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<SEC-DOCUMENT>0001010549-00-000701.txt : 20001218
<SEC-HEADER>0001010549-00-000701.hdr.sgml : 20001218
ACCESSION NUMBER:		0001010549-00-000701
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20001130
ITEM INFORMATION:		
ITEM INFORMATION:		
ITEM INFORMATION:		
FILED AS OF DATE:		20001215

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			LEATHER FACTORY INC
		CENTRAL INDEX KEY:			0000909724
		STANDARD INDUSTRIAL CLASSIFICATION:	LEATHER & LEATHER PRODUCTS [3100]
		IRS NUMBER:				752543540
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		
		SEC FILE NUMBER:	001-12368
		FILM NUMBER:		789984

	BUSINESS ADDRESS:	
		STREET 1:		3847 EAST LOOP
		STREET 2:		820 SOUTH
		CITY:			FT WORTH
		STATE:			TX
		ZIP:			76119
		BUSINESS PHONE:		8174964414

	MAIL ADDRESS:	
		STREET 1:		3847 EAST LOOP
		STREET 2:		820 SOUTH
		CITY:			FT WORTH
		STATE:			TX
		ZIP:			76119
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>0001.txt
<TEXT>


                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.

                                    Form 8-K

                             CURRENT REPORT PURSUANT
                          TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

         Date of report (Date of earliest event reported): November 30, 2000
                                                          ----------------------


                           The Leather Factory, Inc..
- --------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)


                                    Delaware
- --------------------------------------------------------------------------------
                 (State or Other Jurisdiction of Incorporation)


             1-12368                                    75-2543540
- --------------------------------         ---------------------------------------
    (Commission File Number)               (IRS Employer Identification Number)


    3847 East Loop 820 South, Fort Worth, Texas                   76119
- --------------------------------------------------------------------------------
     (Address of Principal Executive Offices)                   (Zip Code)


                                 (817) 496-4414
- --------------------------------------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)


- --------------------------------------------------------------------------------
          (Former Name or Former Address, if Changed Since Last Report)






<PAGE>

Item 2.  Acquisition or Disposition of Assets

         On November 30, 2000,  Leather Tan Acquisition,  Inc. ("Leather Tan") a
Texas corporation and a newly-formed subsidiary of the Registrant,  acquired the
operating  assets  (the  "Acquired  Assets")  of  TLC  Direct,   Inc.,  a  Texas
corporation, and Tandy Leather Dealers, Inc., a Texas corporation, (collectively
called the  "Sellers").  The  Sellers  are  subsidiaries  of  Tandycrafts,  Inc.
("Tandycrafts"),  a New York Stock Exchange-listed  company based in Fort Worth,
Texas.  Prior to this  transaction,  the  Acquired  Assets were  operated as the
"Tandy Leather" business of Tandycrafts.  The Acquired Assets include machinery,
equipment,  materials,  supplies,  inventory,  trade  booth  inventory,  catalog
inventory,  fixtures, goods in process,  intellectual property,  goodwill, trade
names  including   "Tandy  Leather"  and  "Tandy  Leather   Company,"   patents,
trademarks,  copyrights,  leases, subleases,  contracts,  agreements,  accounts,
notes and  other  receivables,  rights  to  Sellers'  Internet  Domain,  certain
leathercraft art, mailing lists and certain historic furniture.

         The consideration  paid by Leather Tan for the Acquired Assets was cash
in the amount of $2.85  million plus the  assumption  of (a) all of the Sellers'
trade payables  incurred in the ordinary  course of business  within ninety days
prior to November  30,  2000,  (b) all  liabilities  relating  to any  contracts
assumed by the  Registrant  (including  the  obligations  of the  Sellers  under
certain listed licenses, sub-licenses,  leases, sub-leases, contracts, and other
arrangements),  (c) certain  other listed  obligations,  (d)  transfer,  filing,
recording and other similar fees,  and (e) any  liabilities  arising on or after
November 30, 2000 The total amount of the liabilities  assumed by Leather Tan is
estimated  to be  between  $450,000  and  $500,000.  . The  purchase  price  was
determined  by  arms'  length  negotiations   between   representatives  of  the
Registrant and Tandycrafts.

         The source of Leather Tan's cash for this  transaction  was funds drawn
on the Registrant's  line of credit with Wells Fargo Business  Credit,  Inc. See
Item 5.

         The  transaction  described  in this  Item 2 was  pursuant  to an Asset
Purchase  Agreement  between  Leather Tan and the Sellers.  The  Registrant  and
Tandycrafts also executed the Asset Purchase  Agreement for limited purposes.  A
copy of this agreement is filed as an exhibit to this report. See Item 7.

Item 5.  Other Events.

         On November 30, 2000, the Registrant  and its  subsidiaries  (including
Leather  Tan) entered  into a First  Amendment to Credit and Security  Agreement
(the Amendment"), with Wells Fargo Business Credit, Inc. a Minnesota corporation
("Wells Fargo").  The Amendment  amended the provisions of a Credit and Security
Agreement that the Registrant and its  subsidiaries  entered with Wells Fargo in
November 1999.




<PAGE>

         In the Amendment, Wells Fargo consented to the transaction described in
Item 2 above and amended  certain  financial tests to reflect the acquisition of
the Tandy Leather assets and to make previously contemplated extensions of these
tests.  Among  these  changes,  the  Amendment  dropped a minimum  debt  service
requirement  in the existing  credit  agreement,  and  increased  the percent of
eligible  inventory book value and the total amount of eligible  inventory (both
computed  as  provided  in the credit  agreement)  that can be  included  in the
Registrant's  borrowing base under the credit agreement.  Also, the Registrants'
required  minimum  book net worth and minimum net income (as these are  computed
under the agreement) were adjusted for the balance of the calendar year 2000. In
addition,  extensions  of these  requirements  were  negotiated  that set higher
standards  for  the  Registrant  than  the  earlier  provisions.  The  increased
standards  reflected the Registrant's  improved financial  performance since the
credit agreement was signed.

Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits.

         (a) Financial Statements of Businesses Acquired.

             To be filed  supplementally  in  accordance  with  Instruction 4 to
             Item 7(a).

         (b) Pro Forma Financial Information.

             To be filed  supplementally  in  accordance  with  Instruction 2 to
             Item 7(b).

         (c) Exhibits.

         2.1   Asset Purchase  Agreement,  dated November 30, 2000, by and among
               Leather  Tan  Acquisition,  Inc.,  a  Texas  corporation,  as the
               purchaser, and, TLC Direct, Inc., a Texas corporation,  and Tandy
               Leather Dealer,  Inc., a Texas  corporation as the sellers.  Also
               entering  into  this  agreement  for  limited  purposes  were the
               Registrant  and  Tandycrafts,  Inc.  [Schedules to this agreement
               have been omitted in accordance with the Instructions to Item 601
               (b) (2) to Regulation S-K.]

               The  Registrant  agrees to furnish  supplementally  a copy of any
               omitted Schedule to the Commission upon request.

        99.1   First Amendment to Credit and Security Agreement,  dated November
               30, 2000,  among the  Registrant,  The Leather  Factory,  Inc., a
               Texas  corporation,   The  Leather  Factory,   Inc.,  an  Arizona
               corporation,  Roberts,  Cushman  &  Company,  Inc.,  a  New  York
               corporation,   Hi-Line   Leather  &  Manufacturing   Company,   a
               California  corporation,  Leather Tan Acquisition,  Inc., a Texas
               corporation  and Wells Fargo Business  Credit,  Inc., a Minnesota
               corporation.

         This  Report  contains  forward-looking  statements  based  on  current
expectations that involve a number of uncertainties. Details on the factors that
could affect The Leather Factory,  Inc.'s financial  results are included in The
Leather  Factory,  Inc.'s  Securities  and Exchange  Commission  (SEC)  filings,
including the latest Annual Report on Form 10-K and on its Quarterly  Reports on
Form 10-Q.




<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  Registrant  has duly  caused  this report to be signed on its behalf of the
undersigned hereunto duly authorized.

                             THE LEATHER FACTORY, INC.



Date: December 14, 2000      BY:  /s/ Wray Thompson
                                 -----------------------------------------------
                                 Wray Thompson, Chairman of the Board, President
                                 and Chief Executive Officer








</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.1
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>ASSET PURCHASE AGREEMENT
<TEXT>


                                                                     Exhibit 2.1

                            ASSET PURCHASE AGREEMENT



         THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into as
of the 30th day of November, 2000 by and among LEATHER TAN ACQUISITION,  INC., a
Texas corporation,  or its assigns  ("Purchaser") and TLC DIRECT,  INC., a Texas
corporation,  and TANDY LEATHER  DEALER,  INC., a Texas  corporation,  (both TLC
Direct,  Inc. and Tandy Leather Dealer, Inc. shall be referred to as "Sellers").
Tandycrafts,  Inc.  signs this  Agreement  only to  indicate  its  agreement  to
Sections 1.7, 6.1(B and C) and 8.13 of this  Agreement and The Leather  Factory,
Inc. signs this Agreement only to indicate its agreement to Section 8.12 of this
Agreement. Nevertheless, Tandycrafts, Inc. and The Leather Factory, Inc. are not
parties to the Agreement or to any other  Section of this  Agreement and are not
liable thereunder, except for such Sections, in any other form or manner.

                                    RECITALS:
                                    ---------

         Sellers  desire to sell to Purchaser and Purchaser  desires to purchase
from  Sellers  substantially  all  of  the  assets  and  assume  certain  of the
liabilities of the Sellers in return for the purchase price set out hereinafter.
Sellers   acknowledge   that  Purchaser  is  relying  on  the   representations,
warranties,  and covenants made herein by Sellers in pursuing  financing for the
transaction contemplated herein.

