ex10_2.htm


    
    

    
      
        

      

    

    
      	 	
              
                 

                Credit
                  Agreement

              

            


    

    
      


       

      This
        agreement dated as of July 31, 2007 between JPMorgan Chase Bank, N.A. (together
        with its successors and assigns, the "Bank"), whose address is 420 Throckmorton,
        Suite 400, Fort Worth, TX 76102, and The Leather Factory, L.P. (whether one
        or
        more, and if more than one, individually and collectively, the "Borrower"),
        whose address is 3847 East Loop 820 South, Fort Worth, TX 76119-4388.

    

    
       

      1.        Credit
        Facilities.

    

    
       

      
        	
              	
                1.1

              	
                Scope.
                  This agreement, unless otherwise agreed to in writing
                  by the Bank
                  and the Borrower or prohibited by applicable
                  law, governs the Credit Facilities as defined below. Advances under
                  the
                  Credit Facilities shall be subject to the procedures established
                  from time
                  to time by the Bank. Any procedures agreed to by the Bank with
                  respect to
                  obtaining advances including automatic loan sweeps shall not vary
                  the
                  terms or conditions of this agreement or the Related Documents
                  regarding
                  the Credit Facilities.

              


      

    

     

    
      2.        Definitions.
        As used in this agreement, the following terms have the following
        respective meanings:

    

    
       

      
        	
              	
                2.1

              	
                "Credit
                  Facilities" means all extensions of credit from the Bank to the
                  Borrower,
                  whether now existing or hereafter arising, including but not limited
                  to
                  those described in Section 1 if any, and those extended contemporaneously
                  with this agreement.

              


      

    

    
       

      
        	
              	
                2.2

              	
                "Liabilities"
                  means all debts, obligations, indebtedness and liabilities of every
                  kind
                  and character of the Borrower whether individual, joint and several,
                  contingent or otherwise, now or hereafter existing in favor of
                  the Bank,
                  including, without limitation, all liabilities, interest, costs
                  and fees,
                  arising under or from any note, open account, overdraft, credit
                  card,
                  lease, Rate Management Transaction, letter of credit application,
                  endorsement, surety agreement, guaranty, acceptance, foreign exchange
                  contract or depository service contract, whether payable to the
                  Bank or to
                  a third party and subsequently acquired by the Bank, any monetary
                  obligations (including interest) incurred or accrued during the
                  pendency
                  of any bankruptcy, insolvency, receivership or other similar proceedings,
                  regardless of whether allowed or allowable in such proceeding,
                  and all
                  renewals, extensions, modifications, consolidations, rearrangements,
                  restatements, replacements or substitutions of any of the foregoing.
                  The
                  term "Rate Management Transaction" in this agreement means any
                  transaction
                  (including an agreement with respect thereto) that is a rate swap,
                  basis
                  swap, forward rate transaction, commodity swap, commodity option,
                  equity
                  or equity index swap, equity or equity index option, bond option,
                  interest
                  rate option, foreign exchange transaction, cap transaction, floor
                  transaction, collar transaction, forward transaction, currency
                  swap
                  transaction, cross-currency rate swap transaction, currency option,
                  derivative transaction or any other similar transaction (including
                  any
                  option with respect to any of these transactions) or any combination
                  thereof, whether linked to one or more interest rates, foreign
                  currencies,
                  commodity prices, equity prices or other financial
                  measures.

              


      

    

    
       

      
        	
              	
                2.3

              	
                "Notes"
                  means all promissory notes, instruments and/or contracts evidencing
                  the
                  terms and conditions of any of the Credit
                  Facilities.

              


      

    

    
       

      
        	
              	
                2.4

              	
                "Affiliate"
                  means any person, corporation or other entity directly or indirectly
                  controlling, controlled by or under common control with the Borrower
                  and
                  any director or officer of the Borrower or any Subsidiary of the
                  Borrower.

              


      

    

    
       

      
        	
              	
                2.5

              	
                "Distributions"
                  means all dividends and other distributions made by the Borrower
                  to its
                  shareholders, partners, owners or members, as the case may be,
                  other than
                  salary, bonuses, and other compensation for services expended in
                  the
                  current accounting period.

              


      

    

    
       

      
        	
              	
                2.6

              	
                "Subsidiary"
                  means, as to a particular person, any entity of which fifty (50%)
                  or more
                  of the indicia of equity rights is at the time of determination
                  directly
                  or indirectly owned by the person or by one or more persons controlled
                  by,
                  controlling or under common control with the
                  person.

