Document:

CC Filed by Filing Services Canada Inc. 403-717-3898

INDEMNITY AGREEMENT

THIS AGREEMENT is entered into on the ________day of ___________ 2006, 

BETWEEN:

MIGENIX INC., a company incorporated under the laws of British Columbia, and having its address at 3650 Wesbrook Mall, Vancouver, British Columbia V6S 2L2

(the “Company”)

AND:

(the “Indemnitee”)

WHEREAS, the Indemnitee has agreed to serve, at the request of the Company, as a Director or Officer of the Company;

AND WHEREAS the Company’s Articles provide for indemnification of the Indemnitee for liabilities and expenses that may be incurred in connection with the Indemnitee’s services on behalf of the Company;

AND WHEREAS the Company wishes to indemnify the Indemnitee for liabilities and expenses that may be incurred in connection with the Indemnitee’s services on behalf of the Company in accordance with this Agreement;

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Definitions. In this Agreement, except as otherwise expressly provided:

(a)

the term “Associated Corporation” means a corporation or entity referred to in paragraph (c)(ii) and (iii);

(b)

the term “Act” means the Business Corporations Act (British Columbia), as amended from time to time or any successor legislation;

(c)

the terms “Director” and “Officer” include:

(i)

the Indemnitee’s service as a director or officer of the Company;

(ii)

the Indemnitee’s service as a director or officer of another corporation:

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(A)

at a time when the corporation is or was an affiliate of the Company as defined in the Act; or

(B)

at the request of the Company; or

(iii)

at the request of the Company, the Indemnitee’s service in a position equivalent to that of a director or officer of a partnership, trust, joint venture or other unincorporated entity;

(d)

the term “Eligible Penalty” means a judgment, penalty or fine awarded or imposed in, or an amount paid in settlement of, an Eligible Proceeding (as defined below);

(e)

the term “Eligible Proceeding” means a Proceeding in which an Indemnitee or any of the heirs and personal or other legal representatives of the Indemnitee, by reason of the Indemnitee being or having been a Director or Officer of, or holding or having held a position equivalent to that of a Director or Officer of, the Company or an Associated Corporation:

(i)

is or may be joined as a party; or

(ii)

is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to, the proceeding;

(f)

the term “Expenses” includes costs, charges and expenses, including without limitation legal fees (on a solicitor and his own client basis) and any other fees incurred (directly or indirectly) in defending an Eligible Proceeding, but does not include judgment, penalties, fines or amounts paid in settlement of a proceeding; and

(g)

the term “Proceeding” includes any legal proceeding or investigative action, whether current, threatened, pending or completed.

2.

Indemnity of Director or Officer. Subject only to the limitations set forth in Section 3, the Company shall indemnify the Indemnitee against each Eligible Penalty to which the Indemnitee is or may be liable and, after the final disposition of an Eligible Proceeding, shall pay the Expenses actually and reasonably incurred by the Indemnitee in respect of that proceeding.

3.

Limitations on Indemnity. Notwithstanding any other provisions of this Agreement, the Company shall not indemnify the Indemnitee against any Eligible Penalty or pay any Expenses of the Indemnitee:

(a)

if the indemnity or payment is made under an earlier agreement to indemnify or pay Expenses and, at the time that the agreement to indemnify or pay Expenses was made, the Company was prohibited from giving the indemnity or paying the Expenses by its notice of articles or articles;

(b)

if the indemnity or payment is made otherwise than under an earlier agreement to indemnify or pay Expenses and, at the time that the indemnity or payment is made, the Company is prohibited from giving the indemnity or paying the Expenses by its notice of articles or articles;

- 3 -

(c)

if, in relation to the subject matter of an Eligible Proceeding, the Indemnitee did not act honestly and in good faith with a view to the best interests of the Company or the Associated Corporation, as the case may be;

(d)

in the case of an Eligible Proceeding other than a civil proceeding, if the Indemnitee did not have reasonable grounds for believing that the Indemnitee’s conduct in respect of which the proceeding was brought was lawful;

(e)

if the Company is prohibited by the Act or any applicable law from making such payments;

(f)

if such payments have been paid to, or on behalf of, the Indemnitee under an insurance policy (provided the premiums for which were paid by the Company), except in respect of any excess beyond the amount paid under such insurance;

(g)

for which payments the Indemnitee is indemnified by the Company otherwise than pursuant to this Agreement; or

(h)

resulting from a claim decided in an Eligible Proceeding adversely to the Indemnitee based upon or attributable to the Indemnitee gaining in fact any personal profit or advantage to which the Indemnitee was not legally entitled, including any profits made from the purchase or sale by the Indemnitee of securities of the Company.