                                    AGREEMENT
                                    ---------

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

                                    ARTICLE I

                                 SALE OF ASSETS
                                 --------------

1.1      Acquired  Assets.  On and  subject  to the  terms  of  this  Agreement,
         Purchaser  agrees to purchase  from Sellers and Sellers  agree to sell,
         transfer,  convey and  deliver to the  Purchaser,  all of the  Acquired
         Assets  owned by Sellers  and used by  Sellers in the  conduct of Tandy
         Leather's  leathercraft  business as conducted by Tandy Leather Company
         and its  successors,  at the  closing for the  consideration  specified
         below.  "Acquired  Assets" shall mean all of Sellers' right,  title and
         interest  in  and  to all of the  assets  of the  Sellers,  except  the
         Excluded Assets, including, but not limited to:

                  (a)      all   tangible  and   personal   property,   such  as
                           machinery,  equipment,  all  materials  and supplies,
                           inventory, trade booth inventory,  catalog inventory,
                           fixtures,  manufactured and purchased parts, goods in
                           process and finished goods, furniture,  including but
                           not limited to the A Brandt Ranch Oak furniture  used
                           by D.  L.  Tandy,  Charles  Tandy,  and J.  L.  West,
                           automobiles,  trucks,  trailers,  tools, racks, jigs,
                           and dyes;

<PAGE>

                  (b)      intellectual   property   and   goodwill   associated
                           therewith,   intangibles,   trade,   business   name,
                           goodwill,  licenses,   sub-licenses,   and  operating
                           agreements  granted and obtained with respect thereto
                           and rights thereunder, remedies against infringements
                           thereof and rights to protection of interest  therein
                           under the laws of all jurisdictions;

                  (c)      Sellers' rights to the names "Tandy Leather",  "Tandy
                           Leather Company",  "Tandy Leather Dealer,  Inc.", and
                           "TLC Direct, Inc.";

                  (d)      Sellers'   rights   to  all  of   Sellers'   patents,
                           trademarks,  and  copyrights,  including  those to be
                           transferred  to  Sellers  from  TAC  Holdings,   Inc.
                           immediately prior to this transaction,  registered or
                           unregistered,  including,  but not  limited  to,  the
                           lists of patents and  trademarks  attached as Exhibit
                           "A" and the list of  copyrights  attached  as Exhibit
                           "B";

                  (e)      leases,  subleases,  and rights  thereunder listed on
                           attached Exhibit "C";

                  (f)      contracts,   indentures,    agreements,    mortgages,
                           instruments  of  indebtedness,   security  interests,
                           guarantees,  royalty  agreements,  dealer  contracts,
                           other similar agreements and rights thereunder listed
                           on attached Exhibit "D";

                  (g)      accounts,  notes,  other  receivables,  including any
                           uncollected claims listed on attached Exhibit "E";

                  (h)      claims,  deposits,  prepayments,  refunds,  causes of
                           action, choses in action, rights of recovery,  rights
                           of  setoff,  rights of  recoupment  (including  items
                           relating  to  the  payment  of  taxes),   franchises,
                           approvals,  permits, licenses, orders, registrations,
                           certificates,  variances, and similar rights obtained
                           from governments and governmental agencies,

                  (i)      copies of books, records,  ledgers, files, documents,
                           correspondence,  lists, plats,  architectural  plans,
                           drawings  and  specifications,   creative  materials,
                           advertising  and  promotional   materials,   studies,
                           reports and other printed or written materials;

                  (j)      any non-local phone numbers owned by the Sellers;

                  (k)      Sellers'  rights to all of Sellers'  Internet  Domain
                           names and all rights related to said Internet  Domain
                           names, including but not limited to tandyleather.com,
                           camptandy.com,                         leather-e.com,
                           tandyleatherandcrafts.com,             tlcdirect.net,
                           tandyleatherdealer.com,    craftyourworld.com,    web
                           sites,  registrations,  administrative  and technical
                           rights to all Domain Names, passwords, codes, and any
                           shopping cart software rights;

<PAGE>

                  (l)      all  original   leathercraft  art  owned  by  Sellers
                           whether  said art is in  possession  of Sellers or on
                           loan to  others,  including,  but not  limited to any
                           leathercraft art owned by Sellers which is on loan to
                           the King Museum in Sheridan,  Wyoming, and whether by
                           Al Stohlman,  Silva Fox, Al Shelton, Ken Griffin, Lad
                           Haverty,  Cliff Ketchum,  Christine Stanley, or other
                           artists, a list of which leathercraft art is attached
                           hereto as Exhibit "G"; and all rights with respect to
                           said original  leathercraft art;  provided,  however,
                           that   Purchaser   agrees  to  assume  and  abide  by
                           agreements   related   to  said   leathercraft   art,
                           including the Tandy Leather  Company or  Tandycrafts,
                           Inc.'s, dba Tandy Leather Company,  agreement with Al
                           and Ann Stohlman dated February 3, 1998;

                  (m)      mailing  lists  (provided  that  Purchaser  abides by
                           Sellers'  privacy  policies),   publications,  books,
                           pamphlets, catalogs, films, videos, magazines, doodle
                           page books/pattern packs, patterns,  student manuals,
                           teacher's  guides,  visual  aids,  posters  and other
                           visual aids, and flyers;

                  (n)      the leathercraft  art that was formerly  contained in
                           the Ann and Al  Stohlman  museum  and,  to the extent
                           that such  items  exist,  all  inventory,  equipment,
                           furniture, fixtures and supplies of said museum;

                  (o)      Sellers' rights to all of Sellers'  computer hardware
                           and software, including but not limited to: "Slammin"
                           server and its  software,  including NT and Site Link
                           Software,   "Tcrafts  2"  server  and  its   software
                           including NT and MOM software and any other  hardware
                           and software listed on Sellers' books.

1.2      Excluded  Assets.  The Acquired  Assets shall not include any rights or
         assets in regard to  Sellers'  employee  benefit or  retirement  plans,
         Sellers' corporate charters,  minute books, stock transfer books, stock
         certificates,   corporate   seals,   qualifications   to  do  business,
         fictitious  name  filings,  certificates  of  authority to do business,
         arrangements with registered agents, tax payer and other identification
         numbers, cash, stock in TAC Holdings, Inc. owned by Sellers, JD Edwards
         software,  "Internet  One"  server  and  software,  "Corp"  server  and
         software,  Lotus  Notes,  local  phone  lines,  equipment,   computers,
         servers,  phone lines,  equipment,  software or other assets  leased or
         owned by Tandycrafts,  Inc., IP addresses, the trademarks and rights to
         the name "Tandycrafts" and its derivatives,  including "Tandyarts", any
         assets  (except  those  solely  used in the  leathercraft  business  as
         conducted by Tandy Leather Company and its successors), of Tandycrafts,
         any rights under this Agreement,  the Letter Agreement  between Sellers
         and The Leather  Factory,  Inc. dated on or about October 16, 2000, and
         the confidentiality  agreements between the parties, and any local 817-
         telephone  numbers that are part of Tandycrafts  block of phone numbers
         (all of which are referred to  hereinafter  as the "Excluded  Assets").
         Seller will use  reasonable  efforts to forward calls that come to said
         local  817-  telephone   numbers  to  such  numbers  that  Buyer  shall
         designate.  Sellers will  cooperate  with  Purchaser to accomplish  the
         migration of data from the  computers,  servers and software  listed as
         Excluded  Assets  to the  computers,  servers  and  software  that  are
         Acquired Assets or that Purchaser subsequently purchases.

<PAGE>

         All  Acquired  Assets  will be free  and  clear  of any and all  liens,
         charges,  encumbrances,  and security interests of whatsoever nature or
         type.

1.3      Assumed Liabilities. On and subject to the terms and conditions of this
         Agreement,  Purchaser  agrees  to assume  and  become  responsible  for
         certain Assumed Liabilities as of the Closing Date.  Purchaser will not
         assume or have any responsibility for any obligations or liabilities of
         the  Sellers,   except  for  the  Assumed  Liabilities.   The  "Assumed
         Liabilities"  will be defined  as and  include  (a) all trade  payables
         incurred in ordinary course of business of the Sellers  incurred within
         ninety  (90)  days of  Closing;  (b) all  liabilities  relating  to any
         contract assumed by Purchaser herein,  including the obligations of the
         Sellers  under  the   licenses,   sub-licenses,   leases,   sub-leases,
         contracts,  and other  arrangements  referred to in the  definition  of
         Acquired  Assets or listed in Exhibits C or D, or in the other Exhibits
         or  Schedules  hereto  ("Assumed  Contracts")  after  closing;  (c) all
         obligations  and  liabilities  set forth in Schedule  1.3;  and (d) any
         transfer,   assignment,   recording  or  similar  fees;   and  (e)  any
         liabilities arising on or after the date of this Agreement.

1.4      Excluded  Liabilities.  The Assumed Liabilities shall not include:  (a)
         any liability of the Sellers for income taxes,  transfer  taxes,  sales
         taxes,  use taxes and other taxes owed by them and  arising  before the
         date of this Agreement,  or arising in connection with the consummation
         of the  transaction  contemplated  hereby,  including  any income taxes
         arising because the Sellers are transferring  the Acquired  Assets,  or
         because the Sellers have  deferred  gain on any deferred  inter company
         transaction;  (b) any  liability  of the Sellers for costs and expenses
         incurred in  connection  with this  Agreement  or  consummation  of the
         transactions contemplated hereby, or any liability or obligation of the
         Sellers under this Agreement;  (c) any ERISA or employment benefit plan
         of Sellers;  or (d) any contract of employment or other agreements with
         Sellers'  employees  with Sellers;  provided,  however,  that Purchaser
         shall assume any  liabilities  arising on or after Closing  relating to
         certain employees of Sellers who are listed on Schedule 3.2(P); (e) any
         charge, complaint,  action, suit, proceeding,  hearing,  investigation,
         claim, demand or litigation  relating to breach of contract,  breach of
         warranty, tort,  infringement,  violation of law, or other matter which
         arose prior to  Closing;  (f)  liability  for claims  asserted  against
         Sellers by Black Fox Trading Company regarding copyright  infringements
         relating to certain bear claws  relating to acts prior to Closing;  (g)
         the trademark  infringement  claims made by Scovill Fasteners regarding
         alleged use of "dot",  "sigma",  and  "durable  dots"  relating to acts
         prior to Closing;  (h) any claim or  allegation  by a  governmental  or
         regulatory entity,  arising prior to Closing; (i) the claim of the U.S.
         Department of Interior  regarding  violations of the Endangered Species
         Act  relating  to acts  prior to Closing  and the claim of the  Federal
         Trade  Commission  ("FTC"),  the Indian Arts and Crafts Board,  and the
         U.S.  Department  of the  Interior  regarding  Indian  Arts and  Crafts
         relating  to acts  prior  to  Closing;  and (j)  liability  for  claims
         asserted  against  Tandycrafts,  Inc. by Tina Pruitt and Timothy Denham
         relating to a slip and fall at the former Tandy Leather store in Akron,
         Ohio which occurred prior to Closing  (collectively 1.4 (a) - (j) shall
         be referred to herein as the "Excluded Liabilities").

<PAGE>

1.5      Transfers of Acquired  Assets by TAC Holdings,  Inc. On or prior to the
         Closing  Date,  TAC  Holdings,  Inc.  will  terminate  the  Assignment,
         Operating and License Agreements by and between TAC Holdings,  Inc. and
         Sellers, and will transfer to the Sellers, free and clear of all liens,
         and other  encumbrances,  any and all intellectual  property of Sellers
         which  TAC  Holdings,  Inc.  holds  as a  result  of  said  Assignment,
         Operating and License Agreements with or otherwise relating to Sellers.
         A  copy  of the  Assignment  of  Certain  Trademarks  and  Intellectual
         Property is attached hereto as Exhibit "H".

1.6      Assets to Be Supplied by Purchaser.  Purchaser  understands  and agrees
         that it will  need to supply  certain  assets  or  services  to run the
         business  presently  conducted  by  Sellers.  Such  assets or  services
         include but are not limited to the services provided by Sellers' parent
         company,  the Excluded  Assets,  accounting  software,  T1  connection,
         "Internet  1" server,  Domino  software  (or other  software to run web
         hosting  and  interoffice  Lotus  Notes),  Cisco  3810,  and  Cisco PIC
         firewall.

1.7      Leathercraft Assets Owned by Tandycrafts. If Tandycrafts, Inc. owns any
         assets set forth in  Sections  1.1(d),  1.1(k),  and 1.1(l) that relate
         solely to the leathercraft business conducted by Sellers, and excepting
         the  Excluded  Assets,  Tandycrafts,  Inc.  hereby  agrees  to sell and
         transfer its right, title and interest to such assets to Purchaser.