              


      

    

    
       

      
        	
              	
                2.7

              	
                "Related
                  Documents" means the Notes, all loan agreements, credit agreements,
                  reimbursement agreements, security agreements, mortgages, deeds
                  of trust,
                  pledge agreements, assignments, guaranties, and any other instrument
                  or
                  document executed in connection with this agreement or in connection
                  with
                  any of the Liabilities.

              


      

    

    
       

      3.        Conditions
        Precedent to Extensions of Credit.

    

    
       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

        
          
            
              	
                    	
                      3.1

                    	
                      Conditions
                        Precedent to Initial Extension of Credit under each of the
                        Credit
                        Facilities. Before the first extension
                        of credit governed by this agreement, whether by disbursement
                        of a loan,
                        issuance of a letter of credit, or otherwise,
                        the Borrower shall deliver to the Bank, in form and substance
                        satisfactory
                        to the Bank:

                    


            

          

          
             

            
              	
                       

                    	
                      A.
                        Loan Documents. The Notes, and as applicable, the letter of
                        credit applications, reimbursement agreements, the
                        security agreements, the pledge agreements, financing statements,
                        mortgages or deeds of trust, the guaranties, the
                        subordination agreements, and any other documents which the
                        Bank may
                        reasonably require to give effect to the transactions
                        described in this agreement or the other Related
                        Documents;

                    


            

          

          
             

          

          
            
              	
                       

                    	
                      B.
                        Evidence of Due Organization and Good Standing.
                        Evidence, satisfactory to the Bank, of the due organization,
                        valid existence and good standing of the Borrower and every
                        other business
                        entity that is a party to this agreement
                        or any other Related Document;
                        and

                    


            

          

          
             

          

          
            
              	
                       

                    	
                      C.
                        Evidence of Authority to Enter into Loan Documents. Evidence that
                        (i) each party to this agreement and any other
                        document required by this agreement is authorized to enter
                        into the
                        transactions described in this agreement and
                        the other Related Documents, and (ii) the person signing
                        on behalf of each
                        party is authorized to do
                        so.

                    


            

          

          
             

          

        

      

    

    
      
        	
              	
                3.2

              	
                Conditions
                  Precedent to Each Extension of Credit. Before any extension of
                  credit governed by this agreement, whether
                  by disbursement of a loan, issuance of a letter of credit or otherwise,
                  the following conditions must be satisfied:

              


      

    

    
       

    

    
      
        	
              	
                 

              	
                A.
                  Representations. The representations of the Borrower are true on
                  and as of the date of the request for and funding
                  of the extension of
                  credit;

              


      

    

    
       

    

    
      
        	
              	
                 

              	
                B.
                  No Event of Default. No default has occurred in any provision of
                  this agreement, the Notes or any other Related
                  Documents and is continuing or would result from the extension
                  of credit,
                  and no event has occurred which would
                  constitute the occurrence of any default but for the lapse of time
                  until
                  the end of any grace or cure
                  period;

              


      

    

    
       

    

    
      
        	
              	
                 

              	
                C.
                  Additional Approvals, Opinions, and Documents. The Bank has
                  received any other approvals, opinions and documents
                  as it may reasonably request;
                  and

              


      

    

    
       

    

    
      
        	
              	
                 

              	
                D.
                  No Prohibition or Onerous Conditions. The making of the extension
                  of credit is not prohibited by or subjects the
                  Bank to any penalty or onerous condition under any law, ordinance,
                  decree,
                  requirement, order, judgment, rule, regulation
                  (or interpretation of any of the foregoing), foreign governmental
                  authority, the United States of America, any
                  state thereof and any political subdivision of any of the foregoing
                  and
                  any agency, department, commission, board,
                  bureau, court or other tribunal having jurisdiction over the Bank
                  or the
                  Borrower, or any Subsidiary of the Borrower
                  or their respective
                  properties.

              


      

    

    
       

    

    
      
        	
                4.

              	
                Affirmative
                  Covenants. The Borrower agrees to do, and cause each of its
                  Subsidiaries to do, each of the
                  following:

              


      

    

    
       

      
        	
              	
                4.1

              	
                Insurance.
                  Maintain insurance with financially sound and reputable
                  insurers,
                  with such insurance and insurers to be acceptable to the Bank,
                  covering
                  its properties and business against those casualties and contingencies
                  and
                  in the types and amounts as are in accordance with sound business
                  and
                  industry practices.

