Document:

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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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(Multicurrency-- Cross Border)

                                    ISDA(R)
                  International Swap Dealers Association, Inc.

                                MASTER AGREEMENT
                            dated as of June 27, 2001

  TANDY BRANDS ACCESSORIES, INC. and WELLS FARGO BANK, NATIONAL ASSOCIATION

have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.

Accordingly, the parties agree as follows:--

1.       INTERPRETATION

(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.

(b) INCONSISTENCY. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.

(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement between
the parties (collectively referred to as this "Agreement"), and the parties
would not otherwise enter into any Transactions.

2.       OBLIGATIONS

(a) GENERAL CONDITIONS.

         (i) Each party will make each payment or delivery specified in each
         Confirmation to be made by it, subject to the other provisions of this
         Agreement.

         (ii) Payments under this Agreement will be made on the due date for
         value on that date in the place of the account specified in the
         relevant Confirmation or otherwise pursuant to this Agreement, in
         freely transferable funds and in the manner customary for payments in
         the required currency. Where settlement is by delivery (that is, other
         than by payment), such delivery will be made for receipt on the due
         date in the manner customary for the relevant obligation unless
         otherwise specified in the relevant Confirmation or elsewhere in this
         Agreement.

         (iii) Each obligation of each party under Section 2(a)(i) is subject to
         (1) the condition precedent that no Event of Default or Potential Event
         of Default with respect to the other party has occurred and is
         continuing, (2) the condition precedent that no Early Termination of
         the relevant Transaction has occurred or been effectively designated
         and (3) each other applicable condition precedent specified in this
         Agreement.

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       Copyright (C) 1992 by International Swap Dealers Association, Inc.

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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.

(c) NETTING. If on any date amounts would otherwise be payable:--

         (i) in the same currency; and

         (ii) in respect of the same Transaction,

by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.

The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.

(d) DEDUCTION OR WITHHOLDING FOR TAX.

         (i) GROSS-UP. All payments under this Agreement will be made without
         any deduction or withholding for or on account of any Tax unless such
         deduction or withholding is required by any applicable law, as modified
         by the practice of any relevant governmental revenue authority, then in
         effect. If a party is so required to deduct or withhold, then that
         party ("X") will:--

                  (1) promptly notify the other party ("Y") of such requirement;

                  (2) pay to the relevant authorities the full amount required
                  to be deducted or withheld (including the full amount required
                  to be deducted or withheld from any additional amount paid by
                  X to Y under this Section 2(d)) promptly upon the earlier of
                  determining that such deduction or withholding is required or
                  receiving notice that such amount has been assessed against Y;

                  (3) promptly forward to Y an official receipt (or a certified
                  copy), or other documentation reasonably acceptable to Y,
                  evidencing such payment to such authorities; and

                  (4) if such Tax is an Indemnifiable Tax, pay to Y, in addition
                  to the payment to which Y is otherwise entitled under this
                  Agreement, such additional amount as is necessary to ensure
                  that the net amount actually received by Y (free and clear of
                  Indemnifiable Taxes, whether assessed against X or Y) will
                  equal the full amount Y would have received had no such
                  deduction or withholding been required. However, X will not be
                  required to pay any additional amount to Y to the extent that
                  it would not be required to be paid but for:--

                           (A) the failure by Y to comply with or perform any
                           agreement contained in Section 4(a)(i), 4(a)(iii) or
                           4(d); or

                           (B) the failure of a representation made by Y
                           pursuant to Section 3(f) to be accurate and true
                           unless such failure would not have occurred but for
                           (I) any action taken by a taxing authority, or
                           brought in a court of competent jurisdiction, on or
                           after the date on which a Transaction is entered into
                           (regardless of whether such action is taken or
                           brought with respect to a party to this Agreement) or
                           (II) a Change in Tax Law

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                                       2                           ISDA (R) 1992

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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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         (ii) LIABILITY. If: -

                  (1) X is required by any applicable law, as modified by the
                  practice of any relevant governmental revenue authority, to
                  make any deduction or withholding in respect of which X would
                  not be required to pay an additional amount to Y under Section
                  2(d)(i)(4);

                  (2) X does not so deduct or withhold; and

                  (3) a liability resulting from such Tax is assessed directly
                  against X,

         then, except to the extent Y has satisfied or then satisfies the
         liability resulting from such Tax, Y will promptly pay to X the amount
         of such liability (including any related liability for interest, but
         including any related liability for penalties only if Y has failed to
         comply with or perform any agreement contained in Section 4(a)(i),
         4(a)(iii) or 4(d)).

(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.

3.       REPRESENTATIONS

Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the
termination of this Agreement) that:--

(a) BASIC REPRESENTATIONS.

         (i) STATUS. It is duly organised and validly existing under the laws of
         the jurisdiction of its organisation or incorporation and, if relevant
         under such laws, in good standing;

         (ii) POWERS. It has the power to execute this Agreement and any other
         documentation relating to this Agreement to which it is a party, to
         deliver this Agreement and any other documentation relating to this
         Agreement that it is required by this Agreement to deliver and to
         perform its obligations under this Agreement and any obligations it has
         under any Credit Support Document to which it is a party and has taken
         all necessary action to authorise such execution, delivery and
         performance;

         (iii) NO VIOLATION OR CONFLICT. Such execution, delivery and
         performance do not violate or conflict with any law applicable to it,
         any provision of its constitutional documents, any order or judgment of
         any court or other agency of government applicable to it or any of its
         assets or any contractual restriction binding on or affecting it or any
         of its assets;

         (iv) CONSENTS. All governmental and other consents that are required to
         have been obtained by it with respect to this Agreement or any Credit
         Support Document to which it is a party have been obtained and are in
         full force and effect and all conditions of any inch consents have been
         complied with; and

         (v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
         Credit Support Document to which it is a party constitute its legal,
         valid and binding obligations, enforceable in accordance with their
         respective terms (subject to applicable bankruptcy, reorganisation,
         insolvency, moratorium or similar laws affecting creditors' rights
         generally and subject, as to enforceability, to equitable principles of
         general application (regardless of whether enforcement is sought in a
         proceeding in equity or at law)).

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                                       3                           ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of Default
or, to its knowledge, Termination Event with respect to it has occurred and is
continuing and no such event or circumstance would occur as a result of its
entering into or performing its obligations under this Agreement or any Credit
Support Document to which it is a party.

(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge, threatened
against it or any of its Affiliates any action, suit or proceeding at law or in
equity or before any court, tribunal, governmental body, agency or official or
any arbitrator that is likely to affect the legality, validity or enforceability
against it of this Agreement or any Credit Support Document to which it is a
party or its ability to perform its obligations under this Agreement or such
Credit Support Document.

(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.

(e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.

(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(f) is accurate and true.

4.       AGREEMENTS

Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--

(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or, in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--

         (i) any forms, documents or certificates relating to taxation
         specified in the Schedule or any Confirmation;

         (ii) any other documents specified in the Schedule or any Confirmation;
         and

         (iii) upon reasonable demand by such other party, any form or document
         that may be required or reasonably requested in writing in order to
         allow such other party or its Credit Support Provider to make a payment
         under this Agreement or any applicable Credit Support Document without
         any deduction or withholding for or on account of any Tax or with such
         deduction or withholding at a reduced rate (so long as the completion,
         execution or submission of such form or document would not materially
         prejudice the legal or commercial position of the party in receipt of
         such demand), with any such form or document to be accurate and
         completed in a manner reasonably satisfactory to such other party and
         to be executed and to be delivered with any reasonably required
         certification,

in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.

(b) MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.

(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.

(d) TAX AGREEMENT. It will give notice of any failure of a representation made
by it under Section 3(f) to be accurate and true promptly upon learning of such
failure.

(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated,

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                                       4                           ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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organised, managed and controlled, or considered to have its seat, or in which a
branch or office through which it is acting for the purpose of this Agreement is
located ("Stamp Tax Jurisdiction") and will indemnify the other party against
any Stamp Tax levied or imposed upon the other party or in respect of the other
party's execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.

5.       EVENTS OF DEFAULT AND TERMINATION EVENTS

(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party or, if
applicable, any Credit Support Provider of such party or any Specified Entity of
such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:--

         (i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due,
         any payment under this Agreement or delivery under Section 2(a)(i) or
         2(e) required to be made by it if such failure is not remedied on or
         before the third Local Business Day after notice of such failure is
         given to the party;

         (ii) BREACH OF AGREEMENT. Failure by the party to comply with or
         perform any agreement or obligation (other than an obligation to make
         any payment under this Agreement or delivery under Section 2(a)(i) or
         2(e) or to give notice of a Termination Event or any agreement or
         obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied
         with or performed by the party in accordance with this Agreement if
         such failure is not remedied on or before the thirtieth day after
         notice of such failure is given to the party;

         (iii) CREDIT SUPPORT DEFAULT.

