Document:

[ACCOUNT RESTRICTED RIGHT AWAY
                                                          - ACH DEBIT TRANSFERS]

                          COLLECTION ACCOUNT AGREEMENT

         This COLLECTION ACCOUNT AGREEMENT ("Agreement"),  dated as of March 20,
2002, 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, "Borrowers"
and each a "Borrower"), and WELLS FARGO BANK MINNESOTA,  NATIONAL ASSOCIATION, a
national  banking  association  ("Lender") and WELLS FARGO BANK Texas,  NATIONAL
ASSOCIATION  ("Wells  Fargo") sets out (i) the terms and conditions  under which
Wells Fargo will provide its collection account service (the "Collection Account
Service") to  Borrowers  and Lender with  respect to Lender's  wholesale  demand
deposit  account  specified at the end of this document (the "Lender  Account"),
and (ii) the rights of Borrowers and Lender,  and the obligations of Wells Fargo
to Borrowers and Lender, with respect to the Lender Account.

         1. ORIGIN OF LENDER'S  INTEREST IN THE ACCOUNT  FUNDS.  Borrowers  have
entered into a financing  agreement with Lender in which  Borrowers have granted
to  Lender a  security  interest  in  Borrowers'  present  and  future  accounts
receivable  and all proceeds  thereof,  and Borrowers  have agreed to deposit or
cause to be deposited all collections  and proceeds of such accounts  receivable
into the Lender Account. (When such accounts receivable have been deposited into
the Lender  Account as  provided in this  Agreement  they will be referred to in
this  Agreement,  together with all other  proceeds of the  collateral  security
granted to Lender that are  deposited  in the Lender  Account,  as the  "Account
Funds").  Lender and Borrowers would like to use the Collection  Account Service
to block Borrowers'  access to the Lender Account and to provide daily transfers
of ledger  balances in the Lender  Account to Lender's  account with Wells Fargo
Bank Minnesota, N.A.

         2. Commencement of COLLECTION  account Service.  The Collection Account
Service  will  start on the date  arranged  by Wells  Fargo  with  Lender if the
following events have occurred before such date:

         (a)      The Lender Account has been opened and is in good standing;

         (b)      Borrowers  and Lender have  provided to Wells Fargo such other
information  and  documents  as Wells Fargo  requests  to enable  Wells Fargo to
commence and operate the Collection Account Service for Borrowers and Lender.

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         3. ACCESS TO ACCOUNT  FUNDS.  All  Account  Funds shall be the sole and
exclusive property of Lender withdrawable from the Lender Account only by Lender
as provided in this Agreement or in the account documentation  pursuant to which
the Lender  Account  was  opened.  Borrowers  will have no  interest  in, or any
control over,  any Account  Funds,  and Account  Funds shall not bear  interest.
Except as provided in this Agreement,  the Lender Account will not be subject to
deductions,  setoff,  banker's  lien,  or any other right in favor of any person
other than Lender.

         4. Deposits and Confirmations.  Lender authorizes  Borrowers to endorse
or cause to be endorsed  checks and other payment  instruments and to deposit or
cause to be  deposited  such  items into the Lender  Account.  Wells  Fargo will
provide to Lender and to Borrowers  Wells  Fargo's  regular  statement  covering
deposits  to and  withdrawals  from  the  Lender  Account  at  their  respective
addresses  specified  at the end of this  Agreement  for advice of deposits  and
statements.  Borrowers  and/or  Lender  agree to notify  Wells  Fargo's  Service
Center,  whose  address  and  telephone  number will be given to  Borrowers  and
Lender,  (a) of any error in an advice of deposit  within  thirty (30)  calendar
days after Borrowers and/or Lender receive such advice of deposit and (b) of any
error in a bank  statement  within  thirty (30)  calendar  days after  Borrowers
and/or Lender receive such bank statement. The liability of Wells Fargo for such
errors is limited as provided in Section 19 of this Agreement.

         5. ACCOUNT DOCUMENTATION.  Except as otherwise specifically provided in
this  Agreement,  the  Lender  Account  will be  handled  and items  drawn on or
deposited  into the Lender  Account  will be  processed  by Wells Fargo as Wells
Fargo would  perform  such  responsibilities  with  respect to any other  demand
deposit account at Wells Fargo. As a result,  the Lender Account will be subject
to, and Wells  Fargo's  operation of the Lender  Account  will be in  accordance
with,  the  terms  and  provisions  of Wells  Fargo's  deposit  account  opening
documentation and other Wells Fargo account related documentation (collectively,
"Account  Documentation"),  including,  but not limited to, Wells Fargo's demand
deposit  account  disclosure  statement for the Lender  Account as in effect and
delivered  to Lender  from time to time,  a copy of which  Borrowers  and Lender
acknowledge  having  received.  Notwithstanding  any  provisions  of any Account
Documentation,  however,  all  Account  Funds  shall be the  sole and  exclusive
property of Lender.

         6. CUSTOMER SERVICE. Any questions or problems that Borrowers or Lender
have with respect to the Collection Account Service should be addressed to Wells
Fargo's Service Center.

         7.  RETURNED  ITEMS.  All ACH  entries  and all  checks or other  items
credited to the Lender Account and returned to Wells Fargo unpaid for any reason
will be handled by Wells Fargo in the following manner:

         (a)      Any check with a face  amount less than One  Thousand  Dollars
($1,000.00) which is returned because of insufficient  funds will  automatically
be redeposited by Wells Fargo a second time.

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         (b)      Any ACH entry returned for any reason, and any check which has
been  returned  a second  time or which  is  returned  for  reasons  other  than
insufficient  funds  or  which  has  a  face  amount  of  One  Thousand  Dollars
($1,000.00) or more and is returned for insufficient  funds will be charged back
to one of Borrowers'  wholesale  demand deposit  accounts  maintained with Wells
Fargo specified at the end of this Agreement (a "Borrower Account").

         (c)      If there are insufficient funds in a Borrower Account to cover
any chargeback, Lender agrees that Wells Fargo may charge the Lender Account for
the amount of the insufficiency, up to the amount of the returned ACH entries or
returned items. If there are insufficient funds in the Lender Account, Borrowers
and Lender agree to pay the amount of the chargeback to the Lender  Account,  in
immediately  available funds,  within one business day after receipt of physical
evidence of said  chargeback  sent by facsimile to Borrowers and Lender at their
facsimile  numbers specified below.

         (d)      Any  returned  checks and debit memos with respect to returned
checks will be sent to Borrowers.