              


      

    

    
       

      
        	
              	
                4.2

              	
                Existence.
                  Maintain its existence and business operations as presently
                  in
                  effect in accordance with all applicable laws and regulations,
                  pay its
                  debts and obligations when due under normal terms, and pay on or
                  before
                  their due date, all taxes, assessments, fees and other governmental
                  monetary obligations, except as they may be contested in good faith
                  if
                  they have been properly reflected on its books and, at the Bank's
                  request,
                  adequate funds or security has been pledged to insure
                  payment.

              


      

    

    
       

      
        	
              	
                4.3

              	
                Financial
                  Records. Maintain proper books and records of account, in
                  accordance with generally accepted accounting principles, and consistent
                  with financial statements previously submitted to the
                  Bank.

              


      

    

    
       

      
        	
              	
                4.4

              	
                Inspection.
                  Permit the Bank to inspect and copy the Borrower's business
                  records at such times and at such intervals as the Bank may reasonably
                  require, and to discuss the Borrower's business, operations, and
                  financial
                  condition with the Borrower's officers and
                  accountants.

              


      

    

    
       

      
        	
              	
                4.5

              	
                Financial
                  Reports. Furnish to the Bank whatever information, books and
                  records the Bank may from time to time reasonably
                  request.

              


      

    

    
      


      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

         

      

    

    
      
        	
              	
                4.6

              	
                Notices
                  of Claims, Litigation, Defaults, etc. Promptly inform the Bank in
                  writing of (1) all existing and all threatened
                  litigation, claims, investigations, administrative proceedings
                  and similar
                  actions affecting the Borrower which could materially affect its
                  business,
                  assets, affairs, prospects or financial condition of the Borrower
                  or its
                  Subsidiaries; (2) the occurrence of any event which gives rise
                  to the
                  Bank's option to terminate the Credit Facilities; (3) the institution
                  of
                  steps by the Borrower to withdraw from, or the institution of any
                  steps to
                  terminate, any employee benefit plan as to which the Borrower may
                  have
                  liability; (4) any reportable event or any prohibited transaction
                  in
                  connection with any employee benefit plan; (5) any additions to
                  or changes
                  in the locations of the Borrower's or any of the Borrower's or
                  Subsidiary's businesses; and (6) any alleged breach of any provision
                  of
                  this agreement or of any other agreement related to the Credit
                  Facilities
                  by the Bank.

              


      

    

    
       

    

    
      
        	
              	
                4.7

              	
                Additional
                  Information. Furnish such additional information and statements,
                  as the Bank may request, from time to
                  time.

              


      

    

    
       

      
        	
              	
                4.8

              	
                Insurance
                  Reports. Furnish to the Bank, upon request of the Bank, reports
                  on each existing insurance policy showing such information as the
                  Bank may
                  reasonably request.

              


      

    

    
       

      
        	
              	
                4.9

              	
                Other
                  Agreements. Comply with all terms and conditions of all other
                  agreements, whether now or hereafter existing, between the Borrower
                  and
                  any other party.

              


      

    

    
       

      
        	
              	
                4.10

              	
                Title
                  to Assets and Property. Maintain good and marketable title to all
                  of the Borrower's assets and
                  properties.

              


      

    

    
       

      
        	
              	
                4.11

              	
                Additional
                  Assurances. Promptly make, execute and deliver any and all
                  agreements, documents, instruments and other records that the Bank
                  may
                  request to evidence any of the Credit Facilities, cure any defect
                  in the
                  execution and delivery of any of the Related Documents, perfect
                  any lien,
                  comply with legal requirements applicable to the Bank or the Credit
                  Facilities or more fully to describe particular aspects of the
                  agreements
                  set forth or intended to be set forth in any of the Related
                  Documents.

              


      

    

    
       

      
        	
              	
                4.12

              	
                Employee
                  Benefit Plans. Maintain each employee benefit plan as to which
                  the Borrower may have any liability, in compliance with all applicable
                  requirements of law and
                  regulations.

              


      

    

    
       

      
        	
              	
                4.13

              	
                Banking
                  Relationship. Establish and maintain its primary banking
                  depository and disbursement relationship with the
                  Bank.