                                   ARTICLE II

                      PURCHASE PRICE AND MANNER OF PAYMENT
                      ------------------------------------

2.1      Purchase  Price.  The total  "Purchase  Price" for the Acquired  Assets
         shall  be  Two   Million   Eight   Hundred   Fifty   Thousand   Dollars
         ($2,850,000.00)  payable,  subject to adjustment as hereinafter stated,
         in cash or immediately available funds at closing.

2.2      Adjustments to Purchase Price.

         A.       Earnest  Money  Deposit.  Seller shall receive a credit to the
                  Purchase  Price  in the sum of One  Hundred  Thousand  Dollars
                  ($100,000.00), in addition to all  accrued  interest  thereon,
                  which was  deposited  with the Seller by The Leather  Factory,
                  Inc. as an earnest money deposit.

<PAGE>

         B.       Adjustment  to Purchase  Price.  The  Purchase  Price shall be
                  further  adjusted,  dollar for dollar,  based on any change in
                  Net Assets Purchased (which shall be defined as current assets
                  purchased  (Accounts  Receivable  less  Allowance for Doubtful
                  Accounts,   Inventory,  and  Prepaid  Expenses)  less  current
                  liabilities   purchased  (Accounts  Payable  -  Trade)),  from
                  September  30,  2000 until  closing,  exceeding  a ten percent
                  (10%)  increase or decrease.  The parties agree the Net Assets
                  Purchased  as of  September  30,  2000  shall  be  defined  as
                  $2,461,256.51  based  on the  following  account  balances  as
                  reflected  on the balance  sheets of TLC Direct,  Inc. and TLC
                  Dealer,  Inc.,  prepared in accordance with generally accepted
                  accounting principles, as of September 30, 2000.


                             TLC Direct, Inc.   TLC Dealer, Inc.       Combined
                             ----------------   ----------------       --------
Accounts Receivable
  Less Allowance                   84,084.74         226,242.30      310,327.04

Inventory                       2,280,072.06                -0-    2,280,072.06

Prepaid Expenses                   83,807.40             195.78       84,003.18

Accounts Payable - Trade         (213,145.77)               -0-     (213,145.77)

Net Assets Purchased            2,234,818.51         226,438.08    2,461,256.51

2.3      Allocation  of  Purchase  Price.  The  parties  agree to  allocate  the
         Purchase  Price among the acquired  assets for all  purposes  including
         financial,   accounting  and  tax  purposes  in  accordance   with  the
         allocation schedule attached hereto as Exhibit "I".

                                   ARTICLE III

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

3.1      General Statement.  The parties make the representations and warranties
         to each other that are set forth in this  Article  Three.  The  parties
         shall  cooperate with each other in the conduct by Purchaser of its due
         diligence  review  and in  preparing  and  accomplishing  any  and  all
         regulatory  filings  which are or have been  required to be made by the
         Sellers or  Purchasers,  including,  but not limited to, any filings or
         reports that must be made to the  Securities  and Exchange  Commission.
         Notwithstanding the foregoing,  all such representations and warranties
         that are set forth  elsewhere in this Agreement and in any exhibit,  or
         schedule  hereto  or  document  delivered  by or on  behalf  of a party
         hereto,  or the  representative  of the other  party  pursuant  to this
         Agreement  shall  survive the closing for a period of three  years.  No
         specific  representation  or  warranty  shall limit the  generality  or
         applicability   of  a  more   general   representation   or   warranty.
         Representations  and warranties of the parties are initially made as of
         the date hereof and are to be true and correct as of the Closing  Date.
         For  purposes of Article III of this  Agreement,  the term  "knowledge"
         shall mean what the  officers or  Directors  of Sellers  should know or
         should have known with the exercise of due diligence.

<PAGE>

3.2      Representations and Warranties of Sellers. To induce Purchaser to enter
         into this Agreement and to perform  Purchaser's  obligations  hereunder
         and with full  knowledge  that  Purchaser  will rely thereon,  Sellers,
         jointly and severally,  represent and warrant the truth and accuracy of
         the   following,   subject  only  to  the   exceptions   expressly  and
         specifically set forth in this Agreement and in the schedules  provided
         for by this Article III (collectively, the "Schedules").

         A.       Ownership of Acquired Assets.  Sellers  represent that Sellers
                  have good and marketable title and rightful  possession of the
                  Acquired  Assets and that the  Acquired  Assets shall be, upon
                  the  delivery  to  Purchaser,  free and  clear  of all  liens,
                  charges,  encumbrances,  and security  interests of whatsoever
                  nature or type.

         B.       Authorization  of  Transaction.  Sellers  have full  power and
                  authority,  including  full  corporate  power and authority to
                  execute  and  deliver  this   Agreement  and  to  perform  the
                  obligations hereunder.  Without limiting the generality of the
                  foregoing  the Board of  Directors of each of the Sellers have
                  duly  authorized  the execution,  delivery and  performance of
                  this  Agreement  by the  Sellers.  The  Sellers  have good and
                  marketable  title to all of the Acquired Assets free and clear
                  of any security interest or restriction on transfer.

         C.       Enforceability.  This  Agreement  and  each of the  agreements
                  referenced  herein to which Sellers are a party have been duly
                  executed and delivered by the duly  qualified  officers of the
                  Sellers and constitute legal, valid and binding obligations of
                  the  Sellers  and  are  enforceable  against  each  Seller  in
                  accordance with their respective terms.

         D.       Conflicts,  Consents.  Except as disclosed in Schedule 3.2(D),
                  neither the execution and delivery of this  Agreement,  or any
                  of the other agreements referenced herein to which Sellers are
                  a party, nor the consummation of the transaction  contemplated
                  hereby or thereby, will conflict with, violate, or result in a
                  material  breach or default  under (with or without the giving
                  of notice or the passage of time or both) (i) the  Articles of
                  Incorporation  or  Bylaws  and any  amendment  thereof  of the
                  Sellers, (ii) any license, instrument,  contract, or agreement
                  to which any  Seller is a party by which any  Seller is bound,
                  (iii) any law, order, rule, regulation,  writ, injunction,  or
                  decree that is applicable  to any Seller.  Except as disclosed
                  in 3.2(D),  neither the  execution nor the delivery by Sellers
                  of this  Agreement,  nor the  consummation  by  Sellers of the
                  transactions contemplated hereby or thereby will result in the
                  creation of any lien, claim, right,  charge,  encumbrance,  or
                  security  interest  of any  nature  or type  whatsoever,  with
                  respect to any of the Acquired  Assets of the Sellers.  Except
                  as disclosed in Schedule  3.2(D),  neither the  execution  and
                  delivery of this Agreement by Sellers, nor the consummation by
                  the  Sellers  of the  transaction  contemplated  hereby,  will
                  require any  consent,  permit,  license,  approval  of, or any
                  filing with, any governmental or private entity, body or other
                  person, firm or other entity.  Except as disclosed in Schedule
                  3.2(D),  the consummation of this Agreement will not result in
                  a  breach  of,  constitute   default  under,   result  in  the
                  acceleration  of, create in any party the right to accelerate,
                  terminate,  modify, or cancel or require any notice under, any
                  contract, lease, sub-lease, license,  sub-license,  franchise,
                  permit,   indenture,   agreement,   mortgage,   instrument  of
                  indebtedness, security interest, or other arrangement to which
                  any of the Sellers is a party,  or by which  Sellers are bound
                  or by which any of their assets are subject,  or result in the
                  imposition  of any security  interest upon any of the Acquired
                  Assets.  The Sellers do not need to give any notice,  make any
                  filing with, or obtain any authorization,  consent or approval
                  of any  government or  governmental  agencies in order for the
                  parties to consummate the  transactions  contemplated  by this
                  Agreement, except as set forth in the Schedules.

<PAGE>

         E.       Subsidiaries  and Affiliates.  Except for TAC Holdings,  Inc.,
                  Sellers have no subsidiaries or any other equity investment in
                  any entity.  Except for TAC  Holdings,  Inc.,  Sellers have no
                  investment  in  any  affiliate.   For  the  purposes  of  this
                  Agreement,  the term  "affiliate"  shall mean all  entities in
                  which Seller owns or controls ten percent (10%) or more of the
                  equity securities of the entity. The Sellers have delivered to
                  the Purchaser  correct and complete  copies of the charter and
                  bylaws of each Seller and subsidiaries, if any.

         F.       Organization.  All Sellers are  corporations  duly  organized,
                  validly  existing and in good  standing  under the laws of the
                  State  of  Texas.  Tandycrafts,  Inc.  is a  corporation  duly
                  organized,  validly  existing and in good  standing  under the
                  laws of the State of  Delaware.  The Minutes or the  Unanimous
                  Consents In Lieu of the Meetings of the  Shareholders  and the
                  Board of  Directors  of the  Sellers  have been  delivered  to
                  Purchaser and are true,  complete,  and correct copies of such
                  Minutes and  Unanimous  Consents  and  accurately  reflect the
                  events that took place at or in lieu of such meetings.

         G.       Assets.

                  (i)      All of the assets  disposed of by Sellers on or after
                           September  30,  2000  were  disposed  of  only in the
                           ordinary  course of business  and not in violation of
                           this Agreement.

                  (ii)     The  inventories  of  the  Sellers  reflected  in the
                           September 30, 2000 balance sheet are stated at actual
                           costs.  Since September 30, 2000,  there have been no
                           material  write  downs on the  value of the  Sellers'
                           inventory or material write offs with respect to such
                           inventories.

                  (iii)    The accounts  receivable  reflected in the  September
                           30, 2000 balance sheet and those  existing since that
                           date,  or existing on the books of the Company at the
                           closing,  are  actual  accounts  receivable,  net  of
                           reserves for collectability thereof, and none of such
                           accounts  receivable are subject to the return of the
                           merchandise  or  other  property  other  than  in the
                           ordinary course of business.

<PAGE>

                  (iv)     The furniture,  fixtures and equipment of the Sellers
                           reflected on the September 30, 2000 balance sheet and
                           such items of furniture, fixtures, equipment acquired
                           since  September  30,  2000  to the  closing,  are in
                           working  condition and repair sufficient to allow the
                           Purchaser to conduct their usual business in a manner
                           consistent with past practices.

         H.       Ability to Conduct  Business.  Except for the Excluded  Assets
                  and the assets and  services  referred  to in Section  1.6, in
                  Sellers' commercially  reasonable opinion, the Acquired Assets
                  or the assets leased or otherwise  used by Sellers  constitute
                  all assets and properties of the Sellers that are necessary to
                  permit  Purchaser  to  constitute  or conduct the  business of
                  Sellers  after the  closing  in the same  manner and volume in
                  which such business is presently being conducted.

         I.       Real Property Leases. Sellers own no real property and have no
                  obligation under any real property lease.