         8. ACH DEBIT  TRANSFERS  FROM  LENDER  ACCOUNT.  On each day when Wells
Fargo is open for business (a "Banking Day") during the term of this  Agreement,
at the specific request of Lender,  Wells Fargo will process automated  clearing
house debits to the Lender Account initiated by banks other than Wells Fargo for
transfers  of funds out of the Lender  Account  (each an "ACH Debit") so long as
any such ACH Debit does not exceed the ledger  balance in the Lender  Account at
the end of the Banking Day immediately preceding the date on which the ACH Debit
is initiated.  These transfers will be made to Lender if Lender's account is the
transfer-to  account  specified in the ACH Debits by the initiating bank. Lender
agrees  to  pay  to  Wells  Fargo  immediately  on  demand,  without  setoff  or
counterclaim, the amount of any overdraft in the Lender Account caused by an ACH
Debit  exceeding the ledger  balance in the Lender  Account at the time such ACH
Debit settles.

         9.  DELAYS  IN  MAKING  ACH  DEBIT  TRANSFERS.   Lender  and  Borrowers
understand  that an ACH Debit  transfer  may be  delayed  or not made if (a) the
transfer  would cause Wells Fargo to exceed any  limitation on its intra-day net
funds  position   established  in  accordance  with  Federal  Reserve  or  other
regulatory  guidelines  or  to  violate  any  other  Federal  Reserve  or  other
regulatory risk control program, or (b) the funds transfer would otherwise cause
Wells  Fargo to  violate  any  applicable  law or  regulation.  If an ACH  Debit
transfer  cannot be made or will be delayed,  Wells Fargo will attempt to notify
Lender by telephone. Notwithstanding anything to the contrary in this Section 9,
Wells Fargo agrees that its response to any court order or other legal  process,
to the claim of any party in bankruptcy,  or the adverse claim of any individual
or entity not a party to this  Agreement  shall be made in  accordance  with the
provisions of Sections 14 and 16 hereof.

         10.  RELIANCE ON ACCOUNT NUMBER OF ACH DEBIT TRANSFER  BENEFICIARY.  If
the bank initiating an ACH Debit out of the Lender Account  indicates a name and

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an  identifying  number for the bank of the person or entity to receive  the ACH
Debit  transfer,  Lender and Borrowers  understand that Wells Fargo will rely on
the number  indicated by the  initiating  bank even if that number  identifies a
bank different  from the named bank. If the bank  initiating an ACH Debit out of
the Lender  Account  indicates  a name and an  account  number for the person or
entity to receive the ACH Debit transfer,  Lender and Borrowers  understand that
Wells Fargo and the  initiating  bank may rely on the indicated  account  number
even if that account  number is not the account  number for the person or entity
who is to receive the transfer.

         11. REPORTING ERRORS IN TRANSFERS.  If Lender or Borrowers learn of any
error in an ACH Debit  transfer or any  unauthorized  funds  transfer,  then the
party learning of such error or  unauthorized  transfer (the  "Informed  Party")
must  notify  Wells Fargo as soon as possible  by  telephone  at (800)  AT-WELLS
(which is a recorded line),  and provide written  confirmation to Wells Fargo of
such  telephonic  notice within two Business Days at the address given for Wells
Fargo on the  signature  page of this  Agreement.  In no case may such notice to
Wells Fargo by an Informed  Party be made more than  thirty (30)  calendar  days
after Wells Fargo's first  confirmation  of an ACH Debit transfer or other funds
transfer to such Informed Party, whether such first confirmation consists of the
regular  monthly  statement  for the  Lender  Account or  otherwise.  If a funds
transfer  is made in error and Wells  Fargo  suffers  a loss  because  Lender or
Borrowers  breached  their  agreement to notify Wells Fargo of such error within
this thirty (30) calendar day period,  then the party or parties which  breached
this  agreement  shall be  obligated  to  reimburse  Wells  Fargo  for such loss
promptly upon demand by Wells Fargo;  provided,  however, that in the event both
Lender and Borrowers breach this notification  requirement,  Lender shall not be
obligated  to  reimburse  Wells  Fargo for such loss  unless  Borrowers  fail to
satisfy Wells Fargo's demand for such reimbursement within fifteen (15) calendar
days after such demand is made on Borrowers.

         12. CONTACTS. Any contacts regarding operational matters with any party
to this Agreement  shall be made to the person and address  specified  below for
advice of deposits and statements.

         13.  WELLS  FARGO  FEES.  Borrowers  agree  to pay  the  fees  for  the
Collection  Account  Service  charged by Wells Fargo (the "Wells  Fargo  Fees"),
which fees will be based on the charges  specified  in the  standard  collection
account fee  schedule  current at the time the fees are  charged.  As changes in
Wells Fargo's operating costs, procedural requirements or service volumes affect
future costs of processing, Wells Fargo will periodically review the Wells Fargo
Fees. Should the results of such periodic review warrant adjustment of the Wells
Fargo Fees,  Borrowers and Lender will receive a minimum of thirty (30) calendar
day's written notice prior to  implementing  such  adjustment.  Wells Fargo will

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collect the Wells  Fargo Fees by  debiting a Borrower  Account for the amount of
the Wells Fargo Fees,  without  prior notice to Borrowers or Lender,  on the day
such Wells Fargo Fees are due.  Lender agrees to pay the Wells Fargo Fees within
thirty (30) calendar days after Lender  receives a billing  statement from Wells
Fargo for such fees,  without setoff or  counterclaim,  to the extent that Wells
Fargo is  unsuccessful  in any attempt to  automatically  debit such fees from a
Borrower Account.

         14.  COURT  ORDER.  If Wells  Fargo is served  with a court order which
affects the Lender  Account,  Wells Fargo will act in accordance with such court
order.  Subject to the  provisions  of Section  16,  Wells  Fargo  shall not, in
response to the adverse claim of Borrowers or any third party, have the right to
place a hold,  nor will it place a hold, on funds in, or in the process of being
deposited to, the Lender Account, and Wells Fargo will process the Account Funds
in strict accordance with the terms and conditions of this Agreement, unless and
until Wells Fargo  receives a court order to the contrary,  whether  issued by a
U.S.  Bankruptcy  Court or any other  court of  competent  jurisdiction.  Lender
represents,  warrants,  and agrees that upon filing of voluntary or  involuntary
proceedings under the U.S. Bankruptcy Code involving Borrowers,  Lender shall at
all times comply with applicable  bankruptcy statutes,  rules, and other laws as
they may relate to the Account Funds.

         15.  OWNERSHIP  OF  SPECIFICATIONS,   RECORDS,  SYSTEMS  AND  PROGRAMS.
Borrowers  and  Lender  agree  that any  specifications,  records,  systems  and
programs,  including,  among other things, computer software programs, which are
utilized  or  developed  by Wells Fargo in  connection  with the Service or this
Agreement are and will remain the sole property of Wells Fargo.

