
Borrower or such a designated agent, and shall specify whether the Advance shall
be a Floating Rate Advance or a LIBO Rate Advance and in the case of a LIBO Rate
Advance,  shall specify the Interest Period to be applicable thereto. The Parent
Borrower  shall repay all  Advances  even if the Lender  does not  receive  such
confirmation  and  even if the  person  requesting  an  Advance  was not in fact
authorized to do so. Any request for an Advance,  whether written or telephonic,
shall be deemed to be a representation  by the Borrowers that the conditions set
forth in Section 4.2 have been satisfied as of the time of the request.

         (c)  Disbursement.  Upon  fulfillment of the applicable  conditions set
forth in Article IV, the Lender shall  disburse  the  proceeds of the  requested
Advance by crediting the same to the Parent  Borrower's  demand deposit  account
maintained with Wells Fargo Bank Texas unless the Lender and the Parent Borrower
shall agree in writing to another manner of disbursement.

         Section 2.4 LIBO Rate Advances.

         (a)      Converting  Floating  Rate  Advances  to LIBO  Rate  Advances;
Procedures. So long as no Default Period exists, the Parent Borrower may convert
all or any  part of any  outstanding  Floating  Rate  Advance  into a LIBO  Rate
Advance by giving notice to the Lender of such  conversion  not later than 11:00
a.m.,  Dallas,  Texas time, on a Banking Day which is at least three (3) Banking
Days prior to the date of the  requested  conversion.  Each such notice shall be
effective  upon  receipt by the Lender,  shall be in writing or by  telephone or
telecopy  transmission,  to be confirmed in writing by the Parent Borrower if so
requested by the Lender (in the form of Exhibit E),  shall  specify the date and
amount of such  conversion,  the total amount of the Floating Rate Advance to be
so converted and the applicable  Interest  Period.  Each such  conversion  shall
occur on a Banking  Day,  and the  aggregate  amount of Floating  Rate  Advances
converted  to LIBO Rate  Advances  shall  equal  $500,000  or a higher  integral
multiple of $250,000.

         (b)      Procedures  at End of an  Interest  Period.  Unless the Parent
Borrower  requests a new LIBO Rate Advance in accordance with the procedures set
forth below, or prepays the principal of an outstanding LIBO Rate Advance at the
expiration of an Interest  Period,  the Lender shall  automatically  and without
request of the Parent Borrower convert each LIBO Rate Advance to a Floating Rate
Advance on the last day of the relevant  Interest Period.  So long as no Default
Period exists,  the Parent Borrower may cause all or any part of any outstanding
LIBO Rate  Advance to continue to bear  interest at a LIBO Rate after the end of
the then applicable Interest Period by notifying the Lender not later than 11:00
a.m.,  Dallas,  Texas time, on a Banking Day which is at least three (3) Banking
Days prior to the first day of the new Interest  Period.  Each such notice shall
be  in  writing  (in  the  form  of  Exhibit  F)  or by  telephone  or  telecopy
transmission, to be confirmed in writing by the Parent Borrower if the Lender so
requests,  shall be effective when received by the Lender, and shall specify the


                                       14
<PAGE>

first day of the  applicable  Interest  Period,  the amount of the expiring LIBO
Rate  Advance to be  continued  and the  applicable  Interest  Period.  Each new
Interest  Period  shall  begin on a Banking  Day and the amount of each  Advance
bearing a new LIBO Rate shall be equal to $500,000 or a higher integral multiple
of $250,000.

         (c)      Setting  and  Notice  of Rates.  The  Lender  shall  determine
applicable  LIBO Rate for each Interest  Period  between the opening of business
and 12:00 Noon,  Dallas,  Texas time,  on the second  Banking Day  preceding the
beginning of such Interest Period,  and shall notify the Parent Borrower thereof
by telephone or in writing.  Each such determination of the applicable LIBO Rate
shall be  conclusive  and  binding  upon the parties  hereto,  in the absence of
demonstrable  error.  The Lender,  upon written request of the Parent  Borrower,
shall deliver to the Parent Borrower a statement  showing the computations  used
by the Lender in determining the applicable LIBO Rate.

         (d)      Funding Losses. The Borrowers shall, upon demand by the Lender
(which demand shall be  accompanied  by a statement  setting forth the basis for
the calculations of the amount being claimed),  indemnify the Lender against any
loss or expense which the Lender may have  sustained or incurred  (including any
net loss or expense  incurred by reason of the  liquidation or  reemployment  of
deposits  or other funds  acquired  by the Lender to fund or maintain  LIBO Rate
Advances) or which the Lender may be deemed to have  sustained  or incurred,  as
reasonably  determined by the Lender,  due to (i) the Borrowers' failure to make
when  due any  payment  in  connection  with any LIBO  Rate  Advances,  (ii) the
Borrowers'  failure  to  borrow or  convert  any LIBO  Rate  Advances  on a date
specified therefor in a notice thereof or (iii) any payment or prepayment of any
LIBO Rate Advance on a date other than the last day of the  applicable  Interest
Period.  For this purpose,  all notices under Sections 2.3(a),  2.4(a) or 2.4(b)
shall be deemed to be irrevocable.

         (e)      Right of Lender to Fund through Other Offices.  The Lender may
fulfill  its  agreements  hereunder  with  respect  to any LIBO Rate  Advance by
causing  a  foreign  branch or  affiliate  of the  Lender to make such LIBO Rate
Advance;  provided,  that in such event the obligation of the Borrowers to repay
such LIBO Rate Advance  shall  nevertheless  be to the Lender and such LIBO Rate
Advance  shall be deemed  held by the Lender for the  account of such  branch or
affiliate.

         (f)      Discretion of Lender as to Manner of Funding.  Notwithstanding
any  provision  of this  Agreement  to the  contrary,  the  Lender  may fund and
maintain  all or any part of its LIBO Rate  Advances in any manner it deems fit,
it  being  understood,   however,  that  for  the  purposes  of  this  Agreement
(specifically  including  Subsection (d)) all determinations  hereunder shall be
made as if the Lender had actually  funded and maintained each LIBO Rate Advance
during each Interest  Period for such LIBO Rate Advance  through the purchase of
deposits having a maturity  corresponding to such Interest Period and bearing an
interest rate equal to the appropriate LIBO Rate for such Interest Period.


                                       15
<PAGE>

         Section 2.5 Letters of Credit.

         (a)      The Lender agrees,  on the terms and subject to the conditions
herein  set forth,  to cause an Issuer to issue,  from the  Funding  Date to the
Termination  Date, one or more  irrevocable  standby or  documentary  letters of
credit (each, a "Letter of Credit") for any Borrower's  account by  guaranteeing
payment of that Borrower's obligations or being a co-applicant. The Lender shall
have no  obligation to cause an Issuer to issue any Letter of Credit if the face
amount of the Letter of Credit to be issued would exceed the lesser of:

                  i)       $500,000 less the L/C Amount, or

                  ii)      Availability.

Each  Letter of Credit,  if any,  shall be issued  pursuant  to a  separate  L/C
Application  entered  into by the  applicable  Borrower  and the  Lender for the
benefit of the Issuer,  completed in a manner satisfactory to the Lender and the
Issuer.  The terms and conditions set forth in each such L/C  Application  shall
supplement  the terms and  conditions  hereof,  but if the terms of any such L/C
Application and the terms of this Agreement are  inconsistent,  the terms hereof
shall control.

         (b)      No Letter of Credit  shall be issued with an expiry date later
than the Termination Date in effect as of the date of issuance.

         (c)      Any  request  to cause an  Issuer  to issue a Letter of Credit
shall be deemed to be a representation  by the Borrowers that the conditions set
forth in Section 4.2 have been satisfied as of the date of the request.

         Section  2.6  Payment  of  Amounts   Drawn  Under  Letters  of  Credit;
Obligation of  Reimbursement.  Each Borrower  acknowledges  that the Lender,  as
co-applicant,  will be liable to the  Issuer  for  reimbursement  of any and all
draws  under  Letters of Credit and for all other  amounts  required  to be paid
under the applicable L/C  Application.  Accordingly,  the Borrowers shall pay to
the Lender any and all  amounts  required  to be paid under the  applicable  L/C
Application, when and as required to be paid thereby, and the amounts designated
below, when and as designated:

         (a)      The  Borrowers  shall pay to the  Lender on the day a draft is
honored  under any Letter of Credit a sum equal to all amounts  drawn under such
Letter of Credit  plus any and all  reasonable  charges  and  expenses  that the
Issuer or the Lender may pay or incur  relative to such draw and the  applicable
L/C Application,  plus interest on all such amounts, charges and expenses as set
forth  below  (the  Borrowers'  obligation  to pay all such  amounts  is  herein
referred to as the "Obligation of Reimbursement").


                                       16
<PAGE>

         (b)      Whenever a draft is  submitted  under a Letter of Credit,  the
Lender  shall  make a  Revolving  Advance  in the  amount of the  Obligation  of
Reimbursement  and shall apply the proceeds of such Revolving  Advance  thereto.
Such Revolving  Advance shall be repayable in accordance  with and be treated in
all other respects as a Revolving Advance hereunder.

         (c)      If a draft is  submitted  under a Letter  of  Credit  when the
Borrowers are unable,  because a Default  Period exists or for any other reason,
to obtain a  Revolving  Advance  to pay the  Obligation  of  Reimbursement,  the
Borrowers shall pay to the Lender on demand and in immediately  available funds,
the amount of the Obligation of  Reimbursement  together with interest,  accrued
from  the  date  of the  draft  until  payment  in  full  at the  Default  Rate.
Notwithstanding  the Borrowers'  inability to obtain a Revolving Advance for any
reason, the Lender is irrevocably authorized,  in its sole discretion, to make a
Revolving  Advance  in an amount  sufficient  to  discharge  the  Obligation  of
Reimbursement and all accrued but unpaid interest thereon.

         (d)      The  Borrowers'  obligation to pay any Revolving  Advance made
under this Section 2.6,  shall be evidenced by the Revolving Note and shall bear
interest as provided in Section 2.9.

         Section 2.7 Special  Account.  If the Credit Facility is terminated for
any  reason  while any  Letter of Credit is  outstanding,  the  Borrowers  shall
thereupon  pay the  Lender in  immediately  available  funds for  deposit in the
Special Account an amount equal to the L/C Amount.  The Special Account shall be
an  interest  bearing  account  maintained  for  the  Lender  by  any  financial
institution  acceptable to the Lender.  Any interest earned on amounts deposited
in the Special Account shall be credited to the Special Account.  The Lender may
apply amounts on deposit in the Special Account at any time or from time to time
to the Obligations in the Lender's sole discretion. No Borrower may withdraw any
amounts on  deposit in the  Special  Account as long as the Lender  maintains  a
security  interest  therein.  The Lender  agrees to transfer  any balance in the
Special  Account to the Parent  Borrower  when the Lender is required to release
its security interest in the Special Account under applicable law.

         Section 2.8 Obligations  Absolute.  The Borrowers'  obligations arising
under Section 2.6 shall be absolute, unconditional and irrevocable, and shall be
paid  strictly  in  accordance   with  the  terms  of  Section  2.6,  under  all
circumstances   whatsoever,   including   (without   limitation)  the  following
circumstances:

         (a)      any lack of validity or enforceability of any Letter of Credit
or  any  other  agreement  or  instrument  relating  to  any  Letter  of  Credit
(collectively the "Related Documents");

         (b)      any  amendment or waiver of or any consent to  departure  from
all or any of the Related Documents;


                                       17
<PAGE>

         (c)      the  existence  of any claim,  setoff,  defense or other right
which  any  Borrower  may  have at any  time,  against  any  beneficiary  or any
transferee of any Letter of Credit (or any persons or entities for whom any such
beneficiary or any such  transferee  may be acting),  or other person or entity,
whether in connection with this Agreement, the transactions  contemplated herein
or in the Related Documents or any unrelated transactions;

         (d)      any statement or any other document presented under any Letter
of Credit  proving to be forged,  fraudulent,  invalid  or  insufficient  in any
respect or any  statement  therein  being  untrue or  inaccurate  in any respect
whatsoever;

         (e)      payment  by or on behalf  of the  Issuer  under any  Letter of
Credit against  presentation  of a draft or certificate  which does not strictly
comply with the terms of such Letter of Credit; or

         (f)      any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.

         Section  2.9  Interest;  Minimum  Interest  Charge;  Default  Interest;
Participations; Clearance Days; Usury.


         (a)      Revolving  Note.  Except as set forth in  Subsections  (c) and
(f), the outstanding principal balance of the Revolving Note shall bear interest
at the Floating Rate.

         (b)      Minimum Interest Charge.  Notwithstanding the interest payable
pursuant to Subsection  (a), the Borrowers  shall pay to the Lender  interest of
not less than $100,000 per Loan Year (the "Minimum  Interest Charge") during the
term of this Agreement,  and the Borrowers shall pay any deficiency  between the
Minimum  Interest Charge and the amount of interest  otherwise  calculated under
Subsection (a) on the first day following  each  anniversary of the Funding Date
and on the  Termination  Date. As used in this subsection (b), "Loan Year" means
each one-year period ending on an anniversary of the Funding Date.

         (c)      Default Interest Rate. Upon notice to the Parent Borrower from
the Lender from time to time,  the  principal of the Advances  outstanding  from
time to time shall bear interest at the Default Rate,  effective as of the first
day of the fiscal month during which any Default  Period begins through the last
day of such Default  Period.  The  Lender's  election to charge the Default Rate
shall be in its sole  discretion  and  shall not be a waiver of any of its other
rights and  remedies.  The Lender's  election to charge  interest at the Default
Rate for less  than the  entire  period  during  which the  Default  Rate may be
charged  shall not be a waiver of its right to later charge the Default Rate for
the entire such period.


                                       18
<PAGE>


         (d)      Clearance Days. Interest at the interest rate applicable under
this Section 2.9 shall accrue on the amount of all payments (even if in the form
of immediately available federal funds) for one (1) day for clearance.

         (e)      Participations. If any Person shall acquire a participation in
the  Advances or the  Obligation  of  Reimbursement  under this  Agreement,  the
Borrowers  shall  be  obligated  to the  Lender  to pay the full  amount  of all
interest  calculated under this Section 2.9, along with all other fees,  charges
and other amounts due under this Agreement,  regardless if such Person elects to
accept  interest  with  respect to its  participation  at a lower rate than that
calculated  under this Section 2.9, or otherwise  elects to accept less than its
prorata share of such fees, charges and other amounts due under this Agreement.

         (f)      Usury.  In any event no rate  change  shall be put into effect
which would result in a rate greater than the highest rate permitted by law.

         Section 2.10 Fees.

         (a)      Unused Line Fee. For purposes of this Section 2.10(a), "Unused
Amount" means the Maximum Line reduced by (1) outstanding Revolving Advances and
(2) the L/C Amount.  The Borrowers shall pay to the Lender an unused line fee at
the rate of one half of one  percent  (0.50%)  per  annum on the  average  daily
Unused Amount from the date of this  Agreement to and including the  Termination
Date,  due and  payable  monthly in arrears on the first day of the month and on
the Termination Date.

         (b)      Letter of Credit Fees. The Borrowers shall pay to the Lender a
fee with respect to each Letter of Credit, if any, accruing on a daily basis and
computed at the annual rate of two percent (2%),  of the  aggregate  amount that
may then be drawn  assuming  compliance  with all  conditions  for drawing  (the
"Aggregate Face Amount"), from and including the date of issuance of such Letter
of Credit until such date as such Letter of Credit shall  terminate by its terms
or be returned to the  Lender,  due and payable  monthly in arrears on the first
day of each month and on the  Termination  Date;  provided,  however that during
Default Periods,  in the Lender's sole discretion and without waiving any of its
other rights and remedies,  such fee shall  increase to five percent (5%) of the
Aggregate  Face Amount.  The  foregoing  fee shall be in addition to any and all
fees,  commissions  and charges of the Issuer with  respect to or in  connection
with such Letter of Credit.

         (c)      Letter of Credit  Administrative Fees. The Borrowers shall pay
to the Lender, on written demand, the administrative  fees charged by the Issuer
in connection with the honoring of drafts under any Letter of Credit, amendments
thereto, transfers thereof and all other activity with respect to the Letters of
Credit at the  then-current  rates  published  by the Issuer  for such  services
rendered on behalf of customers of the Issuer generally.


                                       19
<PAGE>

         (d)      Audit Fees.  The  Borrowers  shall pay the Lender,  on demand,
audit fees in  connection  with any  audits or  inspections  conducted  by or on
behalf of the Lender of any Collateral or the Borrowers'  operations or business
at the  rates  established  from time to time by the  Lender  as its audit  fees
(which fees are  currently  $600 per day per auditor,  together  with all actual
out-of-pocket  costs and  expenses  incurred  in  conducting  any such  audit or
inspection; provided, however, that except during Default Periods, the Borrowers
shall not have to  reimburse  the  Lender  for such  fees,  costs  and  expenses
incurred in connection with more than (i) two audits conducted by the Lender per
fiscal  year and (ii) two  audits  conducted  by a third  party on behalf of the
Lender per fiscal year.

         (e)      Termination and Line Reduction Fees. If the Credit Facility is
terminated by the Lender  during a Default  Period that begins before a Maturity
Date, or by the Borrowers (i) as of a date other than a Maturity Date or (ii) as
of a Maturity Date but without the Lender having received written notice of such
termination  at least 90 days before such  Maturity  Date,  or if the  Borrowers
reduce  the  Maximum  Line,  the  Borrowers  shall pay to the Lender a fee in an
amount  equal to a  percentage  of the  Maximum  Line (or the  reduction  of the
Maximum  Line,  as the  case may be) as  follows:  (A) two  percent  (2%) if the
termination or reduction  occurs on or before November 30, 2002; (B) one percent
(1%) if the  termination  or reduction  occurs after November 30, 2002 but on or
before  November  30,  2003;  and (C)  one-half  of one  percent  (0.50%) if the
termination or reduction occurs after November 30, 2003.

         (f)      Waiver of Termination Fees. The Borrowers will not be required
to pay  the  termination  fees  otherwise  due  under  subsection  (e)  if  such
termination is made because of increased cash flow generated from the Borrowers'
operations or because of refinancing by an affiliate of the Lender.

         (g)      Other  Fees.  The Lender may from time to time,  upon five (5)
days  prior  notice  to the  Parent  Borrower  during a Default  Period,  charge
additional  fees for  Revolving  Advances  made and Letters of Credit  issued in
excess of  Availability,  for late  delivery  of  reports,  in lieu of  imposing
interest at the  Default  Rate,  and for other  reasons.  The Parent  Borrower's
request  for a  Revolving  Advance or the  issuance of a Letter of Credit at any
time after such notice is given and such five (5) day period has  elapsed  shall
constitute the Borrowers' agreement to pay the fees described in such notice.

         Section 2.11 Time for Interest  Payments;  Payment on Non-Banking Days;
Computation of Interest


         (a)      Time For Interest Payments. Interest accruing on Floating Rate
Advances  shall be due and payable in arrears on the first day of each month and
on the Termination  Date.  Interest  accruing on each LIBO Rate Advance shall be
due and payable on the last day of the  applicable  Interest  Period;  provided,
however,  for Interest  Periods longer than three (3) months,  interest shall be

                                       20
<PAGE>

due and payable  monthly in arrears on the last day of the third month occurring
after  commencement of such Interest Period, on the last day of each three-month
period thereafter (if any) and on the last day of such Interest Period.