                  (1) Failure by the party or any Credit Support Provider of
                  such party to comply with or perform any agreement or
                  obligation to be complied with or performed by it in
                  accordance with any Credit Support Document if such failure is
                  continuing after any applicable grace period has elapsed;

                  (2) the expiration or termination of such Credit Support
                  Document or the failing or ceasing of such Credit Support
                  Document to be in full force and effect for the purpose of
                  this Agreement (in either case other than in accordance with
                  its terms) prior to the satisfaction of all obligations of
                  such party under each Transaction to which such Credit Support
                  Document relates without the written consent of the other
                  party; or

                  (3) the party or such Credit Support Provider disaffirms,
                  disclaims, repudiates or rejects, in whole or in part, or
                  challenges the validity of, such Credit Support Document;

         (iv) MISREPRESENTATION. A representation (other than a representation
         under Section 3(e) or (f)) made or repeated or deemed to have been made
         or repeated by the party or any Credit Support Provider of such party
         in this Agreement or any Credit Support Document proves to have been
         incorrect or misleading in any material respect when made or repeated
         or deemed to have been made or repeated;

         (v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support
         Provider of such party or any applicable Specified Entity of such party
         (1) defaults under a Specified Transaction and, after giving effect to
         any applicable notice requirement or grace period, there occurs a
         liquidation of, an acceleration of obligations under, or an early
         termination of, that Specified Transaction, (2) defaults, after giving
         effect to any applicable notice requirement or grace period, in making
         any payment or delivery due on the last payment, delivery or exchange
         date of, or any payment on early termination of, a Specified
         Transaction (or such default continues for at least three Local
         Business Days if there is no applicable notice requirement or grace
         period) or (3) disaffirms, disclaims, repudiates or rejects, in whole
         or in part, a Specified Transaction (or such action is taken by any
         person or entity appointed or empowered to operate it or act on its
         behalf);

         (vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as
         applying to the party, the occurrence or existence of (1) a default,
         event of default or other similar condition or event (however

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                                       5                           ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

         described) in respect of such party, any Credit Support Provider of
         such party or any applicable Specified Entity of such party under one
         or more agreements or instruments relating to Specified Indebtedness of
         any of them (individually or collectively) in an aggregate amount of
         not less than the applicable Threshold Amount (as specified in the
         Schedule) which has resulted in such Specified Indebtedness becoming,
         or becoming capable at such time of being declared, due and payable
         under such agreements or instruments, before it would otherwise have
         been due and payable or (2) a default by such party, such Credit
         Support Provider or such Specified Entity (individually or
         collectively) in making one or more payments on the due date thereof in
         an aggregate amount of not less than the applicable Threshold Amount
         under such agreements or instruments (after giving effect to any
         applicable notice requirement or grace period);

         (vii) BANKRUPTCY. The party, any Credit Support Provider of such party
         or any applicable Specified Entity of such party:--

                  (1) is dissolved (other than pursuant to a consolidation,
                  amalgamation or merger); (2) becomes insolvent or is unable to
                  pay its debts or fails or admits in writing its inability
                  generally to pay its debts as they become due; (3) makes a
                  general assignment, arrangement or composition with or for the
                  benefit of its creditors; (4) institutes or has instituted
                  against it a proceeding seeking a judgment of insolvency or
                  bankruptcy or any other relief under any bankruptcy or
                  insolvency law or other similar law affecting creditors'
                  rights, or a petition is presented for its winding-up or
                  liquidation, and, in the case of any such proceeding or
                  petition instituted or presented against it, such proceeding
                  or petition (A) results in a judgment of insolvency or
                  bankruptcy or the entry of an order for relief or the making
                  of an order for its winding-up or liquidation or (B) is not
                  dismissed, discharged, stayed or restrained in each case
                  within 30 days of the institution or presentation thereof; (5)
                  has a resolution passed for its winding-up, official
                  management or liquidation (other than pursuant to a
                  consolidation, amalgamation or merger); (6) seeks or becomes
                  subject to the appointment of an administrator, provisional
                  liquidator, conservator, receiver, trustee, custodian or other
                  similar official for it or for all or substantially all its
                  assets; (7) has a secured party take possession of all or
                  substantially all its assets or has a distress, execution,
                  attachment, sequestration or other legal process levied,
                  enforced or sued on or against all or substantially all its
                  assets and such secured party maintains possession, or any
                  such process is not dismissed, discharged, stayed or
                  restrained, in each case within 30 days thereafter; (8) causes
                  or is subject to any event with respect to it which, under the
                  applicable laws of any jurisdiction, has an analogous effect
                  to any of the events specified in clauses (1) to (7)
                  (inclusive); or (9) takes any action in furtherance of, or
                  indicating its consent to, approval of, or acquiescence in,
                  any of the foregoing acts; or

         (viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support
         Provider of such party consolidates or amalgamates with, or merges with
         or into, or transfers all or substantially all its assets to, another
         entity and, at the time of such consolidation, amalgamation, merger or
         transfer:--

                  (1) the resulting, surviving or transferee entity fails to
                  assume all the obligations of such party or such Credit
                  Support Provider under this Agreement or any Credit Support
                  Document to which it or its predecessor was a party by
                  operation of law or pursuant to an agreement reasonably
                  satisfactory to the other party to this Agreement; or

                  (2) the benefits of any Credit Support Document fail to extend
                  (without the consent of the other party) to the performance by
                  such resulting, surviving or transferee entity of its
                  obligations under this Agreement.

(b) TERMINATION EVENTS. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below, and,
if specified to be applicable, a Credit Event

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                                       6                           ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--

         (i) ILLEGALITY. Due to the adoption of, or any change in, any
         applicable law after the date on which a Transaction is entered into,
         or due to the promulgation of, or any change in, the interpretation by
         any court, tribunal or regulatory authority with competent jurisdiction
         of any applicable law after such date, it becomes unlawful (other than
         as a result of a breach by the party of Section 4(b)) for such party
         (which will be the Affected Party):--

                  (1) to perform any absolute or contingent obligation to make a
                  payment or delivery or to receive a payment or delivery in
                  respect of such Transaction or to comply with any other
                  material provision of this Agreement relating to such
                  Transaction; or

                  (2) to perform, or for any Credit Support Provider of such
                  party to perform, any contingent or other obligation which the
                  party (or such Credit Support Provider) has under any Credit
                  Support Document relating to such Transaction;

         (ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
         brought in a court of competent jurisdiction, on or after the date on
         which a Transaction is entered into (regardless of whether such action
         is taken or brought with respect to a party to this Agreement) or (y) a
         Change in Tax Law, the party (which will be the Affected Party) will,
         or there is a substantial likelihood that it will, on the next
         succeeding Scheduled Payment Date (1) be required to pay to the other
         party an additional amount in respect of an Indemnifiable Tax under
         Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
         6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is
         required to be deducted or withheld for or on account of a Tax (except
         in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no
         additional amount is required to be paid in respect of such Tax under
         Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or
         (B));

         (iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the
         next succeeding Scheduled Payment Date will either (1) be required to
         pay an additional amount in respect of an Indemnifiable Tax under
         Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
         6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has
         been deducted or withheld for or on account of any Indemnifiable Tax in
         respect of which the other party is not required to pay an additional
         amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in
         either case as a result of a party consolidating or amalgamating with,
         or merging with or into, or transferring all or substantially all its
         assets to, another entity (which will be the Affected Party) where such
         action does not constitute an event described in Section 5(a)(viii);

         (iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is
         specified in the Schedule as applying to the party, such party ("X"),
         any Credit Support Provider of X or any applicable Specified Entity of
         X consolidates or amalgamates with, or merges with or into, or
         transfers all or substantially all its assets to, another entity and
         such action does not constitute an event described in Section
         5(a)(viii) but the creditworthiness of the resulting, surviving or
         transferee entity is materially weaker than that of X, such Credit
         Support Provider or such Specified Entity, as the case may be,
         immediately prior to such action (and, in such event, X or its
         successor or transferee, as appropriate, will be the Affected Party);
         or

         (v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event"
         is specified in the Schedule or any Confirmation as applying, the
         occurrence of such event (and, in such event, the Affected Party or
         Affected Parties shall be as specified for such Additional Termination
         Event in the Schedule or such Confirmation).

(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.

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                                       7                           ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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6.       EARLY TERMINATION

(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).

(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.

         (i) NOTICE. If a Termination Event occurs, an Affected Party will,
         promptly upon becoming aware of it, notify the other party, specifying
         the nature of that Termination Event and each Affected Transaction and
         will also give such other information about that Termination Event as
         the other party may reasonably require.

         (ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under
         Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected
         Party, or if a Tax Event Upon Merger occurs and the Burdened Party is
         the Affected Party, the Affected Party will, as a condition to its
         right to designate an Early Termination Date under Section 6(b)(iv),
         use all reasonable efforts (which will not require such party to incur
         a loss, excluding immaterial, incidental expenses) to transfer within
         20 days after it gives notice under Section 6(b)(i) all its rights and
         obligations under this Agreement in respect of the Affected
         Transactions to another of its Offices or Affiliates so that such
         Termination Event ceases to exist.

         If the Affected Party is not able to make such a transfer it will give
         notice to the other party to that effect within such 20 day period,
         whereupon the other party may effect such a transfer within 30 days
         after the notice is given under Section 6(b)(i).

         Any such transfer by a party under this Section 6(b)(ii) will be
         subject to and conditional upon the prior written consent of the other
         party, which consent will not be withheld if such other party's
         policies in effect at such time would permit it to enter into
         transactions with the transferee on the terms proposed.

         (iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(l)
         or a Tax Event occurs and there are two Affected Parties, each party
         will use all reasonable efforts to reach agreement within 30 days after
         notice thereof is given under Section 6(b)(i) on action to avoid that
         Termination Event.