         16.  CLAIMS,  LEGAL  PROCESS AND NOTICES.  If Wells Fargo  receives any
claim, notice, legal process or court order relating to the Account Funds or the
Lender  Account,  Wells Fargo will notify  Lender and Borrowers of such receipt,
unless Wells Fargo knows that Lender,  with respect to so notifying  Lender,  or
Borrowers,  with respect to so  notifying  Borrowers,  is already  aware of such
claim,  notice,  legal process or court order. Wells Fargo will notify Lender of
such  process,  claim or notice prior to its  compliance.  Lender and  Borrowers
understand  and agree that Wells Fargo will comply with any such legal  process,
legal  notice or court order it receives  (including,  without  limitation,  any
summons,  subpoena,  levy,  garnishment,  or  withholding  order) if Wells Fargo
determines in its sole discretion that such legal process, legal notice or court
order is legally  binding on it. If any claim or notice  received by Wells Fargo
is not legally binding on it, as determined in its sole discretion,  Wells Fargo
agrees to follow any  instructions  of Lender to comply or not comply  with such
claim or notice if (a) such  instructions  are given  promptly  after  Lender is
notified of such claim or notice and (b) such  instructions do not require Wells
Fargo to violate any applicable  law,  regulation or court order.  Each Borrower
hereby irrevocably agrees that Wells Fargo is to follow any such instructions of
Lender with respect to any such  non-binding  claim or notice even if such claim
or notice is from Borrowers. If Wells Fargo does not receive prompt instructions
from Lender  regarding  compliance or  non-compliance  with any such non-binding
claim or notice,  Lender and  Borrowers  agree that Wells Fargo may determine in
its sole discretion to comply or not to comply with such claim or notice, except
that Wells Fargo will not comply  with any such claim or notice  from  Borrowers
conflicting with the terms of this Agreement.

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         17.  INDEMNIFICATION FOR FOLLOWING  INSTRUCTIONS.  Lender and Borrowers
each agree that,  notwithstanding  any other provision of this Agreement,  Wells
Fargo will not be liable to Lender or  Borrowers  for any  losses,  liabilities,
damages,  claims (including,  but not limited to, third party claims),  demands,
obligations, actions, suits, judgments, penalties, costs or expenses, including,
but not limited to,  attorneys' fees,  (collectively,  "Losses and Liabilities")
suffered  or incurred by Lender or  Borrowers  as a result of, or in  connection
with,  (a) Wells  Fargo  following  any  instruction  of Lender to comply or not
comply with any  non-binding  claim or notice  referred to in Section 16 of this
Agreement,  (b) if no such instruction from Lender is promptly  received,  Wells
Fargo complying or not complying, as determined in its sole discretion, with any
such  non-binding  claim  or  notice,   (c)  Wells  Fargo  following  any  other
instruction  or  request  of  Lender,  or (d)  Wells  Fargo  complying  with its
obligations under this Agreement. Further, Borrowers, and to the extent not paid
by Borrowers  within  fifteen (15)  calendar  days after  demand,  Lender,  will
indemnify Wells Fargo against any Losses and Liabilities  Wells Fargo suffers or
incurs as a result of, or in connection with, any of the circumstances  referred
to in subsections (a) through (d) in the preceding sentence.

         18. NO  REPRESENTATIONS  OR WARRANTIES OF WELLS FARGO. Wells Fargo will
perform its  obligations  under this Agreement in a manner  consistent  with the
quality provided when Wells Fargo performs similar services for its own account.
However,  Wells Fargo cannot be responsible for the errors, acts or omissions of
others,  such  as  communications  carriers,  correspondents  or  clearinghouses
through which Wells Fargo may perform its  obligations  under this  Agreement or
receive  or  transmit  information  in  performing  its  obligations  under this
Agreement. Further, Wells Fargo cannot be responsible for any loss, liability or
delay caused by wars, failures in communications  networks, labor disputes, work
stoppages,  legal  constraints,  fires,  power surges or failures,  earthquakes,
civil  disturbances,  acts or omissions  of the U.S.  Postal  Service,  or other
events   beyond  its   control.   WELLS   FARGO  MAKES  NO  EXPRESS  OR  IMPLIED
REPRESENTATIONS  OR WARRANTIES WITH RESPECT TO THE COLLECTION ACCOUNT SERVICE OR
ANY OTHER  SERVICE  IT IS TO  PERFORM  UNDER  THIS  AGREEMENT  OTHER  THAN THOSE
EXPRESSLY SPECIFIED IN THIS AGREEMENT.

         19. LIMITATION OF LIABILITY.  If any party to this Agreement suffers or
incurs any Losses and Liabilities as a result of, or in connection  with, its or
any other party's  performance or failure to perform its obligations  under this
Agreement,  the affected  parties  will  negotiate in good faith in an effort to
reach a mutually  satisfactory  allocation  of such Losses and  Liabilities,  it
being  understood  that Wells Fargo will not be  responsible  for any Losses and
Liabilities  due to any cause  other than its own  negligence  or breach of this
Agreement, in which case if such negligence or breach results from any action or
failure to act by Wells Fargo,  the liability of Wells Fargo shall be limited to
direct  money  damages  in an amount  not to exceed ten (10) times all the Wells
Fargo Fees charged or incurred during the calendar month  immediately  preceding
the  calendar  month in which such Losses and  Liabilities  occurred  (or, if no
Wells  Fargo Fees were  charged or incurred in the  preceding  month,  the Wells
Fargo Fees charged or incurred in the month in which the Losses and  Liabilities

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occurred).  Borrowers,  and to the extent not paid by Borrowers  within  fifteen
(15)  calendar  days after demand  Lender within thirty (30) calendar days after
demand,  will indemnify Wells Fargo against any Losses and Liabilities  suffered
or incurred by Wells Fargo as a result of third party  claims to the extent such
Losses  and  Liabilities  exceed  the  liability  limitations  specified  in the
preceding sentence. The limitation of Wells Fargo's liability and Borrowers' and
Lender's  indemnification of Wells Fargo set forth above shall not be applicable
to the  extent any Losses and  Liabilities  of any party to this  Agreement  are
directly caused by Wells Fargo's gross negligence or willful  misconduct.  IN NO
EVENT  WILL  WELLS  FARGO OR LENDER BE LIABLE  FOR ANY  SPECIAL,  CONSEQUENTIAL,
INCIDENTAL, INDIRECT OR PUNITIVE DAMAGES, WHETHER ANY CLAIM IS BASED ON CONTRACT
OR TORT,  WHETHER  THE  LIKELIHOOD  OF SUCH  DAMAGES WAS KNOWN TO WELLS FARGO OR
LENDER,  AND REGARDLESS OF THE FORM OF THE CLAIM OR ACTION,  INCLUDING,  BUT NOT
LIMITED TO, ANY CLAIM OR ACTION ALLEGING GROSS NEGLIGENCE,  WILLFUL  MISCONDUCT,
FAILURE TO EXERCISE  REASONABLE CARE OR FAILURE TO ACT IN GOOD FAITH. Any action
against Wells Fargo by Borrowers or Lender under or related to this Agreement or
the Collection  Account  Service must be brought within twelve (12) months after
the cause of action accrues.