         (b)      Payment on Non-Banking  Days.  Whenever any payment to be made
hereunder  shall be stated to be due on a day which is not a Banking  Day,  such
payment may be made on the next  succeeding  Banking Day, and such  extension of
time  shall in such case be  included  in the  computation  of  interest  on the
Advances or the fees hereunder, as the case may be.

         (c)      Computation  of Interest  and Fees.  Interest  accruing on the
outstanding  principal  balance of the Advances and fees  hereunder  outstanding
from  time to time  shall be  computed  on the  basis of  actual  number of days
elapsed in a year of 360 days.

         Section 2.12 Increased Costs; Capital Adequacy; Funding Exceptions.

         (a)      Increased Costs; Capital Adequacy. If the Lender determines at
any time that its Return has been reduced as a result of any Rule  Change,  such
Lender may so notify the Parent  Borrower and require the  Borrowers,  beginning
fifteen (15) days after such notice,  to pay it the amount  necessary to restore
its  Return  to what it would  have  been had  there  been no Rule  Change.  For
purposes of this Section 2.12:

                  (i)      "Capital   Adequacy   Rule"  means  any  law,   rule,
         regulation,  guideline,  directive,  requirement  or request  regarding
         capital adequacy,  or the  interpretation or administration  thereof by
         any  governmental or regulatory  authority,  central bank or comparable
         agency,  whether or not having  the force of law,  that  applies to any
         Related Lender,  including rules  requiring  financial  institutions to
         maintain total capital in amounts based upon percentages of outstanding
         loans, binding loan commitments and letters of credit.

                  (ii)     "Eurodollar  Rule" means Regulation D of the Board of
         Governors of the Federal Reserve System and any law, rule,  regulation,
         guideline,  directive,  requirement  or  request  regarding  (A) taxes,
         duties or other charges,  exemptions with respect to LIBO Rate Advances
         or the Lender's obligation to make LIBO Rate Advances, and (B) reserves
         imposed by the Board of  Governors of the Federal  Reserve  System (but
         excluding any reserve included in the  determination of the LIBO Rate),
         special  deposits or similar  requirements  against assets of, deposits
         with or for the account of, or credit  extended by, any Related Lender,
         and any other condition  affecting the Lender's making,  maintaining or
         funding  of LIBO  Rate  Advances  or its  obligation  to make LIBO Rate
         Advances,  or  the  interpretation  or  administration  thereof  by any
         governmental  or  regulatory  authority,  central  bank  or  comparable
         agency,  whether or not having  the force of law,  that  applies to any
         Related Lender.


                                       21
<PAGE>

                  (iii)    "L/C   Rule"   means  any  law,   rule,   regulation,
         guideline,  directive,  requirement  or  request  regarding  letters of
         credit,  or  the  interpretation  or  administration   thereof  by  any
         governmental  or  regulatory  authority,  central  bank  or  comparable
         agency,  whether or not having  the force of law,  that  applies to any
         Related  Lender,  including  those that impose  taxes,  duties or other
         similar  charges,  or mandate  reserves,  special  deposits  or similar
         requirements against assets of, deposits with or for the account of, or
         credit extended by any Related Lender, on letters of credit.

                  (iv)     "Related Lender" includes (but is not limited to) the
         Lender,  the  Issuer,  any  parent  of the  Lender or the  Issuer,  any
         assignee of any interest of the Lender hereunder and any participant in
         the Credit Facility.

                  (v)      "Return",   for  any  period,  means  the  percentage
         determined  by dividing (i) the sum of interest and ongoing fees earned
         by the Lender  under this  Agreement  during such  period,  by (ii) the
         average  capital such Lender is required to maintain during such period
         as a result of its being a party to this  Agreement,  as  determined by
         such Lender based upon its total capital  requirements and a reasonable
         attribution  formula that takes account of the Capital  Adequacy Rules,
         Eurodollar  Rules and L/C Rules  then in  effect,  costs of  issuing or
         maintaining  any  Advance or Letter of Credit and  amounts  received or
         receivable  under  this  Agreement  or the Notes  with  respect  to any
         Advance or Letter of Credit. Return may be calculated for each calendar
         quarter  and for  the  shorter  period  between  the end of a  calendar
         quarter and the date of termination in whole of this Agreement.

                  (vi)     "Rule   Change"  means  any  change  in  any  Capital
         Adequacy Rule, Eurodollar Rule, or L/C Rule occurring after the date of
         this Agreement,  or any change in the  interpretation or administration
         thereof by any governmental or regulatory authority,  but the term does
         not include any changes that at the Funding Date are  scheduled to take
         place under the existing Capital Adequacy Rules,  Eurodollar  Rules, or
         L/C Rules or any  increases  in the capital that the Lender is required
         to maintain  to the extent that the  increases  are  required  due to a
         regulatory authority's assessment of that Lender's financial condition.

The initial  notice sent by the Lender shall be sent as promptly as  practicable
after such  Lender  learns  that its Return has been  reduced,  shall  include a
demand for payment of the amount  necessary to restore such Lender's  Return for
the quarter in which the notice is sent,  and shall state in  reasonable  detail
the cause for the reduction in its Return and its  calculation  of the amount of
such  reduction.  Thereafter,  such  Lender  may send a new notice  during  each
calendar  quarter  setting forth the  calculation of the reduced Return for that
quarter and  including a demand for payment of the amount  necessary  to restore
its Return for that quarter.  The Lender's  calculation in any such notice shall
be conclusive and binding absent demonstrable error.


                                       22
<PAGE>

         (b)      Basis for Determining  Interest Rate Inadequate or Unfair.  If
with respect to any Interest Period:

                  (i)      the Lender determines that deposits in US dollars (in
         the applicable  amounts) are not being offered in the London  interbank
         eurodollar market for such Interest Period; or

                  (ii)     the  Lender  otherwise  determines  that by reason of
         circumstances affecting the London interbank eurodollar market adequate
         and reasonable  means do not exist for ascertaining the applicable LIBO
         Rate; or

                  (iii)    the LIBO Rate will not  adequately and fairly reflect
         the cost to the  Lender  of  funding  any LIBO  Rate  Advance  for such
         Interest  Period,  or that the funding of LIBO Rate Advances has become
         impracticable  as a result of an event occurring after the date of this
         Agreement  which in the opinion of the Lender  materially  affects such
         LIBO Rate Advances;

then the Lender shall promptly  notify the Parent  Borrower and (A) in the event
of any  occurrence  described in the foregoing  clauses (i) and (ii), the Parent
Borrower  shall enter into good faith  negotiations  with the Lender in order to
determine  an  alternate  method to  determine  the LIBO  Rate,  and  during the
pendency  of such  negotiations  with the Lender,  the Lender  shall be under no
obligation  to make  any new  LIBO  Rate  Advances  and (B) in the  event of any
occurrence  described  in the  foregoing  clause  (iii),  for so  long  as  such
circumstances  shall  continue,  the Lender shall be under no obligation to make
any new LIBO Rate Advances.

         (c)      Illegality.  If any Rule Change should make it or, in the good
faith judgment of the Lender,  shall raise a substantial  question as to whether
it is  unlawful  for the  Lender  to make,  create,  maintain  or fund LIBO Rate
Advances,  then (i) the Lender shall promptly notify the Parent  Borrower,  (ii)
the  obligation  of the  Lender  to make,  maintain  or  convert  into LIBO Rate
Advances  shall,  upon the  effectiveness  of such event,  be suspended  for the
duration of such unlawfulness,  and (iii) for the duration of such unlawfulness,
any notice by the Parent Borrower pursuant to Sections 2.3(a),  2.4(a) or 2.4(b)
requesting  the  Lender  to make,  continue  making  or  convert  into LIBO Rate
Advances shall be construed as a request to make or to continue  making Floating
Rate Advances.

         Section 2.13 Lockbox; Collateral Account; Application of Payments.

         (a)      Lockbox.  Upon the Lender's request during any Default Period,
each Borrower shall instruct all account debtors to pay all Accounts directly to
a special lockbox (the "Lockbox") to be under the Lender's  control.  After such
request,   all  invoices,   account   statements   and  other  written  or  oral
communications  directing,  instructing,  demanding or requesting payment of any
Account shall conspicuously  direct that all payments be made to the Lockbox and
shall include the Lockbox address. If,  notwithstanding  such instructions,  any


                                       23
<PAGE>

Borrower  receives any payments on Accounts,  such  Borrower  shall deposit such
payments into the Collateral Account. The Borrowers shall also deposit all other
cash  proceeds  of  Collateral  directly  to the  Collateral  Account.  Until so
deposited, each Borrower shall hold all such payments and cash proceeds in trust
for and as the property of the Lender and shall not commingle such property with
any of its other funds or property. All deposits in the Collateral Account shall
constitute  proceeds  of  Collateral  and shall not  constitute  payment  of the
Obligations.

         (b)      Collateral Accounts.

                  (i)      Each  Borrower  shall  cause  all  checks  and  other
         non-cash payments on Accounts to be deposited to account No. 4311266522
         or to account  No.  4166577288  maintained  with Wells Fargo Bank Texas
         within one Banking Day of receipt.  Until so  deposited,  each Borrower
         shall hold all such  payments  in trust for and as the  property of the
         Lender  and shall not  commingle  such  payments  with any of its other
         funds or property.

                  (ii)     Amounts  deposited in a Collateral  Account shall not
         bear  interest and shall not be subject to  withdrawal by any Borrower,
         except after full payment and discharge of all Obligations.

                  (iii)    All deposits in a Collateral Account shall constitute
         proceeds  of  Collateral  and  shall  not  constitute  payment  of  the
         Obligations.  The Lender from time to time at its discretion may, after
         allowing  one Banking  Day,  apply  deposited  funds in any  Collateral
         Account to the  payment of the  Obligations,  in any order or manner of
         application  satisfactory to the Lender,  by transferring such funds to
         the Lender's general account.

                  (iv)     All items  deposited in any Collateral  Account shall
         be subject to final payment. If any such item is returned  uncollected,
         the Borrowers will immediately pay the Lender,  or, for items deposited
         in a Collateral Account,  the bank maintaining such account, the amount
         of that item, or such bank at its discretion may charge any uncollected
         item  to the  Borrowers'  commercial  account  or  other  account.  The
         Borrowers shall be liable as an endorser on all items deposited in each
         Collateral Account, whether or not in fact endorsed by a Borrower.

         Section 2.14 Termination of Credit Facility;  Automatic Renewal. Unless
terminated  by the  Lender  during a Default  Period or by the  Parent  Borrower
pursuant to Section 2.15,  the Credit  Facility shall remain in effect until the
Original Maturity Date and, thereafter, shall automatically renew for successive
one year periods (the Original  Maturity Date and each  anniversary date thereof
to which the Credit Facility has been automatically  renewed, is herein referred
to as a "Maturity Date") unless the Parent Borrower  provides the Lender with 90
days prior written notice of its election not to renew the Credit Facility.

         Section  2.15  Voluntary  Prepayment;  Reduction  of the Maximum  Line;
Termination  of the  Credit  Facility  by the  Borrowers.  Except  as  otherwise
provided  herein,  the Borrowers may prepay the Advances in whole at any time or


                                       24
<PAGE>

from time to time in part.  The Borrowers  may terminate the Credit  Facility or
reduce  the  Maximum  Line at any time if they (a) give the  Lender  at least 30
days' prior written  notice and (b) pay the Lender  termination  or Maximum Line
reduction fees in accordance with Section 2.10(e).  Any reduction in the Maximum
Line  must be in an amount of not less than  $500,000  or an  integral  multiple
thereof. If the Borrowers reduce the Maximum Line to zero, all Obligations shall
be immediately  due and payable.  Subject to termination of the Credit  Facility
and  payment  and  performance  of all  Obligations,  the Lender  shall,  at the
Borrowers' expense,  release or terminate the Security Interest and the Security
Documents to which the Borrowers are entitled by law.

         Section 2.16 Mandatory Prepayment. Without notice or demand, if the sum
of the  outstanding  principal  balance of the  Revolving  Advances plus the L/C
Amount shall at any time exceed the  Borrowing  Base,  the  Borrowers  shall (a)
first,  immediately  prepay the  Revolving  Advances to the extent  necessary to
eliminate such excess;  and (b) if prepayment in full of the Revolving  Advances
is  insufficient  to  eliminate  such excess,  pay to the Lender in  immediately
available  funds for  deposit  in the  Special  Account  an amount  equal to the
remaining excess.  Any payment received by the Lender under this Section 2.16 or
under Section 2.15 may be applied to the Obligations,  in such order and in such
amounts as the Lender, in its discretion, may from time to time determine.

         Section 2.17  Revolving  Advances to Pay  Obligations.  Notwithstanding
anything in Section 2.2, the Lender may, in its  discretion  at any time or from
time to time,  without the  Borrowers'  request and even if the  conditions  set
forth in Section  4.2 would not be  satisfied,  make a  Revolving  Advance in an
amount  equal  to the  portion  of the  Obligations  from  time to time  due and
payable.

         Section 2.18 Use of Proceeds.  The Borrowers  shall use the proceeds of
Advances and each Letter of Credit for ordinary working capital purposes.

         Section 2.19  Liability  Records.  The Lender may maintain from time to
time, at its discretion,  records as to the Obligations. All entries made on any
such  record  shall be  presumed  correct  until  the  Borrowers  establish  the
contrary.  Upon the Lender's  demand,  the  Borrowers  will admit and certify in
writing the exact principal  balance of the Obligations  that the Borrowers then
assert to be outstanding.  Any billing  statement or accounting  rendered by the
Lender shall be conclusive and fully binding on the Borrowers  unless the Parent
Borrower gives the Lender  specific  written notice of exception  within 30 days
after receipt.


                                   ARTICLE III

                      SECURITY INTEREST; OCCUPANCY; SETOFF
                      ------------------------------------

         Section 3.1 Grant of Security  Interest.  Each Borrower hereby pledges,
assigns  and grants to the  Lender a lien and  security  interest  (collectively


                                       25
<PAGE>

referred to as the "Security  Interest") in the Collateral,  as security for the
payment and  performance of the  Obligations.  Upon request by the Lender,  each
Borrower will grant the Lender a security interest in all commercial tort claims
it may have against any Person.

         Section 3.2  Notification of Account  Debtors and Other  Obligors.  The
Lender may at any time during any Default  Period  notify any account  debtor or
other person obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid directly to
the  Lender.  The  applicable  Borrower  will join in giving  such notice if the
Lender so  requests.  At any time after the  applicable  Borrower  or the Lender
gives such notice to an account  debtor or other  obligor,  the Lender may,  but
need not, in the Lender's name or in the applicable Borrower's name, (a) demand,
sue for,  collect  or  receive  any money or  property  at any time  payable  or
receivable on account of, or securing,  any such right to payment,  or grant any
extension  to, make any  compromise  or  settlement  with or otherwise  agree to
waive,   modify,   amend  or  change  the  obligations   (including   collateral
obligations)  of any  such  account  debtor  or  other  obligor;  and (b) as the
Borrowers' agent and  attorney-in-fact,  notify the United States Postal Service
to change the  address  for  delivery  of each  Borrower's  mail to any  address
designated by the Lender, otherwise intercept each Borrower's mail, and receive,
open and dispose of each Borrower's  mail,  applying all Collateral as permitted
under this  Agreement and holding all other mail for the  Borrowers'  account or
forwarding such mail to such Borrower's last known address.

         Section 3.3  Assignment  of Insurance.  As additional  security for the
payment and performance of the Obligations,  each Borrower hereby assigns to the
Lender  any and all monies  (including  proceeds  of  insurance  and  refunds of
unearned  premiums)  due or to become  due under,  and all other  rights of such
Borrower  with respect to, any and all policies of insurance  now or at any time
hereafter  covering  the  Collateral  or any  evidence  thereof or any  business
records or valuable papers pertaining thereto,  and each Borrower hereby directs
the issuer of any such policy to pay all such monies directly to the Lender.  At
any time,  whether or not a Default Period then exists, the Lender may (but need
not), in the Lender's name or in any Borrower's name,  execute and deliver proof
of  claim,  receive  all such  monies,  endorse  checks  and  other  instruments
representing payment of such monies, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.

         Section 3.4 Occupancy.

         (a)      Each  Borrower  hereby  irrevocably  grants to the  Lender the
right to take exclusive  possession of the Premises at any time during a Default
Period.

         (b)      The  Lender  may  use the  Premises  only  to  hold,  process,
manufacture,  sell, use, store, liquidate,  realize upon or otherwise dispose of
goods that are  Collateral  and for other  purposes  that the Lender may in good
faith deem to be related or incidental purposes.


                                       26
<PAGE>

         (c)      The  Lender's  right  to hold the  Premises  shall  cease  and
terminate  upon  the  earlier  of (i)  payment  in  full  and  discharge  of all
Obligations  and  termination  of the  Credit  Facility,  and (ii) final sale or
disposition of all goods constituting  Collateral and delivery of all such goods
to purchasers.

         (d)      The Lender  shall not be  obligated  to pay or account for any
rent or other  compensation  for the possession,  occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any rent
or  other  compensation  for  the  possession,  occupancy  or  use of any of the
Premises,  the Borrowers shall reimburse the Lender promptly for the full amount
thereof.  In addition,  the Borrowers will pay, or reimburse the Lender for, all
taxes,  fees, duties,  imposts,  charges and expenses at any time incurred by or
imposed  upon the  Lender  by  reason  of the  execution,  delivery,  existence,
recordation,  performance  or enforcement of this Agreement or the provisions of
this Section 3.4.

         Section 3.5  License.  Without  limiting  the  generality  of any other
Security  Document,  each Borrower hereby grants to the Lender a  non-exclusive,
worldwide and royalty-free  license to use or otherwise exploit all Intellectual
Property  Rights  of the  Borrower  for  the  purpose  of:  (a)  completing  the
manufacture of any in-process  materials  during any Default Period so that such
materials  become  saleable  Inventory,  all in accordance with the same quality
standards  previously  adopted by such  Borrower for its own  manufacturing  and
subject to such  Borrower's  reasonable  exercise  of quality  control;  and (b)
selling,  leasing or  otherwise  disposing of any or all  Collateral  during any
Default Period.

         Section 3.6 Financing Statement. Each Borrower authorizes the Lender to
file from time to time where permitted by law, such financing statements against
collateral  described as "all personal property" or describing specific items of
collateral  including  commercial  tort claims as the Lender deems  necessary or
useful  to  perfect  the  Security  Interest.  A carbon,  photographic  or other
reproduction  of  this  Agreement  or of any  financing  statement  signed  by a
Borrower is sufficient as a financing  statement and may be filed as a financing
statement in any state to perfect the security  interests  granted  hereby.  For
this purpose, certain information is set forth in Schedule 3.6.

         Section 3.7 Setoff. The Lender may at any time or from time to time, at
its sole discretion and without demand and without notice to anyone,  setoff any
liability  owed to any Borrower by the Lender,  whether or not due,  against any
Obligation,  whether  or not due.  In  addition,  each  other  Person  holding a
participating interest in any Obligations shall have the right to appropriate or
setoff any deposit or other  liability then owed by such Person to any Borrower,
whether  or not due,  and apply the same to the  payment  of said  participating
interest,  as fully as if such  Person had lent  directly to that  Borrower  the
amount of such participating interest.