         (iv) RIGHT TO TERMINATE. If:--

                  (1) a transfer under Section 6(b)(ii) or an agreement under
                  Section 6(b)(iii), as the case may be, has not been effected
                  with respect to all Affected Transactions within 30 days after
                  an Affected Party gives notice under Section 6(b)(i); or

                  (2) an Illegality under Section 5(b)(i)(2), a Credit Event
                  Upon Merger or an Additional Termination Event occurs, or a
                  Tax Event Upon Merger occurs and the Burdened Party is not the
                  Affected Party,

         either party in the case of an Illegality, the Burdened Party in the
         case of a Tax Event Upon Merger, any Affected Party in the case of a
         Tax Event or an Additional Termination Event if there is more than one
         Affected Party, or the party which is not the Affected Party in the
         case of a Credit Event Upon Merger or an Additional Termination Event
         if there is only one Affected Party may, by not more than 20 days
         notice to the other party and provided that the relevant Termination
         Event is then

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                                       8                           ISDA (R) 1992
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                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

         continuing, designate a day not earlier than the day such notice is
         effective as an Early Termination Date in respect of all Affected
         Transactions.

(c) EFFECT OF DESIGNATION.

         (i) If notice designating an Early Termination Date is given under
         Section 6(a) or (b), the Early Termination Date will occur on the date
         so designated, whether or not the relevant Event of Default or
         Termination Event is then continuing.

         (ii) Upon the occurrence or effective designation of an Early
         Termination Date, no further payments or deliveries under Section
         2(a)(i) or 2(e) in respect of the Terminated Transactions will be
         required to be made, but without prejudice to the other provisions of
         this Agreement. The amount, if any, payable in respect of an Early
         Termination Date shall be determined pursuant to Section 6(e).

(d) CALCULATIONS.

         (i) STATEMENT. On or as soon as reasonably practicable following the
         occurrence of an Early Termination Date, each party will make the
         calculations on its part, if any, contemplated by Section 6(e) and will
         provide to the other party a statement (1) showing, in reasonable
         detail, such calculations (including all relevant quotations and
         specifying any amount payable under Section 6(e)) and (2) giving
         details of the relevant account to which any amount payable to it is to
         be paid. In the absence of written confirmation from the source of a
         quotation obtained in determining a Market Quotation, the records of
         the party obtaining such quotation will be conclusive evidence of the
         existence and accuracy of such quotation.

         (ii) PAYMENT DATE. An amount calculated as being due in respect of any
         Early Termination Date under Section 6(e) will be payable on the day
         that notice of the amount payable is effective (in the case of an Early
         Termination Date which is designated or occurs as a result of an Event
         of Default) and on the day which is two Local Business Days after the
         day on which notice of the amount payable is effective (in the case of
         an Early Termination Date which is designated as a result of a
         Termination Event). Such amount will be paid together with (to the
         extent permitted under applicable law) interest thereon (before as well
         as after judgment) in the Termination Currency, from (and including)
         the relevant Early Termination Date to (but excluding) the date such
         amount is paid, at the Applicable Rate. Such interest will be
         calculated on the basis of daily compounding and the actual number of
         days elapsed.

(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.

         (i) EVENTS OF DEFAULT. If the Early Termination Date results from an
         Event of Default:--

                  (1) FIRST METHOD AND MARKET QUOTATION. If the First Method and
                  Market Quotation apply, the Defaulting Party will pay to the
                  Non-defaulting Party the excess, if a positive number, of (A)
                  the sum of the Settlement Amount (determined by the
                  Non-defaulting Party) in respect of the Terminated
                  Transactions and the Termination Currency Equivalent of the
                  Unpaid Amounts owing to the Non-defaulting Party over (B) the
                  Termination Currency Equivalent of the Unpaid Amounts owing to
                  the Defaulting Party.

                  (2) FIRST METHOD AND LOSS. If the First Method and Loss apply,
                  the Defaulting Party will pay to the Non-defaulting Party, if
                  a positive number, the Non-defaulting Party's Loss in respect
                  of this Agreement.

                  (3) SECOND METHOD AND MARKET QUOTATION. If the Second Method
                  and Market Quotation apply, an amount will be payable equal to
                  (A) the sum of the Settlement Amount (determined by the

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                                       9                           ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

                  Non-defaulting Party) in respect of the Terminated
                  Transactions and the Termination Currency Equivalent of the
                  Unpaid Amounts owing to the Non-defaulting Party less (B) the
                  Termination Currency Equivalent of the Unpaid Amounts owing to
                  the Defaulting Party. If that amount is a positive number, the
                  Defaulting Party will pay it to the Non-defaulting Party; if
                  it is a negative number, the Non-defaulting Party will pay the
                  absolute value of that amount to the Defaulting Party.

         (4) SECOND METHOD AND LOSS. If the Second Method and Loss apply, an
         amount will be payable equal to the Non-defaulting Party's Loss in
         respect of this Agreement. If that amount is a positive number, the
         Defaulting Party will pay it to the Non-defaulting Party; if it is a
         negative number, the Non-defaulting Party will pay the absolute value
         of that amount to the Defaulting Party.

(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:--

         (1) ONE AFFECTED PARTY. If there is one Affected Party, the amount
         payable will be determined in accordance with Section 6(e)(i)(3), if
         Market Quotation applies, or Section 6(e)(i)(4), if Loss applies,
         except that, in either case, references to the Defaulting Party and to
         the Non-defaulting Party will be deemed to be references to the
         Affected Party and the party which is not the Affected Party,
         respectively, and, if Loss applies and fewer than all the Transactions
         are being terminated, Loss shall be calculated in respect of all
         Terminated Transactions.

         (2) TWO AFFECTED PARTIES. If there are two Affected Parties:--

                  (A) if Market Quotation applies, each party will determine a
                  Settlement Amount in respect of the Terminated Transactions,
                  and an amount will be payable equal to (I) the sum of (a)
                  one-half of the difference between the Settlement Amount of
                  the party with the higher Settlement Amount ("X") and the
                  Settlement Amount of the party with the lower Settlement
                  Amount ("Y") and (b) the Termination Currency Equivalent of
                  the Unpaid Amounts owing to X less (II) the Termination
                  Currency Equivalent of the Unpaid Amounts owing to Y; and

                  (B) if Loss applies, each party will determine its Loss in
                  respect of this Agreement (or, if fewer than all the
                  Transactions are being terminated, in respect of all
                  Terminated Transactions) and an amount will be payable equal
                  to one-half of the difference between the Loss of the party
                  with the higher Loss ("X") and the Loss of the party with the
                  lower Loss ("Y").

         If the amount payable is a positive number, Y will pay it to X; if it
         is a negative number, X will pay the absolute value of that amount to
         Y.

(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early Termination
Date occurs because "Automatic Early Termination" applies in respect of a party,
the amount determined under this Section 6(e) will be subject to such
adjustments as are appropriate and permitted by law to reflect any payments or
deliveries made by one party to the other under this Agreement (and retained by
such other party) during the period from the relevant Early Termination Date to
the date for payment determined under Section 6(d)(ii).

(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an amount
recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not
a penalty. Such amount is payable for the loss of bargain and the loss of
protection against future risks and except as otherwise provided in this
Agreement neither party will be entitled to recover any additional damages as a
consequence of such losses.

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                                       10                          ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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7. TRANSFER

Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:--

(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and

(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).

Any purported transfer that is not in compliance with this Section will be void.

8. CONTRACTUAL CURRENCY

(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement will
be made in the relevant currency specified in this Agreement for that payment
(the "Contractual Currency"). To the extent permitted by applicable law, any
obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.

(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and
costs of exchange payable in connection with the purchase of or conversion into
the Contractual Currency.

(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.

(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.

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                                       11                          ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

9. MISCELLANEOUS

(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.

(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.

(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.

(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.

(e) COUNTERPARTS AND CONFIRMATIONS.

         (i) This Agreement (and each amendment, modification and waiver in
         respect of it) may be executed and delivered in counterparts (including
         by facsimile transmission), each of which will be deemed an original.

         (ii) The parties intend that they are legally bound by the terms of
         each Transaction from the moment they agree to those terms (whether
         orally or otherwise). A Confirmation shall be entered into as soon as
         practicable and may be executed and delivered in counterparts
         (including by facsimile transmission) or be created by an exchange of
         telexes or by an exchange of electronic messages on an electronic
         messaging system, which in each case will be sufficient for all
         purposes to evidence a binding supplement to this Agreement. The
         parties will specify therein or through another effective means that
         any such counterpart, telex or electronic message constitutes a
         Confirmation.

         (f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right,
         power or privilege in respect of this Agreement will not be presumed to
         operate as a waiver, and a single or partial exercise of any right,
         power or privilege will not be presumed to preclude any subsequent or
         further exercise, of that right, power or privilege or the exercise of
         any other right, power or privilege.

         (g) HEADINGS. The headings used in this Agreement are for convenience
         of reference only and are not to affect the construction of or to be
         taken into consideration in interpreting this Agreement.

10. OFFICES; MULTIBRANCH PARTIES

(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organisation of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.

(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.

(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.

11. EXPENSES

A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document

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                                       12                          ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.

12.      NOTICES

(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--

         (i) if in writing and delivered in person or by courier, on the date it
         is delivered;

         (ii) if sent by telex, on the date the recipient's answerback is
         received;

         (iii) if sent by facsimile transmission, on the date that transmission
         is received by a responsible employee of the recipient in legible form
         (it being agreed that the burden of proving receipt will be on the
         sender and will not be met by a transmission report generated by the
         sender's facsimile machine);

         (iv) if sent by certified or registered mail (airmail, if overseas) or
         the equivalent (return receipt requested), on the date that mail is
         delivered or its delivery is attempted; or

         (v) if sent by electronic messaging system, on the date that electronic
         message is received,

unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.