         20.  AMENDMENTS,  SUCCESSORS  AND ASSIGNS.  With the exception of price
changes,  which require  written notice to Borrowers and Lender,  and changes to
the funds transfer  instructions in Section 8 of this  Agreement,  which require
the written  approval of only Lender,  this Agreement may not be modified or any
provision thereof waived,  except in a writing signed by all the parties to this
Agreement.  This Agreement shall be binding on the parties and their  successors
or assigns.

         21. TERMINATION. This Agreement, the Collection Account Service and the
other  services to be provided  under this Agreement may be terminated by Lender
or Wells Fargo at any time by any of them giving thirty (30) calendar days prior
written  notice of such  termination  to the other parties to this  Agreement at
their  contact  addresses  specified  at the  end of this  Agreement;  provided,
however,  that this  Agreement,  the  Collection  Account  Service and the other
services to be provided under this Agreement may be terminated  immediately  (a)
upon written  notice from Wells Fargo to Borrowers and Lender should Lender fail
to make any payment  when due to Wells Fargo under the terms of this  Agreement,
or (b) upon  written  confirmation  by Wells Fargo to Lender of receipt by Wells
Fargo of written  notice from Lender  requesting  immediate  termination of this
Agreement.  Borrowers and Lender agree that the Lender  Account may be closed as
provided  in the  Account  Documentation.  The  rights  of Wells  Fargo  and the
obligations  of Lender  under  Sections  5, 14,  16,  17,  18, 19 and 21 of this
Agreement will survive the  termination of this Agreement  and/or the closure of
the  Lender  Account,  and any  liability  of any  party to this  Agreement,  as
determined  under the  provisions  of this  Agreement,  with  respect to acts or
omissions of such party prior to such  termination  or closure will also survive
such termination or closure.  Upon any such  termination or closure,  all ledger
balances in the Lender  Account on the date of the closure of the Lender Account

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will be  transferred to Lender as requested by Lender in writing to Wells Fargo.
Notice of termination  shall be transmitted  by Certified  Mail,  Return Receipt
Requested,  courier, or by personal delivery to the notice address designated at
the end of this Agreement.  No such  termination  shall impair the rights of any
party  with  respect  to  items   processed  prior  to  the  effective  date  of
termination.  Borrowers may not terminate this  Agreement  without prior written
consent of Lender.

         22. NOTICES. All notices from one party to another shall be in writing,
or be made by a telecommunications  device capable of creating a written record,
shall be delivered to Borrowers,  Lender  and/or Wells Fargo at their  addresses
for all notices specified at the end of this Agreement,  or any other address of
any party notified to the other parties in writing,  and shall be effective upon
receipt.  Any notice sent by one party to this  Agreement to another party shall
also be sent to the other parties to this  Agreement.  Wells Fargo is authorized
by Borrowers and Lender to act on any instructions and notices received by Wells
Fargo if (a) such  instructions  or  notices  purport  to be made in the name of
Lender, (b) Wells Fargo reasonably  believes that they are so made, and (c) they
do not  conflict  with  the  terms of this  Agreement  unless  such  conflicting
instructions or notices are supported by a court order.

         23.  USURY.  It is never the  intention  of Wells  Fargo to violate any
applicable usury or interest rate laws. Wells Fargo does not agree to, or intend
to  contract  for,  charge,  collect,  take,  reserve or receive  (collectively,
"charge or collect")  any amount in the nature of interest or in the nature of a
fee,  penalty or other  charge which would in any way or event cause Wells Fargo
to charge or collect  more than the maximum  Wells Fargo would be  permitted  to
charge or  collect by any  applicable  federal  or state  law.  Any such  excess
interest  or  unauthorized  fee shall,  notwithstanding  anything  stated to the
contrary in this Agreement,  be applied first to reduce the amount owed, if any,
and then any excess amounts will be refunded.

         24. SUCCESSORS AND ASSIGNS. Neither a Borrower nor Lender may assign or
transfer its rights or obligations  under this Agreement to any person or entity
without the prior  written  consent of Wells  Fargo,  which  consent will not be
unreasonably  withheld.  Wells  Fargo may not assign  its rights or  obligations
under this Agreement to any person or entity  without the prior written  consent
of Lender, which consent will not be unreasonably withheld;  provided,  however,
that no such  consent  will be  required  if,  in the case of Wells  Fargo,  the
assignee is a bank affiliate of Wells Fargo.

         25. GOVERNING LAW.  Borrowers and Lender  understand that Wells Fargo's
provision  of the  Collection  Account  Service and the other  services it is to
provide under this Agreement are subject to federal laws and regulations. To the
extent that such federal laws and regulations are not applicable, this Agreement
shall be governed by and be construed in  accordance  with the laws of the State
of California.

         26.  SEVERABILITY.  To the extent that this  Agreement,  the Collection
Account  Service or the other  services to be provided  under this Agreement are
inconsistent  with, or prohibited or unenforceable  under, any applicable law or
regulation,  they  will  be  deemed  ineffective  only  to the  extent  of  such
prohibition or  unenforceability  and be deemed modified and applied in a manner
consistent with such law or regulation. Any provision of this Agreement which is

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deemed  unenforceable  or  invalid  in any  jurisdiction  shall not  effect  the
enforceability or validity of the remaining  provisions of this Agreement or the
same provision in any other jurisdiction.

         27. ENTIRE AGREEMENT. This Agreement, together with the Account
Documentation, contains the entire and only agreement among any or all of the
parties to this Agreement with respect to (a) the services to be provided by
Wells Fargo under this Agreement, (b) the interest of Lender and Borrowers in
the Account Funds and the Lender Account, and (c) the obligations of Wells Fargo
to Lender and Borrowers in connection with the Account Funds and the Lender
Account, except that Lender and Borrowers may have one or more agreements
between themselves concerning such subject matter, which shall not be binding
on, or affect Wells Fargo in any way, and with which Wells Fargo need not be
concerned.

         This  Agreement  has been  signed by the duly  authorized  officers  or
representatives  of each of the parties to this  Agreement on the date specified
below.