4.

Mandatory Payment of Expenses. The Company shall, after the final disposition of an Eligible Proceeding, pay the Expenses actually and reasonably incurred by the Indemnitee in respect of that proceeding if the Indemnitee:

(a)

has not been reimbursed for those Expenses, and

(b)

is wholly successful, on the merits or otherwise, in the outcome of the Eligible Proceeding or is substantially successful on the merits in the outcome of the Eligible Proceeding.

5.

Advance Payment of Expenses. Subject to the provisions set forth in Section 3, The Company shall pay, as they are incurred in advance of the final disposition of an Eligible Proceeding, Expenses actually and reasonably incurred by an Indemnitee in respect of that proceeding; provided, however, that Expenses of defence need not be paid as incurred and in advance where a court of competent jurisdiction has decided that the Indemnitee is not entitled to be indemnified pursuant to this Agreement or otherwise. The Indemnitee hereby agrees and undertakes to repay such amounts advanced if it is ultimately determined that the Indemnitee is not entitled to be indemnified by the Company pursuant to this Agreement or otherwise.

6.

Enforcement. If a claim under this Agreement is not paid by the Company, or on its behalf, within thirty days after a written claim (“Claim”) has been received by the Company, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the Claim and if successful in whole or in part, the Indemnitee shall also be entitled to be paid the Expenses of prosecuting such Claim.

7.

Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do everything that may be necessary to secure such rights, 

- 4 -

including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

8.

Notice. The Indemnitee, as a condition precedent to the Indemnitee’s right to be indemnified under this Agreement, shall give to the Company notice in writing as soon as practicable of any claim made against the Indemnitee for which indemnity will or could be sought under this Agreement. Notice to the Company shall be given at its principal office and shall be directed to the Corporate Secretary (or such other address as the Company shall designate in writing to the Indemnitee); notice shall be deemed received if sent by prepaid mail properly addressed, the date of such notice being the date postmarked. In addition, the Indemnitee shall give the Company such information and co-operation as it may reasonably require.

9.

Indemnification Hereunder Not Exclusive. Nothing herein shall be deemed to diminish or otherwise restrict the Indemnitee’s right to indemnification under any provision of the notice of articles or articles of the Company or under applicable corporate law.

10.

Continuation of Indemnification. The indemnification under this Agreement shall continue as to the Indemnitee even though the Indemnitee may have ceased to be a Director or Officer and shall enure to the benefit of the heirs and personal representatives of the Indemnitee.

11.

Coverage of Indemnification. The indemnification under this Agreement shall cover the Indemnitee’s service as a Director or Officer prior to or after the date of the Agreement.

12.

Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein and the parties hereto attorn to the exclusive jurisdiction of the provincial and federal courts of British Columbia.

13.

Benefit. This Agreement shall enure to the benefit of and be binding upon the parties and their respective heirs, executors, administrators, successors and assigns.

14.

Severability. If any provision of this Agreement is determined at any time by a court of competent jurisdiction to be invalid, illegal or unenforceable such provision or part thereof shall be severable from this Agreement and the remainder of this Agreement will be construed as if such invalid, illegal or unenforceable provision or part thereof had been deleted herefrom.

15.

Further Assurances. Each party agrees to take all such actions and execute all such documents within its power as may be necessary or desirable to carry out or implement and give full effect to the provisions and intent of this Agreement.

16.

Time of Essence. Time is the essence of this Agreement and no extension of time shall constitute a waiver of this provision.

17.

Waivers. No waiver of, no consent with respect to, and no approval required under any provision of this Agreement will be effective unless in writing executed by the party against whom such waiver, consent or approval is sought to be enforced, and then any such waiver, consent or approval will be effective only in the specific instance and for the specific purpose given.

- 5 -

18.

Facsimile and Counterparts. This Agreement may be executed by facsimile and in one or more counterparts, each of which when taken together will constitute this Agreement.

IN WITNESS WHEREOF the parties have executed this Agreement. 

MIGENIX INC.