         J.       Contracts.  Schedule  3.2(J)  sets forth a true,  correct  and
                  complete  list of  every  material  written  agreement  of the
                  following  types (such list shall  include the date of any and
                  all such  agreements,  the names of the parties to any and all
                  such  agreements)  and a  memorandum  listing the terms of any
                  material oral agreement:

                  (i)      union,  collective bargaining,  or similar agreement,
                           together    with   all    amendments    thereto    or
                           interpretations    thereof,   such   as   arbitration
                           decisions and the like, to which Seller is a party or
                           is bound;

                  (ii)     employment agreements that are not terminable at will
                           and without penalty on thirty (30) days or less prior
                           written  notice or that provide for payments  upon or
                           after termination;

                  (iii)    agencies,  sales  agencies,  brokerage,  wholesaling,
                           franchise,   distribution  or  similar  agreement  or
                           contracts;

                  (iv)     loan agreement or letter of credit;

                  (v)      lease for personal and/or real property;

                  (vi)     security or pledge agreement;

                  (vii)    mortgage or deed of trust;

                  (viii)   purchase  commitment to or contract or agreement with
                           any supplier;

                  (ix)     contract  or  agreement   relating  to  research  and
                           development;

<PAGE>

                  (x)      license,  authority or permit  granted by the Sellers
                           to any person or entity;

                  (xi)     contract or  agreement to which the Seller is a party
                           or by  which  any  of  its  assets  are  bound  which
                           reasonably are expected to involve future obligations
                           or benefits;

                  (xii)    contracts  or  agreements  to which the Sellers are a
                           party or by which the Sellers or any of their  assets
                           are bound  which  individually  or  collectively  are
                           material to the condition (financial or otherwise) of
                           the Acquired  Assets,  business,  or prospects of the
                           Sellers; and,

                  (xiv)    dealer contracts.

                  To Sellers'  knowledge,  there is not  existing any default or
                  event or  condition  which,  with the  giving of notice of the
                  passage of time or both,  would constitute an event of default
                  by the Sellers  under any of the  contracts or  documents.  No
                  party to any of the  contracts  or  documents  has  given  any
                  written notice of default or termination,  nor do Sellers have
                  any reason to believe that such notice shall be given.

                  None of the  agreements  listed on  Schedule  3.2(J) have been
                  changed,  modified or amended, except as otherwise provided to
                  Purchaser.

         K.       Insurance. Sellers have been continuously,  and are presently,
                  insured under the fire,  liability,  and property  policies by
                  insurers  unaffiliated with Sellers.  At no time subsequent to
                  January 1, 2000 has any insurance carrier cancelled or reduced
                  any insurance  coverage for the Sellers,  nor have the Sellers
                  been given any  notice or other  indication  of any  insurance
                  carrier's intention to cancel or reduce any such coverage.

         L.       Intellectual Property.  Sellers own or, to Sellers' knowledge,
                  have  the  right  to use  pursuant  to  license,  sub-license,
                  agreement or permission, all intellectual property used in the
                  operation of the business of Sellers, as presently  conducted.
                  Except  for the  Excluded  Assets,  each item of  intellectual
                  property  owned or used by  Sellers  immediately  prior to the
                  closing  hereunder  will be owned or available  for use by the
                  Purchaser  on  identical  terms  and  conditions   immediately
                  subsequent   to  the   closing   hereunder,   subject  to  any
                  assignment,  transfer or recordation requirements. None of the
                  Sellers have interfered with, infringed upon, misappropriated,
                  or otherwise come into conflict with any intellectual property
                  rights  of third  parties,  and none of the  Sellers  or their
                  directors   or  officers   have  ever   received  any  charge,
                  complaint,   claim,   notice,   or  suit   alleging  any  such
                  interference,  infringement,  misappropriation  or  violation,
                  except as set forth in Schedule  3.2(L)  hereto.  Exhibits "A"
                  and "B" identify each current trademark,  patent and copyright
                  registration which have been issued to any of the Sellers with
                  respect to any of its or their intellectual property, and also
                  identifies   each  pending   patent   application  or  pending
                  application for copyright registration.  Schedule 3.2 (L) also
                  identifies each license  agreement or other  permission  which
                  any of the  Sellers  have  granted  to any  third  party  with
                  respect to any of its  intellectual  property.  The Seller has
                  delivered to Purchaser correct and complete copies of all such
                  patents,  registrations,   applications,  license  agreements,
                  copyrights,  permissions  as  amended  to  date,  and has made
                  available to the Purchaser  correct and complete copies of all
                  other written documents  evidencing  ownership and possession,
                  if applicable, of each such item.


<PAGE>

         With  respect to each item of  intellectual  property  that the Sellers
own, to Sellers' knowledge:

                  (a)      with regard to registered  intellectual property, the
                           identified  owner  possesses  all  right,  title  and
                           interest   in  and  to  the  item,   subject  to  the
                           limitations, rights and terms of the registration and
                           any  claims  that  may  pre-exist  the  date  of  the
                           registration;

                  (b)      the item is not subject to any outstanding  judgment,
                           order, decree, stipulation, injunction or charge;

                  (c)      no  charge,  complaint,   action,  suit,  proceeding,
                           hearing,  investigation,  claim or demand is  pending
                           or,  to  the  knowledge  of any  of  the  Sellers  is
                           threatened  which  challenge the legality,  validity,
                           enforceability, use or ownership of the item; and,

                  (d)      in the past four years,  the Sellers  have not agreed
                           to  indemnify  any  person  or  entity   against  any
                           interference, infringement, misappropriation or other
                           conflict  with  respect  to the  item,  except as set
                           forth in Sellers' standard terms, dealer agreements;

                  (e)      Section  3.2(L)  of  the  Disclosure  Statement  also
                           identifies  each item of  intellectual  property that
                           any  of  the  Sellers   uses   pursuant  to  license,
                           sub-license,  agreement,  or permission.  The Sellers
                           have supplied the Purchaser with correct and complete
                           copies of all such licenses, sub-licenses, agreements
                           and permissions.

                  With respect to each item of  intellectual  property  used but
                  not owned by Sellers, to Sellers' knowledge:

                  (a)      the license,  sub-license,  agreement  or  permission
                           covering the item is enforceable  in accordance  with
                           its terms and in full force and effect;

                  (b)      the license,  sub-license,  agreement  or  permission
                           will continue to be  enforceable  in accordance  with
                           its terms and in full force and  effect on  identical
                           terms   following   the   closing,   subject  to  the
                           limitations, requirements, and terms of such license,
                           sub-license, agreement or permission;

<PAGE>

                  (c)      no party to the  license,  sub-license,  agreement or
                           permission is in material  breach or default,  and no
                           event has occurred which with notice or lapse of time
                           would   constitute  a  material   breach  or  default
                           thereunder or permit  termination,  modification,  or
                           acceleration thereof;

                  (d)      no party to the  license,  sub-license,  agreement or
                           permission has repudiated any provision thereof;

                  (e)      Sellers  are not  obligated  to make any  royalty  or
                           other  payment  with  respect  to  any   intellectual
                           property except as disclosed in Schedule 3.2(L).

         M.       Internet  Rights.  Subject to the terms of each  registration,
                  license,  purchase or other arrangement,  Seller has the right
                  to all  Internet  domain names used by it  including,  but not
                  limited to, the domain names tandyleather.com,  camptandy.com,
                  leather-e.com,     tandyleathercrafts.com,      tlcdirect.net,
                  tandyleatherdealer.com,  and craftyourworld.com.  In addition,
                  subject to the terms of each registration,  license,  purchase
                  or other  arrangements,  Sellers  have the  rights  to all web
                  sites,  registrations,  administrative  and technical  rights,
                  domain  names,  passwords,  codes  and  shopping  cart  rights
                  currently used in the business of Sellers ("Internet Rights").

                  Each of the  Internet  Rights  owned  by or  used  by  Sellers
                  immediately  prior to the closing  hereunder  will be owned or
                  available  for use by the  Purchaser  on  identical  terms and
                  conditions  immediately  subsequent to the closing  hereunder,
                  subject to the terms of such registration,  license,  purchase
                  or  other   arrangement  and  any   assignment,   transfer  or
                  recordation  requirements.  None  of  the  Sellers  have  ever
                  received any charge  complaint,  claim, or notice alleging any
                  such interference, infringement, misappropriation or violation
                  of the Internet  Rights except as set forth in Schedule 3.2(M)
                  hereto.

                  Schedule 3.2M also  identifies each Internet Right that any of
                  the Sellers uses pursuant to license, sub-license,  agreement,
                  or  permission.  The Sellers have supplied the Purchaser  with
                  correct   and   complete   copies   of  all   such   licenses,
                  sub-licenses, agreements and permissions.

         N.       Taxes. All federal,  state, county and local taxes,  including
                  without  limitation,  income,  information,  excise,  payroll,
                  sales,  use,   unemployment,   social  security,   occupation,
                  franchise,   property,  and  other  taxes,  duties,  interest,
                  penalties and charges (collectively "Taxes") levied, assessed,
                  or imposed  upon the  Sellers  and its  business,  assets,  or
                  properties  have been duly and fully  paid by the due dates or
                  otherwise  contested in good faith. In addition,  all returns,
                  estimated and extension payments,  and reports with respect to
                  taxes required by law or regulation to be filed by the Sellers
                  on or prior to the  Closing  Date  shall  have  been  duly and
                  timely  filed.  There  are no  agreements,  waivers  or  other
                  arrangements  (oral or written)  providing  for  extensions of
                  time with respect to the  assessment  or  collection of unpaid
                  taxes,  nor  are  there  any  actions,   suits,   proceedings,
                  inquiries,  investigations,  or claims  of any  nature or kind
                  whatsoever now pending or, to the best knowledge and belief of
                  Sellers after due inquiry, threatened against the Sellers with
                  respect to any such  returns or reports,  or any such taxes or
                  any matters under discussion with any federal,  state,  county
                  or local authority relating to taxes,  except for a waiver for
                  federal income taxes for fiscal years 1994-1996.

<PAGE>

         O.       Labor Disputes: Unfair Labor Practices. Except as disclosed in
                  Schedule  3.2(O) hereto,  there is neither pending nor, to the
                  knowledge of Sellers, threatened any labor dispute, grievance,
                  strike, or work stoppage involving any of the employees of the
                  Sellers.  There is neither  pending  nor, to the  knowledge of
                  Sellers  threatened  any  charge or  complaint  involving  the
                  Sellers or any of its directors or, officers,  by the National
                  Labor  Relations  Board,  the  Occupational  Health and Safety
                  Administration,  the  Department  of  Labor,  or  any  similar
                  federal,   state,   or   local   board  or   agency,   or  any
                  representative  thereof.  There  are no unfair  employment  or
                  labor practice charges  presently  pending or to the knowledge
                  of Sellers  threatened  by or on behalf of any employee of the
                  Sellers.

         P.       Employees and Consultants.  Sellers acknowledge and agree that
                  Purchaser  shall  not  assume  any  pre-Closing   employee  or
                  employment-related  liabilities,  including but not limited to
                  employee bonuses for fiscal year 2000. Schedule 3.2(P) hereto,
                  contains a true and complete  list of all of the  employees of
                  the Seller to whom Purchaser  intends to offer employment upon
                  or after  Closing.  Except as  disclosed  in  Schedule  3.2(P)
                  hereto,  there are no oral or written  agreements with respect
                  to employees or  consultants  to which the Sellers are a party
                  or by which  Sellers  are  bound  and the  employment  of each
                  employee of each of the Sellers is termed "at will". Except as
                  disclosed in Schedule 3.2(P) hereto,  the Company does not owe
                  any past or present  employee  any sum other than for  accrued
                  wages or salaries for the current payroll period, reimbursable
                  expenses, accrued vacation and holiday pay, sick leave rights,
                  and amounts payable under employee  benefit plans,  and all of
                  such sums that accrue from the date hereof  until the closing,
                  and all of such sums  accrued as of the Closing  Date shall be
                  paid by the Sellers.  Except as disclosed in Schedule  3.2(P),
                  the Sellers have not materially violated any employment law or
                  regulation, including but not limited to Occupational Health &
                  Safety law; Equal Employment Opportunity Commission laws; Fair
                  Employment   practices,   and  sex,  race,  religion  and  age
                  discrimination laws,  medicare,  medicaid or other health care
                  activities.  In the  event  of any  employment  related  claim
                  arising from acts that occurred prior to closing,  the Sellers
                  will be responsible for the payment of any such claim pursuant
                  to this paragraph. Purchaser and Sellers agree to cooperate in
                  the  investigation  of any such claim  should  such a claim be
                  made after closing  relating to a period prior to the closing.
                  Purchaser  will not be liable under any retention or severance
                  agreements  Sellers  may  have  made  with  its  employees  in
                  anticipation of Closing.