         Section 3.8  Collateral.  This Agreement does not contemplate a sale of
accounts,  contract  rights or chattel  paper,  and,  as  provided  by law,  the
Borrowers  are  entitled  to  any  surplus  and  shall  remain  liable  for  any
deficiency.  The  Lender's  duty of  care  with  respect  to  Collateral  in its


                                       27
<PAGE>

possession  (as  imposed  by law)  shall be  deemed  fulfilled  if it  exercises
reasonable  care  in  physically  keeping  such  Collateral,  or in the  case of
Collateral  in the  custody or  possession  of a bailee or other  third  person,
exercises  reasonable care in the selection of the bailee or other third person,
and the Lender  need not  otherwise  preserve,  protect,  insure or care for any
Collateral.  The  Lender  shall not be  obligated  to  preserve  any  rights the
Borrowers may have against prior parties, to realize on the Collateral at all or
in any  particular  manner  or  order  or to  apply  any  cash  proceeds  of the
Collateral in any particular order of application.  The Lender has no obligation
to clean-up or otherwise  prepare the Collateral for sale.  Each Borrower waives
any right it may have to require  the Lender to pursue any third  person for any
of the Obligations.

         Section 3.9  Accommodation  Party Defenses  Waived.  The parties intend
that  each  Borrower  shall be fully  liable,  jointly  and  severally,  for all
Obligations.  Nonetheless, in case a court finds that any Borrower is not such a
primary  obligor  with  respect  to all  or any  part  of the  Obligations,  the
Borrowers  expressly  waive the benefit of any and all defenses  and  discharges
available to a guarantor,  surety,  endorser or accommodation party dependent on
an  obligor's  character  as  such.  Without  limiting  the  generality  of  the
foregoing,  the  liability of each Borrower  hereunder  shall not be affected or
impaired in any way by any of the following  acts or things (which the Lender is
hereby  expressly  authorized  to do, omit or suffer  from time to time  without
notice to or consent of anyone):  (i) any  acceptance  of  collateral  security,
guarantors,  accommodation  parties or sureties  for any  Obligations;  (ii) any
extension  or renewal of any  Obligations  (whether  or not for longer  than the
original  period) or any  modification  of the interest rate,  maturity or other
terms of any  Obligations;  (iii) any waiver or indulgence  granted to any other
Borrower or the Guarantor, and any delay or lack of diligence in the enforcement
of the  Obligations;  (iv)  any  full  or  partial  release  of,  compromise  or
settlement  with, or agreement not to sue, any other Borrower,  the Guarantor or
other person liable on any Obligations; (v) any release, surrender, cancellation
or other  discharge of any  Obligations  or the  acceptance of any instrument in
renewal or substitution for any instrument evidencing any Obligations;  (vi) any
failure to obtain  collateral  security  (including  rights of  setoff)  for any
Obligations,  or to see to the  proper or  sufficient  creation  and  perfection
thereof, or to establish the priority thereof, or to preserve,  protect, insure,
care for, exercise or enforce any collateral security for any Obligations; (vii)
any modification,  alteration,  substitution, exchange, surrender, cancellation,
termination, release or other change, impairment,  limitation, loss or discharge
of any Collateral, or other collateral security for the Obligations;  (viii) any
assignment,  sale,  pledge or other transfer of any of Obligations;  or (ix) any
manner,  order or  method of  application  of any  payments  or  credits  on any
Obligations.


                                   ARTICLE IV

                              CONDITIONS OF LENDING
                              ---------------------

         Section 4.1 Conditions  Precedent to the Initial  Revolving Advance and
Letter of Credit. The Lender's  obligation to make the initial Advance hereunder


                                       28
<PAGE>

or to cause any Letters of Credit to be issued shall be subject to the condition
precedent that the Lender shall have received all of the following, each in form
and substance satisfactory to the Lender:

         (a)      This Agreement, properly executed by each Borrower.

         (b)      The Note, properly executed by each Borrower.

         (c)      A true and correct copy of the leases for the Premises located
in Elgin,  Illinois;  Mesquite,  Texas; Missouri City, Texas; and Oklahoma City,
Oklahoma; together with a landlord's disclaimer and consent with respect to each
such lease.

         (d)      The Collection  Account  Agreement,  properly executed by each
Borrower.

         (e)      Current  searches of appropriate  filing offices  showing that
(i) no Liens have been filed and remain in effect  against any  Borrower  except
Permitted  Liens or Liens held by Persons who have  agreed in writing  that upon
receipt of proceeds  of the  initial  Advances,  they will  satisfy,  release or
terminate such Liens in a manner satisfactory to the Lender, and (ii) the Lender
has duly  filed all  financing  statements  necessary  to perfect  the  Security
Interest,  to the extent the Security  Interest is capable of being perfected by
filing.

         (f)      A  certificate  of  each  Borrower's  Secretary  or  Assistant
Secretary  certifying that attached to such  certificate are (i) the resolutions
of the Borrower's Directors and, if required, Owners, authorizing the execution,
delivery and performance of the Loan Documents,  (ii) true, correct and complete
copies  of the  Borrower's  Constituent  Documents,  and (iii)  examples  of the
signatures  of the  Borrower's  Officers  or agents  authorized  to execute  and
deliver the Loan Documents and other  instruments,  agreements and certificates,
including Advance requests, on that Borrower's behalf.

         (g)      For  each  Borrower,  a  current  certificate  issued  by  the
Secretary of State of that Borrower's  jurisdiction of organization,  certifying
that Borrower is in compliance with all applicable  organizational  requirements
of such State.

         (h)      Evidence  that each  Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary.

         (i)      An  opinion of counsel  to the  Borrowers  and the  Guarantor,
addressed to the Lender.

         (j)      Certificates  of the insurance  required  hereunder,  with all
hazard insurance  containing a lender's loss payable endorsement in the Lender's
favor and with all  liability  insurance  naming  the  Lender  as an  additional
insured.


                                       29
<PAGE>

         (k)      An amended and  restated  guaranty,  properly  executed by TLF
Canada.

         (l)      A certificate  of the secretary or assistant  secretary of TLF
Canada  certifying as to (i) the  resolutions of the Directors and, if required,
Owners, of that company  authorizing the execution,  delivery and performance of
the guaranty and the security  agreement executed and delivered to the Lender by
it; (ii) the  company's  articles  of  incorporation  and bylaws;  and (iii) the
signatures  of the  Officers or agents  authorized  to execute and deliver  such
guaranty and security agreement on behalf of such company.

         (m)      Current  searches of appropriate  filing offices  showing that
(i) no tax or  judgment  liens have been filed and remain in effect  against TLF
Canada,  (ii) no  financing  statements  have been  filed  and  remain in effect
against such company except financing statements acceptable to the Lender in its
sole  discretion,  and (iii) the Lender has duly filed all financing  statements
necessary to perfect its security  interest in the property of such company,  to
the extent such security interests are capable of being perfected by filing.

         (n)      An amended and restated security  agreement,  duly executed by
TLF Canada.

         (o)      Payment of the fees and  commissions  due under  Section  2.10
through  the date of the  initial  Advance  or  Letter of  Credit  and  expenses
incurred  by the  Lender  through  such  date  and  required  to be  paid by the
Borrowers under Section 8.8,  including all legal expenses  incurred through the
date of this Agreement.

         (p)      Such other  documents as the Lender in its sole discretion may
require.

         Section 4.2 Conditions  Precedent to All Advances and Letters of Credit
The Lender's  obligation to make each Advance and to cause each Letter of Credit
to be issued shall be subject to the further conditions precedent that:

         (a)      the representations and warranties  contained in Article V are
correct on and as of the date of such  Advance or issuance of a Letter of Credit
as  though  made  on  and as of  such  date,  except  to the  extent  that  such
representations and warranties relate solely to an earlier date; and

         (b)      no event has occurred and is continuing,  or would result from
such Advance or issuance of a Letter of Credit which constitutes a Default or an
Event of Default.


                                       30
<PAGE>

                                    ARTICLE V

                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

         Each Borrower represents and warrants to the Lender as follows:

         Section  5.1  Existence  and  Power;   Name;  Chief  Executive  Office;
Inventory and Equipment Locations;  Federal Employer Identification Number. Each
Borrower is duly organized, validly existing and in good standing under the laws
of the State of its  organization  and is duly licensed or qualified to transact
business in all  jurisdictions  where the  character  of the  property  owned or
leased or the nature of the business  transacted  by it makes such  licensing or
qualification necessary.  Each Borrower has all requisite power and authority to
conduct its business,  to own its properties and to execute and deliver,  and to
perform all of its obligations  under,  the Loan  Documents.  For each Borrower,
during its existence,  (a) it has done business solely under the names set forth
in Schedule 5.1, (b) its chief executive  office and principal place of business
is located at the  address  set forth in  Schedule  5.1,  (c) all of its records
relating to its business or the Collateral are kept at that location, (d) all of
its  Inventory  and Equipment is located at that location or at one of the other
locations set forth in Schedule 5.1 hereto,  and (e) its tax  identification and
organizational  identification  numbers are  correctly set forth in Schedule 3.6
hereto.

         Section 5.2  Capitalization.  Schedule  5.2  constitutes  a correct and
complete list of all Persons holding  ownership  interests and rights to acquire
ownership  interests  which if fully  exercised  would cause such Person to hold
more than ten percent  (10%) of all  ownership  interests  of any  Borrower on a
fully diluted basis, and an organizational chart showing the ownership structure
of all Subsidiaries of each Borrower.

         Section  5.3  Authorization  of  Borrowing;  No  Conflict  as to Law or
Agreements. The execution, delivery and performance by each Borrower of the Loan
Documents  and the  borrowings  from  time  to time  hereunder  have  been  duly
authorized by all necessary corporate or partnership action, as the case may be,
and do not and will not (a) require  any  consent or approval of any  Borrower's
Owners; (b) require any authorization,  consent or approval by, or registration,
declaration  or  filing  with,  or  notice  to,  any  governmental   department,
commission,  board, bureau,  agency or instrumentality,  domestic or foreign, or
any third party, except such  authorization,  consent,  approval,  registration,
declaration,  filing or notice as has been obtained, accomplished or given prior
to the date hereof;  (c) violate any  provision of any law,  rule or  regulation
(including Regulation X of the Board of Governors of the Federal Reserve System)
or of  any  order,  writ,  injunction  or  decree  presently  in  effect  having
applicability to any Borrower or of any Borrower's  Constituent  Documents;  (d)
result in a breach of or  constitute  a default  under any  indenture or loan or
credit agreement or any other material  agreement,  lease or instrument to which
any  Borrower  is a party  or by  which  it or its  properties  may be  bound or
affected;  or (e) result in, or require,  the creation or imposition of any Lien
(other than the Security Interest) upon or with respect to any of the properties
now owned or hereafter acquired by any Borrower.


                                       31
<PAGE>

         Section 5.4 Legal Agreements.  This Agreement constitutes and, upon due
execution by the Borrowers,  the other Loan Documents will constitute the legal,
valid  and  binding  obligations  of the  Borrowers,  enforceable  against  each
Borrower in accordance with their respective terms.

         Section 5.5  Subsidiaries.  Except as set forth in Schedule 5.5 hereto,
no Borrower has any Subsidiaries.

         Section 5.6 Financial Condition;  No Adverse Change. The Borrowers have
furnished to the Lender audited  financial  statements for its fiscal year ended
December 31, 2000 and unaudited interim financial statements dated as of January
31, 2002, and those statements fairly present the Borrowers' financial condition
on the dates thereof and the results of their  operations and cash flows for the
periods  then ended and were  prepared in  accordance  with  generally  accepted
accounting  principles.  Since the date of the most recent financial statements,
there has been no material adverse change in any Borrower's business, properties
or condition (financial or otherwise).

         Section  5.7  Litigation.  There are no actions,  suits or  proceedings
pending or, to any  Borrower's  knowledge,  threatened  against or affecting any
Borrower or any of its  Affiliates  or the  properties of any Borrower or any of
its Affiliates before any court or governmental department,  commission,  board,
bureau,  agency or  instrumentality,  domestic or foreign,  which, if determined
adversely  to that  Borrower  or any of its  Affiliates,  would  have a material
adverse  effect on the  financial  condition,  properties  or operations of that
Borrower or any of its Affiliates.

         Section 5.8  Regulation  U. No  Borrower is engaged in the  business of
extending  credit for the purpose of purchasing or carrying margin stock (within
the meaning of  Regulation U of the Board of  Governors  of the Federal  Reserve
System),  and no part of the proceeds of any Advance will be used to purchase or
carry  any  margin  stock or to  extend  credit to  others  for the  purpose  of
purchasing or carrying any margin stock.

         Section 5.9 Taxes.  Each Borrower and its Affiliates has paid or caused
to be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them.  Each Borrower and its  Affiliates  has
filed all  federal,  state and local tax returns  which to the  knowledge of the
Officers of that Borrower or any Affiliate,  as the case may be, are required to
be filed,  and each Borrower and its Affiliates has paid or caused to be paid to
the respective  taxing  authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.

         Section  5.10 Titles and Liens.  Each  Borrower  has good and  absolute
title to all Collateral free and clear of all Liens other than Permitted  Liens.
No  financing  statement  naming any Borrower as debtor is on file in any office
except to perfect only Permitted Liens.


                                       32
<PAGE>

         Section 5.11 Intellectual Property Rights.

         (a)      Owned Intellectual Property.  Schedule 5.11 is a complete list
of  all  patents,   applications  for  patents,  trademarks,   applications  for
trademarks,  service marks,  applications for service marks,  mask works,  trade
dress and copyrights for which any Borrower is the registered  owner (the "Owned
Intellectual Property"). Except as disclosed on Schedule 5.11, (i) the Borrowers
own  the  Owned  Intellectual  Property  free  and  clear  of  all  restrictions
(including  covenants  not to sue a third  party),  court  orders,  injunctions,
decrees,  writs or Liens,  whether by written  agreement or  otherwise,  (ii) no
Person other than the  Borrowers  own or has been granted any right in the Owned
Intellectual   Property,   (iii)  all  Owned  Intellectual  Property  is  valid,
subsisting and  enforceable  and (iv) the Borrowers have taken all  commercially
reasonable  action  necessary  to maintain  and  protect the Owned  Intellectual
Property.

         (b)      Agreements with Employees and  Contractors.  Each Borrower has
entered into a legally  enforceable  agreement  with each of its  employees  and
subcontractors  obligating each such Person to assign to such Borrower,  without
any  additional   compensation,   any  Intellectual   Property  Rights  created,
discovered or invented by such Person in the course of such Person's  employment
or engagement with such Borrower  (except to the extent  prohibited by law), and
further  requiring  such Person to  cooperate  with such  Borrower,  without any
additional   compensation,   in  connection  with  securing  and  enforcing  any
Intellectual  Property Rights  therein;  provided,  however,  that the foregoing
shall  not  apply  with  respect  to  employees  and  subcontractors  whose  job
descriptions  are of the  type  such  that no such  assignments  are  reasonably
foreseeable.

         (c)      Intellectual  Property Rights  Licensed from Others.  Schedule
5.11 is a  complete  list of all  agreements  under  which  the  Borrowers  have
licensed   Intellectual   Property   Rights  from  another   Person   ("Licensed
Intellectual Property") other than readily available, non-negotiated licenses of
computer  software and other  intellectual  property used solely for  performing
accounting,  word processing and similar  administrative  tasks  ("Off-the-shelf
Software") and a summary of any ongoing  payments the Borrowers are obligated to
make with respect  thereto.  Except as disclosed on Schedule 5.11 and in written
agreements  copies  of which  have  been  given to the  Lender,  the  Borrowers'
licenses to use the  Licensed  Intellectual  Property  are free and clear of all
restrictions,  Liens, court orders,  injunctions,  decrees, or writs, whether by
written  agreement  or  otherwise.  Except as disclosed  on Schedule  5.11,  the
Borrowers  are not  obligated  or under  any  liability  whatsoever  to make any
payments of a material  nature by way of  royalties,  fees or  otherwise  to any
owner of, licensor of, or other claimant to, any Intellectual Property Rights.

         (d)      Other  Intellectual  Property Needed for Business.  Except for
Off-the-shelf Software and as disclosed on Schedule 5.11, the Owned Intellectual
Property and the Licensed  Intellectual  Property  constitute  all  Intellectual
Property Rights used or necessary to conduct each  Borrower's  business as it is
presently conducted or as such Borrower reasonably foresees conducting it.

         (e)      Infringement.   Except  as  disclosed  on  Schedule  5.11,  no
Borrower has have  knowledge  of, or has  received  any written  claim or notice
alleging,  any  Infringement of another  Person's  Intellectual  Property Rights
(including  any written claim that a Borrower must license or refrain from using


                                       33
<PAGE>

the  Intellectual  Property  Rights of any third  party) nor, to any  Borrower's
knowledge,  is there any threatened  claim or any reasonable  basis for any such
claim.

         Section 5.12 Plans.  Except as disclosed to the Lender in writing prior
to the date hereof,  neither the Borrowers nor any ERISA Affiliate (i) maintains
or has maintained any Pension Plan,  (ii)  contributes or has contributed to any
Multiemployer Plan or (iii) provides or has provided  post-retirement medical or
insurance  benefits  with respect to employees or former  employees  (other than
benefits  required  under  Section  601 of  ERISA,  Section  4980B of the IRC or
applicable  state  law).  Neither  the  Borrowers  nor any ERISA  Affiliate  has
received  any notice or has any  knowledge  to the effect that it is not in full
compliance with any of the  requirements of ERISA,  the IRC or applicable  state
law with respect to any Plan. No Reportable  Event exists in connection with any
Pension  Plan.  Each  Plan  which is  intended  to  qualify  under the IRC is so
qualified,  and no fact or circumstance  exists which may have an adverse effect
on the  Plan's  tax-qualified  status.  Neither  the  Borrowers  nor  any  ERISA
Affiliate has (i) any accumulated  funding deficiency (as defined in Section 302
of ERISA and Section 412 of the IRC) under any Plan, whether or not waived, (ii)
any liability  under Section 4201 or 4243 of ERISA for any  withdrawal,  partial
withdrawal,  reorganization or other event under any Multiemployer Plan or (iii)
any liability or knowledge of any facts or  circumstances  which could result in
any liability to the Pension Benefit Guaranty Corporation,  the Internal Revenue
Service,  the Department of Labor or any participant in connection with any Plan
(other than routine claims for benefits under the Plan).

         Section  5.13  Default.   Each  Borrower  is  in  compliance  with  all
provisions of all agreements,  instruments,  decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which  could  have a  material  adverse  effect on the  Borrower's  financial
condition, properties or operations.

         Section 5.14 Environmental Matters.

         (a)      To each Borrower's  best knowledge,  there are not present in,
on or under the Premises any Hazardous Substances in such form or quantity as to
create any liability or  obligation  for any Borrower or the Lender under common
law of any  jurisdiction  or  under  any  Environmental  Law,  and no  Hazardous
Substances have ever been stored, buried, spilled, leaked,  discharged,  emitted
or  released  in, on or under the  Premises  in such a way as to create any such
liability.


                                       34
<PAGE>

         (b)      To each Borrower's best knowledge, no Borrower has disposed of
Hazardous  Substances  in such a manner as to  create  any  liability  under any
Environmental Law.

         (c)      There are not and there never have been any requests,  claims,
notices,  investigations,   demands,  administrative  proceedings,  hearings  or
litigation,  relating  in any  way to the  Premises  or any  Borrower,  alleging
liability under,  violation of, or noncompliance  with any  Environmental Law or
any license,  permit or other  authorization  issued pursuant  thereto.  To each
Borrower's best knowledge, no such matter is threatened or impending.