              


      

    

    
       

      5.        Negative
        Covenants.

    

    
       

      
        	
              	
                5.1

              	
                Unless
                  otherwise noted, the financial requirements set forth in this section
                  will
                  be computed in accordance with generally accepted accounting principles
                  applied on a basis consistent with financial statements previously
                  submitted by the Borrower to the
                  Bank.

              


      

    

    
       

      
        	
              	
                5.2

              	
                Without
                  the written consent of the Bank, the Borrower will
                  not:

              


      

    

    
       

      
        	
              	
                A.

              	
                Use
                  of Proceeds. Use, or permit any proceeds of the Credit Facilities
                  to be used, directly or indirectly, for the
                  purpose of "purchasing or carrying any margin stock" within the
                  meaning of
                  Federal Reserve Board Regulation U.
                  At the Bank's request, the Borrower will furnish a completed Federal
                  Reserve Board Form
                  U-l.

              


      

    

    
       

    

    
      
        	
              	
                B.

              	
                Continuity
                  of Operations. (1) Engage in any business activities
                  substantially different from those in which the
                  Borrower is presently engaged; (2) cease operations, liquidate,
                  merge,
                  transfer, acquire or consolidate with any other
                  entity, change its name, dissolve, or sell any assets out of the
                  ordinary
                  course of business; or (3) enter into any arrangement
                  with any person providing for the leasing by the Borrower or any
                  Subsidiary of real or personal property
                  which has been sold or transferred by the Borrower or Subsidiary
                  to such
                  person.

              


      

    

    
       

    

    
      
        	
              	
                C.

              	
                Limitation
                  on NegativePledge Clauses. Enter into any
                  agreement with any person other than the Bank which
                  prohibits or limits the ability of the Borrower or any of its subsidiaries
                  to create or permit to exist any lien on any
                  of its property, assets or revenues, whether now owned or hereafter
                  acquired.

              


      

    

    
       

    

    
      
        	
              	
                D.

              	
                Conflicting
                  Agreements. Enter into any agreement containing any provision
                  which would be violated or breached
                  by the performance of the Borrower's obligations under this agreement
                  or
                  any of the other Related Documents.

              


      

    

    
       

    

    
      
        	
              	
                E.

              	
                Transfer
                  of Ownership. Permit any pledge of any ownership interest in the
                  Borrower, or any sale or other transfer of any ownership interest
                  in the
                  Borrower.

              


      

    

    
       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

         

      

    

    
      
        	
              	
                F.

              	
                Partnership
                  Agreement. Alter, amend or modify its partnership
                  agreement.

              


      

    

    
       

      
        	
              	
                G.

              	
                Debt
                  Service Coverage Ratio. Permit at any time, its ratio of net
                  income, plus interest expense, amortization
                  expense and depreciation expense, minus Distributions, for the
                  twelve
                  month period then ending to interest expense, prior period current
                  maturities of long term debt and capital leases, for the same such
                  period
                  to be less than 1.20 to 1.00.

              


      

    

    
       

      
        	
              	
                H.

              	
                Government
                  Regulation. (1) Be or become subject at any
                  time to any law, regulation, or list of any government
                  agency (including, without limitation, the U.S. Office of Foreign
                  Asset
                  Control list) that prohibits or limits Bank from making any advance
                  or
                  extension of credit to Borrower or from otherwise conducting business
                  with
                  Borrower, or (2) fail to provide documentary and other evidence of
                  Borrower's identity as may be requested by Bank at any time to
                  enable Bank
                  to verify Borrower's identity or to comply with any applicable
                  law or
                  regulation, including, without limitation, Section 326 of the USA
                  Patriot
                  Act of 2001, 31 U.S.C. Section
                  5318.

              


      

    

    
       

      
        	
              	
                I.

              	
                Subsidiaries.
                  Form, create or acquire any Subsidiary without prior consent of
                  the
                  Bank.

              


      

    

    
       

      
        	
                6.