(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.

13.      GOVERNING LAW AND JURISDICTION

(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.

(b) JURISDICTION. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:--

         (i) submits to the jurisdiction of the English courts, if this
         Agreement is expressed to be governed by English law, or to the
         non-exclusive jurisdiction of the courts of the State of New York and
         the United States District Court located in the Borough of Manhattan in
         New York City, if this Agreement is expressed to be governed by the
         laws of the State of New York; and

         (ii) waives any objection which it may have at any time to the laying
         of venue of any Proceedings brought in any such court, waives any claim
         that such Proceedings have been brought in an inconvenient forum and
         further waives the right to object, with respect to such Proceedings,
         that such court does not have any jurisdiction over such party.

Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.

(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any

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                                       13                          ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 12. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law.

(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.

14.      DEFINITIONS

As used in this Agreement:--

"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).

"AFFECTED PARTY" has the meaning specified in Section 5(b).

"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.

"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.

"APPLICABLE RATE" means:--

(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;

(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;

(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and

(d) in all other cases, the Termination Rate.

"BURDENED PARTY" has the meaning specified in Section 5(b).

"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.

"CONSENT" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.

"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).

"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as
such in this Agreement.

"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.

"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.

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                                       14                          ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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"DEFAULTING PARTY" has the meaning specified in Section 6(a).

"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).

"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.

"ILLEGALITY" has the meaning specified in Section 5(b).

"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient.
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).

"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"LAWFUL" and "UNLAWFUL" will be construed accordingly.

"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.

"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(l) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.

"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was, absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have

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                                       15                          ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as of
the same day and time (without regard to different time zones) on or as soon as
reasonably practicable after the relevant Early Termination Date. The day and
time as of which those quotations are to be obtained will be selected in good
faith by the party obliged to make a determination under Section 6(e), and, if
each party is so obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the arithmetic mean of the
quotations, without regard to the quotations having the highest and lowest
values. If exactly three such quotations are provided, the Market Quotation will
be the quotation remaining after disregarding the highest and lowest quotations.
For this purpose, if more than one quotation has the same highest value or
lowest value, then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.

"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.

"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).

"OFFICE" means a branch or office of a party, which may be such party's head or
home office.

"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.

"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.

"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.

"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.

"SET-OFF means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.

"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:--

(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and

(b) such party's Loss (whether positive or negative and without reference to any
Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.

"SPECIFIED ENTITY" has the meaning specified in the Schedule.

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                                       16                          ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.

"SPECIFIED TRANSACTION" means  subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, 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, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.

"STAMP TAX" means any stamp, registration, documentation or similar tax.

"TAX" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.

"TAX EVENT" has the meaning specified in Section 5(b).

"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).

"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).

"TERMINATION CURRENCY" has the meaning specified in the Schedule.

"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.

"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.

"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.

"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transactio for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount
equal to the fair market

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                                       17                          ISDA (R) 1992
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or would
have been required to have been paid or performed to (but excluding) such Early
Termination Date, at the Applicable Rate. Such amounts of interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b) above
shall be reasonably determined by the party obliged to make the determination
under Section 6(e) or, if each party is so obliged, it shall be the average of
the Termination Currency Equivalents of the fair market values reasonably
determined by both parties.

IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.

TANDY BRANDS ACCESSORIES, INC.                  WELLS FARGO BANK,
                                                NATIONAL ASSOCIATION

By: /s/ STAN NINEMIRE                           By: /s/ WILLIAM J. PACILIO
    -------------------------------                 ----------------------------
    Name: Stan Ninemire                             Name: William J. Pacilio
    Title: CFO                                      Title: Vice President
    Date: July 9, 2001                              Date: July 9, 2001

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                                       18                          ISDA (R) 1992

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                                                          WELLS FARGO BANK, N.A.
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[WELLS FARGO LOGO]                                                (877) 240-0795
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                                    SCHEDULE

                                     to the

                              ISDA MASTER AGREEMENT

         This is the Schedule to that certain ISDA Master Agreement dated as of
June 27. 2001 between Wells Fargo Bank, National Association ("Party A") and
Tandy Brands Accessories, Inc., a Delaware Corporation ("Party B").

                                     PART 1

                             TERMINATION PROVISIONS

In this Agreement:

         (A) "Specified Entity" does not apply in relation to Party A and means
"affiliates" in relation to Party B.

         (B) "Specified Transaction" will have the meaning specified in Section
14 of this Agreement.

         (C) The "Cross-Default" provisions of Section 5(a)(vi) of this
Agreement will apply to Party B.

                  "Specified Indebtedness" will have the meaning specified in
Section 14 and shall include (i) any amount due and payable in respect of any
Specified Transaction (except that, for this purpose only, the words "and any
other entity" shall be substituted for the words "and the other party to this
Agreement (or any Credit Support Provider of such other party or any applicable
Specified Entity of such other party)" where they appear in the definition of
Specified Transaction) and (ii) other indebtedness owing by Party B to Party A,
including, without limitation, any indebtedness owed by Party B to Party A under
that Promissory Note dated June 27, 2001 (as amended, supplemented or modified
the "Note").

                  "Threshold Amount" means with respect to Party B the lesser of
3% of shareholders' equity and $500,000; provided that with respect to
obligations owed by Party B to Party A and its affiliates the Threshold Amount
shall mean $0.

         (D) The "Credit Event Upon Merger" provisions of Section 5(b)(iv) of
this Agreement will apply to Party B; provided, however, that notwithstanding
Section 5(b)(iv) of this Agreement "Credit Event Upon Merger" shall mean that
Party B, any Credit Support Provider of Party B or any applicable Specified
Entity of Party B either:

                  (i) consolidates, amalgamates with, or merges into, or
         transfers all or substantially all of its assets (or any substantial
         part of all the assets comprising the business conducted by Party B as
         of the date of this Agreement) to, or receives all or substantially all
         the assets or obligations of another entity; or

                  (ii) any person or entity acquires directly or indirectly the
         beneficial ownership of equity securities having the power to elect a
         majority of the board of directors of Party B or otherwise acquires
         directly or indirectly the power to control the policy making decisions
         of Party B; or

                  (iii) Party B effects any substantial change in its capital
         structure by means of the issuance, incurrence or guarantee of debt or
         the issuance of preferred stock or other securities convertible into,
         or exchangeable for, debt or preferred stock; or

                  (iv) Party B enters into any agreement providing for any of
         the foregoing, and

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                                       19
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                                                          WELLS FARGO BANK, N.A.
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[WELLS FARGO LOGO]                                                (877) 240-0795
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such action does not constitute an event described in Section 5(a)(viii) but the
creditworthiness of Party B or, if applicable, the resulting, surviving or
transferee entity of Party B, any Credit Support Provider of Party B, or any
applicable Specified Entity of Party B, as the case may be, is materially weaker
than immediately prior to such action (and, in such event, Party B or its
successor, surviving or transferee entity, as appropriate, will be the Affected
Party).

         (E) The "Automatic Early Termination" provision of Section 6(a) of this
Agreement will not apply to Party A or to Party B.

         (F) Payments on Early Termination. For the purpose of Section 6(e) of
this Agreement: (i) Market Quotation will apply, and (ii) Second Method will
apply.

         (G) "Termination Currency" means United States Dollars.

         (H) Additional Termination Event will apply. The following shall
constitute an Additional Termination Event:

                  (i) Party B has repaid all amounts owed to Party A under the
         Note and Party A has no further obligation to provide any additional
         credit extension to Party B under that Loan Agreement by and between
         Party A and Party B dated as of June 27, 2001 (as amended, supplemented
         or modified, the "Loan Agreement") unless Party B executes a Credit
         Support Document securing this Agreement in form and substance
         acceptable to Party A;

                  (ii) key person dies, is declared incompetent or otherwise
         ceases to act on behalf of Party B in the same or similar capacity as
         held as of the date of this Agreement;

                  (iii) Party B fails to provide adequate assurance of its
         ability to perform all of its potential or current obligations to Party
         A hereunder or otherwise in the form, manner and amount specified by
         Party A on the same Local Business Day of any demand therefor by Party
         A (or within such time period otherwise specified in said notice or
         demand).

                  (iv) The following shall constitute an Additional Termination
         Event (with any event specified in the following constituting an
         "Impossibility") with respect to Transactions involving foreign
         currencies or Transactions in which foreign currencies constitute the
         underlying notional reference asset:

                           Due to the occurrence of a natural or man-made
         disaster, armed conflict, act of terrorism, riot, labor disruption, act
         of State, or any other similar circumstance beyond its control after
         the date on which a Transaction is entered into, it becomes impossible
         (other than as a result of its own misconduct) for a party (which will
         be the Affected Party):

                  (1) to perform any absolute or contingent obligation, to make
         a payment or delivery or to receive a payment or delivery in respect of
         a Transaction, or to comply with any other material provision of this
         Agreement relating to such Transaction; or

                  (2) to perform, or for any Credit Support Provider of such
         party to perform, any contingent or other obligation which the party or
         such Credit Support Provider has under any Credit Support Document
         relating to a Transaction.

                           The definition of "Affected Transactions" in Section
         14 of this Agreement is amended by adding the word "Impossibility"
         immediately before the word "Illegality" in the first line thereof.

                           If an event or circumstance which would otherwise
         constitute or give rise to an Event of Default also constitutes an
         Impossibility, it will be treated as a Termination Event and will not
         constitute an Event of Default.