         (d)      To each Borrower's best knowledge, its businesses are and have
in the past always been conducted in accordance with all Environmental  Laws and
all  licenses,  permits  and  other  authorizations  required  pursuant  to  any
Environmental  Law and necessary for the lawful and efficient  operation of such
businesses are in that  Borrower's  possession and are in full force and effect.
No permit required under any  Environmental Law is scheduled to expire within 12
months  and  there  is no  threat  that  any  such  permit  will  be  withdrawn,
terminated, limited or materially changed.

         (e)      To each Borrower's  best  knowledge,  the Premises are not and
never  have been  listed on the  National  Priorities  List,  the  Comprehensive
Environmental  Response,  Compensation and Liability  Information  System or any
similar federal, state or local list, schedule, log, inventory or database.

         (f)      The  Borrowers  have  delivered  to Lender  all  environmental
assessments,  audits, reports,  permits, licenses and other documents describing
or relating in any way to the Premises or any Borrower's businesses.

         Section 5.15 Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrowers in  connection  with the
Borrowers' request for the credit facilities contemplated hereby is (i) true and
correct in all material respects, (ii) does not omit any material fact necessary
to make such information not misleading and, (iii) as to projections, valuations
or  proforma  financial  statements,  present a good  faith  opinion  as to such
projections, valuations and proforma condition and results.

         Section 5.16  Financing  Statements.  Each Borrower has  authorized the
filing of  financing  statements  sufficient  when filed to perfect the Security
Interest and the other  security  interests  created by the Security  Documents.
When such  financing  statements  are filed in the offices  noted  therein,  the
Lender will have a valid and perfected security interest in all Collateral which
is  capable  of being  perfected  by filing  financing  statements.  None of the
Collateral  is or will  become a fixture  on real  estate,  unless a  sufficient
fixture filing is in effect with respect thereto.

         Section  5.17  Rights  to  Payment.  Each  right  to  payment  and each
instrument,   document,  chattel  paper  and  other  agreement  constituting  or


                                       35
<PAGE>

evidencing Collateral is (or, in the case of all future Collateral, will be when
arising or issued)  the  valid,  genuine  and  legally  enforceable  obligation,
subject to no defense,  setoff or  counterclaim,  of the account debtor or other
obligor named therein or in the applicable Borrower's records pertaining thereto
as being obligated to pay such obligation.

         Section 5.18 Financial Solvency. Both before and after giving effect to
the  transactions  contemplated  in the Loan  Documents,  none of the Borrowers,
Guarantor or their Affiliates:

         (a)      was or will be insolvent,  as that term is used and defined in
Section  101(32)  of the  United  States  Bankruptcy  Code and  Section 2 of the
Uniform Fraudulent Transfer Act;

         (b)      has  unreasonably  small  capital  or is  engaged  or about to
engage in a business or a  transaction  for which any  remaining  assets of such
Borrower or such Affiliate are unreasonably small;

         (c)      by executing,  delivering or performing its obligations  under
the Loan  Documents  or other  documents to which it is a party or by taking any
action with respect thereto,  intends to, nor believes that it will, incur debts
beyond its ability to pay them as they mature;

         (d)      by executing,  delivering or performing its obligations  under
the Loan  Documents  or other  documents to which it is a party or by taking any
action with  respect  thereto,  intends to hinder,  delay or defraud  either its
present or future creditors; and

         (e)      at this time  contemplates  filing a petition in bankruptcy or
for an arrangement or reorganization or similar  proceeding under any law of any
jurisdiction, nor, to the best knowledge of the Borrowers, is the subject of any
actual,  pending or threatened  bankruptcy,  insolvency  or similar  proceedings
under any law of any jurisdiction.


                                   ARTICLE VI

                                    COVENANTS
                                    ---------

         So long as the Obligations  shall remain unpaid, or the Credit Facility
shall  remain  outstanding,   the  Borrowers  will  comply  with  the  following
requirements, unless the Lender shall otherwise consent in writing:


                                       36
<PAGE>

         Section 6.1  Reporting  Requirements.  The Borrowers  will deliver,  or
cause to be delivered,  to the Lender each of the  following,  which shall be in
form and detail acceptable to the Lender:

         (a)      Annual Financial Statements.  As soon as available, and in any
event  within 90 days after the end of each fiscal year of the Parent  Borrower,
the Borrowers will deliver, or cause to be delivered,  to the Lender, the Parent
Borrower's audited financial  statements with the unqualified  opinion of Hein &
Associates LLP or such other  accountants as are selected by the Parent Borrower
and acceptable to the Lender,  which annual  financial  statements shall include
the Parent  Borrower's  balance  sheet as at the end of such fiscal year and the
related statements of the Parent Borrower's  income,  retained earnings and cash
flows for the fiscal year then ended,  prepared, if the Lender so requests, on a
consolidating  and  consolidated  basis  to  include  any  Affiliates,   all  in
reasonable detail and prepared in accordance with GAAP, together with (i) copies
of all management letters prepared by such accountants;  (ii) a report signed by
such accountants  stating that in making the  investigations  necessary for said
opinion  they  obtained no  knowledge,  except as  specifically  stated,  of any
Default or Event of  Default  and all  relevant  facts in  reasonable  detail to
evidence,  and the  computations as to, whether or not the Parent Borrower is in
compliance with the Financial  Covenants;  and (iii) a certificate of the Parent
Borrower's chief financial  officer,  chief operating officer or chief executive
officer stating that such financial  statements have been prepared in accordance
with GAAP,  fairly represent the Parent  Borrower's  financial  position and the
results of its operations,  and whether or not such officer has knowledge of the
occurrence of any Default or Event of Default and, if so,  stating in reasonable
detail the facts with respect thereto.

         (b)      Monthly Financial Statements.  As soon as available and in any
event within 25 days after the end of each month,  the Borrowers will deliver to
the Lender an  unaudited/internal  balance  sheet and  statements  of income and
retained earnings of the Parent Borrower as at the end of and for such month and
for the year to date period then ended,  prepared, if the Lender so requests, on
a consolidating and consolidated basis to include any Affiliates,  in reasonable
detail and stating in comparative  form the figures for the  corresponding  date
and periods in the previous year, all prepared in accordance with GAAP,  subject
to year-end audit  adjustments;  and  accompanied by a certificate of the Parent
Borrower's chief financial  officer,  chief operating officer or chief executive
officer,  substantially  in the form of Exhibit B hereto  stating  (i) that such
financial  statements  have been  prepared in accordance  with GAAP,  subject to
year-end audit adjustments, and fairly represent the Parent Borrower's financial
position and the results of its operations  (ii) whether or not such officer has
knowledge of the  occurrence of any Default or Event of Default not  theretofore
reported and remedied and, if so,  stating in  reasonable  detail the facts with
respect thereto,  and (iii) all relevant facts in reasonable detail to evidence,
and the  computations as to, whether or not the Parent Borrower is in compliance
with the Financial Covenants.


                                       37
<PAGE>

         (c)      Collateral Reports. Within 25 days after the end of each month
or more frequently if the Lender so requires,  the Borrowers will deliver to the
Lender agings of each Parent Borrower's  accounts receivable and each Borrower's
accounts payable,  an inventory  certification  report for each Borrower,  and a
calculation of each Eligible Borrower's Accounts,  Eligible Accounts,  Inventory
and  Eligible  Inventory as at the end of such month or shorter time period (the
"Collateral Reports").

         (d)      Sales and Collection  Reports.  If  Availability  is less than
$750,000 at any time or if a Default Period exists,  the Borrowers  shall submit
sales and collection reports,  including sales,  collections and any adjustments
and such other reports as the Lender may reasonably require to support the sales
and collections reports, and shall submit such reports within two (2) days after
the end of each  week  until  Availability  has  been  greater  than or equal to
$750,000 at all times for four (4) consecutive weeks.

         (e)      Projections.  Before the  beginning of each fiscal year of the
Borrowers, the Borrowers will deliver to the Lender the projected balance sheets
and income  statements for each month of such year,  each in reasonable  detail,
representing  the Borrowers' good faith  projections and certified by the Parent
Borrower's chief financial officer,  chief operating officer, or chief executive
officer as being the most  accurate  projections  available and identical to the
projections used by the Borrowers for internal planning purposes,  together with
a  statement  of  underlying  assumptions  and  such  supporting  schedules  and
information as the Lender may in its discretion require.

         (f)      Litigation.  Immediately after the commencement  thereof,  the
Borrowers  will deliver to the Lender notice in writing of all litigation and of
all  proceedings  before any  governmental  or regulatory  agency  affecting any
Borrower  (i) of the type  described  in  Section  5.14(c)  or (ii) which seek a
monetary recovery against any Borrower in excess of $100,000.

         (g)      Defaults.  As  promptly as  practicable  (but in any event not
later than five business days) after an Officer of a Borrower obtains  knowledge
of the occurrence of any Default or Event of Default, the Borrowers will deliver
to the Lender notice of such occurrence, together with a detailed statement by a
responsible  Officer  of the Parent  Borrower  of the steps  being  taken by the
Borrowers to cure the effect thereof.

         (h)      Plans.  As soon as  possible,  and in any event within 30 days
after the any  Borrower  knows or has reason to know that any  Reportable  Event
with respect to any Pension Plan has occurred, the Borrowers will deliver to the
Lender a statement  of the Parent  Borrower's  chief  financial  officer,  chief
operating  officer or chief  executive  officer setting forth details as to such
Reportable Event and the action which the Borrowers propose to take with respect
thereto,  together  with a copy of the  notice of such  Reportable  Event to the
Pension  Benefit  Guaranty  Corporation.  As soon as possible,  and in any event
within  10 days  after any  Borrower  fails to make any  quarterly  contribution


                                       38
<PAGE>

required with respect to any Pension Plan under  Section  412(m) of the IRC, the
Borrowers will deliver to the Lender a statement of the Parent  Borrower's chief
operating  officer,  chief financial  officer or chief executive officer setting
forth details as to such failure and the action which the  Borrowers  propose to
take with respect  thereto,  together  with a copy of any notice of such failure
required to be provided to the Pension Benefit Guaranty Corporation.  As soon as
possible,  and in any event with 10 days after any Borrower  knows or has reason
to know  that it has or is  reasonably  expected  to have  any  liability  under
Section  4201  or  4243  of  ERISA  for  any  withdrawal,   partial  withdrawal,
reorganization or other event under any  Multiemployer  Plan, such Borrower will
deliver  to the Lender a  statement  of the Parent  Borrower's  chief  operating
officer,  chief  financial  officer or chief  executive  officer  setting  forth
details as to such liability and the action which the Borrowers proposes to take
with respect thereto.

         (i)      Disputes.  Promptly upon knowledge thereof, the Borrowers will
deliver to the Lender  notice of (i) any  disputes  or claims by any  Borrower's
customers  exceeding  $100,000  individually or $200,000 in the aggregate during
any fiscal year; (ii) credit memos;  (iii) any goods returned to or recovered by
any Borrower.

         (j)      Officers and Directors.  Promptly upon knowledge thereof,  the
Borrowers  will  deliver  to  the  Lender  notice  any  change  in  the  persons
constituting any Borrower's Officers and Directors.

         (k)      Collateral.  Promptly upon  knowledge  thereof,  the Borrowers
will  deliver  to the  Lender  notice of any loss of or  material  damage to any
Collateral  or of  any  substantial  adverse  change  in any  Collateral  or the
prospect of payment thereof.

         (l)      Commercial Tort Claims.  Promptly upon knowledge thereof,  the
Borrowers  will deliver to the Lender notice of any  commercial  tort claims any
Borrower may bring  against any person,  including  the name and address of each
defendant, a summary of the facts, an estimate of the Borrower's damages, copies
of any complaint or demand  letter  submitted by the  Borrowers,  and such other
information as the Lender may request.

         (m)      Intellectual Property.

                  (i)      The  Borrowers  will give the  Lender  30 days  prior
         written notice of any intent to acquire material  Intellectual Property
         Rights;   except  for  transfers  permitted  under  Section  6.17,  the
         Borrowers  will give the  Lender 30 days  prior  written  notice of any
         intent to dispose of material  Intellectual  Property Rights;  and upon
         request,  shall  provide  the  Lender  with  copies  of all  applicable
         documents and agreements.

                  (ii)     Promptly upon knowledge  thereof,  the Borrowers will
         deliver to the Lender notice of (A) any  Infringement  of  Intellectual
         Property Rights by others, (B) claims that the Borrowers are Infringing


                                       39
<PAGE>
<TABLE>
<CAPTION>

         another  Person's  Intellectual  Property Rights and (C) any threatened
         cancellation,   termination  or  material  limitation  of  Intellectual
         Property Rights.

                  (iii)    Promptly  upon receipt,  the Borrowers  will give the
         Lender  copies  of  all  registrations  and  filings  with  respect  to
         Intellectual Property Rights.

         (n)      Reports  to Owners.  Promptly  upon  their  distribution,  the
Borrowers will deliver to the Lender copies of all financial statements, reports
and proxy statements which the Borrowers shall have sent to their Owners.

         (o)      SEC Filings. Promptly after the sending or filing thereof, the
Borrowers will deliver to the Lender copies of all regular and periodic  reports
which any Borrower shall file with the Securities and Exchange Commission or any
national securities exchange.

         (p)      Tax Returns. Promptly upon the Lender's request, copies of the
state and federal tax returns and all schedules thereto and an updated financial
statement of each Owner of a Borrower and each Guarantor.

         (q)      Violations  of  Law.  Promptly  upon  knowledge  thereof,  the
Borrowers will deliver to the Lender notice of any  Borrower's  violation of any
law, rule or  regulation,  the  non-compliance  with which could  materially and
adversely affect any Borrower's business or its financial condition.

         (r)      Other Reports. From time to time, with reasonable  promptness,
the  Borrowers  will  deliver to the Lender any and all  receivables  schedules,
collection reports, deposit records, equipment schedules,  copies of invoices to
account debtors,  shipment  documents and delivery  receipts for goods sold, and
such other material, reports, records or information as the Lender may request.

         Section 6.2 Financial Covenants.

         (a)      Minimum Book Net Worth.  The Parent  Borrower  will  maintain,
during each period described below, its Book Net Worth, determined as at the end
of each  month,  at an amount not less than the amount set forth  opposite  such
period:

------------------------------------------------- ------------------------------------------------
                   Period                                     Minimum Book Net Worth
------------------------------------------------- ------------------------------------------------
<S>                                               <C>
   January 1st through March 30th of each year    $100,000 less than actual Book Net Worth on the
                                                              preceding December 31st
------------------------------------------------- ------------------------------------------------
    March 31st through June 29th of each year     $225,000 more than the actual Book Net Worth on
                                                            the preceding December 31st
------------------------------------------------- ------------------------------------------------
  June 30th through September 29th of each year   $450,000 more than the actual Book Net Worth on
                                                            the preceding December 31st
------------------------------------------------- ------------------------------------------------


                                       40
<PAGE>

------------------------------------------------- ------------------------------------------------
                     Period                                   Minimum Book Net Worth
------------------------------------------------- ------------------------------------------------

September 30th through December 30th of each year $675,000 more than the actual Book Net Worth on
                                                            the preceding December 31st
------------------------------------------------- ------------------------------------------------
           December 31st of each year             $900,000 more than the actual Book Net Worth on
                                                            the preceding December 31st
------------------------------------------------- ------------------------------------------------

         (b)      Minimum  Year-to-Date  Net Income.  The Parent  Borrower  will
achieve during each period described below,  fiscal  year-to-date Net Income, of
not less than the amount set forth opposite such period:

------------------------------------------------- ------------------------------------------------
                     Period                                     Minimum Net Income
------------------------------------------------- ------------------------------------------------
   January 1st through March 30th of each year                      $(100,000)
------------------------------------------------- ------------------------------------------------
    March 31st through June 29th of each year                        $225,000
------------------------------------------------- ------------------------------------------------
  June 30th through September 29th of each year                      $450,000
------------------------------------------------- ------------------------------------------------
September 30th through December 30th of each year                    $675,000
------------------------------------------------- ------------------------------------------------
           December 31st of each year                                $900,000
------------------------------------------------- ------------------------------------------------
</TABLE>


         (c)      Minimum Net Income. The Parent Borrower will achieve as of the
end of each month,  Net Income for the  three-month  period then ending,  of not
less than $(200,000).

         (d)      Capital Expenditures. The Borrowers will not incur or contract
to incur Capital  Expenditures of more than $700,000 in the aggregate during the
2001 fiscal year, or more than $500,000 in the aggregate  during any fiscal year
thereafter.

         Section 6.3 Permitted Liens; Financing Statements.

         (a)      No  Borrower  will  create,  incur or suffer to exist any Lien
upon or of any of its assets,  now owned or  hereafter  acquired,  to secure any
indebtedness;  excluding,  however,  from the  operation of the  foregoing,  the
following (collectively, "Permitted Liens"):

                  (i)      in the case of any of a Borrower's  property which is
         not Collateral,  covenants,  restrictions,  rights, easements and minor
         irregularities  in title which do not  materially  interfere  with that
         Borrower's business or operations as presently conducted;

                  (ii)     Liens in  existence  on the date hereof and listed in
         Schedule 6.3 hereto, securing indebtedness for borrowed money permitted
         under Section 6.4;


                                       41
<PAGE>


                  (iii)    the  Security  Interest  and  Liens  created  by  the
         Security Documents; and

                  (iv)     purchase money Liens  relating to the  acquisition of
         machinery  and equipment of a Borrower not exceeding the lesser of cost
         or fair  market  value  thereof,  not  exceeding  $100,000  for any one
         purchase or $250,000 in the  aggregate  during any fiscal year,  and so
         long as no Default  Period is then in  existence  and none would  exist
         immediately after such acquisition.

         (b)      No Borrower  will amend any  financing  statements in favor of
the Lender  except as permitted by law. Any  authorization  by the Lender to any
Person to amend financing statements in favor of the Lender shall be in writing.

         Section 6.4  Indebtedness.  No Borrower will incur,  create,  assume or
permit to exist any indebtedness or liability on account of deposits or advances
or any  indebtedness  for  borrowed  money or  letters  of  credit  issued  on a
Borrower's  behalf, or any other  indebtedness or liability  evidenced by notes,
bonds, debentures or similar obligations, except:

         (a)      indebtedness arising hereunder;

         (b)      indebtedness  of the Borrowers in existence on the date hereof
and listed in Schedule 6.4 hereto; and

         (c)      indebtedness relating to Permitted Liens..

         Section 6.5 Guaranties. No Borrower will assume, guarantee,  endorse or
otherwise  become  directly  or  contingently  liable  in  connection  with  any
obligations of any other Person, except:

         (a)      the  endorsement  of negotiable  instruments by a Borrower for
deposit  or  collection  or  similar  transactions  in the  ordinary  course  of
business; and

         (b)      guaranties,   endorsements  and  other  direct  or  contingent
liabilities in connection with the obligations of other Persons, in existence on
the date hereof and listed in Schedule 6.4 hereto.