DATE:  March 20, 2002

Lender Account: Account No. 4166577288, ABA No. 121000248

Borrowers Accounts: Account No. 4311266522  ABA No. 121000248
                    Account No. 4166577288  ABA No. 121000248

                                      -9-
<PAGE>

THE  LEATHER  FACTORY,  INC.,  a                WELLS FARGO BANK TEXAS, NATIONAL
Delaware  corporation;  ROBERTS,                         ASSOCIATION
CUSHMAN & COMPANY,  INC.,  a New
York  corporation;  THE  LEATHER                By:
FACTORY,    INC.,    a    Nevada                   -----------------------------
corporation; THE LEATHER FACTORY                Name:
OF NEVADA  INVESTMENTS  INC.,  a                     ---------------------------
Nevada    corporation;     TANDY                Title:
LEATHER COMPANY,  INC., a Nevada                      --------------------------
corporation;    TANDY    LEATHER
COMPANY  INVESTMENTS,   INC.,  a                Address for all Notices:
Nevada   corporation;    HI-LINE                -----------------------
LEATHER & MANUFACTURING COMPANY,
a  California  corporation;  and                --------------------------------
THE LEATHER  FACTORY,  INC.,  an
Arizona corporation                             --------------------------------

                                                --------------------------------
                                                Attention:
                                                          ----------------------
                                                Facsimile:
                                                          ----------------------
                                                Telephone:
                                                          ----------------------

By /s/ Wray Thompson
  ------------------
  Wray Thompson
  Its Chief Executive Officer                   WELLS FARGO BANK MINNESOTA,
                                                   NATIONAL ASSOCIATION

                                                By /s/ Thomas W. Tosney
                                                  ---------------------
                                                  Thomas W. Tosney
                                                  Its Senior Vice President

                                                Address for all Notices:
                                                ------------------------
THE LEATHER FACTORY, L.P., a
Texas limited partnership
                                                Wells Fargo Bank Minnesota,
By  THE LEATHER FACTORY, INC., a                National Association
    Nevada corporation                          c/o Wells Fargo Business Credit,
    Its General Partner                         Inc.
                                                4975 Preston Park Blvd.,
                                                Suite 280
                                                Plano, Texas  75093
                                                Attention: Thomas J. Krueger
By /s/ Wray Thompson                            Facsimile: (972) 867-7838
  ------------------                            Telephone: (972) 599-5304
  Wray Thompson
  Its Chief Executive Officer

                                      -10-
<PAGE>

                                                Address for Advice of Deposits
                                                -------------------------------
Address for all Notices:                        and Statements:
-----------------------                         ----------------

The Leather Factory, Inc.                       Wells Fargo Bank Minnesota,
3825 E. Loop 820 South                          National Association
P.O. Box 50429                                  c/o Wells Fargo Business Credit,
Ft. Worth, Texas  76105                         Inc.
Attention: Wray Thompson                        4975 Preston Park Blvd.,
Facsimile: (817) 446-3713                       Suite 280Plano, Texas  75093
Telephone: (817) 496-4414                       Attention: Thomas J. Krueger
                                                Facsimile: (972) 867-7838
                                                Telephone: (972) 599-5304
Address for Advice of Deposits and
----------------------------------
Statements:
-----------

The Leather Factory, Inc.
3825 E. Loop 820 South
P.O. Box 50429
Ft. Worth, Texas  76105
Attention: Shannon Greene
Facsimile: (817) 446-3713
Telephone: (817) 496-4414AMENDED AND RESTATED
                               SECURITY AGREEMENT

         This Agreement,  dated as of March 20, 2002, is made by and between The
Leather Factory of Canada,  Ltd., a Manitoba  corporation  (the  "Debtor"),  and
Wells Fargo Bank Minnesota, National Association, a national banking association
(the "Secured Party").

         Pursuant to an Amended and Restated  Credit and  Security  Agreement of
even date  herewith (as the same may be amended,  supplemented  or restated from
time to time,  the  "Credit  Agreement"),  the Secured  Party may extend  credit
accommodations to 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").

         As a condition to extending credit to the Borrowers,  the Secured Party
has required the  execution  and delivery of the Debtor's  Guaranty of even date
herewith,  guaranteeing  the payment and  performance of all  obligations of the
Borrowers arising under or pursuant to the Credit Agreement (the "Guaranty").

         As a further  condition to extending  credit to the Borrowers under the
Credit  Agreement,  the Secured Party has required the execution and delivery of
this Agreement by the Debtor.

         ACCORDINGLY, in consideration of the mutual covenants
contained in the Credit Agreement and herein, the parties hereby agree as
follows:

         1. Definitions. All terms defined in the recitals hereto and the Credit
Agreement  that are not otherwise  defined  herein shall have the meanings given
them in the recitals and the Credit Agreement.  All terms defined in the UCC and
not otherwise  defined herein have the meanings  assigned to them in the UCC. In
addition,  the  following  terms  have the  meanings  set forth  below or in the
referenced Section of this Agreement:

                  "Accounts" means all of the Debtor's accounts, as such term is
         defined in the UCC, including each and every right of the Debtor 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
         Debtor or by some other person who subsequently transfers such person's

<PAGE>

         interest  to the  Debtor,  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  Debtor 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.

                  "Collateral"  means  all of  the  Debtor's  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  (i)  all
         substitutions   and  replacements  for  and  products  of  any  of  the
         foregoing;  (ii) in the case of all goods,  all  accessions;  (iii) all
         accessories, attachments, parts, equipment and repairs now or hereafter
         attached or affixed to or used in connection  with any goods;  (iv) all
         warehouse receipts, bills of lading and other documents of title now or
         hereafter  covering such goods;  (v) any money,  or other assets of the
         Debtor that now or  hereafter  come into the  possession,  custody,  or
         control  of  the  Lender;  and  (vi)  proceeds  of any  and  all of the
         foregoing.

                  "Equipment" means all of the Debtor'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 the Debtor.

                  "Event of Default" has the meaning given in Section 6.

                  "General  Intangibles"  means  all  of  the  Debtor'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 the
         Debtor's name, and the goodwill of the Debtor's business.

                  "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.

                  "Inventory" means all of the Debtor'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

                                      -2-
<PAGE>

         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 all of the  Debtor'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.

                  "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.

                  "Obligations"  means  each  and  every  debt,   liability  and
         obligation of every type and description which the Debtor may now or at
         any  time  hereafter  owe to the  Secured  Party,  whether  such  debt,
         liability or obligation now exists or is hereafter  created or incurred
         and whether it is or may be direct or  indirect,  due or to become due,
         or absolute or contingent, including without limitation all obligations
         under the Guaranty.

                  "Permitted  Liens"  means  (i)  the  Security  Interest,  (ii)
         covenants,  restrictions, rights, easements and minor irregularities in
         title which do not materially  interfere with the Debtor's  business or
         operations as presently conducted,  and (iii) Liens in existence on the
         date hereof and described on Exhibit C hereto.

                  "Security Interest" has the meaning given in Section 2.