Per:

Authorized Signatory

Per:

Authorized Signatory

			
	SIGNED, SEALED and DELIVERED by _____________________________________ in the presence of: 

Name

Address

Occupation

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)ex10_1.htm

    
      

    

    
      
        	 	
                Line
                  of Credit
                  Note

              

      

       

       

      $5,500,000.00

      Date:
        July 31,2007

    

    
       

      Promise
        to Pay. On or before April 30, 2018, for value received, The Leather
        Factory, L.P. (the "Borrower") promises to pay to JPMorgan Chase Bank, N.A.,
        whose address is 420 Throckmorton, Suite 400, Fort Worth, TX 76102 (the "Bank")
        or order, in lawful money of the United States of America, the sum of Five
        Million Five Hundred Thousand and 00/100 Dollars ($5,500,000.00) or such
        lesser
        sum as is indicated on Bank records, plus interest computed on the basis
        of the
        actual number of days elapsed in a year of 360 days unless that calculation
        would result in a usurious interest rate, in which case interest will be
        calculated on the basis of a 365 or 366 day year, as the case may be at the
        rate
        of 7.10% per annum (the "Note Rate") and at the rate of 3.00% per annum above
        the Note Rate, at the Bank's option, upon the occurrence of any default under
        this Note, whether or not the Bank elects to accelerate the maturity of this
        Note, from the date such increased rate is imposed by the
        Bank.

    

    
       

      In
        no
        event shall the interest rate exceed the maximum rate allowed by law. Any
        interest payment that would for any reason be unlawful under applicable law
        shall be applied to principal.

    

    
       

      Interest
        will be computed on unpaid principal balance from the date of each
        borrowing.

    

    
       

      From
        the
        date of this Note until April 30, 2008 (the "Draw Period"), the Borrower
        may
        borrow sums under this Note, up to the principal amount of this Note, and
        may
        repay those sums at any time, at its option, subject to the terms of the
        Related
        Documents; provided, however, that if the Borrower so repays any sums,
        it may not later reborrow those sums. During the Draw Period, the amount
        available to be drawn shall not exceed the lessor of: (1) $5,500,000.00;
        or (2)
        90% of cost, subject also to the following sentence. Anything in this Note
        to
        the contrary notwithstanding, Borrower shall make a mandatory principal payment
        60 days from closing to reduce the amount of this Note and amount available
        to
        be drawn during the Draw Period, to the lessor of: (1) $5,500,000.00, or
        (2) 85%
        of the appraised value of the real estate being financed.

    

    
       

      During
        the Draw Period, interest shall be due and payable as it accrues, commencing
        on
        July 31, 2007 and continuing on the same day of each month
        thereafter.

    

    
       

      During
        the period commencing on the day after the termination of the Draw Period,
        and
        continuing until this Note is paid in full, the Borrower shall make monthly
        payments as follows: commencing on May 30, 2008, and continuing on the same
        day
        of each calendar month thereafter until the maturity date of this Note, the
        Borrower shall pay the Bank monthly installments of (A) principal in the
        equal
        amounts of 1/240th of the principal amount outstanding on the last day of
        the
        Draw Period, plus (B) accrued interest. A final payment shall be due and
        payable
        on April 30, 2018, at which time the entire balance of unpaid principal,
        plus
        accrued interest shall be due and payable immediately.

    

    
       

      The
        Borrower shall make all payments on this Note and the other Related Documents,
        without setoff, deduction, or counterclaim, to the Bank at the Bank's address
        above or at such other place as the Bank may designate in writing. If any
        payment of principal or interest on this Note shall become due on a day that
        is
        not a Business Day, the payment will be made on the next succeeding Business
        Day. The term "Business Day" in this Note means a day other than a Saturday,
        Sunday or any other day on which national banking associations are authorized
        to
        be closed. Payments shall be allocated among principal, interest and fees
        at the
        discretion of the Bank unless otherwise agreed or required by applicable
        law.
        Acceptance by the Bank of any payment that is less than the payment due at
        that
        time shall not constitute a waiver of the Bank's right to receive payment
        in
        full at that time or any other time.

    

    
       