              	
                Representations
                  and Warranties by the Borrower. To induce the Bank to enter into
                  this agreement and to extend credit or other financial accommodations
                  under the Credit Facilities, the Borrower represents and warrants
                  as of
                  the date of this agreement and as of the date of each request for
                  credit
                  under the Credit Facilities that each of the following statements
                  is and
                  shall remain true and correct throughout the term of this agreement
                  and
                  until all Credit Facilities and all amounts owing under the Notes
                  and
                  other Related Documents are paid in full. The Borrower represents
                  that:
                  (a) the execution and delivery of this agreement and the Notes,
                  and the
                  performance of the obligations they impose, do not violate any
                  law,
                  conflict with any agreement by which it is bound, or require the
                  consent
                  or approval of any governmental authority or other third party,
                  (b) this
                  agreement and the Notes are valid and binding agreements, enforceable
                  according to their terms, (c) all balance sheets, profit and loss
                  statements, and other financial statements and other information
                  furnished
                  to the Bank in connection with the Liabilities are accurate and
                  fairly
                  reflect the financial condition of the organizations and persons
                  to which
                  they apply on their effective dates, including contingent liabilities
                  of
                  every type, which financial condition has not changed materially
                  and
                  adversely since those dates, (d) no litigation, claim, investigation,
                  administrative proceeding or similar action (including those for
                  unpaid
                  taxes) against the Borrower is pending or threatened, and no other
                  event
                  has occurred which may in any one case or in the aggregate materially
                  adversely affect the Borrower's financial condition and properties,
                  other
                  than litigation, claims, or other events, if any, that have been
                  disclosed
                  to and acknowledged by the Bank in writing, (e) all of the Borrower's
                  tax
                  returns and reports that are or were required to be filed, have
                  been
                  filed, and all taxes, assessments and other governmental charges
                  have been
                  paid in full, except those presently being contested by the Borrower
                  in
                  good faith and for which adequate reserves have been provided,
                  (f) the
                  Borrower is not an "investment company" or a company "controlled"
                  by an
                  "investment company", within the meaning of the Investment Company
                  Act of
                  1940, as amended, (g) the Borrower is not a "holding company",
                  or a
                  "subsidiary company" of a "holding company" or an "affiliate" of
                  a
                  "holding company" or of a "subsidiary company" of a "holding company"
                  within the meaning of the Public Utility Holding Company Act of
                  1935, as
                  amended, (h) there are no defenses or counterclaims, offsets or
                  adverse
                  claims, demands or actions of any kind, personal or otherwise,
                  that the
                  Borrower could assert with respect to this agreement or the Credit
                  Facilities, (i) the Borrower owns, or is licensed to use, all trademarks,
                  trade names, copyrights, technology, know-how and processes necessary
                  for
                  the conduct of its business as currently conducted, and (j) no
                  part of the
                  proceeds of the Credit Facilities will be used for "purchasing"
                  or
                  "carrying" any "margin stock" within the respective meanings of
                  each of
                  the quoted terms under Regulation U of the Board of Governors of
                  the
                  Federal Reserve System of the United States (the "Board") as now
                  and from
                  time to time hereafter in effect or for any purpose which violates
                  the
                  provisions of any regulations of the Board. The Borrower, other
                  than a
                  natural person, further represents that: (a) it is duly organized
                  and
                  validly existing under the laws of the state where it is organized
                  and is
                  in good standing in its state of organization and each stale where
                  it is
                  doing business, and (b) the execution and delivery of this agreement
                  and
                  the Notes and the performance of the obligations they impose (i)
                  are
                  within its powers, (ii) have been duly authorized by all necessary
                  action
                  of its governing body, and (iii) do not contravene the terms of
                  its
                  articles of incorporation or organization, its by-laws, or any
                  partnership, operating or other agreement governing its
                  affairs.

              


      

    

    
       

      
        	
                7.

              	
                Default/Remedies.
                  If any of the Credit Facilities are not paid at maturity,
                  whether
                  by acceleration or otherwise, or if a default by anyone occurs
                  under the
                  terms of this agreement, the Notes or any other Related Documents,
                  then
                  the Bank shall have all of the rights and remedies provided by
                  any law,
                  equity or agreement. Events of default shall include but not be
                  limited to
                  the following, which must be received and/or satisfied, which
                  determination shall be at the sole discretion of the Bank, within
                  60 days
                  of closing: (1) receipt and review of the documentation for the
                  removal
                  and closure of the petroleum underground storage tank on the subject
                  property; and (2) receipt and review of an
                  appraisal.