Party B shall be the sole Affected Party for purposes of Part l(H)(i), (ii) and
(iii).

                                     PART 2
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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                               TAX REPRESENTATIONS

         (A) Payer Representations. For the purpose of Section 3(e) of this
Agreement, each party makes the following representation:

         It is not required by any applicable law, as modified by the practice
         of any relevant governmental revenue authority, of any Relevant
         Jurisdiction to make any deduction or withholding for or on account of
         any Tax from any payment (other than interest under Section 2(e),
         6(d)(ii) or 6(e) of this Agreement) to be made by it to the other party
         under this Agreement. In making this representation, it may rely on (i)
         the accuracy of any representations made by the other party pursuant to
         Section 3(f) of this Agreement, (ii) the satisfaction of the agreement
         contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the
         accuracy and effectiveness of any document provided by the other party
         pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement and (iii)
         the satisfaction of the agreement of the other party contained in
         Section 4(d) of this Agreement, provided that it shall not be a breach
         of this representation where reliance is placed on clause (ii) and the
         other party does not deliver a form or document under Section 4(a)(iii)
         by reason of material prejudice to its legal or commercial position.

         (B) Payee Representations. For the purpose of Section 3(f) of this
Agreement, Party A represents that it is a national banking association.

         For the purpose of Section 3(f) of this Agreement, Party B represents
         that it is a Corporation organized under the laws of the State of
         Delaware.

                                     PART 3

                         AGREEMENT TO DELIVER DOCUMENTS

         For the purposes of Section 4(a)(i) and (ii) of this Agreement, the
parties agrees that the following documents will be delivered:

<Table>
<Caption>
PARTY REQUIRED                                                                   COVERED BY
TO DELIVER                                                 DATE BY WHICH        SECTION 3(d)
DOCUMENT              FORM/DOCUMENT/CERTIFICATE           TO BE DELIVERED      REPRESENTATION
--------------   ------------------------------------  ----------------------  ---------------
<S>              <C>                                   <C>                    <C>
Party A          Resolution adopted by the Board of    Concurrent with the           Yes
                 Directors, certified by the           execution of this
                 Secretary or an Assistant             Agreement and upon
                 Secretary, authorizing the            request with respect
                 execution, delivery and performance   to Confirmations
                 of this Agreement and each
                 Confirmation

Party B          Resolution adopted by the Board of    Concurrent with the           Yes
                 Directors, certified by the           execution of this
                 Secretary or an Assistant             Agreement and upon
                 Secretary, authorizing the            request with respect
                 execution, delivery and performance   to Confirmations
                 of this Agreement and each
                 Confirmation

Party A          Specimen signature certificate of     Concurrent with the           Yes
                 the Secretary or an Assistant         execution of this
                 Secretary, setting out names and      Agreement and upon
                 specimen signatures of each person    request with respect
                 or persons authorized on behalf of    to Confirmations
                 the party to execute and deliver
                 this Agreement and each
                 Confirmation

Party B          Specimen signature certificate of     Concurrent with the           Yes
                 the Secretary or an Assistant         execution of this
                 Secretary,
</Table>

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                                       21
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLLS FARGO LOGO]                                               (877) 240-0795
--------------------------------------------------------------------------------

<Table>
<Caption>
PARTY REQUIRED                                                                   COVERED BY
TO DELIVER                                                 DATE BY WHICH        SECTION 3(d)
DOCUMENT              FORM/DOCUMENT/CERTIFICATE           TO BE DELIVERED      REPRESENTATION
--------------   ------------------------------------  ----------------------  ---------------
<S>              <C>                                   <C>                    <C>

                 setting out names and specimen        Agreement and upon
                 signatures of each person or          request with respect
                 persons authorized on behalf of the   to Confirmations
                 party to execute and deliver this
                 Agreement and each Confirmation

Party B          An opinion of counsel to Party B in   Concurrent with the           Yes
                 a form satisfactory to Party A        execution of this
                                                       Agreement

Party B and      The Credit Support document(s), if    Concurrent with the           Yes
Party A          any, listed in Part 4, Section (F)    execution of this
                                                       Agreement

Party B          IRS Form W-9, or any successor        Concurrent with the           Yes
                 form thereto                          execution of this
                                                       Agreement, promptly
                                                       upon reasonable
                                                       demand by Party A
                                                       and promptly upon
                                                       learning that any
                                                       such form previously
                                                       provided by Party B
                                                       has become obsolete
                                                       or incorrect.

Party B          Additional information with           Promptly upon request         Yes
                 respect to Party B as Party A may
                 reasonably request from time to
                 time
</Table>

                                     PART 4

                                  MISCELLANEOUS

               (A) Addresses for Notices. For the purpose of Section 12(a) of
       this Agreement:

               Address for notices or communications to Party B:

               Address:       Tandy Brands Accessories, Inc.
                              690 E. Lamar Blvd., suite 200
                              Arlington, TX 76011
                              Phone No.: 817-548-0090
                              Fax No.: 817-274-7346
                              Attention: Stan Ninemire

               Address for notices or communications to Party A:

               Address:       Wells Fargo Bank, National Association
                              Financial Risk Management (AU #1857)
                              1445 Ross Ave., suite 420
                              MAC T5303-041
                              Dallas, Texas 75202
                              Phone No.: (214) 777-4002
                              Fax. No: 214-969-0908
                              Attention: Kauwuane Burton

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                                       22
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                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
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         (B) Process Agent. For the purpose of Section 13(c) of the Agreement,
neither Party A nor Party B will appoint a Process Agent.

         (C) Offices. The provisions of Section 10(a) will apply to this
Agreement.

         (D) Multibranch Party. For the purpose of Section 10(c) of this
Agreement:

                  Party A is a Multibranch Party and may act through any of its
                  U.S. offices.

                  Party B is not a Multibranch Party.

         (E) Calculation Agent. The Calculation Agent is Party A. No failure by
Party A to perform any duties of the Calculation Agent under this Agreement
shall be construed as an Event of Default under this Agreement.

         (F) Credit Support Document. Any document which by its terms secures,
guarantees or otherwise supports Party B's obligations under this Agreement.
Credit Support for this Agreement will be provided in the form of a(n),
attached hereto as Exhibit A.

         (G) Credit Supuort Provider.

                  Credit Support Provider means in relation to Party A: None.

                  Credit Support Provider means in relation to Party B: None.

         (H) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York without reference to choice of
law doctrine.

         (I) Netting of Payments. Subparagraph (ii) of Section 2(c) of this
Agreement will apply to the Transactions.

         (J) "Affiliate" will have the meaning specified in Section 14 of this
Agreement and shall exclude any broker/dealer affiliates with respect to Party
A.

                                     PART 5

                                OTHER PROVISIONS

         (A) Confirmations. Notwithstanding anything to the contrary in this
Agreement:

                  (i) The parties hereto agree that with respect to each
         Transaction hereunder a legally binding agreement shall exist from the
         moment that the parties hereto agree on the essential terms of such
         Transaction, which the parties anticipate will occur by telephone.

                  (ii) For each Transaction Party A and Party B agree to enter
         into hereunder, Party A shall promptly send to Party B a Confirmation,
         substantially in the form of Exhibit I setting forth the terms of such
         Transaction. Party B shall execute and return the Confirmation to Party
         A or request correction of any error within three Business Days of
         receipt. Failure of Party B to respond within such period shall not
         affect the validity or enforceability of such Transaction and shall be
         deemed to be an affirmation of such terms.

         (B) Definitions. For each Transaction (unless otherwise specified in
the relevant Confirmation for that Transaction) all provisions of the 1991 ISDA
Definitions (as published by the International Swaps &  Derivatives Association,
Inc.), including the 1998 Supplement to the 1991 ISDA Definitions, are hereby
incorporated by this reference into this Agreement and shall form a part hereof
as if set forth in full herein

         (C) Security. All obligations of Party B under this Agreement shall be
secured with the collateral securing the Loan Agreement dated June 27, 2001.

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                                       23
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                                                          WELLS FARGO BANK, N.A.
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[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

         (D) Notice of Event of Default. Party B agrees, upon learning of the
occurrence of any event or commencement of any condition that constitutes (or
that with the giving of notice or passage of time or both would constitute) an
Event of Default with respect to Party B, promptly to give Party A notice of
such event or condition.

         (E) Additional Representations. Section 3 of this Agreement is hereby
amended by adding at the end thereof the following subsections (g) through (j):

         "(g) ELIGIBLE SWAP PARTICIPANT. It is an "eligible swap participant" as
         that term is defined by the Commodity Futures Trading Commission at 17
         C.F.R. Section 35.l(b)(2)."

         "(h) SWAP AGREEMENT. This Agreement and each Transaction constitutes a
         "swap agreement" under, and as defined in 17 C.F.R. Section
         35.l(b)(2)."

         "(i) FUNGIBILITY. Neither this Agreement nor any Transaction is part of
         a fungible class of agreements that are standardized as to their
         material economic terms, within the meaning of 17 C.F.R. Section
         35.2(b)."

         "(j) CREDITWORTHINESS. The economic terms of this Agreement, and Credit
         Support Document to which it is a party, and each Transaction have been
         individually tailored and negotiated by it, and the creditworthiness of
         the other party was a material consideration in its entering into or
         determining the terms of this Agreement, such Credit Support document,
         and such Transaction."