      Prepayment
        Premium. In consideration of the Bank offering the Borrower a fixed
        rate of interest on this Note, the following shall apply: (1) The Borrower
        has
        agreed to not prepay this Note for the first 5 years of the term of this
        Note.
        Should the Borrower nonetheless prepay the Note, then the Borrower agrees
        that
        if the Borrower prepays all or any portion of the principal balance of this
        Note
        prior to the scheduled payment due date and/or the stated maturity date set
        forth above (whether by acceleration, prepayment or otherwise) the Borrower
        agrees to pay the Bank, in addition to all accrued and unpaid interest on
        the
        principal amount prepaid, on the date of prepayment (as liquidated damages
        and
        not as a penalty), a prepayment charge equal to the sum of the differences
        between (a) each scheduled interest payment which would have been made on
        the
        prepaid amount if such prepayment had not occurred and (b) the corresponding
        fixed-rate interest payment which would be received under an interest rate
        swap
        which the Bank shall be deemed to have entered into as of the date of such
        prepayment (the "Replacement Swap") covering its payment obligations under
        an
        interest rate swap which the Bank shall be deemed to have entered into when
        the
        prepaid amount was originally funded, with each such difference discounted
        to a
        present value as of the date of prepayment using the fixed interest rate
        of the
        Replacement Swap as the applicable discount rate. The Borrower acknowledges
        that
        the Bank might not fund or hedge its fixed-rate loan portfolio or any prepayment
        thereof on a loan-by-loan basis at all times, and agrees that the foregoing
        is a
        reasonable and appropriate method of calculating liquidated damages for any
        prepayment irrespective of whether any of the foregoing hedging transactions
        have in fact occurred or occurred
        precisely as stated with respect to the loan evidenced by this Note. All
        calculations and determinations by the Bank of the amounts payable pursuant
        to
        the preceding provisions or of any element thereof, if made in accordance
        with
        its then standard procedures for so calculating or determining such amounts,
        shall be conclusive absent manifest arithmetic error. If the Bank accelerates
        this Note following default, any subsequent tender by or on behalf of the
        Borrower of full payment of this Note is conclusively agreed to be an evasion
        of
        the prepayment charge provisions of this Note. The payment will be deemed
        a
        voluntary prepayment and will be accompanied by payment of the prepayment
        charge. (2) After the first 5 years of this Note, the Borrower may prepay
        all or
        any portion of the principal balance of this Note prior to the scheduled
        payment
        due date and/or the stated maturity date set forth above (whether by
        acceleration, prepayment or otherwise) up to 10% of the then outstanding
        principal balance of this Note annually, beginning April 30, 2013, and on
        the
        same day of each year thereafter.

    

    
       

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Purpose
        of Loan. The Borrower acknowledges and agrees that this Note evidences
        a loan for a business, commercial, agricultural or similar commercial enterprise
        purpose, and that all advances made under this Note shall not be used for
        any
        personal, family or household purpose. The proceeds of the loan shall be
        used
        only for the purchase of the real estate and improvements located at 1900
        SE
        Loop 820, Fort Worth, TX 76115.

    

    
       

      Credit
        Facility. The Bank has approved a credit facility to the Borrower in a
        principal amount not to exceed the face amount of this Note. The credit facility
        is in the form of advances made from time to time by the Bank to the Borrower.
        This Note evidences the Borrower's obligation to repay those advances. The
        aggregate principal amount of debt evidenced by this Note is the amount
        reflected from time to time in the records of the Bank.

    

    
       

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

    

    
       

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

    

    
       

      Security.
        The term "Collateral" in this Note means all real or personal property
        described in all security agreements, pledge agreements, mortgages, deeds
        of
        trust, assignments, or other instruments now or hereafter executed in connection
        with this Note or in connection with any of the Liabilities. If applicable,
        the
        Collateral secures the payment of this Note and the
        Liabilities.

    

    
       

      Bank's
        Right of Setoff. In addition to the Collateral, if any, the Borrower
        grants to the Bank a security interest in the Accounts, and the Bank is
        authorized to setoff and apply, all Accounts, Securities and Other Property,
        and
        Bank Debt against any and all Liabilities of the Borrower. This right of
        setoff
        may be exercised at any time and from time to time, and without prior notice
        to
        the Borrower. This security interest in the Accounts and right of setoff
        may be
        enforced or exercised by the Bank regardless of whether or not the Bank has
        made
        any demand under this paragraph or whether the Liabilities are contingent,
        matured, or unmatured. Any delay, neglect or conduct by the Bank in exercising
        its rights under this paragraph will not be a waiver of the right to exercise
        this right of setoff or enforce this security interest in the Accounts. The
        rights of the Bank under this paragraph are in addition to other rights the
        Bank
        may have in the Related Documents or by law. In this paragraph: (a) the term
        "Accounts" means any and all accounts and deposits of the Borrower (whether
        general, special, time, demand, provisional or final) at any time held by
        the
        Bank (including all Accounts held jointly with another, but excluding any
        IRA or
        Keogh Account, or any trust Account in which a security interest would be
        prohibited by law); (b) the term "Securities and Other Property" means any
        and
        all financial assets, securities entitlements, securities accounts, investment
        property and other personal property of the Borrower in the custody, possession
        or control of the Bank, JPMorgan Chase & Co. and their respective
        subsidiaries and affiliates (other than property held by the Bank in a fiduciary
        capacity); and (c) the term "Bank Debt" means all indebtedness at any time
        owing
        by the Bank, to or for the credit or account of the Borrower and any claim
        of
        the Borrower (whether individual, joint and several or otherwise) against
        the
        Bank now or hereafter existing.