              


      

    

    
       

      8.        Miscellaneous.

    

    
       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

         

      

      
        	
              	
                8.1

              	
                Notice.
                  Any notices and demands under or related to this document
                  shall
                  be in writing and delivered to the intended party at its address
                  stated
                  herein, and if to the Bank, at its main office if no other address
                  of the
                  Bank is specified herein, by one of the following means: (a) by
                  hand, (b)
                  by a nationally recognized overnight courier service, or (c) by
                  certified
                  mail, postage prepaid, with return receipt requested. Notice shall
                  be
                  deemed given: (a) upon receipt if delivered by hand, (b) on the
                  Delivery
                  Day after the day of deposit with a nationally recognized courier
                  service,
                  or (c) on the third Delivery Day after the notice is deposited
                  in the
                  mail. "Delivery Day" means a day other than a Saturday, a Sunday
                  or any
                  other day on which national banking associations are authorized
                  to be
                  closed. Any party may change its address for purposes of the receipt
                  of
                  notices and demands by giving notice of such change in the manner
                  provided
                  in this provision.

              


      

    

    
       

      
        	
              	
                8.2

              	
                No
                  Waiver. No delay on the part of the Bank in the exercise of any
                  right or remedy waives that right or remedy. No single or partial
                  exercise
                  by the Bank of any right or remedy precludes any other future exercise
                  of
                  it or the exercise of any other right or remedy. No waiver or indulgence
                  by the Bank of any default is effective unless it is in writing
                  and signed
                  by the Bank, nor shall a waiver on one occasion bar or waive that
                  right on
                  any future occasion.

              


      

    

    
       

      
        	
              	
                8.3

              	
                Integration.
                  This agreement, the Notes, and the other Related Documents to the
                  Credit
                  Facilities embody the entire agreement and understanding between
                  the
                  Borrower and the Bank and supersede all prior agreements and
                  understandings relating to their subject matter. If any one or
                  more of the
                  obligations of the Borrower under this agreement or the Notes is
                  invalid,
                  illegal or unenforceable in any jurisdiction, the validity, legality
                  and
                  enforceability of the remaining obligations of the Borrower shall
                  not in
                  any way be affected or impaired, and the invalidity, illegality
                  or
                  unenforceability in one jurisdiction shall not affect the validity,
                  legality or enforceability of the obligations of the Borrower under
                  this
                  agreement, the Notes and the other Related Documents in any other
                  jurisdiction.

              


      

    

    
       

      
        	
              	
                8.4

              	
                Joint
                  and Several Liability. Each party executing this agreement as the
                  Borrower is individually, jointly and severally liable under this
                  agreement.

              


      

    

    
       

      
        	
              	
                8.5

              	
                Governing
                  Law and Venue. This agreement shall be governed by and construed
                  in accordance with the laws of the State of Texas (without giving
                  effect
                  to its laws of conflicts). The Borrower agrees that any legal action
                  or
                  proceeding with respect to any of its obligations under this agreement
                  may
                  be brought by the Bank in any state or federal court located in
                  the State
                  of Texas, as the Bank in its sole discretion may elect. By the
                  execution
                  and delivery of this agreement, the Borrower submits to and accepts,
                  for
                  itself and in respect of its property, generally and unconditionally,
                  the
                  non-exclusive jurisdiction of those courts. The Borrower waives
                  any claim
                  that the State of Texas is not a convenient forum or the proper
                  venue for
                  any such suit, action or
                  proceeding.

              


      

    

    
       

      
        	
              	
                8.6

              	
                Captions.
                  Section headings are for convenience of reference only
                  and do not
                  affect the interpretation of
                  this agreement.

              


      

    

    
       

      
        	
              	
                8.7

              	
                Survival
                  ofRepresentations and Warranties. The Borrower
                  understands and agrees that in extending the Credit Facilities,
                  the Bank is relying on all representations, warranties, and covenants
                  made
                  by the Borrower in this agreement or in any certificate or other
                  instrument delivered by the Borrower to the Bank under this agreement.
                  The
                  Borrower further agrees that regardless of any investigation made
                  by the
                  Bank, all such representations, warranties and covenants will survive
                  the
                  making of the Credit Facilities and delivery to the Bank of this
                  agreement, shall be continuing in nature, and shall remain in full
                  force
                  and effect until such time as the Borrower's indebtedness to the
                  Bank
                  shall be paid in full.

              


      

    

    
       

      
        	
              	
                8.8

              	
                Non-Liability
                  of the Bank. The relationship between the Borrower and the Bank
                  created by this agreement is strictly a debtor and creditor relationship
                  and not fiduciary in nature, nor is the relationship to be construed
                  as
                  creating any partnership or joint venture between the Bank and
                  the
                  Borrower. The Borrower is exercising the Borrower's own judgement
                  with
                  respect to the Borrower's business. All information supplied to
                  the Bank
                  is for the Bank's protection only and no other party is entitled
                  to rely
                  on such information. There is no duty for Bank to review, inspect,
                  supervise or inform the Borrower of any matter with respect to
                  the
                  Borrower's business. The Bank and the Borrower intend that the
                  Bank may
                  reasonably rely on all information supplied by the Borrower to
                  the Bank,
                  together with all representations and warranties given by the Borrower
                  to
                  the Bank, without investigation or confirmation by the Bank and
                  that any
                  investigation or failure to investigate will not diminish the Bank's
                  right
                  to so rely.