         (F) Right of Setoff. Section 6 of this Agreement is amended by adding
the following new Section 6(f):

         "(f)     SET-OFF. Any amount (the "Early Termination Amount") payable
                  under Section 6(e) by one party ("Party X") or its Affiliates
                  to other party that is either the Defaulting Party or the one
                  Affected Party ("Party Y"), will, at the option of Party X
                  (and without prior notice to Party Y), be reduced by its
                  set-off against any amount(s) (the "Other Agreement Amount")
                  payable (whether at such time or in the future or upon the
                  occurrence of a contingency) by Party Y to Party X or its
                  Affiliates (irrespective of the currency, place of payment or
                  booking office of the obligation) under any other agreement(s)
                  between Party X and its Affiliates and Party Y or
                  instrument(s) or undertaking(s) issued or executed by one
                  party to, or in favor of, the other party (and the Other
                  Agreement Amount will be discharged promptly and in all
                  respects to the extent it is so set-off). Party X will give
                  notice to the other party of any set-off effected under this
                  Section 6(f).

                  For this purpose, either the Early Termination Amount or the
                  Other Agreement Amount (or the relevant portion of such
                  amounts) may be converted by Party X into the currency in
                  which the other is denominated at the rate of exchange at
                  which such party would be able, acting in a reasonable manner
                  and in good faith, to purchase the relevant amount of such
                  currency. The term "rate of exchange" includes, without
                  limitation, any premiums and costs of exchange payable in
                  connection with the purchase of or conversion into the
                  relevant currency.

                  If an obligation is unascertained, Party X may in good faith
                  estimate that obligation and set-off in respect of the
                  estimate, subject to the relevant party accounting to the
                  other when the obligation is ascertained.

                  Nothing in this Section 6(f) shall be effective to create a
                  charge or other security interest. This Section shall be
                  without prejudice and in addition to any right of set-off,
                  combination of accounts, lien or other right to which any
                  party is at any time otherwise entitled (whether by operation
                  of law, contract or otherwise)."

         (G) Inconsistency Among Definitions or Provisions. In the event of any
inconsistency between the definitions or provisions in any of the following
documents, the relevant document first listed below shall govern: (i) a
Confirmation (with respect only to definitions in such Confirmation; provided,
however, that other provisions in a Confirmation will govern over inconsistent
provisions in the following documents to the extent that such Confirmation
explicitly states its intent to modify the following documents); (ii) the
Schedule

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                                       24
<PAGE>   25
                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

to the ISDA Master Agreement, (iii) the ISDA Master Agreement; (iv) the 1998 FX
Definitions; and (v) the 1991 Definitions.

         (H) Assignability. Section 7 of this Agreement will not apply. Subject
to Section 6(b)(ii) of this Agreement, Party B shall not, without Party A's
prior written consent which shall not be unreasonably withheld, assign Party B's
rights or obligations under this Agreement, and any purported assignment by
Party B without such consent shall be void. Subject to Section 6(b)(ii) of this
Agreement, Party A may elect at any time to assign or transfer all or any
portion of its rights or obligations under this Agreement and that any such
assignment or transfer may be to one or more financial institutions, private
investors, trusts and/or other entities, at Party A's sole discretion.

         (I) Expenses. Section 11 of this Agreement will not apply. If any
attorney is engaged by Party A to enforce or defend with respect to any
provision of this Agreement or as a consequence of (i) any breach or Event of
Default by Party B hereunder or (ii) the occurrence of a Termination Event in
which Party B is the Affected Party, then Party B shall pay to Party A
(immediately upon demand) all reasonable attorneys' fees and all costs incurred
by Party A (without regard to whether any legal action or proceeding has been
filed) in connection therewith.

         (J) Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of the Agreement or affecting the validity
or enforceability of such provision in any other jurisdiction. The parties
hereto shall endeavor in good faith negotiations to replace the prohibited or
unenforceable provision with a valid provision, the economic effect of which
comes as close as possible to that of the prohibited or unenforceable provision.

         (K) WAIVER OF JURY TRIAL. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY TRIAL OR LITIGATION ARISING OUT OF OR IN
CONNECTION WITh ANY TRANSACTION OR THIS AGREEMENT.

         (L) No Reliance. In connection with the negotiation of and entering
into this Agreement, any Credit Support Document and each Transaction (i) the
other party hereto is not acting as a fiduciary or a financial or investment
advisor for it; (ii) it is not relying upon any advice, counsel or
representations (whether written or oral) of the other party hereto other than
the representations expressly set forth in this Agreement, in such Credit
Support Document and in any Confirmation; (iii) the other party hereto has not
given to it any advice or counsel as to the expected or projected success,
return, performance, result, consequence or benefit (either legal, regulatory,
tax, financial, accounting, or otherwise) of this Agreement, such Credit Support
Document or such Transaction; (iv) it has consulted with its own legal,
regulatory, tax, business, investment financial and accounting advisors to the
extent it has deemed necessary and has made its own investment, hedging, and
trading decisions (including decisions regarding the suitability of such
Transaction pursuant to this Agreement) based upon its own judgment and upon any
advice from such advisors as it has deemed necessary and not upon any view
expressed by the other party hereto; (v) it has determined that the rates,
prices, or amounts and other terms of such Transaction in the indicative
quotations (if any) provided by the other party hereto reflect those in the
relevant market for similar transactions, and all trading decisions have been
the result of arms length negotiations between the parties; (vi) it is entering
into this Agreement, such Credit Support Document and such Transaction with a
full understanding of all of the terms, conditions and risks thereof (economic
and otherwise), and it is capable of assuming and willing to assume (financially
and otherwise) those risks; and (vii) it is a sophisticated investor.

         (M) Events of Default. Section 5 of this Agreement is hereby amended as
follows:

                  (i) Failure to Pay or Deliver. Section 5(a)(i) of this
         Agreement is hereby amended by the substitution of "first" for "third"
         in the fourth line thereof.

                  (ii) Breach of Agreement. Section 5(a)(ii) of this Agreement
         is hereby amended by substituting "tenth" for "thirtieth" in the fifth
         line thereof.

         (N) Escrow. If by reason of the time difference between the cities in
which payments are to be made, it is not possible for simultaneous payments to
be made on any date on which both parties are required to make payments
hereunder, either party may at its option and in its sole discretion notify the
other party that payments on that date are to be made in escrow. In this case
deposit of the payment due earlier on that date

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                                       25
<PAGE>   26
                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

shall be made by 2:00 p.m. (local time at the place for the earlier payment) on
that date with an escrow agent selected by the notifying party, accompanied by
irrevocable payment instruction (i) to release the deposited payment to the
intended recipient upon receipt by the escrow agent of the required deposit of
the corresponding payment from the other party on the same date accompanied by
irrevocable payment instructions to the same effect or (ii) if the required
deposit of the corresponding payment is not made on that same date, to return
the payment deposited to the party that paid it in escrow. The party that elects
to have payments made in escrow shall pay the costs of the escrow arrangements
and shall cause those arrangements to provide that the intended recipient of the
payment due to be deposited first shall be entitled to interest on that
deposited payment for each day in the period of its deposit at the rate offered
by the escrow agent for that day for overnight deposits in the relevant currency
in the office where it holds that deposited payment (at 11:00 a.m. local time on
that day) if that payment is not released by 5:00 p.m. local time on the date it
is deposited for any reason other than the intended recipient's failure to make
the escrow deposit it is required to make hereunder in a timely fashion.

         IT WITNESS WHEREOF the parties have executed this document on the
respective dates specified below with effect from the date specified on the
first page of this document.

       "PARTY A"                                  "PARTY B"

WELLS FARGO BANK, NATIONAL              TANDY BRANDS ACCESSORIES, INC.
ASSOCIATION                             a Delaware Corporation

By: /s/ WILLIAM J. PACILIO              By: /s/ STAN NINEMIRE
    -------------------------               -------------------------
Name: William J. Pacilio                Name: Stan Ninemire
Its: Vice President                     Its: C.F.O.

--------------------------------------------------------------------------------
                                       26

<PAGE>   27
                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877)-240-0795
--------------------------------------------------------------------------------

                                    EXHIBIT I

                              FORM OF CONFIRMATION

                               [WELLS FARGO LOGO]
                                WELLS FARGO BANK

 TO:        Stan Ninemire
            Tandy Brands Accessories, Inc.
            690 E. Lamar Blvd., suite 200
            Arlington, TX 76011
            817-548-0090
            via Fax: (817) 274-7346

FROM:       Wells Fargo Bank, National Association
            Financial Risk Management
            1445 Ross Ave., Suite 42O
            MAC T5303-041
            Dallas, TX 75202

            Phone No.: (214) 777-4002
            Fax: (214) 969-0908

RE:         USD $30,000,000         INTEREST RATE SWAP TRANSACTION

DATE:       JULY 9,2001

Ladies and Gentlemen:

The purpose of this letter agreement is to confirm the terms and conditions of
the Transaction entered into between Wells Fargo Bank, National Association and
you on the Trade Date specified below (the "Transaction"). This communication
constitutes a "Confirmation" as referred to in the Master Agreement specified
below.

The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.
("ISDA")), including the 1998 Supplement to the 1991 ISDA Definitions (the
"Definitions"), are incorporated into this Confirmation. In the event of any
inconsistency between those definitions and provisions and this Confirmation,
this Confirmation will govern.