    

    
       

      Representations
        by Borrower. Each Borrower represents and warrants that each of the
        following is and will remain true and correct until the later of maturity
        or the
        date on which all Liabilities evidenced by this Note are paid in full: (a)
        the
        execution and delivery of this Note
        and
        the performance of the obligations it imposes do not violate any law, conflict
        with any agreement by which it is bound, or require the consent or approval
        of
        any governmental authority or other third party; (b) this Note is a valid
        and
        binding agreement of the Borrower, enforceable according to its terms; (c)
        all
        balance sheets, profit and loss statements, other financial statements and
        applications for credit furnished to the Bank in connection with the Liabilities
        are accurate and fairly reflect the financial condition of the organizations
        and
        persons to which they apply on their effective dates, including contingent
        liabilities of every type, which financial condition has not materially and
        adversely changed since those dates; and, if the Borrower is not a natural
        person (i) it is duly organized, validly existing and in good standing under
        the
        laws of the state where it is organized and in good standing in each state
        where
        it is doing business; and (ii) the execution and delivery of this Note and
        the
        performance of the obligations it imposes (A) are within its powers and have
        been duly authorized by all necessary action of its governing body, and (B)
        do
        not contravene the terms of its articles of incorporation or organization,
        its
        by-laws, regulations or any partnership, operating or other agreement governing
        its organization and affairs.

    

    
       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

         

      

    

    
      Events
        of Default/Acceleration. If any of the following events occurs this
        Note shall become due immediately, without notice, at the Bank's option,
        and the
        Borrower hereby waives notice of intent to accelerate maturity of this Note
        and
        notice of acceleration of this Note upon any of the following
        events:

    

    
       

      
        	
                1.

              	
                The
                  Borrower, or any guarantor of any of the Liabilities (the "Guarantor"),
                  fails to pay when due any amount payable under this Note, under
                  any of the
                  Liabilities, or under any agreement or instrument evidencing debt
                  to any
                  creditor.

              

      

    

    
      
        	
                2.

              	
                The
                  Borrower or any Guarantor (a) fails to observe or perform or otherwise
                  violates any other term, covenant, condition, or agreement of any
                  of the
                  Related Documents; (b) makes any materially incorrect or misleading
                  representation, warranty, or certificate to the Bank; (c) makes
                  any
                  materially incorrect or misleading representation in any financial
                  statement or other information delivered to the Bank; or (d) defaults
                  under the terms of any agreement or instrument relating to any
                  debt for
                  borrowed money (other than the debt evidenced by this Note) and
                  the effect
                  of such default will allow the creditor to declare the debt due
                  before its
                  maturity.

              

      

    

    
      
        	
                3.

              	
                In
                  the event (a) there is a default under the terms of any Related
                  Document,
                  (b) any guaranty of the loan evidenced by this Note is terminated
                  or
                  becomes unenforceable in whole or in part, (c) any Guarantor fails
                  to
                  promptly perform under its guaranty, or (d) the Borrower fails
                  to comply
                  with, or pay, or perform under any agreement, now or hereafter
                  in effect,
                  between the Borrower and JPMorgan Chase & Co., or any of its
                  subsidiaries or affiliates or their
                  successors.

              

      

    

    
      
        	
                4.

              	
                There
                  is any loss, theft, damage, or destruction of any Collateral not
                  covered
                  by insurance.

              

      

    

    
      
        	
                5.

              	
                A
                  "reportable event" (as defined in the Employee Retirement Income
                  Security
                  Act of 1974 as amended) occurs that would permit the Pension Benefit
                  Guaranty Corporation to terminate any employee benefit plan of
                  the
                  Borrower or any Guarantor or any affiliate of the Borrower or any
                  Guarantor.

              

      

    

    
      
        	
                6.

              	
                The
                  Borrower or any Guarantor becomes insolvent or unable to pay its
                  debts as
                  they become due.

              

      

    

    
      
        	
                7.

              	
                The
                  Borrower or any Guarantor (a) makes an assignment for the benefit
                  of
                  creditors; (b) consents to the appointment of a custodian, receiver,
                  or
                  trustee for itself or for a substantial part of its assets; or
                  (c)
                  commences any proceeding under any bankruptcy, reorganization,
                  liquidation, insolvency or similar laws of any
                  jurisdiction.

              

      

    

    
      
        	
                8.

              	
                A
                  custodian, receiver, or trustee is appointed for the Borrower or
                  any
                  Guarantor or for a substantial part of its
                  assets.

              

      

    

    
      
        	
                9.

              	
                Proceedings
                  are commenced against the Borrower or any Guarantor under any bankruptcy,
                  reorganization, liquidation, or similar laws of any jurisdiction,
                  and they
                  remain undismissed for thirty (30) days after commencement; or
                  the
                  Borrower or the Guarantor consents to the commencement of those
                  proceedings.