         Section 6.6 Investments and Subsidiaries.  No Borrower will purchase or
hold beneficially any stock or other securities or evidences of indebtedness of,
make or  permit to exist any loans or  advances  to, or make any  investment  or
acquire any interest whatsoever in, any other Person,  including any partnership
or joint venture, except:

         (a)      investments  in direct  obligations  of the  United  States of
America or any agency or  instrumentality  thereof whose obligations  constitute
full  faith and credit  obligations  of the  United  States of America  having a
maturity of one year or less, commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by  Standard  & Poors  Corporation  or "P-1" or "P-2" by  Moody's


                                       42
<PAGE>

Investors  Service or certificates of deposit or bankers'  acceptances  having a
maturity  of one year or less issued by members of the  Federal  Reserve  System
having  deposits in excess of  $100,000,000  (which  certificates  of deposit or
bankers'  acceptances  are  fully  insured  by  the  Federal  Deposit  Insurance
Corporation);

         (b)      travel  advances  or  loans  to  a  Borrower's   Officers  and
employees not exceeding at any one time an aggregate of $35,000;

         (c)      existing  officer and employee  loans  secured by stock of the
Parent Borrower as set out on Schedule 5.5.

         (d)      loans  extended to managers of a Borrower as  permitted  under
such Borrower's bonus program;

         (e)      loans to TLF Canada not exceeding $500,000  outstanding at any
time;

         (f)      equity investment in TLF Canada not exceeding  $600,000 at any
time;

         (g)      advances in the form of progress  payments,  prepaid  rent not
exceeding two months or security deposits; and

         (h)      current  investments in the  Subsidiaries  in existence on the
date hereof and listed in Schedule 5.5 hereto.

         Section 6.7  Dividends and  Distributions.  No Borrower will declare or
pay  any  dividends  (other  than  dividends  payable  solely  in  stock  of the
applicable Borrower) on any class of its stock or make any payment on account of
the purchase, redemption or other retirement of any shares of such stock or make
any distribution in respect thereof, either directly or indirectly.

         Section 6.8 Salaries.  No Borrower  will pay excessive or  unreasonable
salaries,  bonuses,  commissions,  consultant  fees or  other  compensation;  or
increase the salary, bonus,  commissions,  consultant fees or other compensation
of any Director, Officer or consultant, or any member of their families, by more
than 15% in any one year,  either  individually  or for all such  persons in the
aggregate, or pay any such increase from any source other than profits earned in
the year of payment.

         Section  6.9  Books  and  Records;  Inspection  and  Examination.  Each
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral  and pertaining to its business and financial  condition and such
other  matters  as the  Lender  may from time to time  request in which true and
complete  entries will be made in  accordance  with GAAP and,  upon the Lender's
request,  will permit any  officer,  employee,  attorney or  accountant  for the
Lender to audit,  review,  make  extracts  from or copy any and all  company and
financial  books  and  records  of any  Borrower  at all times  during  ordinary
business  hours,  to send and discuss  with account  debtors and other  obligors
requests for verification of amounts owed to such Borrower,  and to discuss such


                                       43
<PAGE>

Borrower's  affairs with any of its  Directors,  Officers,  employees or agents.
Each Borrower hereby irrevocably authorizes all accountants and third parties to
disclose  and  deliver to  Lender,  at the  Borrower's  expense,  all  financial
information,  books and  records,  work  papers,  management  reports  and other
information  in their  possession  regarding  the  Borrower.  Each Borrower will
permit the  Lender,  or its  employees,  accountants,  attorneys  or agents,  to
examine and inspect any Collateral or any other property of such Borrower at any
time during ordinary business hours.

         Section 6.10 Account Verification.  The Lender may at any time and from
time to time send or require any Borrower to send requests for  verification  of
accounts or notices of assignment  to account  debtors and other  obligors.  The
Lender may also at any time and from time to time telephone  account debtors and
other obligors to verify accounts.

         Section 6.11 Compliance with Laws.

         (a)      Each  Borrower  will  (i)  comply  with  the  requirements  of
applicable laws and regulations,  the non-compliance with which would materially
and adversely  affect its business or its  financial  condition and (ii) use and
keep the Collateral,  and require that others use and keep the Collateral,  only
for lawful  purposes,  without  violation  of any  federal,  state or local law,
statute or ordinance.

         (b)      Without  limiting the  foregoing  undertakings,  each Borrower
specifically  agrees that it will comply with all applicable  Environmental Laws
and obtain and comply with all permits,  licenses and similar approvals required
by any Environmental Laws, and will not generate,  use, transport,  treat, store
or  dispose  of any  Hazardous  Substances  in such a manner  as to  create  any
liability  or  obligation  under  the  common  law  of any  jurisdiction  or any
Environmental Law.

         Section 6.12 Payment of Taxes and Other Claims.  Each Borrower will pay
or discharge,  when due, (a) all taxes,  assessments  and  governmental  charges
levied or imposed  upon it or upon its income or  profits,  upon any  properties
belonging to it  (including  the  Collateral)  or upon or against the  creation,
perfection or continuance of the Security  Interest,  prior to the date on which
penalties attach thereto, (b) all federal,  state and local taxes required to be
withheld  by it, and (c) all lawful  claims for labor,  materials  and  supplies
which,  if  unpaid,  might by law  become a Lien  upon  any  properties  of such
Borrower;  provided,  that no  Borrower  will be  required  to pay any such tax,
assessment,  charge or claim whose  amount,  applicability  or validity is being
contested in good faith by appropriate proceedings and for which proper reserves
have been made.

         Section 6.13 Maintenance of Properties.

         (a)      Each Borrower will keep and maintain the Collateral and all of
its other  properties  necessary  or useful in its  business in good  condition,
repair and working order  (normal wear and tear  excepted) and will from time to
time replace or repair any worn, defective or broken parts;  provided,  however,
that nothing in this Section 6.13 shall prevent any Borrower from  discontinuing


                                       44
<PAGE>

the operation and  maintenance of any of its  properties if such  discontinuance
is, in such  Borrower's  judgment,  desirable in the conduct of its business and
not  disadvantageous  in any material respect to the Lender.  Each Borrower will
take all  commercially  reasonable  steps  necessary to protect and maintain its
Intellectual Property Rights.

         (b)      Each  Borrower will defend the  Collateral  against all Liens,
claims or demands of all Persons (other than the Lender) claiming the Collateral
or any interest  therein.  Each Borrower will keep all Collateral free and clear
of all Liens except  Permitted  Liens.  Each Borrower will take all commercially
reasonable  steps necessary to prosecute any Person  Infringing its Intellectual
Property  Rights  and  to  defend  itself  against  any  Person  accusing  it of
Infringing any Person's Intellectual Property Rights.

         Section  6.14  Insurance.  Each  Borrower  will obtain and at all times
maintain insurance with insurers believed by that Borrower to be responsible and
reputable,  in such  amounts and against  such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually  carried by  companies  engaged  in  similar  business  and owning
similar  properties in the same general  areas in which that Borrower  operates.
Without  limiting the  generality  of the  foregoing,  each Borrower will at all
times maintain  business  interruption  insurance  including  coverage for force
majeure  and  keep  all  tangible  Collateral  insured  against  risks  of  fire
(including  so-called  extended  coverage),  theft,  collision  (for  Collateral
consisting  of motor  vehicles)  and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the extent
of its  interest,  and all policies of such  insurance  shall contain a lender's
loss payable  endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability  insurance  required hereunder shall name the Lender as an
additional insured.

         Section 6.15 Preservation of Existence. Each Borrower will preserve and
maintain  its  existence  and  all  of its  rights,  privileges  and  franchises
necessary or desirable in the normal  conduct of its business and shall  conduct
its business in an orderly, efficient and regular manner.

         Section 6.16 Delivery of Instruments,  etc. Upon request by the Lender,
each  Borrower will  promptly  deliver to the Lender in pledge all  instruments,
documents and chattel paper constituting  Collateral,  duly endorsed or assigned
by that Borrower.

         Section  6.17  Sale or  Transfer  of  Assets;  Suspension  of  Business
Operations.  No Borrower will sell, lease, assign, transfer or otherwise dispose
of (i) the  stock  of any  Subsidiary,  (ii)  all or a  substantial  part of its
assets,  or  (iii)  any  Collateral  or any  interest  therein  (whether  in one
transaction or in a series of  transactions)  to any other Person other than the
sale of  Inventory in the  ordinary  course of business and will not  liquidate,
dissolve or suspend business  operations.  No Borrower will transfer any part of
its  ownership  interest  in any  Intellectual  Property  Rights or  permit  any
agreement under which it has licensed Licensed  Intellectual  Property to lapse,
except that a Borrower may  transfer  such rights or permit such  agreements  to
lapse if it shall have reasonably  determined  that the applicable  Intellectual
Property  Rights are no longer useful in its business.  If a Borrower  transfers


                                       45
<PAGE>

any  Intellectual  Property  Rights for value,  that  Borrower will pay over the
proceeds to the Lender for  application  to the  Obligations.  No Borrower  will
license  any other  Person to use any of the  Borrowers'  Intellectual  Property
Rights,  except that a Borrower may grant licenses in the ordinary course of its
business in  connection  with sales of Inventory or provision of services to its
customers.

         Section 6.18 Consolidation and Merger; Asset Acquisitions.  No Borrower
will  consolidate  with or merge into any Person,  or permit any other Person to
merge into it, or acquire (in a transaction  analogous in purpose or effect to a
consolidation  or  merger)  all or  substantially  all the  assets  of any other
Person; provided, however, the Borrower may purchase assets of small independent
leather craft retailers,  or of similar businesses,  in an amount up to $150,000
per  transaction  and up to $500,000 in the aggregate  during any fiscal year so
long as (a) no Default Period is then in existence and no Event of Default would
occur as a result of such purchase, and (b) after subtracting the amount of such
purchase,  all trade payables older than 60 days from invoice date,  held checks
and book overdrafts,  the sum of Availability and cash on hand shall be not less
than $500,000.

         Section  6.19 Sale and  Leaseback.  No  Borrower  will  enter  into any
arrangement, directly or indirectly, with any other Person whereby such Borrower
shall sell or  transfer  any real or  personal  property,  whether  now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower  intends to use for
substantially  the same  purpose  or  purposes  as the  property  being  sold or
transferred.

         Section  6.20  Restrictions  on Nature of  Business.  No Borrower  will
engage in any line of business materially  different from that presently engaged
in by the Borrowers and will not purchase, lease or otherwise acquire assets not
related to its business.

                  Section 6.21 Accounting. No Borrower will adopt any material
change in accounting principles other than as required by GAAP. No Borrower will
adopt, permit or consent to any change in its fiscal year.

         Section 6.22 Discounts,  etc. After notice from the Lender, no Borrower
will grant any  discount,  credit or  allowance to any customer of a Borrower or
accept any return of goods sold.  No Borrower  will at any time  modify,  amend,
subordinate,  cancel or terminate the  obligation of any account debtor or other
obligor of a Borrower.

         Section 6.23 Plans.  Unless disclosed to the Lender pursuant to Section
5.12,  neither any  Borrower  nor any ERISA  Affiliate  will (a) adopt,  create,
assume or become a party to any  Pension  Plan,  (b)  incur  any  obligation  to
contribute  to any  Multiemployer  Plan,  (c) incur any  obligation  to  provide
post-retirement  medical or  insurance  benefits  with  respect to  employees or
former employees (other than benefits  required by law) or (d) amend any Plan in
a manner that would materially increase its funding obligations.


                                       46
<PAGE>

         Section 6.24 Place of Business;  Name.  No Borrower  will  transfer its
chief executive office or principal place of business, or move, relocate,  close
or sell any business location.  No Borrower will permit any tangible  Collateral
or any records  pertaining to the  Collateral to be located in any state or area
in which,  in the event of such location,  a financing  statement  covering such
Collateral  would be required to be, but has not in fact been, filed in order to
perfect the Security Interest.  No Borrower will change its name or jurisdiction
of organization.

         Section 6.25 Constituent  Documents;  S Corporation Status. No Borrower
will amend its Constituent Documents. No Borrower will become an S Corporation.

         Section  6.26  Performance  by the Lender.  If any Borrower at any time
fails to perform or observe any of the  foregoing  covenants  contained  in this
Article VI or elsewhere herein,  and if such failure shall continue for a period
of ten calendar days after the Lender gives the Parent  Borrower  written notice
thereof (or in the case of the  agreements  contained in Sections 6.12 and 6.14,
immediately  upon the  occurrence  of such failure,  without  notice or lapse of
time),  the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the applicable Borrower (or, at the Lender's
option,  in the  Lender's  name) and may,  but need not,  take any and all other
actions which the Lender may  reasonably  deem necessary to cure or correct such
failure  (including  the  payment  of taxes,  the  satisfaction  of  Liens,  the
performance  of  obligations  owed to  account  debtors or other  obligors,  the
procurement and maintenance of insurance, the execution of assignments, security
agreements and financing  statements,  and the endorsement of instruments);  and
the  Borrowers  shall  thereupon  pay to the  Lender on demand the amount of all
monies expended and all costs and expenses (including reasonable attorneys' fees
and legal expenses)  incurred by the Lender in connection with or as a result of
the performance or observance of such agreements or the taking of such action by
the Lender, together with interest thereon from the date expended or incurred at
the Default Rate. To facilitate  the Lender's  performance or observance of such
covenants  of the  Borrowers,  each  Borrower  hereby  irrevocably  appoints the
Lender, or the Lender's delegate,  acting alone, as that Borrower's  attorney in
fact (which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete,  execute, deliver, endorse
or file in the name and on  behalf  of that  Borrower  any and all  instruments,
documents, assignments, security agreements, financing statements,  applications
for  insurance  and other  agreements  and  writings  required  to be  obtained,
executed, delivered or endorsed by the Borrower under this Section 6.26.


                                   ARTICLE VII

                     EVENTS OF DEFAULT, RIGHTS AND REMEDIES
                     --------------------------------------

         Section  7.1  Events of  Default.  "Event of  Default",  wherever  used
herein, means any one of the following events:


                                       47
<PAGE>


         (a)      Default in the payment of any Obligations when they become due
and payable;

         (b)      Default in the  performance,  or breach,  of any  covenant  or
agreement of any Borrower contained in this Agreement;

         (c)      Any Financial  Covenant shall become  inapplicable  due to the
lapse of time  and the  failure  to amend  any  such  covenant  to cover  future
periods;

         (d)      Any Borrower or any Guarantor shall be or become insolvent, or
admit in writing its or his inability to pay its or his debts as they mature, or
make  an  assignment  for the  benefit  of  creditors;  or any  Borrower  or any
Guarantor  shall  apply  for or  consent  to the  appointment  of any  receiver,
trustee,  or similar officer for it or him or for all or any substantial part of
its or his  property;  or such  receiver,  trustee or similar  officer  shall be
appointed without the application or consent of the applicable  Borrower or such
Guarantor,  as the case may be; or any Borrower or any Guarantor shall institute
(by  petition,  application,  answer,  consent  or  otherwise)  any  bankruptcy,
insolvency,  reorganization,  arrangement,  readjustment  of debt,  dissolution,
liquidation  or similar  proceeding  relating to it or him under the laws of any
jurisdiction;   or  any  such  proceeding  shall  be  instituted  (by  petition,
application  or otherwise)  against any Borrower or any such  Guarantor;  or any
judgment,  writ,  warrant of attachment or execution or similar process shall be
issued or levied  against a substantial  part of the property of any Borrower or
any Guarantor;

         (e)      A petition  shall be filed by or against  any  Borrower or any
Guarantor  under the United States  Bankruptcy Code naming that Borrower or such
Guarantor as debtor;

         (f)      Any  representation  or warranty  made by any Borrower in this
Agreement,  by any Guarantor in any guaranty  delivered to the Lender, or by any
Borrower  (or  any  of  its  Officers)  or  any  Guarantor  in  any   agreement,
certificate,  instrument or financial statement or other statement  contemplated
by or made or delivered  pursuant to or in connection with this Agreement or any
such guaranty  shall prove to have been  incorrect in any material  respect when
deemed to be effective;

         (g)      The rendering  against any Borrower of an  arbitration  award,
final  judgment,  decree or order for the payment of money in excess of $100,000
individually  or  $250,000  in the  aggregate  in any one  fiscal  year  and the
continuance of such arbitration award, judgment, decree or order unsatisfied and
in effect for any period of 30 consecutive days without a stay of execution;

         (h)      A default under any bond, debenture, note or other evidence of
material  indebtedness of any Borrower owed to any Person other than the Lender,
or under any  indenture  or other  instrument  under which any such  evidence of
indebtedness  has been issued or by which it is governed,  or under any material


                                       48
<PAGE>

lease or other contract,  and the expiration of the applicable  period of grace,
if any, specified in such evidence of indebtedness, indenture, other instrument,
lease or contract;

         (i)      Any  Reportable  Event,  which the Lender  determines  in good
faith might  constitute  grounds for the  termination of any Pension Plan or for
the appointment by the appropriate  United States District Court of a trustee to
administer any Pension Plan, shall have occurred and be continuing 30 days after
written  notice to such effect  shall have been given to the Parent  Borrower by
the Lender;  or a trustee  shall have been  appointed by an  appropriate  United
States  District  Court to administer  any Pension Plan; or the Pension  Benefit
Guaranty Corporation shall have instituted  proceedings to terminate any Pension
Plan or to appoint a trustee to administer  any Pension Plan; or any Borrower or
any ERISA Affiliate  shall have filed for a distress  termination of any Pension
Plan under Title IV of ERISA;  or any Borrower or any ERISA Affiliate shall have
failed to make any quarterly  contribution  required with respect to any Pension
Plan under Section 412(m) of the IRC, which the Lender  determines in good faith
may by itself,  or in  combination  with any such  failures  that the Lender may
determine are likely to occur in the future,  result in the imposition of a Lien
on any  Borrower's  assets  in favor of the  Pension  Plan;  or any  withdrawal,
partial  withdrawal,  reorganization  or other event  occurs  with  respect to a
Multiemployer  Plan which results or could reasonably be expected to result in a
material  liability  of a Borrower to the  Multiemployer  Plan under Title IV of
ERISA.

         (j)      An event of default shall occur under any Security Document;

         (k)      Any Borrower shall liquidate,  dissolve,  terminate or suspend
its  business  operations  or  otherwise  fail to operate  its  business  in the
ordinary  course,  or sell or  attempt to sell all or  substantially  all of its
assets, without the Lender's prior written consent;

         (l)      Default in the payment of any amount  owed by any  Borrower to
the Lender other than any indebtedness arising hereunder;

         (m)      Any Guarantor or person  signing a support  agreement in favor
of the  Lender  shall  repudiate,  purport  to  revoke  or fail to  perform  his
obligations under his guaranty or support agreement in favor of the Lender,  any
individual Guarantor shall die or any other Guarantor shall cease to exist;

         (n)      Any event or  circumstance  with respect to any Borrower shall
occur such that the Lender  shall  believe  in good faith that the  prospect  of
payment  of all or any  part  of the  Obligations  or the  performance  by  that
Borrower under the Loan Documents is impaired or any material  adverse change in
the business or financial condition of any Borrower shall occur; or

         (o)      Any breach,  default or event of default by or attributable to
any Affiliate  under any agreement  between such  Affiliate and the Lender shall
occur.