1.   This confirmation supplements, forms part of, and is subject to, the Master
     Agreement dated as of July 9, 2001, (as the same may be amended, modified
     or supplemented from time to time, the "Agreement") between Wells Fargo
     Bank, National Association and you. This communication itself constitutes a
     binding agreement setting forth the essential terms of the Transaction
     described herein. All provisions contained in the Agreement shall govern
     this Confirmation except as expressly modified below.

     In this Confirmation, "Party A" means Wells Fargo Bank, National
     Association and "Party B" means Tandy Brands Accessories, Inc.

--------------------------------------------------------------------------------
                                       1
<PAGE>   28
                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877)-240-0795
--------------------------------------------------------------------------------

3.   Conditions: The conditions set forth in this Confirmation shall apply and
     be incorporated into the ISDA Master Agreement to be executed herewith.
     Parties entering into this transaction agree that this transaction is made
     in consideration of Party A assuming a swap transaction between Tandy
     Brands Accessories, Inc. and Bank of America in the amount of $15MM (as
     evidenced by a Confirmation between Tandy Brands Accessories, Inc. and
     NationsBank, N.A. dated November 19, 1998). Party B hereby agrees to
     assign, execute and deliver, any specific assignment or other document and
     take any other action that may be necessary or desirable and reasonably
     requested by the assigning bank and Party A to assign, transfer, perfect or
     validate any interest or rights under the ISDA Master Agreement dated
     November 17, 1998, and as amended and supplemented from time to time, with
     Bank of America which are to be provided to and agreed upon by Party A.

2.   The terms of the particular Transaction to which this Confirmation relates
     are as follows:

PARTIES TO THE TRANSACTION:        Wells Fargo Bank, National Association
                                   Party A

                                   Tandy Brands Accessories, Inc.
                                   Party B

            Notional Amount:       USD 30,000,000

            Trade Date:            June 28, 2001

            Commencement Date:     July 1, 2001, subject to adjustment in
                                   accordance with the Modified Following
                                   Business Day Convention.

            Termination Date:      June 27, 2004, subject to adjustment in
                                   accordance with the Modified Following
                                   Business Day Convention.

FIXED AMOUNTS:

            Fixed Rate Payer:      Party B

            Fixed Rate Payer
            Payment Dates:         The 1st day of each October, January, April,
                                   and July, beginning with October 1, 2001,
                                   and thereafter continuing until the
                                   Termination Date, subject to adjustment in
                                   accordance with the Modified Following
                                   Business Day Convention.

            Calculation Period:    From the lst of each October, January, April,
                                   and July, up to the lst of the following
                                   three month period, beginning with July 1,
                                   2001, continuing until the Termination Date,
                                   subject to adjustment in accordance with the
                                   Modified Following Business Day Convention.
                                   Final calculation period is from April 1,
                                   2004 to June 27, 2004.

            Fixed Rate:            5.60%

            Fixed Rate Day Count
            Fraction:              Actual/360

--------------------------------------------------------------------------------
                                       2

<PAGE>   29

                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

FLOATING AMOUNTS:

            Floating Rate Payer:   Party A

            Floating Rate Payer
            Payment Dates:         The 1st day of each October, January, April,
                                   and July, beginning with October 1, 2001,
                                   and thereafter continuing until the
                                   Termination Date, subject to adjustment in
                                   accordance with the Modified Following
                                   Business Day Convention.

            Calculation Period:    From the 1st of each October, January, April,
                                   and July, up to the 1st of the following
                                   three month period, beginning with July 1,
                                   2001, continuing until the Termination Date,
                                   subject to adjustment in accordance with the
                                   Modified Following Business Day Convention.
                                   Final calculation period is from April 1,
                                   2004 to June 27, 2004.

            Floating Rate Option:  USD-LIBOR-BBA

            Designated Maturity:   3 Month

            Spread:                None

            Floating Rate Day
            Count Fraction:        Actual/360

            Floating Rate for
            Initial Calculation
            Period:                To be determined

            Reset Dates:           The 1st day of each Calculation Period,
                                   subject to adjustment in accordance with the
                                   Modified Following Business Day Convention.
                                   The Floating Rate for each Calculation Period
                                   will be the rate on the day which is two
                                   business days prior to the commencement of
                                   such Calculation Period.

            Compounding:           Inapplicable

BUSINESS DAYS:                     New York and London

ACCOUNT DETAILS:

            Account Details for
            Party A:

              Bank:         Wells Fargo Bank, N.A.
              ABA #:        121000248
              Account #:    4375-691755
                            Capital Markets Operations WIP
              Reference:    5W2001_0668

--------------------------------------------------------------------------------
                                       3

<PAGE>   30
                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

            Account Details for Party B:

            Wire instructions: PLEASE ADVISE

            Bank:
                        ------------------------
            ABA #:
                        ------------------------
            Account #:
                        ------------------------
            Reference:
                        ------------------------

CALCULATION AGENT:                 Party A

4.   Please confirm that the foregoing correctly sets forth the terms of our
     agreement by having an authorized officer sign one copy of this telecopy
     Confirmation and returning it to us by telecopier to:

                   Wells Fargo Bank, National Association
                   Attention: Kauwuane Burton
                   Fax: (214) 969-0908

5.   Each party represents to the other party hereto that (i) it is not acting
     as a fiduciary or a financial or investment advisor for the other party;
     (ii) it is not relying upon any advice, counsel or representations (whether
     written or oral) of the other party other than the representations
     expressly set forth in the Master Agreement, any Credit Support Document
     and herein; (iii) the other party hereto has not given to it any advice or
     counsel as to the expected or projected success, return, performance,
     result, consequence or benefit (either legal, regulatory, tax, financial,
     accounting, or otherwise) of this Transaction; (iv) it has consulted with
     its own legal, regulatory, tax, business, investment financial and
     accounting advisors to the extent it has deemed necessary and has made its
     own investment, hedging, and trading decisions (including decisions
     regarding the suitability of this Transaction) based upon its own judgment
     and upon any advice from such advisors as it has deemed necessary and not
     upon any view expressed by the other party hereto; (v) it has determined
     that the rates, prices, or amounts and other terms of this Transaction in
     the indicative quotations (if any) provided by the other party hereto
     reflect those in the relevant market for similar transactions, and all
     trading decisions have been the result of arms length negotiations between
     the parties; (vi) it is entering into this Transaction with a full
     understanding of all of the terms, conditions and risks thereof (economic
     and otherwise), and it is capable of assuming and willing to assume
     (financially and otherwise) those risks; and (vii) it is a sophisticated
     investor.

6.   This Confirmation will be governed by and construed in accordance with the
     laws of the State of New York without reference to choice of law doctrine.

Yours sincerely,

Wells Fargo Bank, National Association

By:
   -----------------------------------
Name: William J. Pacilio
Title: Vice President

--------------------------------------------------------------------------------
                                       4

<PAGE>   31

                                                          WELLS FARGO BANK, N.A.
                                                       Financial Risk Management
[WELLS FARGO LOGO]                                                (877) 240-0795
--------------------------------------------------------------------------------

Confirmed as of the date first above written:

By: /s/ STAN NINEMIRE
   ----------------------------
Name:  Stan Ninemire
Title: CFO

--------------------------------------------------------------------------------
                                       5<PAGE>   1
                                                                     EXHIBIT 4.2

                              EMPLOYMENT AGREEMENT

The parties to this agreement are LJ International Inc., a British Virgin
Islands Company (the "Company") and YIH Yu Chuan (the "Executive"). The Company
and the Executive hereby agree as follows:

1.       EMPLOYMENT AND DUTIES

         The Company shall employ the Executive and the Executive shall serve
         the Company as President and Chief Executive Officer of the Company.
         The Executive shall use his best efforts to promote the interests of
         the Company, and shall perform his duties in relation to the Company
         and/or its subsidiaries (collectively "the Group") faithfully and
         diligently, consistent with sound business practices.

2.       TERM OF EMPLOYMENT

         The Executive shall be employed by the Company under this Agreement for
         a period of three (3) years commencing as of the date of this
         agreement.

3.       REMUNERATION AND REIMBURSEMENT

         (A)      Subject to Clause 5, the Executive shall receive during the
                  continuance of the Appointment:

                  (1)      A salary at the rate of HK$1,800,000 per annum such
                           salary to accrue on a day to day basis (including any
                           sum receivable by the Executive as directors' fee
                           from any company in the Group) and to be payable
                           monthly in twelve equal installments in arrears on
                           the last day of each calendar month provided that if
                           the Appointment is terminated prior to the end of a
                           calendar month, the Executive shall only be entitled
                           to a proportionate part of such salary in respect of
                           the period of service during the relevant month up to
                           the date of termination. Such salary shall be
                           adjusted on annual basis at a rate to be determined
                           by the Board as its absolute discretion having regard
                           to the operating results of the Group and the
                           performance of the Executive.

                  (2)      An annual management bonus of a sum to be determined
                           by the Board at its absolute discretion having
                           regard to the operating results of the Group and the
                           performance of the Executive during the relevant
                           financial year or any proportionate part thereof in
                           which service of the Executive pursuant to this
                           Agreement is rendered. The management bonus shall be
                           payable in arrears in respect of each relevant
                           financial year within one month after the issue of
                           the consolidated audited accounts of the Group for
                           such financial

                                       1
<PAGE>   2
                           year. The amount payable to the Executive shall be
                           decided by majority decision of the members of the
                           Board present in the meeting called for that purpose
                           provided that the Executive shall abstain from voting
                           and not be counted in the quorum in respect of the
                           resolution regarding the amount so payable to
                           himself.