                  "UCC" means Uniform  Commercial Code as in effect from time to
         time (including after July 1, 2001) in the Province of Manitoba.

         2.  Security  Interest.  The Debtor  hereby  grants the Secured Party a
security interest (the "Security  Interest") in the Collateral to secure payment
of the Obligations.

         3.  Representations,  Warranties  and  Agreements.  The  Debtor  hereby
represents, warrants and agrees as follows:

                  (a)      Title. The Debtor (i) has absolute title to each item
         of  Collateral  in existence on the date hereof,  free and clear of all
         Liens except  Permitted  Liens,  (ii) will have, at the time the Debtor
         acquires any rights in Collateral hereafter arising,  absolute title to
         each  such  item of  Collateral  free  and  clear of all  Liens  except
         Permitted  Liens,  (iii) will keep all Collateral free and clear of all
         Liens  except  Permitted  Liens,  and (iv) will  defend the  Collateral
         against  all claims or demands of all  persons  other than the  Secured

                                      -3-
<PAGE>

         Party. The Debtor will not sell or otherwise  dispose of the Collateral
         or any  interest  therein,  outside the  ordinary  course of  business,
         without the prior written consent of the Secured Party.

                  (b) Chief Executive Office; Identification Numbers. The
         Debtor's chief executive office and principal place of business is
         located at the address set forth under its signature below. The
         Debtor's federal employer identification number and organizational
         identification number are correctly set forth under its signature
         below.

                  (c)      Location of  Collateral.  As of the date hereof,  the
         tangible  Collateral  is located only in the states and at the address,
         as identified on Exhibit A attached hereto.  The Debtor will not permit
         any  tangible  Collateral  to be located in any state  (and,  if county
         filing is  required,  in any  county)  in which a  financing  statement
         covering  such  Collateral is required to be, but has not in fact been,
         filed in order to perfect the Security Interest.

                  (d)      Changes in Name, Constituent Documents, Location. The
         Debtor will not change its name,  articles of  incorporation or bylaws,
         or jurisdiction of  organization,  without the prior written consent of
         the Secured  Party.  The Debtor will not change its  business  address,
         without prior written notice to the Secured Party.

                  (e)      Fixtures.  The Debtor  will not  permit any  tangible
         Collateral  to become  part of or to be  affixed  to any real  property
         without first  assuring to the reasonable  satisfaction  of the Secured
         Party that the Security  Interest  will be prior and senior to any Lien
         then held or thereafter acquired by any mortgagee of such real property
         or the owner or purchaser of any interest  therein.  If any part or all
         of the  tangible  Collateral  is now  or  will  become  so  related  to
         particular  real estate as to be a fixture,  the real estate  concerned
         and the name of the record owner are  accurately set forth in Exhibit B
         hereto.

                  (f)      Rights to  Payment.  Each right to  payment  and each
         instrument, document, chattel paper and other agreement constituting or
         evidencing  Collateral is (or will be when arising,  issued or assigned
         to the  Secured  Party)  the valid,  genuine  and  legally  enforceable
         obligation,  subject to no defense,  setoff or counterclaim (other than
         those  arising in the  ordinary  course of  business),  of the  account
         debtor  or other  obligor  named  therein  or in the  Debtor's  records
         pertaining  thereto  as being  obligated  to pay such  obligation.  The
         Debtor will neither agree to any material modification or amendment nor
         agree  to  any  forbearance,   release  or  cancellation  of  any  such
         obligation,  and will not  subordinate  any such  right to  payment  to
         claims of other creditors of such account debtor or other obligor.

                  (g)      Commercial  Tort  Claims.   Promptly  upon  knowledge
         thereof,  the Debtor will  deliver to the Secured  Party  notice of any
         commercial  tort claims it may bring against any person,  including the
         name and address of each defendant, a summary of the facts, an estimate
         of the  Debtor's  damages,  copies of any  complaint  or demand  letter
         submitted by the Debtor,  and such other  information as the Lender may
         request.  Upon request by the Secured Party,  the Debtor will grant the
         Secured Party a security  interest in all commercial tort claims it may
         have against any person.

                                       -4-
<PAGE>

                  (h)      Miscellaneous Covenants. The Debtor will:

                  (i)      keep all tangible Collateral in good repair,  working
         order and condition,  normal depreciation excepted, and will, from time
         to time, replace any worn, broken or defective parts thereof;

                  (ii)     promptly pay all taxes and other governmental charges
         levied or assessed  upon or against any  Collateral  or upon or against
         the creation, perfection or continuance of the Security Interest;

                  (iii)    at all reasonable times,  permit the Secured Party or
         its  representatives  to examine or inspect  any  Collateral,  wherever
         located,  and to  examine,  inspect  and copy the  Debtor's  books  and
         records  pertaining  to the  Collateral  and its business and financial
         condition  and to send and  discuss  with  account  debtors  and  other
         obligors requests for verifications of amounts owed to the Debtor;

                  (iv)     keep accurate and complete records  pertaining to the
         Collateral  and  pertaining  to the  Debtor's  business  and  financial
         condition  and  submit  to the  Secured  Party  such  periodic  reports
         concerning  the  Collateral  and the Debtor's  business  and  financial
         condition  as the  Secured  Party  may  from  time to  time  reasonably
         request;

                  (v)      promptly  notify the Secured  Party of any loss of or
         material  damage to any Collateral or of any adverse  change,  known to
         the Debtor,  in the prospect of payment of any sums due on or under any
         instrument, chattel paper, or account constituting Collateral;

                  (vi)     if the Secured  Party at any time so requests  (after
         the occurrence of an Event of Default), promptly deliver to the Secured
         Party  any   instrument,   document  or  chattel   paper   constituting
         Collateral, duly endorsed or assigned by the Debtor;

                  (vii)    at all times  keep all  tangible  Collateral  insured
         against risks of fire (including  so-called extended coverage),  theft,
         collision (in case of Collateral consisting of motor vehicles) and such
         other  risks and in such  amounts as the Secured  Party may  reasonably
         request,  with any such  policies  containing  a  lender  loss  payable
         endorsement acceptable to the Secured Party;

                  (viii)   from time to time execute such  financing  statements
         as the  Secured  Party may  reasonably  require in order to perfect the
         Security  Interest and, if any Collateral  consists of a motor vehicle,
         execute such documents as may be required to have the Security Interest
         properly noted on a certificate of title;

                  (ix)     pay when due or reimburse the Secured Party on demand
         for all costs of  collection  of any of the  Obligations  and all other
         out-of-pocket   expenses   (including  in  each  case  all   reasonable
         attorneys'  fees) incurred by the Secured Party in connection  with the

                                      -5-
<PAGE>

         creation, perfection, satisfaction,  protection, defense or enforcement
         of the  Security  Interest or the  creation,  continuance,  protection,
         defense  or  enforcement  of  this  Agreement  or  any  or  all  of the
         Obligations,   including   expenses   incurred  in  any  litigation  or
         bankruptcy or insolvency proceedings;

                  (x)      execute,  deliver or endorse any and all instruments,
         documents,  assignments,  security  agreements and other agreements and
         writings which the Secured Party may at any time reasonably  request in
         order to secure, protect,  perfect or enforce the Security Interest and
         the Secured Party's rights under this Agreement; and

                  (xi)     not use or keep any  Collateral,  or  permit it to be
         used or kept, for any unlawful  purpose or in violation of any federal,
         state or local law, statute or ordinance.