                                       49
<PAGE>

         Section 7.2 Rights and Remedies.  During any Default Period, the Lender
may exercise any or all of the following rights and remedies:

         (a)      the Lender may, by notice to the Parent Borrower,  declare the
Commitment to be terminated, whereupon the same shall forthwith terminate;

         (b)      the Lender may, by notice to the Parent Borrower,  declare the
Obligations  to be forthwith due and payable,  whereupon all  Obligations  shall
become  and be  forthwith  due  and  payable,  without  presentment,  notice  of
dishonor,  protest or  further  notice of any kind,  all of which each  Borrower
hereby expressly waives;

         (c)      the Lender may,  without  notice to any  Borrower  and without
further  action,  apply any and all money owing by the Lender to any Borrower to
the payment of the Obligations;

         (d)      the Lender may  exercise  and  enforce  any and all rights and
remedies  available upon default to a secured party under the UCC, including the
right to take  possession of  Collateral,  or any evidence  thereof,  proceeding
without  judicial  process or by judicial  process  (without a prior  hearing or
notice thereof,  which each Borrower hereby  expressly  waives) and the right to
sell,  lease  or  otherwise  dispose  of any or all of the  Collateral  (with or
without giving any warranties as to the  Collateral,  title to the Collateral or
similar warranties),  and, in connection therewith, the Borrowers will on demand
assemble  the  Collateral  and make it  available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both parties;

         (e)      the Lender may make demand upon the Borrowers  and,  forthwith
upon such demand, the Borrowers will pay to the Lender in immediately  available
funds for deposit in the  Special  Account  pursuant  to Section  2.16 an amount
equal to the aggregate maximum amount available to be drawn under all Letters of
Credit then  outstanding,  assuming  compliance  with all conditions for drawing
thereunder;

         (f)      the Lender may  exercise  and enforce its rights and  remedies
under the Loan Documents; and

         (g)      the  Lender  may   exercise  any  other  rights  and  remedies
available to it by law or agreement.


                                       50
<PAGE>

Notwithstanding  the  foregoing,  upon the  occurrence  of an  Event of  Default
described in  subsections  (d) or (e) of Section 7.1, the  Obligations  shall be
immediately due and payable automatically without presentment,  demand,  protest
or notice of any kind. If the Lender sells any of the Collateral on credit,  the
Obligations will be reduced only to the extent of payments actually received. If
the  purchaser  fails to pay for the  Collateral,  the  Lender  may  resell  the
Collateral and shall apply any proceeds actually received to the Obligations.

         Section 7.3 Certain Notices. If notice to the Borrowers of any intended
disposition of Collateral or any other  intended  action is required by law in a
particular  instance,  such notice shall be deemed  commercially  reasonable  if
given (in the manner specified in Section 8.5) at least ten calendar days before
the date of intended disposition or other action.


                                  ARTICLE VIII

                                 MISCELLANEOUS
                                 -------------

         Section 8.1  Restatement  of Old Credit  Agreement.  This  Agreement is
executed for the purpose of amending and restating the Old Credit Agreement.

         Section 8.2 Release.  Each  Borrower,  and the Guarantor by signing the
Acknowledgment and Agreement of Guarantor set forth below, hereby absolutely and
unconditionally releases and forever discharges the Lender, the Participants and
any  and  all   parent   corporations,   subsidiary   corporations,   affiliated
corporations,  insurers,  indemnitors,  successors and assigns thereof, together
with all of the present and former directors,  officers, agents and employees of
any of the  foregoing,  from any and all claims,  demands or causes of action of
any  kind,  nature  or  description,  whether  arising  in law or equity or upon
contract  or tort or  under  any  state or  federal  law or  otherwise,  which a
Borrower or a Guarantor  has had,  now has or has made claim to have against any
such  person  for or by  reason  of any act,  omission,  matter,  cause or thing
whatsoever  arising from the beginning of time to and including the date of this
Agreement,  whether  such  claims,  demands  and causes of action are matured or
unmatured or known or unknown.

         Section 8.3 No Waiver;  Cumulative  Remedies;  Compliance with Laws. No
failure or delay by the Lender in  exercising  any right,  power or remedy under
the Loan Documents  shall operate as a waiver  thereof;  nor shall any single or
partial  exercise  of any such  right,  power or  remedy  preclude  any other or
further  exercise  thereof or the exercise of any other  right,  power or remedy
under the Loan  Documents.  The  remedies  provided  in the Loan  Documents  are
cumulative  and not  exclusive of any  remedies  provided by law. The Lender may
comply with any applicable  state or federal law requirements in connection with
a  disposition  of the  Collateral  and such  compliance  will not be considered
adversely to affect the commercial reasonableness of any sale of the Collateral.

                                       51

<PAGE>

         Section 8.4 Amendments, Etc. No amendment, modification, termination or
waiver of any  provision of any Loan Document or consent to any departure by any
Borrower  therefrom  or any release of a Security  Interest  shall be  effective
unless  the same shall be in writing  and  signed by the  Lender,  and then such
waiver or consent shall be effective  only in the specific  instance and for the
specific  purpose for which given. No notice to or demand on any Borrower in any
case shall  entitle  any  Borrower  to any other or further  notice or demand in
similar or other circumstances.

         Section 8.5 Addresses for Notices;  Requests for Accounting.  Except as
otherwise  expressly provided herein, all notices,  requests,  demands and other
communications  provided  for under the Loan  Documents  shall be in writing and
shall be (a) personally  delivered,  (b) sent by first class United States mail,
(c) sent by overnight  courier of national  reputation,  or (d)  transmitted  by
telecopy,  in each case  addressed or  telecopied to the party to whom notice is
being given at its address or  telecopier  number as set forth below next to its
signature or, as to each party,  at such other  address or telecopier  number as
may hereafter be designated by such party in a written notice to the other party
complying  as to  delivery  with the terms of this  Section.  All such  notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail,  (c) the date sent if sent by overnight  courier,  or (d) the
date of transmission  if delivered by telecopy,  except that notices or requests
to the  Lender  pursuant  to any of the  provisions  of  Article II shall not be
effective until received by the Lender.  All requests under Section 9-210 of the
UCC (i) shall be made in a writing signed by a person  authorized  under Section
2.3(b),  (ii) shall be  personally  delivered,  sent by  registered or certified
mail, return receipt requested,  or by overnight courier of national  reputation
(iii)  shall be deemed to be sent when  received  by the  Lender  and (iv) shall
otherwise comply with the  requirements of Section 9-210. The Borrowers  request
that the Lender  respond to all such requests which on their face appear to come
from an authorized  individual  and release the Lender from any liability for so
responding. The Borrowers shall pay Lender the maximum amount allowed by law for
responding to such requests.

         Section 8.6 Servicing of Credit Facility.

         (a)      The  Lender  has  entered  into  a  servicing  agreement  (the
"Servicing  Agreement")  with the  Servicer  to  service  and  enforce  the Loan
Documents and collect the  Obligations on the Lender's  behalf.  Pursuant to the
Servicing  Agreement,  the Lender has  authorized  the  Servicer to take certain
actions,  perform  certain  duties and exercise  certain  powers on the Lender's
behalf under the provisions of the Loan Documents and any other  instruments and
agreements referred to in this Agreement.

         (b)      The Servicer shall have no duties or  responsibilities  to the
Borrowers,  but only to the Lender and then only as  expressly  set forth in the
Servicing  Agreement.  Without  limiting the  generality of the  foregoing,  the
Servicer  shall  have no  obligation  to  make  any  loans  or  advances  to the
Borrowers. Neither the Servicer nor any of its Officers, Directors, employees or


                                       52
<PAGE>

agents shall be liable for any action  taken or omitted by them  hereunder or in
connection  herewith,  unless  caused by its or their  willful  misconduct.  The
Servicer's duties shall be mechanical and  administrative in nature;  nothing in
this Agreement,  express or implied,  is intended to or shall be so construed as
to impose upon the Servicer any  obligations  with respect to the Loan Documents
except as expressly  set forth  herein.  Neither the Borrowers nor any Guarantor
shall  in  any  way  be  construed  to  be a  third  party  beneficiary  of  any
relationship between the Servicer and the Lender.

         (c)      The  Servicer  shall be entitled  to rely,  and shall be fully
protected in relying, upon any communication whether written or oral believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person,  and, with respect to all legal matters pertaining to this Agreement and
its duties hereunder, upon advice of counsel selected by it.

         (d)      The Borrowers shall be entitled to rely upon any communication
whether  written or oral sent or made by the  Servicer  for and on behalf of the
Lender with  respect to all matters  pertaining  to the Loan  Documents  and the
Borrowers'  duties  and  obligations  hereunder,  unless  and until  the  Parent
Borrower  receives written notice from the Lender that the Servicer is no longer
servicing the Credit Facility.

         (e)      The  Servicer  shall  hold  and be the  custodian  of the Loan
Documents  on the Lender's  behalf for so long as the Servicer is servicing  the
Credit Facility.

         (f)      The Servicing  Agreement may be terminated at any time without
prior notice to or consent of the Borrowers.  Upon  termination of the Servicing
Agreement  and failure to replace the Servicing  Agreement  with a new servicing
agreement, all references herein to the Servicer shall thereafter mean and refer
to the Lender.

         Section 8.7 Further  Documents.  Each  Borrower  will from time to time
execute and deliver or endorse any and all instruments,  documents, conveyances,
assignments,  security agreements,  financing statements, control agreements and
other agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's rights
under  the Loan  Documents  (but any  failure  to  request  or  assure  that the
applicable  Borrower  executes,  delivers  or  endorses  any such item shall not
affect  or  impair  the  validity,  sufficiency  or  enforceability  of the Loan
Documents and the Security Interest,  regardless of whether any such item was or
was not  executed,  delivered  or  endorsed  in a similar  context or on a prior
occasion).

         Section 8.8 Costs and Expenses.  The Borrowers  shall pay on demand all
costs and expenses, including reasonable attorneys' fees, incurred by the Lender
in connection  with the  Obligations,  this Agreement,  the Loan Documents,  any
Letter of Credit and any other document or agreement  related hereto or thereto,
and the transactions contemplated hereby, including all such costs, expenses and
fees  incurred  in  connection  with the  negotiation,  preparation,  execution,


                                       53
<PAGE>

amendment,  administration,  performance,  collection  and  enforcement  of  the
Obligations and all such documents and agreements and the creation,  perfection,
protection, satisfaction, foreclosure or enforcement of the Security Interest.

         Section 8.9 Indemnity.  In addition to the payment of expenses pursuant
to Section 8.8, the  Borrowers  shall  indemnify,  defend and hold  harmless the
Lender,   and  any  of  its  participants,   parent   corporations,   subsidiary
corporations,  affiliated corporations,  successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the  "Indemnitees")  from  and  against  any  of the  following  (collectively,
"Indemnified Liabilities"):

                  (i)      any  and  all  transfer  taxes,   documentary  taxes,
         assessments or charges made by any governmental  authority by reason of
         the execution  and delivery of the Loan  Documents or the making of the
         Advances;

                  (ii)     any  claims,  loss or damage to which any  Indemnitee
         may be subjected if any representation or warranty contained in Section
         5.14  proves  to be  incorrect  in any  respect  or as a result  of any
         violation of the covenant contained in Section 6.11(b); and

                  (iii)    any  and  all  other  liabilities,  losses,  damages,
         penalties,  judgments, suits, claims, costs and expenses of any kind or
         nature  whatsoever  (including the reasonable fees and disbursements of
         counsel) in connection with the foregoing and any other  investigative,
         administrative or judicial proceedings,  whether or not such Indemnitee
         shall be designated a party thereto,  which may be imposed on, incurred
         by or asserted against any such Indemnitee, in any manner related to or
         arising out of or in connection with the making of the Advances and the
         Loan  Documents  or the  use or  intended  use of the  proceeds  of the
         Advances.

If any investigative,  judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrowers,  or counsel designated by the Parent Borrower and satisfactory to
the  Indemnitee,  will resist and defend such action,  suit or proceeding to the
extent and in the manner  directed by the  Indemnitee,  at the  Borrowers'  sole
costs and expense. Each Indemnitee will use its best efforts to cooperate in the
defense of any such action, suit or proceeding.  If the foregoing undertaking to
indemnify,  defend and hold harmless may be held to be unenforceable  because it
violates any law or public policy,  the Borrowers  shall  nevertheless  make the
maximum  contribution to the payment and satisfaction of each of the Indemnified
Liabilities   which  is  permissible   under   applicable  law.  The  Borrowers'
obligations  under  this  Section  8.9 shall  survive  the  termination  of this
Agreement and the discharge of the Borrowers' other obligations hereunder.

                  Section 8.10 Participants. The Lender and its participants, if
any, are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may


                                       54
<PAGE>

be transferred or delegated to any of the Lender's participants, successors or
assigns.

         Section 8.11 Execution in Counterparts;  Telefacsimile Execution.  This
Agreement   and  other  Loan   Documents  may  be  executed  in  any  number  of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts,  taken together, shall constitute but
one and  the  same  instrument.  Delivery  of an  executed  counterpart  of this
Agreement  by  telefacsimile  shall be equally as  effective  as  delivery of an
original  executed  counterpart  of this  Agreement.  Any  party  delivering  an
executed  counterpart of this Agreement by  telefacsimile  also shall deliver an
original  executed  counterpart  of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.

         Section 8.12 Retention of Borrowers' Records.  The Lender shall have no
obligation  to maintain  any  electronic  records or any  documents,  schedules,
invoices,  agings, or other papers delivered to the Lender by any Borrower or in
connection  with the Loan  Documents  for more than four months after receipt by
the Lender.

         Section 8.13 Binding Effect; Assignment; Complete Agreement; Exchanging
Information.  The Loan Documents  shall be binding upon and inure to the benefit
of each  Borrower and the Lender and their  respective  successors  and assigns,
except that no Borrower  will have the right to assign its rights  thereunder or
any interest therein without the Lender's prior written  consent.  To the extent
permitted by law, each Borrower  waives and will not assert against any assignee
any claims,  defenses or set-offs  which such Borrower  could assert against the
Lender.  This  Agreement  shall also bind all Persons who become a party to this
Agreement  as a borrower.  This  Agreement,  together  with the Loan  Documents,
comprises  the complete and  integrated  agreement of the parties on the subject
matter  hereof and  supersedes  all prior  agreements,  written or oral,  on the
subject matter hereof.  Without limiting the Lender's right to share information
regarding  any  Borrower  and its  Affiliates  with the  Lender's  participants,
accountants,  lawyers and other advisors, the Lender, Wells Fargo & Company, and
all direct and indirect  subsidiaries of Wells Fargo & Company, may exchange any
and all information they may have in their possession regarding any Borrower and
its Affiliates,  and each Borrower any right of confidentiality it may have with
respect to such exchange of such information.

         Section  8.14  Severability  of  Provisions.   Any  provision  of  this
Agreement  which is  prohibited or  unenforceable  shall be  ineffective  to the
extent  of  such  prohibition  or  unenforceability   without  invalidating  the
remaining provisions hereof.

         Section 8.15 Headings. Article, Section and subsection headings in this
Agreement are included  herein for  convenience  of reference only and shall not
constitute a part of this Agreement for any other purpose.


                                       55
<PAGE>

         Section 8.16 Governing Law; Jurisdiction,  Venue; Waiver of Jury Trial.
THE PARTIES AGREE THAT THE LAW OF THE STATE OF MINNESOTA (OTHER THAN CONFLICT OF
LAWS  RULES OF THE STATE OF  MINNESOTA)  SHALL BE  APPLICABLE  TO AND GOVERN ALL
ASPECTS  OF  THIS  TRANSACTION  AND,  WITHOUT  LIMITING  THE  GENERALITY  OF THE
FOREGOING,  THE PARTIES  AGREE THAT ALL DOCUMENTS  AND  AGREEMENTS  EXECUTED AND
DELIVERED IN CONNECTION WITH THIS AGREEMENT INCLUDING,  WITHOUT LIMITATION,  ALL
MATTERS  PERTAINING  TO THE VALIDITY OR  ENFORCEABILITY  OF SUCH  DOCUMENTS  AND
AGREEMENTS  AS  WELL  AS  ALL  MATTERS   PERTAINING  TO  THE  INTERPRETATION  OR
CONSTRUCTION  OF SUCH DOCUMENTS AND  AGREEMENTS,  SHALL BE DETERMINED  UNDER AND
GOVERNED  BY THE LAWS  (OTHER  THAN  CONFLICT  OF LAWS  RULES)  OF THE  STATE OF
MINNESOTA.  FURTHER, THE PARTIES AGREE THAT THE TRANSACTIONS CONTEMPLATED BY THE
LOAN  DOCUMENTS AND THE SUBJECT  MATTER OF SUCH  TRANSACTIONS  BEAR A REASONABLE
RELATION TO THE STATE OF MINNESOTA. THE PARTIES HERETO HEREBY (i) CONSENT TO THE
PERSONAL  JURISDICTION  OF THE STATE AND FEDERAL  COURTS LOCATED IN THE STATE OF
MINNESOTA IN CONNECTION  WITH ANY CONTROVERSY  RELATED TO THIS  AGREEMENT;  (ii)
WAIVE ANY ARGUMENT THAT VENUE IN ANY SUCH FORUM IS NOT  CONVENIENT,  (iii) AGREE
THAT ANY LITIGATION  INITIATED BY THE LENDER OR ANY BORROWER IN CONNECTION  WITH
THIS  AGREEMENT OR THE OTHER LOAN DOCUMENTS MAY BE VENUED IN EITHER THE DISTRICT
COURT OF  HENNEPIN  COUNTY,  MINNESOTA,  OR THE UNITED  STATES  DISTRICT  COURT,
DISTRICT OF MINNESOTA,  FOURTH DIVISION; AND (iv) AGREE THAT A FINAL JUDGMENT IN
ANY SUCH SUIT,  ACTION OR PROCEEDING  SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
OTHER  JURISDICTIONS  BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW.  THE PARTIES  WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR  PROCEEDING
BASED ON OR PERTAINING TO THIS AGREEMENT.


                                       56
<PAGE>

         THE  PARTIES  WAIVE  ANY  RIGHT  TO  TRIAL  BY  JURY IN ANY  ACTION  OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective  officers  thereunto duly authorized as of the date
first above written.