              

      

    

    
      
        	
                10.

              	
                Any
                  judgment is entered against the Borrower or any Guarantor, or any
                  attachment, levy, or garnishment is issued against any property
                  of the
                  Borrower or any Guarantor.

              

      

    

    
      
        	
                11.

              	
                The
                  Borrower or any Guarantor dies, or a guardian or conservator is
                  appointed
                  for the Borrower or any Guarantor or all or any portion of the
                  Borrower's
                  assets, any Guarantor's assets, or the
                  Collateral.

              

      

    

    
      
        	
                12.

              	
                The
                  Borrower or any Guarantor, without the Bank's written consent (a)
                  is
                  dissolved, (b) merges or consolidates with any third party, (c)
                  leases,
                  sells or otherwise conveys a material part of its assets or business
                  outside the ordinary course of its business, (d) leases, purchases,
                  or
                  otherwise acquires a material part of the assets of any other business
                  entity, except in the ordinary course of its business, or (e) agrees
                  to do
                  any of the foregoing (notwithstanding the foregoing, any subsidiary
                  may
                  merge or consolidate with any other subsidiary, or with the Borrower,
                  so
                  long as the Borrower is the
                  survivor).

              

      

    

    
      
        	
                13.

              	
                Any
                  material adverse change occurs in the business, assets, affairs,
                  prospects
                  or financial condition of the Borrower or any Guarantor or any
                  subsidiary
                  of the Borrower.

              

      

    

    
       

      Remedies.
        If this Note is not paid at maturity, whether by acceleration or otherwise,
        the
        Bank shall have all of the rights and remedies provided by any law or agreement.
        The Bank is authorized to cause all or any part of the Collateral to be
        transferred to or registered in its name or in the name of any other person
        or
        business entity, with or without designating the capacity of that nominee.
        Without limiting any other available remedy, the Borrower is liable for any
        deficiency remaining after disposition of any Collateral. The Borrower is
        liable
        to the Bank for all reasonable costs and expenses of every kind incurred
        (or
        charged by internal allocation) in connection with the negotiation, preparation,
        execution, filing, recording, modification, supplementing and waiver of this
        Note or the Related Documents and the making, servicing and collection of
        this
        Note or the Related Documents and any other amounts owed under this Note
        or the
        Related Documents, including without limitation reasonable attorneys' fees
        and
        court costs. These costs and expenses include without limitation any costs
        or
        expenses incurred by the Bank in any bankruptcy, reorganization, insolvency
        or
        other similar proceeding.

    

    
      

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

         

      

    

    
      Waivers.
        Any party liable on this Note waives (a) to the extent permitted by law,
        all
        rights and benefits under any laws or statutes regarding sureties, as may
        be
        amended; (b) any right to receive notice of the following matters before
        the
        Bank enforces any of its rights: (i) the Bank's acceptance of this Note,
        (ii)
        any credit that the Bank extends to the Borrower, (iii) the Borrower's default,
        (iv) any demand, diligence, presentment, dishonor and protest, or (v) any
        action
        that the Bank takes regarding the Borrower, anyone else, any Collateral,
        or any
        of the Liabilities, that it might be entitled to by law or under any other
        agreement; (c) any right to require the Bank to proceed against the Borrower,
        any other obligor or guarantor of the Liabilities, or any Collateral, or
        pursue
        any remedy in the Bank's power to pursue; (d) any defense based on any claim
        that any endorser or other parties' obligations exceed or are more burdensome
        than those of the Borrower; (e) the benefit of any statute of limitations
        affecting liability of any endorser or other party liable hereunder or the
        enforcement hereof; (f) any defense arising by reason of any disability or
        other
        defense of the Borrower or by reason of the cessation from any cause whatsoever
        (other than payment in full) of the obligation of the Borrower for the
        Liabilities; and (g) any defense based on or arising out of any defense that
        the
        Borrower may have to the payment or performance of the Liabilities or any
        portion thereof. Any party liable on this Note consents to any extension
        or
        postponement of time of its payment without limit as to the number or period,
        to
        any substitution, exchange or release of all or any part of the Collateral,
        to
        the addition of any other party, and to the release or discharge of, or
        suspension of any rights and remedies against, any person who may be liable
        for
        the payment of this Note. The Bank may waive or delay enforcing any of its
        rights without losing them. Any waiver affects only the specific terms and
        time
        period stated in the waiver. No modification or waiver of any provision of
        this
        Note is effective unless it is in writing and signed by the party against
        whom
        it is being enforced.