         (B)      The Executive shall continue to receive his salary during any
                  period of absence on medical grounds up to a maximum of 12
                  weeks in any period of 12 months provided that the Executive
                  shall if required supply the Company with medical certificates
                  covering the period of absence.

         (C)      The Executive shall be reimbursed all reasonable out-of-pocket
                  expenses (including expenses of entertainment subsistence and
                  travelling) incurred by him on the Group's business which
                  expenses shall be evidenced in such manner as the Board may
                  require.

         (D)      The Executive will be entitled to the benefits of any medical
                  or provident fund scheme as maybe maintained by the Group
                  from to time.

         (E)      The Executive shall be entitled to 12 working days paid
                  vacation each year.

4.       OTHER BENEFITS

         The Executive shall be entitled, during the continuance of the
         Executive's engagement hereunder, to the use of a motor car and the
         Company shall pay all vehicle registration fees, taxes and insurance
         premiums in respect of the car and shall pay or reimburse against
         receipts all maintenance, repair and other running costs in respect of
         the car and the cost of petrol.

5.       TERMINATION OF THE APPOINTMENT

         (A)      Without prejudice to the accrued rights (if any) or remedies
                  of either party under or pursuant to this Agreement:

         (1)      the Executive shall be entitled to terminate the Appointment
                  by two months' notice in writing to the Company if any money
                  payable by the Company to the Executive under or pursuant to
                  this Agreement is not paid in full by the Company to the
                  Executive within a period of 30 days from any written demand
                  by the Executive for the payment thereof:

         (2)      the Company shall be entitled to terminate the Appointment
                  without any compensation to the Executive:

                  (a)      by not less that three months' notice in writing
                           given at any time while the Executive shall have been
                           incapacitated or prevented by reason of ill health,
                           injury or accident from performing his duties
                           hereunder for a period of or periods aggregating 90
                           days in the proceeding 12 months provided that if at
                           any time during the currency of a notice given
                           pursuant to this sub-paragraph the Executive shall
                           provide a medical certificate satisfactory to

                                       2
<PAGE>   3
                           the Board to the effect that he has fully recovered
                           his physical and/or mental health and that no
                           recurrence of illness or incapacity can reasonably be
                           anticipated the Company shall withdraw such notice;
                           or

                  (b)      by summary notice in writing if the Executive shall
                           at any time:

                           i.       commit any serious or persistent breach of
                                    any of the provisions herein contained (and
                                    to the extent that such breach is capable of
                                    remedy shall fail to remedy such breach
                                    within 60 days after within warning given by
                                    the Board);

                           ii.      be guilty of any given misconduct or willful
                                    neglect in the discharge of his duties (and
                                    to the extent that such breach is capable of
                                    remedy shall fail to remedy such breach
                                    within 60 days after written warning given
                                    by the Board);

                           iii.     become bankrupt or have a receiving order
                                    made against him;

                           iv.      become a lunatic or of unsound mind;

                           v.       absent himself from the meetings of the
                                    Board during a continuous period of three
                                    months, without special leave of absence
                                    from the Board, and his alternate director
                                    (if any) shall not during such period have
                                    attended in his stead;

                           vi.      become prohibited by law from acting as a
                                    director;

                           vii.     be guilty of conduct tending to bring
                                    himself or any company in the Group into
                                    disrepute;

                           viii.    be prohibited by law from fulfilling his
                                    duties hereunder; or

                           ix.      be convicted of any criminal offence (other
                                    than an offence which in the reasonable
                                    opinion of the Board does not effect his
                                    position as a director of the Company).

         (B)      If the Company becomes entitled to terminate the Appointment
                  pursuant to subclause (A)(2)(b) it shall be entitled (but
                  without prejudice to its right subsequently to terminate the
                  Appointment on the same or any other ground) to suspend the
                  Executive without payment of salary in full or in part for so
                  long as it may think fit.

         (C)      If the Executive shall have refused or failed to agree to
                  accept without reasonable grounds an appointment offered to
                  him on terms no less favourable to him than the terms in
                  effects under this Agreement, either by a company which has
                  acquired or agreed to acquire the whole or substantially the
                  whole of the undertaking and assets of the Company or which
                  shall own or has agreed to acquire the whole or not less than
                  90% of the issued share capital of the Company, the Executive
                  shall have no claim against the Company by reason of

                                       3
<PAGE>   4
                  the subsequent voluntary winding up of any company in the
                  Group or of the disclaimer or termination of this Agreement by
                  the Company within three months after such refusal or failure
                  to agree.

         (D)      On the termination of the Appointment howsoever arising the
                  Executive shall:

                  (1)      at any time and from time to time thereafter at the
                           request of the Company resign from office as a
                           director of the Company and all offices held by him
                           in any company in the Group and shall transfer
                           without payment to the Company or as the Company may
                           direct any qualifying shares provided by it or any
                           shares held by the Executive as nominee for the
                           Company or any company in the Group provided by it
                           and the Executive hereby irrevocable appoints the
                           Company to be his attorney and in his name and on his
                           behalf to sign and do any documents or things
                           necessary or requisite to give effect thereto and a
                           certificate in writing signed by any director or by
                           the secretary of the Company that any instrument or
                           act falls within the authority hereby conferred shall
                           be conclusive evidence that such is the case and any
                           third party shall be entitled to rely on such
                           certificate without further enquiry provided however
                           that such resignation or resignations shall be given
                           and accepted on the footing that it is or they are
                           without prejudice to any claims which the Executive
                           may have against any such company or which any such
                           company may have against the Executive arising out of
                           this Agreement or of the termination of the
                           appointment; and

                  (2)      forthwith deliver to the Company all books,
                           documents, papers, materials, credit cards (if any)
                           and other property of or relating to the business of
                           the Group which may then be in his possession or
                           under his power or control.

         (E)      Save as expressly provided herein, neither party may terminate
                  this Agreement.

6.       CONFIDENTIALITY

         The Company shall not, at any time during or after his employment under
         this agreement, disclose to any third party, except in the performance
         of his duties under this agreement, any confidential information
         regarding the Company's customers, suppliers, trade secrets or
         business. The Executive shall return all tangible evidence of such
         confidential information to the Company prior to or at the termination
         of his employment.

7.       WAIVER

         (A)      Time is of the essence of this Agreement but no failure or
                  delay on the part of either party to exercise any power, right
                  or remedy hereunder shall operate as a waiver thereof, nor
                  shall any single or partial exercise by either party of any
                  power, right or remedy preclude any other or further exercise
                  thereof or the exercise of any other power, right or remedy by
                  that party.

         (B)      The remedies provided herein are cumulative and are not
                  exclusive of any remedies provided by law.

                                       4
<PAGE>   5
8.       FORMER SERVICE AGREEMENTS

         This agreement contains a complete statement of all the arrangements
         between the parties with respect to its subject matter, supersedes all
         existing and former agreements between them with respect to that
         subject matter, may not be changed or terminated orally and any
         amendment or modification must be in writing and signed by the party to
         be charged.

9.       NOTICES

         All notices, requests, demands, consents or other communications to or
         upon the parties under or pursuant to this Agreement shall be in
         writing addressed to the relevant party at such party's address set out
         below (or at such other address as such party may hereafter specify to
         the other party) and shall be deemed to have been duly given or made:

         (A)      in the case of a communication by letter 48 hours after
                  despatch or, if such letter is delivered by hand, on the day
                  of delivery;

         (B)      in the case of communication by telex or facsimile, when sent.

                           The Company's address:

                           Unit 12, 12/F., Block A, Focal Industrial Centre
                           21 Man Lok Street, Hunghom
                           Kowloon, HONG KONG

                           The Executive's address:

                           House No. K80, Stage IV, Marina Cove, Sai Kung
                           HONG KONG

10.      ASSIGNABILITY

         This Agreement shall be binding upon and ensure to the benefit of each
         party hereto and its successors and assigns and personal
         representatives (as the case may be), provided always that the
         Executive may not assign his obligations and liabilities under this
         Agreement without the prior written consent of the Company.

11.      RELATIONSHIP

         None of the provisions of this Agreement shall be deemed to constitute
         a partnership or joint venture between the parties for any purpose.

                                       5
<PAGE>   6
12.      AMENDMENT

         This Agreement may not be amended, supplemented or modified except by a
         written agreement or instrument signed by or on behalf of the parties
         hereto.

13.      SEVERABILITY

         Any provision of this Agreement prohibited by or unlawful or
         unenforceable under any applicable law actually applied by any court of
         competent jurisdiction shall, to the extent required by such law, be
         severed from this Agreement and rendered ineffective so far as is
         possible without modifying the remaining provisions of this Agreement.
         Where, however, the provisions of any such applicable law may be
         waived, they are hereby waived by the parties to the full extent
         permitted by such law to the end that this Agreement shall be a valid
         and binding agreement enforceable in accordance with its terms.

14.      LAW AND JURISDICTION

         This Agreement shall be governed and construed in all respects in
         accordance with the laws of Hong Kong and the parties hereby submit to
         the non-exclusive jurisdiction of the courts of Hong Kong.

IN WITNESS whereof this Agreement has been duly executed the 1st day of October,
2000.

Signed by

  For and on behalf of
  LJ INTERNATIONAL INC.

  /s/ [ILLEGIBLE]
  -----------------------
  Authorized Signature(s)
                                                      /s/ YIH YU CHUAN
-------------------------                             ----------------
LJ International Inc.                                 YIH Yu Chuan

                                       6

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