<PAGE>

         Q.       Financial Statements.

                  (i)      Sellers have  previously  furnished to Purchaser  the
                           true,  complete and correct  copies of the  following
                           unaudited financial statements of the Sellers:

                           a)       Balance   sheets  for  September  30,  2000,
                                    October 31, 2000,  and June 30, 2000 for the
                                    periods reflected therein.

                           b)       Income  statements  for  the  September  30,
                                    2000,  October 31,  2000,  and fiscal  years
                                    ended   June  30,   2000  for  the   periods
                                    reflected therein.

                           c)       Aged   accounts    receivable   reports   at
                                    September  30, 2000  October 31,  2000,  and
                                    June 30, 2000.

                           d)       Detailed  inventory listing at September 30,
                                    2000, October 31, 2000, and June 30, 2000.

                           e)       Detailed   property  and  equipment  listing
                                    including    depreciation    schedules    at
                                    September  30, 2000,  October 31, 2000,  and
                                    June 30, 2000.

                  (ii)     Sellers will furnish to Purchaser within a reasonable
                           time  following  Closing the following as of November
                           30, 2000:

                           a)       Balance Sheet;

                           b)       Income Statement;

                           c)       Aged Account Receivable Report;

                           d)       Detailed Inventory Listing;

                           e)       Detailed  Property  and  Equipment  Listing,
                                    including depreciation.

                  (iii)    The  Financial  Statements  and reports have been and
                           will be  consistently  prepared  on an accrual  basis
                           from the  books and  records  of the  Sellers  and in
                           accordance   with   generally   accepted   accounting
                           principals.  The  Financial  Statements  and  reports
                           accurately  present  the  financial  position  of the
                           Sellers  as of the  date  thereof,  and  also  fairly
                           present the results of  operations of the Company for
                           the three month periods ended  September 30, 2000 and
                           November 30, 2000.

                  (iv)     Except as provided in Schedule  3.2(S),  Sellers,  to
                           Sellers' knowledge,  have no material  liabilities or
                           obligations,   fixed  or   contingent,   accrued   or
                           unaccrued,  that  are  not  reflected,  or  otherwise
                           disclosed  on the  Balance  Sheets  except  for those
                           liabilities and  obligations  incurred by the Sellers
                           in the ordinary course of business between  September
                           30,  2000  and  the  Closing  Date,   none  of  which
                           liabilities, individually or collectively, materially
                           violates this Agreement.

<PAGE>

         R.       Books and  Records.  The Books and Records of the Sellers with
                  respect to the assets, business,  operations,  properties, and
                  prospects  have been  maintained  in the  usual,  regular  and
                  ordinary manner and all entries with respect thereto have been
                  made and all  transactions  have been properly  accounted for.
                  All  applicable,  corporate  and other  laws  relating  to the
                  maintenance  of such books and  records  have been  materially
                  complied with by the Sellers.

         S.       Liabilities.  Except as fully  disclosed  in  Schedule  3.2(S)
                  hereto  or  in  Sellers'  books  and  records,  including  any
                  financial  statements,  the Sellers  have no  material  debts,
                  liabilities,  or  obligations  of  a  nature  required  to  be
                  reflected or disclosed in financial  statements  and the notes
                  thereto   prepared  in  accordance  with  generally   accepted
                  accounting  principals  except those that are due or to become
                  due,  relating  to or  arising  out of any  act,  transaction,
                  circumstances,  or state of facts which occurred or existed on
                  or after September 30, 2000. Since September 30, 2000, Sellers
                  have not incurred debts,  liabilities,  or obligations whether
                  accrued, absolute,  contingent or otherwise, whether due or to
                  become due,  other than debts,  liabilities,  and  obligations
                  incurred in the ordinary course of business of the Sellers.

         T.       Subsequent Events. Since September 30, 2000, except as relates
                  to Wells Fargo and Bank One, Sellers have not:

                  (i)      created or  suffered to exist any  material  liens or
                           encumbrances  with respect to any of its assets which
                           have not been discharged;

                  (ii)     other than in the ordinary  course of business,  sold
                           or transferred any of its assets or property;

                  (iii)    suffered any material  loss or material  interruption
                           in use of any of its assets or properties (whether or
                           not covered by insurance) on account of fire,  flood,
                           riot, strike, or other hazard or act of God;

                  (iv)     suffered  any  material   change  in  its   business,
                           business activity, business prospects or condition;

                  (v)      written off any  equipment as unusable or obsolete or
                           for any reason other than in the  ordinary  course of
                           business;

                  (vi)     waived  any  material  right  except  for  statute of
                           limitations and laches;

                  (vii)    increased  the  compensation  payable to any employee
                           except in the ordinary course of business;

                  (viii)   paid or incurred any  management or consulting  fees,
                           except as set forth in the financial statements or in
                           the ordinary course of business;

<PAGE>

                  (ix)     hired any employee who shall have an annual salary in
                           excess of $25,000,  other than in the ordinary course
                           of business.

                  (x)      without  limitation by the  enumeration of any of the
                           foregoing,  entered  into  any  material  transaction
                           other  than  in the  usual  and  ordinary  course  of
                           business,  other  than the entry of the  transactions
                           contemplated hereby.

         U.       No Material Change.  To Seller's  knowledge,  the Sellers have
                  not  suffered or been  threatened  with any  material  adverse
                  change in their  business  or  financial  condition,  business
                  activities, or business prospects including without limitation
                  of the generality of the foregoing, the existence or threat of
                  any labor dispute or any material adverse change in or loss of
                  any material  relationship  between the Sellers and any of its
                  key customers,  suppliers,  distributors or employees,  except
                  for Gay Kloster.

         V.       Employee  Benefit Plans.  Sellers maintain for the benefits of
                  its employees, ERISA plans known as the Tandycrafts Retirement
                  Savings Plan, and Tandycrafts  medical,  dental, and cafeteria
                  plans (the "Employee  Benefit  Plans").  All Employee  Benefit
                  Plans and any related trust  agreements  or annuity  contracts
                  have been  operated in  accordance  with ERISA,  the  Internal
                  Revenue Code of 1986 as amended (the  "Code"),  other  federal
                  statutes,  state law, and regulations,  and rules, promulgated
                  thereto. Sellers will not be transferring any of the assets of
                  said Employee  Benefit Plans as a part of this Agreement,  and
                  Sellers acknowledge,  agree,  represent,  and warrant that the
                  Purchaser  will  have  no  responsibility  whatsoever  to  the
                  Sellers or others in regard to the maintenance or operation of
                  the Employee  Benefit Plans by the Sellers  either prior to or
                  after closing.

         W.       Litigation.  Except as  disclosed in Schedule  3.2(W)  hereto,
                  there is no litigation,  proceeding,  investigation or inquiry
                  (in law or in equity)  pending and, to the best of the Sellers
                  knowledge   and   belief,   there   are  no   proceedings   or
                  investigations  or inquiries  threatened,  against the Sellers
                  with  respect  to  or  affecting  the  business  or  financial
                  condition  of  the  Sellers,   or  the   consummation  of  the
                  transactions  herein  contemplated or the use of the assets of
                  the Sellers.

         X.       Absence of Product Warranties,  Service  Warranties,  Buy Back
                  Provisions  or Return of  Merchandise  Provisions.  Except for
                  standard warranties, standard terms and conditions in purchase
                  and sales orders, and its product and satisfaction guaranties,
                  neither the Sellers, nor any officer, employee or agent of the
                  Sellers,  has made any written or oral warranties with respect
                  to the  quality  or absence  of  defects  of the  products  or
                  services  of  the  Sellers  that  the  Sellers  have  sold  or
                  performed,  and that are in  force as of the date  hereof.  To
                  Sellers'  knowledge,  there are no material  claims pending or
                  threatened  against  Sellers with respect to the quality of or
                  absence of defects in such products or services.

<PAGE>

         Y.       Environmental,  Health and Safety.  Sellers have complied with
                  all laws,  including  rules  and  regulations  thereunder,  of
                  federal,   state,  local  and  foreign  governments  (and  all
                  agencies thereof) concerning the environmental,  public health
                  and safety and  employee  health  and  safety,  and no charge,
                  complaint, action, suit, proceeding,  hearing,  investigation,
                  claim,  demand,  or notice has been filed or commenced against
                  any of them  alleging  any failure to comply with any such law
                  or regulation.

         Z.       Regulatory Filings. Sellers and Tandycrafts have complied with
                  all regulatory reporting and filing  requirements,  including,
                  but not limited to the  Securities  and Exchange  Commission's
                  requirements  for filing  Forms 8K,  10K,  and 10Q except with
                  respect to the most recently required 10K and 10Q.

3.3      Representations and Warranties of Purchaser. To induce Sellers to enter
         into this Agreement and to perform their  obligations  hereunder have a
         full knowledge that Sellers will rely thereupon,  Purchaser  represents
         and warrants the truth, accuracy and completeness of the following:

         (a)      Organization.  Purchaser is a corporation  duly  organized and
                  validly  existing and in good  standing  under the laws of the
                  State of Texas;

         (b)      Power and  Authority.  Purchaser has full power and authority,
                  including full corporate  power and authority,  to execute and
                  deliver this  Agreement  and the other  agreements  referenced
                  herein to which  Purchaser  is a party (the  "Other  Purchaser
                  Agreements"),   and  to  consummate   and  fully  perform  the
                  transactions  contemplated  hereby and thereby.  The execution
                  and  delivery by  Purchaser  of this  Agreement  and the Other
                  Purchaser Agreements referenced herein to which Purchaser is a
                  party, and the  consummation of the transactions  contemplated
                  hereby and thereby,  have been duly authorized and approved by
                  Purchaser's  board  of  directors,   and  no  other  corporate
                  proceedings on the part of Purchaser are required to authorize
                  the  execution  and  delivery  of this  Agreement,  the  Other
                  Purchaser Agreements,  or the consummation of the transactions
                  contemplated  hereby. This Agreement and any related agreement
                  constitutes  the  valid and  legally  binding  obligations  of
                  Purchaser and is enforceable in accordance with its terms.

         (c)      Enforceability.   This  Agreement  and  the  Other   Purchaser
                  Agreements  have been duly executed and delivered by Purchaser
                  and  constitute  legal,  valid  and  binding   obligations  of
                  Purchaser,  enforceable  against  Purchaser in accordance with
                  their respective terms.