              


      

    

    
       

      
        	
              	
                8.9

              	
                Indemnification
                  of the Bank. The Borrower agrees to indemnify, defend and hold
                  the Bank, its parent companies, subsidiaries, affiliates, their
                  respective
                  successors and assigns and each of their respective shareholders,
                  directors, officers, employees and agents (collectively, the "Indemnified
                  Persons") harmless from any and against any and all loss, liability,
                  obligation, damage, penalty, judgment, claim, deficiency, expense,
                  interest, penalties, attorneys' fees (including the fees and expenses
                  of
                  attorneys engaged by the Indemnified Person at the Indemnified
                  Person's reasonable discretion) and amounts paid in
                  settlement ("Claims") to which any Indemnified Person may become
                  subject
                  arising out of or relating to this agreement or the Collateral,
                  including any Claims resulting from any Indemnified Person's
                  own
                  negligence, except to the limited extent that the Claims are
                  proximately caused by the Indemnified Person's gross negligence
                  or willful
                  misconduct. The indemnification provided for in this paragraph
                  shall
                  survive the termination of this agreement and shall not be affected
                  by the
                  presence, absence or amount of or the payment or nonpayment of
                  any claim
                  under, any insurance.

              


      

    

    
       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

         

      

    

    
      
        	
              	
                8.10

              	
                Counterparts.
                  This agreement may be executed in multiple counterparts,
                  each of
                  which, when so executed, shall be deemed an original, but all such
                  counterparts, taken together, shall constitute one and the same
                  agreement.

              


      

    

    
       

      
        	
              	
                8.11

              	
                Sole
                  Discretion of the Bank. Whenever the Bank's consent or approval
                  is required under this agreement, the decision as to whether or
                  not to
                  consent or approve shall be in the sole and exclusive discretion
                  of the
                  Bank and the Bank's decision shall be final and
                  conclusive.

              


      

    

    
       

      
        	
              	
                8.12

              	
                Advice
                  of Counsel. The Borrower acknowledges that it has been advised by
                  counsel, or had the opportunity to be advised by counsel, in the
                  negotiation, execution and delivery of this agreement and any Related
                  Documents.

              


      

    

    
       

      
        	
              	
                8.13

              	
                Recovery
                  of Additional Costs. If the imposition of or any change in any
                  law, rule, regulation, or guideline, or the interpretation or application
                  of any thereof by any court or administrative or governmental authority
                  (including any request or policy not having the force of law) shall
                  impose, modify, or make applicable any taxes (except federal, state,
                  or
                  local income or franchise taxes imposed on the Bank), reserve
                  requirements, capital adequacy requirements, or other obligations
                  which
                  would (A) increase the cost to the Bank for extending or maintaining
                  the
                  Credit Facilities, (B) reduce the amounts payable to the Bank under
                  the
                  Credit Facilities, or (C) reduce the rate of return on the Bank's
                  capital
                  as a consequence of the Bank's obligations with respect to the
                  Credit
                  Facilities, then the Borrower agrees to pay the Bank such additional
                  amounts as will compensate the Bank therefor, within five (5) days
                  after
                  the Bank's written demand for such payment. The Bank's demand shall
                  be
                  accompanied by an explanation of such imposition or charge and
                  a
                  calculation in reasonable detail of the additional amounts payable
                  by the
                  Borrower, which explanation and calculations shall be conclusive
                  in the
                  absence of manifest error.

              


      

    

    
       

      
        	
              	
                8.14

              	
                Conflicting
                  Terms. Ifthis agreement is inconsistent with
                  any provision in any other Related Documents, the Bank shall determine,
                  in
                  the Bank's sole and absolute discretion, which of the provisions
                  shall
                  control any such
                  inconsistency.