         (i) Secured  Party's Right to Take Action.  The Debtor  authorizes  the
Secured Party 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 Secured
Party deems  necessary  or useful to perfect the Security  Interest.  The Debtor
will not amend any financing  statements in favor of the Secured Party except as
permitted by law. Further, if the Debtor at any time fails to perform or observe
any  agreement  contained in Section 3(h),  and if such failure  continues for a
period of ten (10) days after the Secured Party gives the Debtor  written notice
thereof (or, in the case of the agreements contained in clauses (vii) and (viii)
of Section 3(h), immediately upon the occurrence of such failure, without notice
or lapse of time),  the Secured Party may (but need not) perform or observe such
agreement  on behalf and in the name,  place and stead of the Debtor (or, at the
Secured Party's option,  in the Secured Party's own name) and may (but need not)
take any and all other  actions  which the  Secured  Party may  reasonably  deem
necessary to cure or correct such failure  (including,  without  limitation  the
payment  of  taxes,   the   satisfaction  of  security   interests,   liens,  or
encumbrances,  the performance of obligations under contracts or agreements with
account debtors or other obligors, the procurement and maintenance of insurance,
the execution of financing statements,  the endorsement of instruments,  and the
procurement of repairs or  transportation);  and,  except to the extent that the
effect of such  payment  would be to  render  any loan or  forbearance  of money
usurious  or  otherwise  illegal  under any  applicable  law,  the Debtor  shall
thereupon pay the Secured Party on demand the amount of all moneys  expended and
all costs and expenses  (including  reasonable  attorneys' fees) incurred by the
Secured  Party  in  connection  with  or as a  result  of  the  Secured  Party's
performing or observing  such  agreements or taking such actions,  together with
interest  thereon from the date expended or incurred by the Secured Party at the
highest  rate then  applicable  to any of the  Obligations.  To  facilitate  the
performance or observance by the Secured Party of such agreements of the Debtor,
the Debtor hereby  irrevocably  appoints  (which  appointment is coupled with an
interest) the Secured Party,  or its delegate,  as the  attorney-in-fact  of the
Debtor  with the right (but not the duty) from time to time to create,  prepare,

                                      -6-
<PAGE>

complete,  execute,  deliver,  endorse or file, in the name and on behalf of the
Debtor, any and all instruments,  documents, financing statements,  applications
for  insurance  and other  agreements  and  writings  required  to be  obtained,
executed,  delivered  or endorsed by the Debtor under this Section 3 and Section
4.

         4. Rights of Secured Party. At any time and from time to time,  whether
before or after an Event of Default,  the  Secured  Party may take any or all of
the following actions:

                  (a)      Account  Verification.  The Secured  Party may at any
         time and from time to time send or require the Debtor to send  requests
         for  verification  of  accounts  or  notices of  assignment  to account
         debtors and other obligors.  The Secured Party may also at any time and
         from time to time  telephone  account  debtors  and other  obligors  to
         verify accounts.

         (b)      Collateral   Account.   The  Secured  Party  may  establish  a
         collateral account for the deposit of checks,  drafts and cash payments
         made by the Debtor's  account  debtors.  If a collateral  account is so
         established,  the Debtor shall  promptly  deliver to the Secured Party,
         for deposit into said collateral account,  all payments on Accounts and
         chattel paper  received by it. All such payments  shall be delivered to
         the  Secured  Party  in the  form  received  (except  for the  Debtor's
         endorsement  where  necessary).  Until so  deposited,  all  payments on
         Accounts  and chattel  paper  received  by the Debtor  shall be held in
         trust by the Debtor for and as the  property of the  Secured  Party and
         shall not be commingled  with any funds or property of the Debtor.  All
         deposits  in said  collateral  account  shall  constitute  proceeds  of
         Collateral and shall not constitute  payment of any Obligation.  Unless
         otherwise agreed in writing, the Debtor shall have no right to withdraw
         amounts on deposit in any collateral account.

         (c)      Lockbox.  The  Secured  Party  may,  by notice to the  Debtor,
         require  the  Debtor  to direct  each of its  account  debtors  to make
         payment  directly  to a special  lockbox to be under the control of the
         Secured  Party.  The Debtor hereby  authorizes  and directs the Secured
         Party to deposit all checks,  drafts and cash payments received in said
         lockbox into the collateral account established as set forth above.

         (d)      Direct  Collection.  The Secured  Party may notify any account
         debtor,  or any other person obligated to pay any amount due, that such
         chattel paper,  Account, or other right to payment has been assigned or
         transferred  to the  Secured  Party  for  security  and  shall  be paid
         directly to the Secured  Party.  At any time after the Secured Party or
         the Debtor gives such notice to an account debtor or other obligor, the
         Secured  Party may (but need not),  in its own name or in the  Debtor's
         name,  demand, sue for, collect or receive any money or property at any
         time payable or receivable on account of, or securing, any such chattel
         paper,  Account,  or other 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.

         5.  Assignment of Insurance.  The Debtor hereby  assigns to the Secured
Party, as additional  security for the payment of the  Obligations,  any and all
moneys  (including  but not  limited to  proceeds  of  insurance  and refunds of

                                      -7-
<PAGE>

unearned  premiums)  due or to become  due  under,  and all other  rights of the
Debtor under or with respect to, any and all policies of insurance  covering the
Collateral,  and the Debtor hereby  directs the issuer of any such policy to pay
any such moneys directly to the Secured Party.  After the occurrence of an Event
of  Default,  the  Secured  Party may (but need not),  in its own name or in the
Debtor's  name,  execute and deliver  proofs of claim,  receive all such moneys,
endorse checks and other instruments  representing  payment of such moneys,  and
adjust, litigate, compromise or release any claim against the issuer of any such
policy.

         6.  Events  of  Default.   Each  of  the  following  occurrences  shall
constitute an event of default  under this  Agreement  (herein  called "Event of
Default"):  (i) an Event of Default shall occur under the Credit  Agreement;  or
(ii) the Debtor shall fail to pay any or all of the Obligations  when due or (if
payable  on demand)  on  demand;  or (iii) the  Debtor  shall fail to observe or
perform any covenant or agreement herein binding on it.