         (d)      Conflicts;  Consents.  Neither the  execution  and delivery of
                  this  Agreement and the Other  Purchaser  Agreements,  nor the
                  consummation of the  transactions  contemplated  hereby,  will
                  materially  conflict  with,  violate  or result in a breach or
                  default  under  (with or  without  the giving of notice or the
                  passage time, or both):  (i) the Certificate of  Incorporation
                  or the  Bylaws of  Purchaser;  (ii) any  license,  instrument,
                  contract  or  agreement  to which  Purchaser  is a party or by
                  which  Purchaser  is  bound;  or (iii) any law,  order,  rule,
                  regulation,  writ,  injunction or decree that is applicable to
                  Purchaser.   Neither  the   execution  and  delivery  of  this
                  Agreement or the Other Purchaser Agreements by Purchaser,  nor
                  the consummation by Purchaser of the transactions contemplated
                  hereby or thereby, will require any consent or approval of, or
                  any filing with, any  governmental  or private  person,  body,
                  firm,  entity or other person  Neither the  execution  nor the
                  delivery by Purchaser of this Agreement,  nor the consummation
                  by  Purchaser  of  the  transactions  contemplated  hereby  or
                  thereby will result in the creation of any lien, claim, right,

<PAGE>

                  charge,  encumbrance,  or  security  interest of any nature or
                  type  whatsoever,  with respect to the  Purchase  Price or any
                  other  consideration  paid by Purchaser  to the  Sellers.  The
                  consummation of this Agreement will not result in a breach of,
                  constitute  default  under,  result  in the  acceleration  of,
                  create  in any  party  the  right  to  accelerate,  terminate,
                  modify,  or cancel or require any notice under,  any contract,
                  lease, sub-lease,  license,  sub-license,  franchise,  permit,
                  indenture,  agreement,  mortgage,  instrument of indebtedness,
                  security interest, or other arrangement to which the Purchaser
                  is a party,  or by which Purchaser is bound or by which any of
                  its assets are  subject,  or result in the  imposition  of any
                  security  interest  upon  any  of  the  Acquired  Assets.  The
                  Purchaser  does not need to give any  notice,  make any filing
                  with, or obtain any authorization,  consent or approval of any
                  government or  governmental  agencies in order for the parties
                  to consummate the transactions contemplated by this Agreement.

         (e)      Accuracy,  Representations  and Warranties.  The copies of all
                  documents furnished to Sellers and their representatives by or
                  on  behalf  of  Purchaser  and its  representatives  are true,
                  complete  and  correct.   No  representation  or  warranty  of
                  Purchaser  contained in this Agreement or the Other  Purchaser
                  Agreements,  and no statement  contained in the exhibits,  the
                  schedules or the other documents  delivered by or on behalf of
                  Purchaser or its representatives  pursuant to or in connection
                  with this Agreement or the Other  Purchaser  Agreements or any
                  of the  transactions  contemplated  hereby or thereby contains
                  any untrue statement of a material fact, or omits to state any
                  material fact required to be stated herein or therein in order
                  to  make  the  statements  contained  herein  or  therein  not
                  misleading.

                                   ARTICLE IV

                         CONDITIONS PRECEDENT TO CLOSING
                         -------------------------------

4.1      Conditions  Precedent to Purchaser's  Obligations to Close and Required
         Deliveries at Closing.  The  obligations of Purchaser to consummate the
         transactions  contemplated  hereby are  subject to the  fulfillment  by
         Sellers,  or  written  waiver by  Purchaser,  of each of the  following
         conditions precedent on or prior to the Closing Date.

         A.       Representations and Warranties.  Each and every representation
                  and  warranty  made by Seller shall be true and correct in all
                  material  respects  when made and shall be true and correct in
                  all material  respects as if originally  made on and as of the
                  Closing Date.

<PAGE>

         B.       Sellers' Obligations Performed.  All obligations of Sellers to
                  be performed  hereunder through and including the Closing Date
                  shall have been performed in all material respects.

         C.       No Suit,  Proceeding or  Investigation.  No suit,  proceeding,
                  inquiry  or   investigation   shall  have  been  commenced  or
                  threatened by any governmental  authority or private person on
                  any grounds to restrain, enjoin, hinder, or to seek damages on
                  account  of  the  consummation  of  the  transactions   herein
                  contemplated.

         D.       No Material  Change.  There has been no material change in the
                  financial  condition,  management  or  other  affairs  of  the
                  Sellers that would cause the Purchaser to elect not to proceed
                  with the  Closing  as per the  letter  agreement  between  the
                  parties dated October 16, 2000.

         E.       Closing  Certificate of Sellers.  Sellers shall have delivered
                  to Purchaser a closing  certificate dated the Closing Date, in
                  form and content reasonably acceptable to Purchaser ("Seller's
                  Closing Certificate"),  pursuant to which Sellers, jointly and
                  severally,  represent and warrant to Purchaser that, except as
                  otherwise expressly provided for in this Agreement:

                  (i)      between September 30, 2000 and the closing date:

                           (a)      there have been no material  adverse changes
                                    in  the  assets,   business   operations  or
                                    conditions of the Sellers;

                           (b)      the  Sellers  shall  not have  incurred  any
                                    liabilities or obligations  not reflected on
                                    the  Balance  Sheet  except in the  ordinary
                                    course of business,  and not in violation of
                                    this Agreement;

                           (c)      there shall have been no  material  property
                                    damage, destruction or otherwise (whether or
                                    not covered by insurance)  which  materially
                                    adversely  affects the business or assets of
                                    the  Sellers,  other  than  in the  ordinary
                                    course of business;

                           (d)      no material suit, action or proceeding shall
                                    have been instituted or, to the best of such
                                    Sellers'  knowledge  and  belief  after  due
                                    inquiry, threatened against the Sellers that
                                    threatens  to enjoin the  execution  of this
                                    Agreement

                  (ii)     and that:

                           (a)      such Sellers' representations and warranties
                                    to Purchaser  are true and correct as of the
                                    Closing Date as if then originally made;

                           (b)      all  covenants and  obligations  required by
                                    the  terms  hereof to be  performed  by such
                                    Sellers on or before the  Closing  Date have
                                    been   fully   performed,   or   waived   by
                                    Purchaser;

<PAGE>

                           (c)      all  documents to be executed and  delivered
                                    by such  Sellers at or prior to the  Closing
                                    have been executed by such Sellers.

         F.       Release of UCC-1  Financing  Statements.  Sellers will provide
                  Purchaser  a  properly   executed  release  of  all  financing
                  statements  filed by any lender or secured party of Sellers to
                  be effective  upon payment by Purchaser and receipt by Sellers
                  of the Purchase Price.

         G.       Receipt  of  Documents.  Purchaser  shall have  received  from
                  Sellers  executed  Bills  of Sale  transferring  all  Acquired
                  Assets to the Purchaser.

         H.       Receipt of Opinion of Counsel for the Sellers. Purchaser shall
                  have received a favorable opinion of Sellers' general counsel.
                  Said  opinion  letter  shall  be in  the  form  and  substance
                  satisfactory  to  Purchaser's  general  counsel  and  Sellers'
                  counsel, dated the Closing Date, and confirming the following:

                  (i)      The Sellers are corporations duly organized,  validly
                           existing and in good standing under their  respective
                           states of incorporation  and have the corporate power
                           to own its or  their  assets  and  properties  and to
                           carry on its or  their  business  as it is now  being
                           conducted.

                  (ii)     TLC DIRECT,  INC. and TANDY LEATHER DEALER,  INC. are
                           each incorporated and in good standing under the laws
                           of the State of Texas.

                  (iii)    TAC  HOLDINGS,  INC. and  TANDYCRAFTS,  INC. are each
                           incorporated  and in good standing  under the laws of
                           the State of Delaware.

                  (iv)     The  execution  and delivery of this  Agreement,  the
                           consummation of the transactions  contemplated hereby
                           and the  fulfillment  of the terms  hereof,  will not
                           violate any  provision  of the  Seller's  Articles of
                           Incorporation or Bylaws,  nor will they result in the
                           breach of any term or provision  of, or  constitute a
                           default  under,   or  conflict  with,  or  cause  the
                           acceleration  of  any  obligation   under,  any  loan
                           agreement, note, debenture, indenture, mortgage, deed
                           of  trust,  lease,   contract,   agreement  or  other
                           obligation of any description to which the Sellers is
                           a party  or by  which  any of them is  bound,  or any
                           judgment,  decree,  order  or  award  of  any  court,
                           governmental  body, or arbitrator,  or any applicable
                           law,  rule or  regulation,  except as  otherwise  set
                           forth in the  Agreement,  the exhibits  thereto,  the
                           Schedules or any related agreements.

                  (v)      Sellers  have full power and  authority  to  execute,
                           deliver  and  perform   this   Agreement,   and  this
                           Agreement  is the legal  and  binding  obligation  of
                           Sellers and is enforceable against them in accordance
                           with its terms.

                  (vi)     Except  for  matters  disclosed  in  this  Agreement,
                           counsel  has  no  knowledge  of any  suits,  actions,
                           claims,   arbitrations,   administrative   or   other
                           proceedings or governmental investigations pending or
                           threatened  against or  affecting  the  Sellers  that
                           threatens to enjoin the execution of this Agreement.

<PAGE>

                  (vii)    Sellers   have,   and  at  the  Closing  shall  have,
                           effectively  conveyed and  transferred  to Purchaser,
                           good and  marketable  title to the  Acquired  Assets,
                           free  and   clear   of  all   liens,   pledges,   and
                           encumbrances.

         I.       Schedules.  Purchaser shall have received from Sellers a draft
                  of the Schedules referred to in this Agreement,  not less than
                  five (5) days prior to the Closing Date,  and Purchaser  shall
                  be  reasonably  satisfied  with the  nature  and extent of the
                  disclosure made therein and the representations and warranties
                  of Sellers as modified  by the  disclosures  contained  in the
                  Schedules and any Supplemental Schedules.

         J.       Repayment of  Indebtedness.  The Sellers  shall have  obtained
                  UCC-1  releases  from  Wells  Fargo  and Bank One or any other
                  lender that will be  effective  upon  payment of the  purchase
                  price by Purchaser to Sellers.

4.2      Conditions to Obligations to Sellers to Close.  The  obligations of the
         Sellers  to  consummate  the  transactions  to  be  performed  by it in
         connection  with the  Closing are  subject to the  satisfaction  of the
         following conditions:

         A.       The  representations and warranties of the Purchaser set forth
                  in  Article  III  shall be true and  correct  in all  material
                  respects at and as of the Closing Date.

         B.       The  Purchaser  shall have  performed and complied with all of
                  its covenants  hereunder in all material  respects through the
                  Closing.

         C.       No action,  suit or proceeding  shall be pending or threatened
                  before any court or quasi-judicial or administrative agency of
                  any federal,  state, local, or foreign  jurisdiction herein an
                  unfavorable judgment, order, decree, stipulation,  injunction,
                  or  charge   would  (i)  prevent   consummation   of  any  the
                  transactions  contemplated by this Agreement or (ii) cause any
                  of the  transactions  contemplated  by  this  Agreement  to be
                  rescinded following consummation.

         D.       All actions to be taken by the  Purchaser in  connection  with
                  consummation  of the transaction  contemplated  hereby and all
                  certificates,   opinion,   instruments,  and  other  documents
                  required to effect the transaction contemplated hereby will be
                  reasonably satisfactory in form and substance to the Sellers.