    

    
       

      Cooperation.
        The Borrower agrees to fully cooperate with the Bank and not to delay, impede
        or
        otherwise interfere with the efforts of the Bank to secure payment from the
        assets which secure the Liabilities including actions, proceedings, motions,
        orders, agreements or other matters relating to relief from automatic stay,
        abandonment of property, use of cash collateral and sale of the Bank's
        collateral free and clear of all liens.

    

    
       

      Additional
        Waivers. To the extent not prohibited by applicable law, the Borrower
        waives (a) to the extent the Borrower is subject to the Texas Revised
        Partnership Act ("TRPA") or Section 152.306 of the Texas Business Organizations
        Code ("BOC"), compliance by the Bank with Section 3.05(d) of TRPA and Section
        152.306(b) of BOC; and (b) if the Liabilities are secured by an interest
        in real
        property, all rights of the Borrower under Sections 51.003, 51.004, and 51.005
        of the Texas Property Code (as amended from time to time).

    

    
       

      Rights
        of Subrogation. Any party liable on this Note waives and agrees not to
        enforce any rights of subrogation, contribution or indemnification that it
        may
        have against the Borrower, any person liable on the Liabilities, or the
        Collateral, until the Borrower and such party liable on this Note have fully
        performed all their obligations to the Bank, even if those obligations are
        not
        covered by this Note.

    

    
       

      Reinstatement.
        The Borrower agrees that to the extent any payment or transfer is received
        by
        the Bank in connection with the Liabilities evidenced by this Note, and all
        or
        any part of the payment or transfer is subsequently invalidated, declared
        to be
        fraudulent or preferential, set aside or required to be transferred or repaid
        by
        the Bank or transferred or paid over to a trustee, receiver or any other
        entity,
        whether under any bankruptcy act or otherwise (any of those payments or
        transfers is hereinafter referred to as a "Preferential Payment"), then this
        Note shall continue to be effective or shall be reinstated, as the case may
        be,
        even if all those Liabilities have been paid in full and whether or not the
        Bank
        is in possession of this Note, or whether the Note has been marked paid,
        released or canceled, or returned to the Borrower and, to the extent of the
        payment, repayment or other transfer by the Bank, the Liabilities or part
        intended to be satisfied by the Preferential Payment shall be revived and
        continued in full force and effect as if the Preferential Payment had not
        been
        made.

    

    
       

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

    

    
       

      Usury.
        The Bank does not intend to charge, collect or receive any interest that
        would
        exceed the maximum rate allowed by law. If the effect of any applicable law
        is
        to render usurious any amount called for under this Note or the other Related
        Documents, or if any amount is charged or received with respect to this Note,
        or
        if any prepayment by the Borrower results in the Borrower having paid any
        interest in excess of that permitted by law, then all excess amounts collected
        by the Bank shall be credited on the principal balance of this Note (or,
        if this
        Note and all other indebtedness arising under or pursuant to the other Related
        Documents have been paid in full, refunded to the Borrower), and the provisions
        of this Note and the other Related Documents immediately shall be deemed
        reformed and the amounts thereafter collectable reduced, without the necessity
        of the execution of any new document, so as to comply with the then applicable
        law. All sums paid, or agreed to be paid, by the Borrower for the use,
        forbearance, or detention of money under this Note or the other Related
        Documents shall, to the maximum extent permitted by applicable law, be
        amortized, prorated, allocated and spread throughout the full term of
        such
        indebtedness until payment in full so that the rate or amount of interest
        on
        account of such indebtedness does not exceed the usury ceiling from time
        to time
        in effect and applicable to such indebtedness for so long as such indebtedness
        is outstanding. To the extent federal law permits the Bank to contract for,
        charge or receive a greater amount of interest, the Bank will rely on federal
        law instead of the Texas Finance Code. In no event shall Chapter 346 of the
        Texas Finance Code apply to this Note. To the extent that Chapter 303 of
        the
        Texas Finance Code is applicable to this Note, the "weekly ceiling" specified
        in
        Chapter 303 is the applicable ceiling.

    

    
       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

         

      

    