         7. Remedies upon Event of Default.  Upon the  occurrence of an Event of
Default and at any time  thereafter,  the Secured  Party may exercise any one or
more of the following rights and remedies: (i) declare all unmatured Obligations
to be immediately  due and payable,  and the same shall thereupon be immediately
due and payable,  without  presentment or other notice or demand;  (ii) exercise
and enforce any or all rights and remedies  available  upon default to a secured
party under the UCC,  including but not limited to the right to take  possession
of any Collateral,  proceeding  without  judicial process or by judicial process
(without a prior hearing or notice  thereof,  which the Debtor hereby  expressly
waives),  and the right to sell, lease or otherwise dispose of any or all of the
Collateral,  and in  connection  therewith,  the  Secured  Party may require the
Debtor to make the  Collateral  available to the Secured  Party at a place to be
designated by the Secured Party which is reasonably  convenient to both parties,
and if notice to the Debtor 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 9) at least ten (10) days prior to the date of intended  disposition  or
other  action;  (iii)  exercise or enforce  any or all other  rights or remedies
available  to the Secured  Party by law or  agreement  against  the  Collateral,
against the Debtor or against any other person or property. The Secured Party is
hereby  granted a  nonexclusive,  worldwide and  royalty-free  license to use or
otherwise  exploit all Intellectual  Property Rights owned by or licensed to the
Debtor that the Secured Party deems  necessary or appropriate to the disposition
of any Collateral.

         8. Other Personal Property.  Unless at the time the Secured Party takes
possession  of any tangible  Collateral,  or within seven days  thereafter,  the
Debtor gives written  notice to the Secured Party of the existence of any goods,
papers or other property of the Debtor, not affixed to or constituting a part of
such Collateral,  but which are located or found upon or within such Collateral,
describing  such property,  the Secured Party shall not be responsible or liable
to the  Debtor for any  action  taken or omitted by or on behalf of the  Secured
Party with respect to such property.

                                      -8-
<PAGE>

         9.   Notices;   Requests   for   Accounting.   All  notices  and  other
communications  hereunder  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 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 (i) the date  received  if
personally  delivered,  (ii) when  deposited  in the mail if  delivered by mail,
(iii)  the  date  sent  if sent  by  overnight  courier,  or  (iv)  the  date of
transmission  if delivered by telecopy.  All requests under Section 9-210 of the
UCC (i) shall be made in a writing signed by an authorized person, (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 Secured Party and (iv) shall  otherwise  comply
with the  requirements  of Section 9-210.  The Debtor  requests that the Secured
Party  respond to all such  requests  which on their face appear to come from an
authorized  individual  and releases the Secured Party from any liability for so
responding. The Debtor shall pay Secured Party the maximum amount allowed by law
for responding to such requests.

         10. Miscellaneous.  This Agreement has been duly and validly authorized
by all necessary corporate action. This Agreement does not contemplate a sale of
accounts,  or chattel paper.  This Agreement can be waived,  modified,  amended,
terminated  or  discharged,  and the Security  Interest  can be  released,  only
explicitly  in a  writing  signed  by the  Secured  Party,  and,  in the case of
amendment or modification, in a writing signed by the Debtor. A waiver signed by
the Secured Party shall be effective  only in the specific  instance and for the
specific  purpose  given.  Mere delay or failure to act shall not  preclude  the
exercise or  enforcement of any of the Secured  Party's rights or remedies.  All
rights  and  remedies  of the  Secured  Party  shall  be  cumulative  and may be
exercised  singularly or  concurrently,  at the Secured Party's option,  and the
exercise  or  enforcement  of any one such  right or remedy  shall  neither be a
condition  to nor bar the  exercise  or  enforcement  of any other.  The Secured
Party's duty of care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if the Secured Party exercises reasonable care in
physically  safekeeping  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 Secured Party
need not otherwise  preserve,  protect,  insure or care for any Collateral.  The
Secured  Party shall not be obligated to preserve any rights the Debtor 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 Collateral in any  particular
order of  application.  This  Agreement  shall be binding  upon and inure to the
benefit of the Debtor and the Secured Party and their respective  successors and
assigns and shall take effect  when  signed by the Debtor and  delivered  to the

                                      -9-
<PAGE>

Secured Party,  and the Debtor waives notice of the Secured  Party's  acceptance
hereof.  The Secured  Party may execute this  Agreement if  appropriate  for the
purpose  of  filing,  but the  failure  of the  Secured  Party to  execute  this
Agreement  shall not  affect or impair the  validity  or  effectiveness  of this
Agreement. A carbon,  photographic or other reproduction of this Agreement or of
any  financing  statement  signed by the  Debtor  shall  have the same force and
effect as the original for all purposes of a financing statement. This Agreement
shall be governed by and  construed  in  accordance  with the  substantive  laws
(other  than  conflict  laws) of the State of  Minnesota.  If any  provision  or
application of this Agreement is held unlawful or  unenforceable in any respect,
such  illegality  or  unenforceability  shall not  affect  other  provisions  or
applications  which can be given effect and this Agreement shall be construed as
if the  unlawful  or  unenforceable  provision  or  application  had never  been
contained  herein or  prescribed  hereby.  All  representations  and  warranties
contained  in  this  Agreement   shall  survive  the  execution,   delivery  and
performance of this  Agreement and the creation and payment of the  Obligations.
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
Secured Party or the Debtor in connection  with this Agreement or the other Loan
Documents  may be venued  in  either  the state or  federal  courts  located  in
Hennepin  County,  Minnesota;  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.

         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as
of the date and year first above written.

WELLS FARGO BANK MINNESOTA,                     THE LEATHER FACTORY OF CANADA,
NATIONAL ASSOCIATION                            LTD.

By /s/ Thomas W. Tosney                         By /s/ Wray Thompson
  ---------------------                           ------------------
     Thomas W. Tosney                             Wray Thompson
     Its Senior Vice President                    Its Chief Executive Officer

4975 Preston Park Blvd., Suite 280              3825 E. Loop 820 South
Plano, Texas  75093                             P.O. Box 50429
                                                Ft. Worth, Texas 76105
                                                Employer Identification
                                                No. 89-1051054

                                      -10-
<PAGE>

                                                                       EXHIBIT A

                             LOCATION OF COLLATERAL
                             ----------------------

                           104 King Edward Street East
                              Winnipeg, MB R3H 0N8

                                5562 Tomken Road
                             Mississuga, ON L4W 1P4

<PAGE>

                                                                       EXHIBIT B

                                LEGAL DESCRIPTION
                                -----------------

<PAGE>

                                                                       EXHIBIT C

                                 PERMITTED LIENS
                                 ---------------

                                      NONE

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