         E.       Receipt of Opinion of Counsel for the Purchaser. Sellers shall
                  have  received  a  favorable  opinion of  Purchaser's  general
                  counsel.  Said  opinion  letter  shall  be  in  the  form  and
                  substance  satisfactory  to  Purchaser's  general  counsel and
                  Sellers'  counsel,  dated the Closing Date,  and confirming to
                  the following:

                  (i)      The  Purchaser  is  a  corporation   duly  organized,
                           validly existing and in good standing under its state
                           of  incorporation  and has the corporate power to own
                           its  assets  and  properties  and  to  carry  on  its
                           business as it is now being conducted.

<PAGE>

                  (ii)     LEATHER TAN ACQUISITION,  INC. is incorporated  under
                           the laws of the State of Texas.

                  (iii)    The  execution  and delivery of this  Agreement,  the
                           consummation of the transactions  contemplated hereby
                           and the  fulfillment  of the terms  hereof,  will not
                           violate any provision of the Purchaser's  Articles of
                           Incorporation or Bylaws,  nor will they result in the
                           breach of any term or provision  of, or  constitute a
                           default  under,   or  conflict  with,  or  cause  the
                           acceleration  of  any  obligation   under,  any  loan
                           agreement, note, debenture, indenture, mortgage, deed
                           of  trust,  lease,   contract,   agreement  or  other
                           obligation of any  description to which the Purchaser
                           is a party or by which any of them is  bound,  or any
                           judgment,  decree,  order  or  award  of  any  court,
                           governmental  body, or arbitrator,  or any applicable
                           law,  rule or  regulation,  except as  otherwise  set
                           forth in the  Agreement,  the exhibits  thereto,  the
                           Schedule or any related agreements.

                  (iv)     Purchaser  has full power and  authority  to execute,
                           deliver  and  perform   this   Agreement,   and  this
                           Agreement  is the legal  and  binding  obligation  of
                           Purchaser   and  is   enforceable   against  them  in
                           accordance with its terms.

                  (v)      Except  for  matters  disclosed  in  this  Agreement,
                           counsel  has  no  knowledge  of any  suits,  actions,
                           claims,   arbitrations,   administrative   or   other
                           proceedings or governmental investigations pending or
                           threatened  against or affecting the  Purchaser  that
                           threatens to enjoin the execution of this Agreement.

                                    ARTICLE V

                                     CLOSING
                                     -------

5.1      Time and Place of Closing.  The Closing  shall take place  November 30,
         2000 (which will be referred to as the "Closing Date"),  at the offices
         of Loe, Warren, Rosenfield, Kaitcer & Hibbs, PC, 4420 W. Vickery Blvd.,
         Fort Worth, Texas 76107.

5.2      Form of  Documents.  At the  Closing,  the  parties  shall  deliver the
         documents,  and shall perform the other acts that are set forth in this
         Article V. All  documents  which Sellers shall deliver shall be in form
         and content reasonably  satisfactory to Purchaser.  All documents which
         Purchaser  shall  deliver  shall  be in  form  and  content  reasonably
         satisfactory to Sellers.

5.3      Purchaser's Deliveries. Subject to the fulfillment or written waiver of
         the  conditions  precedent  set forth in Article  IV hereof,  Purchaser
         shall  execute  and/or  deliver to Sellers  at the  Closing  all of the
         following:

<PAGE>

         A.       Funds.  Sellers  will  have  received  the  Purchase  Price as
                  adjusted in accordance with Article II herein.

         B.       Corporate  Resolutions.  A certified  copy of  resolutions  of
                  Purchaser's  Board of  Directors  authorizing  the  execution,
                  delivery  and  performance  of  this   Agreement,   the  other
                  agreements referenced herein to be executed by Purchaser,  and
                  the transactions contemplated hereby.

         C.       Other Documents.  All other documents  reasonably  required to
                  consummate the transaction herein contemplated.

5.4      Sellers'  Deliveries.  Subject  to the  fulfillment  or  waiver  of the
         conditions  set forth in Article IV hereof,  Sellers  shall  deliver to
         Purchaser at the offices of Loe, Warren,  Rosenfield,  Kaitcer & Hibbs,
         PC the following:

         A.       Certificates of Existence.  Certificates of Existence for each
                  of the Sellers by the  Secretary of State of their  respective
                  states of incorporation,  such Certificates of Existence to be
                  issued at a date not earlier  than three  months  prior to the
                  Closing Date.

         B.       Closing Certificate.  Sellers' Closing Certificate executed by
                  Sellers.

         C.       Bills  of  Sale.  All  of  the  bills  of  sale,   assignment,
                  transfers,   schedules  and  exhibits   referred  to  in  this
                  Agreement.

         D.       Certificate of Good  Standing.  A Certificate of Good Standing
                  from the comptroller of Texas evidencing the filing of all tax
                  reports  and the  payment in full by the Sellers of all sales,
                  use, and franchise taxes imposed.

         E.       Other Documents. Without limitation by specific enumeration of
                  the  foregoing,  all other  documents  reasonably  required to
                  consummate  the  transaction  herein  contemplated  including,
                  without limitation,  all documents and instruments  reasonably
                  required  by  Purchaser  in order  to  assure  itself  that it
                  receives  good title to the Acquired  Assets free and clear of
                  all liens,  claims,  charges,  liabilities,  encumbrances  and
                  security interests of whatsoever kind and nature.

         F.       Opinion Letter.  Opinion letter from Sellers'  counsel in form
                  and substance acceptable to Purchaser's counsel.

         G.       Corporate  Resolutions.  A certified  copy of  resolutions  of
                  Sellers'  Board  of  Directors   authorizing   the  execution,
                  delivery  and  performance  of  this   Agreement,   the  other
                  agreements  referenced  herein to be executed by Sellers,  and
                  the transactions contemplated hereby, and changing the name of
                  Sellers in accordance with this Agreement.

<PAGE>

                                   ARTICLE VI.

                            POST CLOSING OBLIGATIONS
                            ------------------------

6.1      Obligations of Sellers and Purchaser.

         A.       For purposes of 6.1,  "Sellers" will be defined as TLC DIRECT,
                  INC. and TANDY LEATHER DEALER, INC.

         B.       Covenant Not to Compete. In consideration of the execution and
                  delivery of this Agreement by Purchaser,  and in consideration
                  of  the  Purchase  Price,  and  as  additional   consideration
                  therefor,  Sellers and Tandycrafts,  Inc. and its subsidiaries
                  unconditionally  agree that during the Restriction  Period (as
                  defined   below)  Sellers  will  not  directly  or  indirectly
                  (including,  without  limitation,  as a partner,  shareholder,
                  director,  officer or employee of, or consultant to, any other
                  person or entity),  or in any other capacity  within,  into or
                  from the Restricted Territory (as defined below) engage in the
                  leathercrafts  business unless first  authorized in writing by
                  Purchaser, which authorization may be withheld in the sole and
                  absolute  discretion  of  Purchaser.   For  purposes  of  this
                  Agreement the term  "Restricted  Period" shall mean the period
                  ending  five  (5)  years  from the  date of the  Closing.  For
                  purposes of this  Agreement  the term  "Restricted  Territory"
                  shall mean  worldwide,  including  the United  States.  In the
                  event those restricted  violate their  obligations  under this
                  Article VI, then the Restricted Period for the violators shall
                  be  extended  by the  period  of time  equal  to  that  period
                  beginning  when the  activities  constituting  such  violation
                  commenced  and ending when the  activities  constituting  such
                  violation  are  terminated.  Notwithstanding  anything  to the
                  contrary above,  nothing  contained  herein shall restrict the
                  conduct  of  normal  business  by  Tandycrafts,  Inc.  and its
                  subsidiaries   nor  shall  restrict  any  natural  avenues  of
                  expansion by such  companies  excluding  leathercraft  related
                  businesses.

         C.       Nonsolicitation.   In   consideration  of  the  execution  and
                  delivery of this Agreement by Purchaser,  and in consideration
                  of the payments by Purchaser  of the Purchase  Price,  Sellers
                  and  Tandycrafts  agree  that  for a  period  of one (1)  year
                  following the Closing,  they will not, directly or indirectly,
                  solicit or cause  others to solicit any of Sellers'  employees
                  that have been hired by  Purchaser  and are listed on Schedule
                  3.2(P).

         D.       Trade  Secrets  and  Other  Information.  After  the  Closing,
                  Sellers  will not  violate  any  trade  secrets  of  Purchaser
                  involving trade secrets related to any Acquired Assets.

         E.       Disclosure.  The parties  agree,  in the event a press release
                  has not been  previously  prepared,  that upon the Closing,  a
                  jointly  prepared press release will be issued  regarding this
                  transaction;  provided,  however,  nothing  in this  Agreement
                  shall  limit  or  restrict   each  party's  and  its  parent's
                  disclosure   of  all  material   information   regarding   the
                  transactions   described  herein  accordance  with  applicable
                  securities  law  and  the  requirements  of  applicable  stock
                  exchanges.

<PAGE>

         F.       Equitable  Relief.   Each  Seller  acknowledge  the  covenants
                  contained  in each  of  paragraphs  A, B, C, D,  and E of this
                  Section are a material inducement for Purchaser to execute and
                  deliver to this Agreement and to consummate  the  transactions
                  contemplated hereby. Accordingly,  all parties acknowledge the
                  restrictions contained in each of these paragraphs A, B, C, D,
                  and E of this  Section  (including,  without  limitation,  the
                  Restricted Period and the Restricted Territory) are reasonable
                  and  necessary  for the  protection  of the  business  and the
                  Purchaser's  investment in the business,  and that a breach of
                  any such  restriction  could not  adequately be compensated by
                  damages  in an  action  at law.  In the  event of a breach  or
                  threatened  breach  by  any  of  the  Sellers  of  any  of the
                  provisions  of any of  paragraph  A, B,  C,  D,  and E of this
                  Section,  Purchaser  shall  be  entitled  to  obtain,  without
                  necessity of posting bond therefor, an injunction (preliminary
                  or permanent,  or a temporary  restraining  order) restraining
                  the breaching  party from the activity or threatened  activity
                  constituting,  or that  would  constitute,  a  breach  of this
                  Agreement,  as well as damages and an equitable  accounting of
                  all earnings,  profits and other benefits  arising from such a
                  violation,  which right shall be cumulative and in addition to
                  any  other  rights  or  remedies  to  which  Purchaser  may be
                  entitled.

         G.       Severability.  Each and every  provision  set forth in each of
                  paragraphs A, B, C, D, and E of this Article VI is independent
                  and  severable  from the  others,  and no  provision  shall be
                  rendered  unenforceable  by virtue of the fact  that,  for any
                  reason,  any other or others of them may be  unenforceable  in
                  whole  or in  part.  The  parties  hereto  agree  that  if any
                  provision of any of these paragraphs A, B, C, D, and E of this
                  Article  VI  shall  be  declared  by  a  court  of   competent
                  jurisdiction to be  unenforceable  for any reason  whatsoever,
                  the court may  appropriately  limit or modify such  provision,
                  and such provision shall be given effect to the maximum extent
                  permitted by applicable law.