The Leather Factory, Inc.                       THE  LEATHER  FACTORY,  INC.,  a
3825 E. Loop 820 South                          Delaware  corporation;  ROBERTS,
P.O. Box 50429                                  CUSHMAN & COMPANY,  INC.,  a New
Ft. Worth, Texas  76105                         York  corporation;  THE  LEATHER
Telecopier: (817) 446-3713                      FACTORY,    INC.,    a    Nevada
Attention: Wray Thompson                        corporation; THE LEATHER FACTORY
                                                OF NEVADA  INVESTMENTS  INC.,  a
With a copy to:                                 Nevada    corporation;     TANDY
                                                LEATHER COMPANY,  INC., a Nevada
Mr. William Warren                              corporation;    TANDY    LEATHER
Loe, Warren, Rosenfield, Kaitcer & Hibbs        COMPANY  INVESTMENTS,   INC.,  a
4420 West Vickery                               Nevada   corporation;    HI-LINE
Ft. Worth, Texas  76107                         LEATHER & MANUFACTURING COMPANY,
Telecopier:  (817) 377-1120                     a  California  corporation;  and
                                                THE LEATHER  FACTORY,  INC.,  an
                                                Arizona corporation

                                                By /s/ Wray Thompson
                                                  ------------------------------
                                                  Wray Thompson
                                                  Its Chief Executive Officer


The Leather Factory, Inc.                       THE  LEATHER  FACTORY,  L.P.,  a
3825 E. Loop 820 South                          Texas limited partnership
P.O. Box 50429
Ft. Worth, Texas  76105                         By THE LEATHER FACTORY,  INC., a
Telecopier: (817) 446-3713                      Nevada  corporation  Its General
Attention: Wray Thompson                        Partner

With a copy to:

Mr. William Warren                              By /s/   Wray Thompson
Loe, Warren, Rosenfield, Kaitcer & Hibbs          ------------------------------
4420 West Vickery                                 Wray Thompson
Ft. Worth, Texas  76107                           Its Chief Executive Officer
Telecopier:  (817) 377-1120



                                       57
<PAGE>


The Leather Factory, Inc.                       TANDY LEATHER  COMPANY,  L.P., a
3825 E. Loop 820 South                          Texas limited partnership
P.O. Box 50429
Ft. Worth, Texas  76105                         By TANDY LEATHER COMPANY,  INC.,
Telecopier: (817) 446-3713                      a Nevada corporation Its General
Attention: Wray Thompson                        Partner

With a copy to:                                 By  /s/ Wray Thompson
                                                  ------------------------------
                                                  Wray Thompson
Mr. William Warren                                Its  Chief   Executive Officer
Loe, Warren, Rosenfield, Kaitcer & Hibbs
4420 West Vickery
Ft. Worth, Texas  76107
Telecopier:  (817) 377-1120

Wells Fargo Bank Minnesota, National            WELLS FARGO BANK MINNESOTA,
Association                                     NATIONAL ASSOCIATION
c/o Wells Fargo Business Credit, Inc.
4975 Preston Park Blvd., Suite 280
Plano, Texas  75093
Telecopier: (972) 867-7838                      By /s/ Thomas W. Tosney
Attention: Thomas J. Krueger                      ------------------------------
                                                  Thomas W. Tosney
                                                  Its Senior Vice President


                                       58
<PAGE>

                    ACKNOWLEDGMENT AND AGREEMENT OF GUARANTOR

            The  undersigned,  a guarantor  of the  indebtedness  of The Leather
Factory, Inc., a Delaware corporation,  Roberts,  Cushman & Company, Inc., a New
York corporation,  The Leather Factory, Inc., a Nevada corporation,  The Leather
Factory Of Nevada  Investments  Inc.,  Tandy  Leather  Company,  Inc.,  a Nevada
corporation,  Tandy Leather Company Investments, Inc., a Nevada corporation, The
Leather Factory, L.P., a Texas limited partnership, Tandy Leather Company, L.P.,
a  Texas  limited  partnership,  Hi-Line  Leather  &  Manufacturing  Company,  a
California  corporation,  The Leather Factory,  Inc., an Arizona  corporation to
Wells  Fargo Bank  Minnesota,  National  Association  pursuant to an Amended and
Restated  Guaranty of even date herewith,  hereby (i) acknowledges  receipt of a
copy of the foregoing  Amended and Restated  Credit and Security  Agreement (the
"Credit Agreement") and (ii) consents to the terms (including without limitation
the  release  set forth in Section 8.2 of the Credit  Agreement)  and  execution
thereof.

Dated: March 20, 2002

                                             THE LEATHER FACTORY OF CANADA, LTD.


                                             By /s/ Wray Thompson
                                               ------------------
                                               Wray Thompson
                                               Its Chief Executive Officer

<PAGE>

                         Table of Exhibits and Schedules

      Exhibit A                  Form of Revolving Note

      Exhibit B                  Compliance Certificate

      Exhibit C                  Premises

      Exhibit D                  Form of Notice of Borrowing

      Exhibit E                  Form of Notice of Conversion of Advances

      Exhibit F                  Form of Notice to Continue LIBO Rate Advances

      Schedule 3.6               Financing Statement Information

      Schedule 5.1               Trade Names, Chief  Executive Office, Principal
                                 Place of Business, and Locations of Collateral

      Schedule 5.2               Capitalization and Organizational Chart

      Schedule 5.5               Subsidiaries

      Schedule 5.11              Intellectual Property Disclosures

      Schedule 6.3               Permitted Liens

      Schedule 6.4               Permitted Indebtedness and Guaranties



<PAGE>

                                               Exhibit A to Amended and Restated
                                               ---------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------

                                 REVOLVING NOTE

                                               $7,500,000 Minneapolis, Minnesota
                                                                  March 20, 2002

            For value received,  the undersigned,  THE LEATHER FACTORY,  INC., a
Delaware corporation,  ROBERTS, CUSHMAN & COMPANY, INC., a New York corporation,
THE LEATHER FACTORY,  INC., a Nevada corporation,  THE LEATHER FACTORY OF NEVADA
INVESTMENTS  INC.,  TANDY LEATHER  COMPANY,  INC., a Nevada  corporation,  TANDY
LEATHER COMPANY  INVESTMENTS,  INC., a Nevada corporation,  THE LEATHER FACTORY,
L.P., a Texas limited partnership,  TANDY LEATHER COMPANY, L.P., a Texas limited
partnership,  HI-LINE LEATHER & MANUFACTURING COMPANY, a California corporation,
THE LEATHER FACTORY, INC., an Arizona corporation (collectively, the "Borrowers"
and each a "Borrower"),  hereby promise to pay on the Termination Date under the
Credit Agreement  (defined  below),  to the order of WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION, a Minnesota corporation (the "Lender"), at its main office
in Minneapolis,  Minnesota,  or at any other place designated at any time by the
holder  hereof,  in  lawful  money  of  the  United  States  of  America  and in
immediately  available  funds,  the  principal sum of Seven Million Five Hundred
Thousand  Dollars and No Cents  ($7,500,000)  or, if less, the aggregate  unpaid
principal  amount of all  Revolving  Advances made by the Lender to any Borrower
under the  Credit  Agreement  (defined  below)  together  with  interest  on the
principal amount hereunder  remaining unpaid from time to time,  computed on the
basis of the actual  number of days  elapsed and a 360-day  year,  from the date
hereof  until  this  Note is fully  paid at the rate from time to time in effect
under the  Amended  and  Restated  Credit and  Security  Agreement  of even date
herewith (the "Credit  Agreement")  by and between the Lender and the Borrowers.
The principal  hereof and interest  accruing thereon shall be due and payable as
provided in the Credit  Agreement.  This Note may be prepaid only in  accordance
with the Credit Agreement.

            This  Note  is  issued  pursuant,  and is  subject,  to  the  Credit
Agreement,  which provides,  among other things, for acceleration  hereof.  This
Note is the  Revolving  Note referred to in the Credit  Agreement.  This Note is
issued in  substitution  for and  replacement of, but not in payment of, the Old
Revolving Note (as defined in the Credit Agreement). This Note is secured, among
other things,  pursuant to the Credit  Agreement  and the Security  Documents as
therein  defined,  and may now or  hereafter  be  secured  by one or more  other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.

            The  Borrowers   shall  pay  all  costs  of  collection,   including
attorneys' fees and legal expenses if this Note is not paid when due, whether or
not legal proceedings are commenced.

<PAGE>

            Presentment  or other  demand for  payment,  notice of dishonor  and
protest are expressly waived.

THE LEATHER FACTORY, L.P.,                      THE  LEATHER  FACTORY,  INC.,  a
a Texas limited partnership                     Delaware  corporation;  ROBERTS,
                                                CUSHMAN & COMPANY,  INC.,  a New
By  THE LEATHER FACTORY, INC.,                  York  corporation;  THE  LEATHER
    a Nevada corporation                        FACTORY,    INC.,    a    Nevada
    Its General Partner                         corporation; THE LEATHER FACTORY
                                                OF NEVADA  INVESTMENTS  INC.,  a
By /s/ Wray Thompson                            Nevada    corporation;     TANDY
  -------------------                           LEATHER COMPANY,  INC., a Nevada
  Wray Thompson                                 corporation;    TANDY    LEATHER
  Its Chief Executive Officer                   COMPANY  INVESTMENTS,   INC.,  a
                                                Nevada   corporation;    HI-LINE
TANDY LEATHER COMPANY, L.P.,                    LEATHER & MANUFACTURING COMPANY,
a Texas limitedpartnership                      a  California  corporation;  and
                                                THE LEATHER  FACTORY,  INC.,  an
By TANDY LEATHER COMPANY, INC.,                 Arizona corporation
      a Nevada corporation
      Its General Partner                         By /s/ Wray Thompson
                                                    ----------------------------
      By /s/ Wray Thompson                          Wray Thompson
        ------------------                          Its Chief Executive Officer
        Wray Thompson
        Its Chief Executive Officer

                                      A-2

<PAGE>

                                               Exhibit B to Amended and Restated
                                               ---------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------

                             Compliance Certificate

To:      Thomas J. Krueger
         Wells Fargo Bank Minnesota, National Association

Date:    ___________________________, 200___

Subject: The  Leather  Factory,  Inc.,  Roberts,  Cushman & Company,  Inc.,  The
         Leather Factory,  Inc., The Leather Factory Of Nevada Investments Inc.,
         Tandy Leather Company,  Inc., Tandy Leather Company Investments,  Inc.,
         The Leather Factory, L.P., Tandy Leather Company, L.P., Hi-Line Leather
         & Manufacturing Company, The Leather Factory, Inc.

         Financial Statements

         In  accordance  with our  Amended  and  Restated  Credit  and  Security
Agreement dated as of March 20, 2002 (the "Credit Agreement"),  attached are the
financial  statements  of The Leather  Factory,  Inc.,  a Delaware  corporation,
Roberts,  Cushman & Company, Inc., a New York corporation,  The Leather Factory,
Inc., a Nevada  corporation,  The Leather  Factory Of Nevada  Investments  Inc.,
Tandy  Leather  Company,  Inc.,  a Nevada  corporation,  Tandy  Leather  Company
Investments,  Inc., a Nevada  corporation,  The Leather  Factory,  L.P., a Texas
limited partnership,  Tandy Leather Company,  L.P., a Texas limited partnership,
Hi-Line Leather & Manufacturing Company, a California  corporation,  The Leather
Factory, Inc., an Arizona corporation (collectively,  the "Borrowers" and each a
"Borrower") as of and for  ________________,  200___ (the "Reporting  Date") and
the year-to-date period then ended (the "Current Financials"). All terms used in
this certificate have the meanings given in the Credit Agreement.

         I certify that the Current  Financials have been prepared in accordance
with GAAP,  subject to  year-end  audit  adjustments,  and  fairly  present  the
Borrowers' financial condition as of the date thereof.

         Events of Default. (Check one):
                  -----------------

         |_|      The undersigned does not have knowledge of the occurrence of a
                  Default or Event of Default under the Credit  Agreement except
                  as previously reported in writing to the Lender.

<PAGE>
<TABLE>
<CAPTION>

         |_|      The  undersigned  has knowledge of the occurrence of a Default
                  or Event of Default under the Credit  Agreement not previously
                  reported  in writing to the  Lender and  attached  hereto is a
                  statement of the facts with respect to thereto.  The Borrowers
                  acknowledge  that  pursuant  to  Section  2.9(c) of the Credit
                  Agreement,  the Lender may impose the Default Rate at any time
                  during the resulting Default Period.

                  Financial Covenants. I further hereby certify as follows:
                  -------------------

         1.       Minimum  Book Net Worth.  Pursuant  to  Section  6.2(a) of the
Credit Agreement, as of the Reporting Date, the Parent Borrower's Book Net Worth
was $____________  which |_| satisfies |_| does not satisfy the requirement that
such amount be not less than  $_____________  on the Reporting Date as set forth
in table below:

------------------------------------------------- ---------------------------------------------------
                      Period                                    Minimum Book Net Worth
------------------------------------------------- ---------------------------------------------------
<S>                                               <C>
      January 1st through March 30th of each        $100,000 less than actual Book Net Worth on the
                       year                                     preceding December 31st
------------------------------------------------- ---------------------------------------------------
       March 31st through June 29th of each       $225,000 more than the actual Book Net Worth on the
                       year                                     preceding December 31st
------------------------------------------------- ---------------------------------------------------
       June 30th through September 29th of        $450,000 more than the actual Book Net Worth on the
                    each year                                   preceding December 31st
------------------------------------------------- ---------------------------------------------------
     September 30th through December 30th of      $675,000 more than the actual Book Net Worth on the
                    each year                                   preceding December 31st
------------------------------------------------- ---------------------------------------------------
            December 31st of each year            $900,000 more than the actual Book Net Worth on the
                                                                preceding December 31st
------------------------------------------------- ---------------------------------------------------

         2.       Minimum Year-to-Date Net Income. Pursuant to Section 6.2(b) of
the Credit Agreement,  the Parent Borrower's fiscal  year-to-date Net Income for
the ________ period ending on the Reporting Date, was  $____________,  which |_|
satisfies |_| does not satisfy the requirement that such amount be not less than
$_____________ during such period as set forth in table below:


----------------------------- ------------------- ---------------------------------------------------
                     Period                                        Minimum Net Income
------------------------------------------------- ---------------------------------------------------
   January 1st through March 30th of each year                        $(100,000)
------------------------------------------------- ---------------------------------------------------
    March 31st through June 29th of each year                          $225,000
------------------------------------------------- ---------------------------------------------------
  June 30th through September 29th of each year                        $450,000
------------------------------------------------- ---------------------------------------------------
September 30th through December 30th of each year                      $675,000
------------------------------------------------- ---------------------------------------------------
           December 31st of each year                                  $900,000
------------------------------------------------- ---------------------------------------------------
</TABLE>

<PAGE>

         3.       Minimum Net Income.  Pursuant to Section  6.2(c) of the Credit
Agreement, the Parent Borrower's Net Income for the three-month period ending on
the Reporting Date, was $____________,  which |_| satisfies |_| does not satisfy
the requirement that such amount be not less than $(200,000).

         4.       Capital Expenditures. Pursuant to Section 6.2(d) of the Credit
Agreement,  for the  year-to-date  period  ending  on the  Reporting  Date,  the
Borrowers  have  expended or  contracted  to expend during the fiscal year ended
______________,  200___, for Capital  Expenditures,  $__________________  in the
aggregate,  which |_| satisfies |_| does not satisfy the  requirement  that such
expenditures  not exceed $700,000 in the aggregate  during the 2001 fiscal year,
or more than $500,000 in the aggregate during any fiscal year thereafter.

         5.       Salaries.  As of the Reporting Date, the Borrowers |_| are |_|
are not in  compliance  with  Section  6.8 of the  Credit  Agreement  concerning
salaries.

         Attached  hereto  are  all  relevant  facts  in  reasonable  detail  to
evidence,  and the  computations of the financial  covenants  referred to above.
These computations were made in accordance with GAAP.

                                           THE LEATHER FACTORY, INC., a Delaware
                                           corporation



                                           By ____________________________
                                           Its Chief Financial Officer


                                       B-3
<PAGE>
<TABLE>
<CAPTION>

                                               Exhibit C to Amended and Restated
                                               ---------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------

                                    Premises

         The  Premises  referred  to in the  Amended  and  Restated  Credit  and
Security Agreement are described as follows:

------ ----------------------------------- ------ -----------------------------------
Unit #               Location              Unit #               Location
------ ----------------------------------- ------ -----------------------------------
<S>    <C>                                 <C>    <C>
  01   The Leather Factory, L.P.             02   The Leather Factory, L.P.
       3101 Williams Street                       4488 Forest Street
       Chattanooga, TN 37410                      Denver, CO 80216
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  03   1818 North Cameron Street             04   3847 East Loop 820 South
       Harrisburg, PA 17110                       Fort Worth, TX 76119
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  05   2750 North Clovis Avenue              06   5041 N.E. 14th Street
       Fresno, CA 93747                           Des Moines, IA 50316
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  07   425 North 19th Avenue                 08   2341 East Kearney
       Phoenix, AZ 85009                          Springfield, MO 65803
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  09   28 West Boone Avenue                  10   2412 Candelaria, NE
       Spokane, WA 99201                          Albuquerque, NM 87107
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  11   1101 South State Street               12   1376-A Main Avenue
       Salt Lake City, UT 84111                   Baldwin Park, CA 91706
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  13   4901-A Rio Vista                      14   5710 Mobud Street
       Tampa, FL 33634                            San Antonio, TX 78238
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  15   4683 Morse Center Drive               16   8340 Burnham Road, Suite 100
       Columbus, OH 43229                         El Paso, TX 79907
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  17   919 East 14th Street                  18   3134 South Division Avenue
       Oakland, CA 94606                          Wyoming, MI 49548
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  19   2435 West Pawnee                      20   5617 Crawford Street
       Wichita, KS 67213                          New Orleans, LA 70123
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  21   13221 N.E. Whitaker Way               22   2526 South Tyron Street
       Portland, OR 97230                         Charlotte, NC 28203
------ ----------------------------------- ------ -----------------------------------

<PAGE>

------ ----------------------------------- ------ -----------------------------------
Unit #               Location              Unit #               Location
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  23   115 North 30th Street                 24   5320 Cameron Road
       Billings, MT 59101                         Austin, TX 78723
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  25   3651 East 44th Street                 26   1703 Texas Parkway
       Tucson, AZ 85713                           Missouri City, Texas 77489-2171
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory, L.P.                  The Leather Factory, L.P.
  27   3201 Military Parkway #C-100          28   1041 David Road
       Mesquite, Texas 75149-2790                 Elgin, Illinois 60123
------ ----------------------------------- ------ -----------------------------------
       Roberts, Cushman & Company, Inc.           The Leather Factory of Canada, Ltd.
  50   3510-36th Avenue                      70   104 King Edward Street East
       Long Island City, NY 11106                 Winnipeg, Manitoba R3H ON8
------ ----------------------------------- ------ -----------------------------------
       The Leather Factory of Canada, Ltd.        Tandy Leather Company, L.P.
  71   5562 Tomken Road                      101  5882 E. Berry Street
       Mississauga, Ontario L4W 1P4               Fort Worth, Texas 76119-4388
------ ----------------------------------- ------ -----------------------------------
  102  Tandy Leather Company, L.P.           103  Tandy Leather Company, L.P.
       1339 Southwest 59th Street                 285 North Orchard Street
       Oklahoma City, Oklahoma 73119              Boise, Idaho 83706
------ ----------------------------------- ------ -----------------------------------
</TABLE>

                                      C-2

<PAGE>

                                               Exhibit D to Amended and Restated
                                               ---------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------

                               NOTICE OF BORROWING

                             -------------, -------

TO:      Wells Fargo Bank Minnesota, National Association
         c/o Wells Fargo Business Credit, Inc.
         4975 Preston Park Blvd., Suite 280
         Plano, Texas  75093
         Telecopier: (972) 867-7838
         Attention: Thomas J. Krueger


         We refer to that  certain  Amended  and  Restated  Credit and  Security
Agreement  dated as of March 20,  2002 (as  amended  or  modified  to date,  the
"Credit  Agreement")  by and  between  The  Leather  Factory,  Inc.,  a Delaware
corporation,  Roberts,  Cushman & Company,  Inc.,  a New York  corporation,  The
Leather  Factory,  Inc.,  a Nevada  corporation,  The Leather  Factory Of Nevada
Investments  Inc.,  Tandy Leather  Company,  Inc., a Nevada  corporation,  Tandy
Leather Company  Investments,  Inc., a Nevada corporation,  The Leather Factory,
L.P., a Texas limited partnership,  Tandy Leather Company, L.P., a Texas limited
partnership,  Hi-Line Leather & Manufacturing Company, a California corporation,
The  Leather  Factory,  Inc.,  an  Arizona  corporation  and  Wells  Fargo  Bank
Minnesota,  National Association Capitalized terms used herein but not otherwise
defined shall have the same meanings assigned to them in the Credit Agreement.