              


      

    

    
       

      
        	
              	
                8.15

              	
                Expenses.
                  The Borrower agrees to pay or reimburse the Bank for all its out-of-pocket
                  costs and expenses and reasonable attorneys' fees incurred in connection
                  with the development, preparation and execution of, and in connection
                  with
                  the enforcement or preservation of any rights under, this agreement,
                  any
                  amendment, supplement, or modification thereto, and any other documents
                  prepared in connection herewith or therewith. These costs and expenses
                  include without limitation any costs or expenses incurred by the
                  Bank in
                  any bankruptcy, reorganization, insolvency or other similar
                  proceeding.

              


      

    

    
       

      
        	
                9.

              	
                USA
                  PATRIOT ACT NOTIFICATION. The following notification is provided
                  to Borrower pursuant to Section 326 of the USA
                  Patriot Act of 2001,31 U.S.C. Section
                  5318:

              


      

    

     

    
      IMPORTANT
        INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government
        fight the funding of terrorism and money laundering activities, Federal law
        requires all financial institutions to obtain, verify, and record information
        that identifies each person or entity that opens an account, including any
        deposit account, treasury management account, loan, other extension of credit,
        or other financial services product. What this means for Borrower: When Borrower
        opens an account, if Borrower is an individual Bank will ask for Borrower's
        name, taxpayer identification number, residential address, date of birth,
        and
        other information that will allow Bank to identify Borrower, and if Borrower
        is
        not an individual Bank will ask for Borrower's name, taxpayer identification
        number, business address, and other information that will allow Bank to identify
        Borrower. Bank may also ask, if Borrower is an individual to see Borrower's
        driver's license or other identifying documents, and if Borrower is not an
        individual to see Borrower's legal organizational documents or other identifying
        documents.

    

    
      


       

      (This
        space intentionally left blank)

    

    
       

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

    

    
      
        	
                10.

              	
                WAIVER
                  OF SPECIAL DAMAGES. THE BORROWER WAIVES, TO THE MAXIMUM EXTENT
                  NOT PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM
                  OR
                  RECOVER FROM THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL,
                  EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
                  DAMAGES.

              


      

    

    
       

      
        	
                11.

              	
                JURY
                  WAIVER. THE BORROWER AND THE BANK HEREBY VOLUNTARILY, KNOWINGLY,
                  IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
                  PARTICIPATE
                  IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE)
                  BETWEEN THE BORROWER AND THE BANK ARISING OUT OF OR IN ANY WAY
                  RELATED TO
                  THIS DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK
                  TO
                  PROVIDE THE FINANCING DESCRIBED
                  HEREIN.

              


      

    

    
       

      THIS
        AGREEMENT AND THE OTHER WRITTEN RELATED DOCUMENTS REPRESENT THE FINAL AGREEMENT
        BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
        CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
        PARTIES.

    

    
      THERE
        ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

       

       

      
        
          	Address(es)
                  for Notices: 	 	
                  Borrower:   

                
	 	 	 	 
	
                  3847
                    East Loop 820 South 

                	 	
                  
                    The
                      Leather Factory, L.P.   

                  

                
	Fort
                  Worth, TX 76119-4388 	 	 
	 	 	 	
                  By:

                	
                  
                    The
                      Leather Factory, Inc., its General Partner  

                  

                
	 Attn:	 	 	 	 	 
	 	 	 	 	
                  By:

                	/s/
                  Ron C. Morgan	 
	 	 	 	 	 	
                  
                    Ron
                      Morgan

                  

                	
                  CEO
                    and President

                
	 	 	 	 	 	
                  
                    Printed
                      Name

                  

                	
                  Title

                
	 	 	 	 	 	 	 


        

        
          	 
                  	Date
                  Signed: 	07-31-07


        

        
           

        

      

       

       

      
        
          	Address(es)
                  for Notices: 	 	
                  Bank:

                
	 	 	 	 
	
                  420
                    Throckmorton, Suite 400

                	 	
                  
                    JPMorgan
                      Chase Bank, N.A.  

                  

                
	Fort
                  Worth, TX 76102  	 	 
	 	 	 	
                   

                	
                  
                    
                       

                    

                  

                	 
	Attn:	 	 	By:	/s/
                  Jennifer C. Baggs	 
	 	 	 	 	
                  Jennifer
                    C. Baggs

                	
                   Vice
                    President

                
	 	 	 	 	Printed
                  Name	
                  
                    Title

                  

                
	 	 	 	 	 	
                   

                	
                   

                


        

        
          	 
                  	Date
                  Signed: 	07-31-07


        

        
           

        

      

       

       

       7