    
      Miscellaneous.
        Each Borrower is liable jointly and severally for the obligations
        represented by this Note, the term "Borrower" means any one or more of them,
        and
        the receipt of value by any one of them constitutes the receipt of value
        by the
        others. This Note binds the Borrower and its successors, and benefits the
        Bank,
        its successors and assigns. Any reference to the Bank includes any holder
        of
        this Note. This Note is issued pursuant and entitled to the benefits of that
        certain Credit Agreement by and between the Borrower and the Bank, dated
        July
        31, 2007, and all replacements thereof (the "Credit Agreement") to which
        reference is hereby made for a more complete statement of the terms and
        conditions under which the loan evidenced hereby is made and is to be repaid.
        The terms and provisions of the Credit Agreement are hereby incorporated
        and
        made a part hereof by this reference thereto with the same force and effect
        as
        if set forth at length herein. No reference to the Credit Agreement and no
        provisions of this Note or the Credit Agreement shall alter or impair the
        absolute and unconditional obligation of the Borrower to pay the principal
        and
        interest on this Note as herein prescribed. Capitalized terms not otherwise
        defined herein shall have the meanings assigned to such terms in the Credit
        Agreement. Section headings are for convenience of reference only and do
        not
        affect the interpretation of this Note. Any notices and demands under or
        related
        to this document shall be in writing and delivered to the intended party
        at its
        address stated herein, and if to the Bank, at its main office if no other
        address of the Bank is specified herein, by one of the following means: (a)
        by
        hand, (b) by a nationally recognized overnight courier service, or (c) by
        certified mail, postage prepaid, with return receipt requested. Notice shall
        be
        deemed given: (a) upon receipt if delivered by hand, (b) on the Delivery
        Day
        after the day of deposit with a nationally recognized courier service, or
        (c) on
        the third Delivery Day after the notice is deposited in the mail. "Delivery
        Day"
        means a day other than a Saturday, a Sunday, or any other day on which national
        banking associations are authorized to be closed. Any party may change its
        address for purposes of the receipt of notices and demands by giving notice
        of
        such change in the manner provided in this provision. This Note and any Related
        Documents embody the entire agreement between the Borrower and the Bank
        regarding the terms of the loan evidenced by this Note and supercede all
        oral
        statements and prior writings relating to that loan. If any provision of
        this
        Note cannot be enforced, the remaining portions of this Note shall continue
        in
        effect. The Borrower agrees that the Bank may provide any information or
        knowledge the Bank may have about the Borrower or about any matter relating
        to
        this Note or the Related Documents to JPMorgan Chase & Co., or any
        of its subsidiaries or affiliates or their successors, or to any one or more
        purchasers or potential purchasers of this Note or the Related Documents.
        The
        Borrower agrees that the Bank may at any time sell, assign or transfer one
        or
        more interests or participations in all or any part of its rights and
        obligations in this Note to one or more purchasers whether or not related
        to the
        Bank.

    

    
       

      Government
        Regulation. Borrower shall not (a) be or become subject at any time to
        any law, regulation, or list of any government agency (including, without
        limitation, the U.S. Office of Foreign Asset Control list) that prohibits
        or
        limits Bank from making any advance or extension of credit to Borrower or
        from
        otherwise conducting business with Borrower, or (b) fail to provide documentary
        and other evidence of Borrower's identity as may be requested by Bank at
        any
        time to enable Bank to verify Borrower's identity or to comply with any
        applicable law or regulation, including, without limitation, Section 326
        of the
        USA Patriot Act of 2001, 31 U.S.C. Section 5318.

    

    
      

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

    

    
       

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

    

    
      

       

      (This
        space intentionally left blank)

    

    
       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

         

      

    

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

    

    
       

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

    

    
       

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

    

    
      THERE
        ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

      
 

    

    
      	 	 	 	
              Borrower:   

            
	 	 	 	 
	
              Address:

            	
              
                3847
                  East Loop 820 South 

              

            	 	
              
                The
                  Leather Factory, L.P.   

              

            
	 	Fort
              Worth, TX 76119-4388	 	 
	 	 	 	
              By:

            	
              
                The
                  Leather Factory, Inc., its General Partner  

              

            
	 	 	 	 	 	 
	 	 	 	 	
              By:

            	/s/
              Ron C. Morgan	 
	 	 	 	 	 	
              
                Ron
                  Morgan

              

            	
              CEO
                and President

            
	 	 	 	 	 	
              
                Printed
                  Name

              

            	
              Title

            
	 	 	 	 	 	 	 

    

    
      	 
              	Date
              Signed: 	07-31-07

    

    
       

      The
        Bank
        is executing this Note for the purpose of acknowledging and agreeing to the
        Jury
        Waiver, the notice given under §26.02 of the Texas Business and Commerce Code
        and to comply with the waiver requirements of TRPA and BOC, and the Bank's
        failure to execute or authenticate this Note will not invalidate this
        Note.

      
 

    

    
      	
              Bank:  

            	 
	   	 
	
              JPMorgan
                Chase Bank, N.A.  

            	 
	 	 	 	 
	
              By:

            	/s/
              Jennifer C. Baggs	 	 
	 	
              Jennifer
                C. Baggs

            	
              Vice
                President

            	 
	 	
              Printed
                Name

            	
              Title

            	 

    

    
      

       
        6

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