         Pursuant to Section 2.3(b) of the Credit  Agreement,  we hereby request
or confirm  our  request  for an Advance on the date,  of the type(s) and in the
amount(s) specified below.



                                                                 Interest Period
                                                                 (LIBO Rate
Amount of Advance     Type of Advance      Date of Borrowing     Advances Only)
-----------------     ---------------      -----------------     ---------------
$

                                           THE LEATHER FACTORY, INC., a Delaware
                                           corporation


                                           By
                                             -----------------------------------
                                           Its
                                              ----------------------------------


<PAGE>

                                               Exhibit E to Amended and Restated
                                               ---------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------

                   NOTICE OF CONVERSION TO LIBO RATE ADVANCES

                             -------------, -------

TO:      Wells Fargo Bank Minnesota, National Association
         c/o Wells Fargo Business Credit, Inc.
         4975 Preston Park Blvd., Suite 280
         Plano, Texas  75093
         Telecopier: (972) 867-7838
         Attention: Thomas J. Krueger


         We refer to that  certain  Amended  and  Restated  Credit and  Security
Agreement  dated as of March 20,  2002 (as  amended  or  modified  to date,  the
"Credit  Agreement")  by and  between  The  Leather  Factory,  Inc.,  a Delaware
corporation,  Roberts,  Cushman & Company,  Inc.,  a New York  corporation,  The
Leather  Factory,  Inc.,  a Nevada  corporation,  The Leather  Factory Of Nevada
Investments  Inc.,  Tandy Leather  Company,  Inc., a Nevada  corporation,  Tandy
Leather Company  Investments,  Inc., a Nevada corporation,  The Leather Factory,
L.P., a Texas limited partnership,  Tandy Leather Company, L.P., a Texas limited
partnership,  Hi-Line Leather & Manufacturing Company, a California corporation,
The  Leather  Factory,  Inc.,  an  Arizona  corporation  and  Wells  Fargo  Bank
Minnesota,  National Association Capitalized terms used herein but not otherwise
defined shall have the same meanings assigned to them in the Credit Agreement.

         Pursuant to Section 2.4(a) of the Credit  Agreement,  we hereby request
or confirm our request that  Floating  Rate  Advances in the  aggregate  amounts
specified  below be converted  to LIBO Rate  Advances on the date(s) and for the
Interest Period(s) specified below.

Amount of Floating Rate
Advances To Be Converted           Date of Conversion            Interest Period
------------------------           ------------------            ---------------
$

<PAGE>


                                           THE LEATHER FACTORY, INC., a Delaware
                                           corporation



                                           By
                                             -----------------------------------
                                           Its
                                              ----------------------------------


                                      E-2

<PAGE>

                                               Exhibit F to Amended and Restated
                                               ---------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------

                      NOTICE TO CONTINUE LIBO RATE ADVANCE

                             -------------, -------

TO:      Wells Fargo Bank Minnesota, National Association
         c/o Wells Fargo Business Credit, Inc.
         4975 Preston Park Blvd., Suite 280
         Plano, Texas  75093
         Telecopier: (972) 867-7838
         Attention: Thomas J. Krueger


         We refer to that  certain  Amended  and  Restated  Credit and  Security
Agreement  dated as of March 20,  2002 (as  amended  or  modified  to date,  the
"Credit  Agreement")  by and  between  The  Leather  Factory,  Inc.,  a Delaware
corporation,  Roberts,  Cushman & Company,  Inc.,  a New York  corporation,  The
Leather  Factory,  Inc.,  a Nevada  corporation,  The Leather  Factory Of Nevada
Investments  Inc.,  Tandy Leather  Company,  Inc., a Nevada  corporation,  Tandy
Leather Company  Investments,  Inc., a Nevada corporation,  The Leather Factory,
L.P., a Texas limited partnership,  Tandy Leather Company, L.P., a Texas limited
partnership,  Hi-Line Leather & Manufacturing Company, a California corporation,
The  Leather  Factory,  Inc.,  an  Arizona  corporation  and  Wells  Fargo  Bank
Minnesota,  National Association Capitalized terms used herein but not otherwise
defined shall have the same meanings assigned to them in the Credit Agreement.

         Pursuant to Section 2.4(b) of the Credit  Agreement,  we hereby request
or confirm  our  request  that LIBO Rate  Advances  in the  aggregate  amount(s)
specified  below  be  renewed  on the  date(s)  and for the  Interest  Period(s)
specified below.

  Amount of LIBO Rate                 Date of
Advances to be Renewed        Expiring Interest Period       New Interest Period
----------------------        ------------------------       -------------------
$



                                           THE LEATHER FACTORY, INC., a Delaware
                                           corporation


                                           By
                                             -----------------------------------
                                           Its
                                              ----------------------------------

<PAGE>
<TABLE>
<CAPTION>


                                            Schedule 3.6 to Amended and Restated
                                            ------------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------

                         Financing Statement Information

-------------------------------------------------------------   --------------------------------------------------------
<S>                                                             <C>
Name, address and employer identification                       Name, address and
number of Debtor:                                               number of Debtor:

The Leather Factory, Inc., a Delaware corporation               The Leather Factory, L.P., a Texas limited partnership
3825 E. Loop 820 South                                          3825 E. Loop 820 South
P.O. Box 50429                                                  P.O. Box 50429
Ft. Worth, Texas 76105                                          Ft. Worth, Texas 76105
Employer Identification No. 75-2543540                          Employer Identification No. 75-1721123
Organization Identification No. 2390602                         Organization Identification No.  14407810

-------------------------------------------------------------   --------------------------------------------------------
Name, address and employer identification                       Name, address and employer identification
number of Debtor:                                               number of Debtor:

The Leather Factory, Inc., an Arizona corporation               Roberts, Cushman & Company, Inc.
3825 E. Loop 820 South                                          c/o The Leather Factory, Inc.
P.O. Box 50429                                                  3825 E. Loop 820 South
Ft. Worth, Texas 76105                                          P.O. Box 50429
Employer Identification No. 86-0540648                          Ft. Worth, Texas 76105
Organization Identification No.  01831844                       Employer Identification No. 13-2682601
                                                                Organization Identification No.  N/A

-------------------------------------------------------------   --------------------------------------------------------
Name, address and employer identification                       Name, address and employer identification
number of Debtor:                                               number of Debtor:

Hi-Line Leather & Manufacturing Company                         The Leather Factory, Inc., a Nevada corporation
c/o The Leather Factory, Inc.                                   c/o The Leather Factory, Inc.
3825 E. Loop 820 South                                          3825 E. Loop 820 South
P.O. Box 50429                                                  P.O. Box 50429
Ft. Worth, Texas 76105                                          Ft. Worth, Texas 76105
Employer Identification No. 94-1122115                          Employer Identification No. 88-0481097
Organization Identification No. CO202932                        Organization Identification No. D32939-2000

-------------------------------------------------------------   --------------------------------------------------------

<PAGE>

-------------------------------------------------------------   --------------------------------------------------------
Name, address and employer identification                       Name, address and employer identification
number of Debtor:                                               number of Debtor:

The Leather Factory of Nevada Investments, Inc., a Nevada       Tandy Leather Company, Inc., a Nevada corporation
corporation                                                     c/o The Leather Factory, Inc.
c/o The Leather Factory, Inc.                                   3825 E. Loop 820 South
3825 E. Loop 820 South                                          P.O. Box 50429
P.O. Box 50429                                                  Ft. Worth, Texas 76105
Ft. Worth, Texas 76105                                          Employer Identification No.  88-0481095
Employer Identification No. 88-0481093                          Organization Identification No. C32944-2000
Organization Identification No. D32879-2000
-------------------------------------------------------------   --------------------------------------------------------
Name, address and employer identification                       Name, address and employer identification
number of Debtor:                                               number of Debtor:

Tandy Leather Company Investments, Inc., a Nevada corporation   Tandy Leather Company, L.P., a Texas limited partnership
c/o The Leather Factory, Inc.                                   c/o The Leather Factory, Inc.
3825 E. Loop 820 South                                          3825 E. Loop 820 South
P.O. Box 50429                                                  P.O. Box 50429
Ft. Worth, Texas 76105                                          Ft. Worth, Texas 76105
Employer Identification No. 88-0481098                          Employer Identification No. 75-2909082
Organization Identification No. C32877-2000                     Organization Identification No. 14425210

-------------------------------------------------------------   --------------------------------------------------------
Name, address and employer identification
number of Secured Party:

Wells Fargo Bank Minnesota, National Association
c/o Wells Fargo Business Credit, Inc.
4975 Preston Park Blvd. Suite 280
Plano, Texas  75093
Federal Tax Identification No. 41-1237652

-------------------------------------------------------------   --------------------------------------------------------
</TABLE>

                                      -2-

<PAGE>


                                            Schedule 5.1 to Amended and Restated
                                            ------------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------



             Trade Names, Chief Executive Office, Principal Place of
                     Business, and Locations of Collateral



                                   Trade Names
                                   -----------


                            The Leather Factory, Inc.
                        Roberts, Cushman & Company, Inc.
                     Hi-Line Leather & Manufacturing Company
                               The Leather Factory
                           Royal Crown Custom Leathers
                         Midas Leathercraft Tool Company
                                   Tejas Lace
                                  Midas Metals
                              Tandy Leather Company



               Chief Executive Office/Principal Place of Business
               --------------------------------------------------


                            3825 East Loop 820 South
                             Fort Worth, Texas 76119


                     Other Inventory and Equipment Locations
                     ---------------------------------------

                   See locations as listed on Exhibit C hereof


<PAGE>
<TABLE>
<CAPTION>

                                            Schedule 5.2 to Amended and Restated
                                            ------------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------

                     Capitalization and Organizational Chart


                                 Capitalization

---------------------------- ----------------------------- ----------------------------------
 Type/Class/Series of Stock   Number of authorized shares   Number of issued and outstanding
                                                                         shares
---------------------------- ----------------------------- ----------------------------------
<S>                          <C>                           <C>
           Common                     25,000,000                       10,011,161
---------------------------- ----------------------------- ----------------------------------
         Preferred                    20,000,000                          None
---------------------------- ----------------------------- ----------------------------------
</TABLE>

Describe any outstanding  subscriptions,  options,  warrants,  calls, contracts,
--------------------------------------------------------------------------------
demands, commitments, or convertible securities.
------------------------------------------------

         The shares  beneficially owned by Mr. Morgan and Ms. Morgan are held as
community property.

         Evert J.  Schlinger  also holds an option to acquire  200,000 shares at
approximately  $.44  per  share  pursuant  to a  consulting  agreement  with the
Company. In May 1998 Mr. Schlinger exercised an option to acquire 100,000 shares
which  were  concurrently  donated  to the  Schlinger  Foundation,  of which Mr.
Schlinger is President and sole Trustee.  Both the Foundation and Mr.  Schlinger
disclaim ownership of the share or options owned by the other.

         The Trustee of the  Employee's  Stock  Ownership  Plan & Trust ("ESOP")
votes the shares held by ESOP which are allocated to  participant  accounts,  as
directed by the participants or beneficiaries of the ESOP and, except in certain
limited circumstances, may acquire and dispose of the assets of the ESOP only as
the  ESOP  Committee  of the ESOP  directs.  The  ESOP  Committee  is made up of
officers and other employee  participants of the Company and presently  consists
of Ronald C. Morgan, Robin L. Morgan,  Shannon Greene,  Lawrence E. Allen, James
Villwock and Jon  Thompson.  As members of this  Committee,  such persons may be
deemed to share  investment  power with respect to the allocated  shares held by
the ESOP.  Each of the members of the ESOP  Committee  disclaims any  beneficial
ownership  of the  securities  held by the ESOP  except for those that have been
allocated  to such  member as a  participant  in the ESOP.  The total  number of
shares held by the ESOP includes 400,123 shares which are beneficially  owned by
Directors and the above-names  Executive Officers and are reflected in the table
as being owned by such persons.

Stock Option Plans
------------------

         The Company has outstanding  options to purchase its common stock under
the 1995 Stock  Option Plan for officers and key  management  employees  and the
1995 Director  Non-qualified Stock Option Plan for non-employee  directors.  The

<PAGE>
<TABLE>
<CAPTION>

plan for employees provides for the granting of either qualified incentive stock
options or non-qualified options at the discretion of the Compensation Committee
of the Board of  Directors.  Options are granted at the fair market value of the
underlying  common  stock at the date of  grant.  Employee  options  vest over a
five-year period while the director  options vest after six months.  All options
expire  ten years from the date of grant and are  exercisable  at any time after
vesting.  The Company has reserved 1,100,000 shares of common stock for issuance
under these plans,  and at December 31, 2001, 2000 and 1999, there were 116,000;
587,000; and 647,000;  respectively,  in un-optioned shares available for future
grants.

         A summary of stock option transactions for the years ended December 31,
2000, 1999, and 1998, is as follows:

                                         2001                     2000                     1999
                                 ----------------------   ----------------------   ----------------------
                                               Weighted                 Weighted                 Weighted
                                               Average                  Average                  Average
                                   Option      Exercise     Option      Exercise     Option      Exercise
                                   Shares       Price       Shares       Price       Shares       Price
                                 ---------    ---------   ---------    ---------   ---------    ---------
<S>                              <C>          <C>         <C>          <C>         <C>          <C>
Outstanding at January 31          458,000    $   0.814     453,000    $   0.779     543,000        0.758
Granted                            477,000        1.361      60,000        0.958      10,000        0.690
Forfeited or expired                (6,000)       0.751        --           --      (100,000)       0.656
Exchanged                             --           --          --           --          --           --
Exercised                          (83,000)       0.761     (55,000)       0.676        --           --
                                 ---------    ---------   ---------    ---------   ---------    ---------
Outstanding at December 31         846,000    $   1.128     458,000    $   0.814     453,000    $   0.779
                                 =========    =========   =========    =========   =========    =========
Exercisable at end of year         844,000    $   1.123     358,000    $   0.820     318,000    $   0.813
                                 =========    =========   =========    =========   =========    =========
Weighted-average fair value of
 Options granted during year     $    0.81                $    0.61                $    0.45
                                 =========                =========                =========

         The following table  summarizes  outstanding  options into groups based
upon exercise price ranges at December 31, 2001:

                                        Options Outstanding                      Options Exercisable
                                 ----------------------------------    ----------------------------------
                                               Weighted   Weighted                  Weighted     Weighted
                                               Average    Average                    Average     Average
                                   Option      Exercise   Maturity       Option     xercise      Maturity
 Exercise Price Range              Shares       Price      (Years)       Shares      Price       (Years)
 --------------------            ---------    ---------   ---------    ---------   ---------    ---------
   $0.75 or Less                    42,000    $   0.584        6.29       42,000   $   0.584         6.29


More than $0.75 and
  Less Than $1.00                  315,000        0.832        4.54      315,000       0.832         4.54

  More than $1.00                  489,000        1.365        9.67      487,000       1.358         9.69
                                 ---------    ---------   ---------    ---------   ---------    ---------
                                   846,000    $   1.128        7.59      844,000   $   1.123         7.60
                                 =========    =========   =========    =========   =========    =========
</TABLE>

Warrants
--------

         In connection  with the issuance of a  Subordinated  Debenture in 1997,
which has since then been satisfied in its entirety, the Company issued warrants

                                      -2-

<PAGE>

to  acquire up to  100,000  shares of Common  Stock at $.54 per share to certain
unrelated individuals. The warrants may be exercised at anytime until expiration
on November 21, 2002.

         Warrants  to  acquire  up  to  200,000   shares  of  common   stock  at
approximately  $0.44 per share  were  issued in  conjunction  with a  consulting
agreement  to an  unrelated  individual  in August  1998.  The  warrants  may be
exercised  at anytime  until  expiration  on August 3, 2003.  The fair value for
these warrants was estimated at the date of grant using the Black Scholes option
pricing  model  with  the  following  weighted-average  assumptions:   risk-free
interest rate of 5.0%;  dividend yield of 0%;  volatility factor of .645; and an
expected life of 3 years.  The  estimated  fair value of the warrants of $40,000
was recorded as an expense in 1998.

                              Organizational Chart

The Leather Factory, Inc., a Delaware corporation (the "TLF Delaware")
Roberts, Cushman & Company, Inc., a New York corporation ("Roberts Cushman")
The Leather Factory of Canada, Ltd. ("TLF Canada")
The Leather Factory, Inc., a Nevada corporation ("TLF Nevada")
The Leather  Factory of Nevada  Investments,  Inc., a Nevada  corporation  ("TLF
Investments")
Tandy Leather Company, Inc., a Nevada corporation ("Tandy Nevada")
Tandy  Leather  Company   Investments,   Inc.,  a  Nevada  corporation   ("Tandy
Investments")
The Leather Factory, L.P., a Texas limited partnership ("TLF Texas LP")
Tandy Leather Company, L.P., a Texas limited partnership ("Tandy Texas LP")
The Leather Factory, Inc., an Arizona corporation ("TLF Arizona")
Hi-Line Leather & Manufacturing Company, a California corporation ("Hi-Line")

                              ------------
                              TLF Delaware
                              ------------

---------------  ----------  ------------- ---------------  -----------------
Roberts Cushman   LF Canada     Hi-Line    TLF Investments  Tandy Investments
---------------  ----------  ------------- ---------------  -----------------
                                              TLF Nevada      Tandy Nevada
                                           ---------------  -----------------

                                           ---------------  -----------------
                                             TLF Texas LP    Tandy Texas LP
                                           ---------------  -----------------

                                           ---------------
                                             TLF Arizona
                                           ---------------

                                      -3-

<PAGE>

                                            Schedule 5.5 to Amended and Restated
                                            ------------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------


                                  SUBSIDIARIES



                       The Leather Factory of Canada, Ltd.





                       OFFICER AND EMPLOYEE LOANS SECURED
                           BY STOCK OF PARENT BORROWER



            Mark Angus - $52,783.09 (balance as of December 31, 2001)





<PAGE>




                                           Schedule 5.11 to Amended and Restated
                                           -------------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------


                        INTELLECTUAL PROPERTY DISCLOSURES



                                 [SEE ATTACHED]






<PAGE>




                                            Schedule 6.3 to Amended and Restated
                                            ------------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------


                                 Permitted Liens

 UCC liens securing the Permitted Indebtedness as listed on Schedule 6.4 hereof



<PAGE>
<TABLE>
<CAPTION>

                                            Schedule 6.4 to Amended and Restated
                                            ------------------------------------
                                                   Credit and Security Agreement
                                                   -----------------------------


                      Permitted Indebtedness and Guaranties


                                  Indebtedness


------------------  ----------------  -------------  ----------  ------------------------

     Creditor       Principal Amount  Maturity Date   Monthly           Collateral
                                                      Payment
------------------  ----------------  -------------  ----------  ------------------------
<S>                 <C>               <C>            <C>         <C>
AC Financial Corp.     $65,150.00      August 2002    $2,599.00     Computer Equipment
------------------  ----------------  -------------  ----------  ------------------------

 Toyota Financial      $18,676.48     February 2004     $571.57  Forklift (Serial #61536)
------------------  ----------------  -------------  ----------  ------------------------
</TABLE>



                                   Guaranties
                                   ----------

                                      NONE



</TEXT>
</DOCUMENT>