         H        Consents.  The  parties  hereto  shall use their  commercially
                  reasonable efforts and make every good faith attempt to obtain
                  any and all consents  reasonably  required by Purchaser to, or
                  in   connection   with  the   assignment   of,  or   alternate
                  arrangements  satisfactory  to Purchaser  with respect to, any
                  contract,   lease,   license,   permit,   agreement  or  other
                  instrument,  that is to used as an asset of the Purchaser,  or
                  that may be  necessary,  appropriate  or  required in order to
                  permit the conduct of the  business and  operations  after the
                  Closing to be in all  respects  the same as the conduct of the
                  business and  operations  of the  business of Tandy  Leather's
                  leathercraft  business as conducted by Tandy  Leather  Company
                  and its successors immediately prior to the Closing.

         I.       Assumption  of  Liability.  Purchaser  shall  fully and timely
                  discharge  all of the  Assumed  Liabilities.  Purchaser  shall
                  fully assume and perform the Assumed Contracts,  including the
                  Agreement,  dated on or about  February  3,  1998,  between Al
                  Stohlman,   Ann  Stohlman,   Tandy  Leather   Company   and/or
                  Tandycrafts, Inc. Purchaser shall be responsible for and shall
                  assume and fully perform all obligations and liabilities on or
                  after  Closing with respect to any employee of Sellers that is
                  hired by Purchaser,  as listed in Schedule  3.2(P).  As to any
                  such employee on Schedule  3.2(P),  Purchaser  will grant such
                  employee seniority based on their time of hire with Sellers or
                  Tandy  Leather  Company for purposes of vacation and insurance
                  benefits  under  The  Leather  Factory's   policies  and  such
                  employees  will be  eligible  to  participate  in The  Leather
                  Factory,  Inc. Employee Stock Ownership Plan and Trust. To the
                  extent that there are any  discrimination or harassment claims
                  or EEOC or Department  of Labor  claims,  the parties agree to
                  cooperate  in good faith in the  investigation  of such claims
                  and Purchaser will be responsible for any such claims relating
                  to acts or omissions arising on or after Closing.

<PAGE>

6.2      Obligations of Purchaser and Sellers;  further Assurances.  The parties
         shall execute such further documents,  and perform such further acts as
         may be  necessary  to  transfer  and  convey  the  Acquired  Assets  to
         Purchaser, on the terms herein contained,  and to otherwise comply with
         the terms of this  Agreement and  consummate  the  transactions  herein
         provided.

6.3      Change of Name.  Sellers  agree that within  thirty (30) days after the
         Date of  Closing,  they will  change the name of the  Sellers to a name
         that does not  include  the words or  phrases  "Tandy",  "Leather",  or
         "Tandy Leather".  The notice of change of said name shall be filed with
         the  Secretary  of State of the  State of Texas,  and in all  states in
         which Sellers are registered to do business,  and a copy of said change
         of name served upon the attorney for the  Purchaser.  The parties agree
         that,  except as set forth in the Assignment of Certain  Trademarks and
         Intellectual  Property of even date herewith,  Tandycrafts  retains all
         rights to its trademarks,  trade names and other intellectual  property
         rights,  including  "Tandycrafts",  "Tandyarts"  or  other  similar  or
         derivative  names,  and that such  entities do not have to change their
         names,  nor does such use infringe upon the trademarks and other rights
         being transferred to Purchaser in this Agreement.

6.4      Use of Premises.  Sellers  agree to allow  Purchaser to have the use of
         the office and warehouse area now being used by Sellers at 1400 Everman
         Parkway, Fort Worth, Texas for a period of up to thirty (30) days after
         the  Closing  pursuant  to the terms of the Lease,  attached  hereto as
         Exhibit  "J",  which  is  incorporated  herein  be  reference  for  all
         purposes.  Sellers and Purchaser shall cooperate in both the use of the
         premises and in the relocation of the Sellers'  employees who are hired
         by  Purchaser  pursuant  to the  terms  of  this  Agreement  and of the
         Acquired Assets.

6.5      Continued Access. For any computers, servers, phone lines, equipment or
         software  that is used by  Sellers  but that are not  Acquired  Assets,
         Sellers shall provide Purchaser with continued access to such items for
         a period of ninety (90) days following the Closing Date.

6.6      IP Address Transfer. Sellers shall cooperate with Purchaser to transfer
         the Internet  Domain Names from Sellers' IP addresses to Purchaser's IP
         addresses.

<PAGE>

6.7      Records.  Notwithstanding anything to the contrary above, Seller and/or
         Seller's  parent  company may keep and retain copies of such records as
         may be  necessary,  required or desirable  by law, to assist  Seller in
         making  and  filing SEC and other  public  filings  or reports  and tax
         reports  or  filings  and  to  fulfill   other  legal  or   contractual
         obligations and duties of Seller or Division,  to pursue claims against
         third  parties or Buyer or to  dispute  claims  from  third  parties or
         Buyer, to discuss,  respond and communicate  effectively  with Seller's
         accountants,  lawyers,  bankers,  auditors,  and other  advisors and as
         otherwise deemed  appropriate by Seller or its parent company,  in good
         faith,  in order to  fulfill  any legal  obligations  and duties of the
         Seller and/or its parent company.  In addition,  Seller and/or Seller's
         parent  company  may keep  and  retain  the  originals  of all  records
         pertaining  to the  Excluded  Assets.  Seller,  however,  will make the
         original records available to Purchaser to permit the audit of Sellers'
         financial  statements to allow  Purchaser to comply with its SEC filing
         requirements in a timely manner.

6.8      Period to Adjust Purchase  Price. In the event it becomes  necessary to
         adjust the Purchase Price pursuant to Article 2.2(B), the parties agree
         that the calculation and any corresponding  payment will be made within
         ninety (90) days of Closing.

                                   ARTICLE VII

                                 INDEMNIFICATION
                                 ---------------

7.1      Indemnification by Sellers.

         A.       Each Seller (hereinafter  defined as "Indemnitors"),  covenant
                  and agree to defend,  indemnify  and hold  Purchaser  harmless
                  for, from and against any and all damages, losses, liabilities
                  (absolute  and  contingent),   fines,  penalties,   costs  and
                  expenses  (including  without  limitation,  reasonable counsel
                  fees and costs and  expenses  incurred  in the  investigation,
                  defense or settlement of any claim covered by this  indemnity)
                  with  respect  to or  arising  out of any  claim,  proceeding,
                  action  and/or cause of action which  Purchaser  may suffer or
                  incur by reason of:

                  (i)      the  inaccuracy  of  any of  the  representations  or
                           warranties of Sellers contained in this Agreement, or
                           any  of  the   agreements,   exhibits  or   schedules
                           delivered in connection with this Agreement;

                  (ii)     the failure to comply with,  or the breach or default
                           by a Sellers of any of the covenants,  warranties, or
                           agreements   made  by  Sellers   contained   in  this
                           Agreement,  or any of the  agreements,  exhibits,  or
                           schedules   delivered   in   connection   with   this
                           Agreement;

                  (iii)    any liability or  obligations of Seller not reflected
                           on  the  Closing  Balance  Sheet,  in  the  financial
                           statements,  in the exhibits or  schedules  hereto or
                           otherwise disclosed to Purchaser.

                  (iv)     any  liabilities  related  to  charges,   complaints,
                           actions,      suits,      proceedings,      hearings,
                           investigations, claims, demands or litigation brought
                           by Steel Partners or any other  minority  shareholder
                           of Sellers or by any other person or entity before or
                           after Closing.

<PAGE>

7.2      Indemnification by Purchaser.

         A.       Purchaser (hereinafter defined as "Indemnitors"), covenant and
                  agree to defend, indemnify and hold Sellers harmless for, from
                  and against any and all damages, losses, liabilities (absolute
                  and  contingent),   fines,   penalties,   costs  and  expenses
                  (including  without  limitation,  reasonable  counsel fees and
                  costs and expenses incurred in the  investigation,  defense or
                  settlement  of any  claim  covered  by  this  indemnity)  with
                  respect to or arising  out of any  claim,  proceeding,  action
                  and/or  cause of action  which  Sellers may suffer or incur by
                  reason of:

                  (i)      the  inaccuracy  of  any of  the  representations  or
                           warranties of Purchaser  contained in this Agreement,
                           or any of the  agreements,  certificates,  documents,
                           exhibits or schedules  delivered in  connection  with
                           this Agreement;

                  (ii)     the failure to comply with,  or the breach or default
                           by Purchaser of any of the covenants,  warranties, or
                           agreements  made  by  Purchaser   contained  in  this
                           Agreement,  or any of the  agreements,  certificates,
                           documents,   exhibits,   or  schedules  delivered  in
                           connection with this Agreement;

                  (iii)    any  liability  or   obligations   of  Purchaser  not
                           reflected on the Closing Balance Sheet.

                  (iv)     any  liabilities  related  to  charges,   complaints,
                           actions,      suits,      proceedings,      hearings,
                           investigations, claims, demands or litigation brought
                           by any  minority  shareholder  of Purchaser or by any
                           other person or entity before or after Closing.

7.3      Notice and Right to Defend Third-Party Claims. Promptly upon receipt of
         notice of any claim,  demand or assessment or the  commencement  of any
         suit,  action or  proceeding  with  respect to which  indemnity  may be
         sought pursuant to this Agreement,  the party seeking to be indemnified
         or held  harmless  (the  "Indemnitee")  shall  notify  in  writing,  if
         possible,  within sufficient time to respond to such claim or answer or
         otherwise  plead in such  action (but in any event  within  thirty (30)
         days, the party from whom indemnification is sought (the "Indemnitor").
         In case any claim,  demand or  assessment  shall be asserted,  or suit,
         action or proceeding  commenced against the Indemnitee,  the Indemnitor
         shall be entitled, at the Indemnitor's expense, to participate therein,
         and, to the extent that it may wish, to assume the defense,  conduct or
         settlement  thereof,  at its own expense,  with counsel of Indemnitor's
         choice shall not be unreasonably withheld or delayed, provided that the
         Indemnitor  confirms to the Indemnitee  that it is a claim to which its
         rights of indemnification apply. The Indemnitor shall have the right to
         settle or compromise  monetary claims;  however, as to any other claim,
         the  Indemnitor  shall first obtain the prior written  consent from the
         Indemnitee,  which consent shall be exercised in the sole discretion of
         the  Indemnitee.  After notice from the Indemnitor to the Indemnitee of
         Indemnitor's  intent so to assume the defense,  conduct,  settlement or
         compromise of such action,  the  Indemnitor  shall not be liable to the
         Indemnitee  for  any  legal  or  other  expenses  (including,   without
         limitation,  settlement costs) subsequently  incurred by the Indemnitee
         in  connection  with the defense,  conduct or settlement of such action
         while the Indemnitor is diligently defending,  conducting,  settling or
         compromising  such action.  The  Indemnitor  shall keep the  Indemnitee
         apprised of the status of the suit, action or proceeding and shall make
         Indemnitor's  counsel available to the Indemnitee,  at the Indemnitor's
         expense,  upon the  request of the  Indemnitee.  The  Indemnitee  shall
         cooperate  with the  Indemnitor in  connection  with any such claim and
         shall make personnel,  books and records and other information relevant
         to the  claim  available  to the  Indemnitor  to the  extent  that such
         personnel,   books  and  records  and  other  information  are  in  the
         possession and/or control of the Indemnitee. If the Indemnitor declines
         to participate,  the Indemnitee shall be entitled,  at the Indemnitor's
         expense,  to defend,  conduct,  settle or  compromise  such matter with
         counsel satisfactory to the Indemnitor,  whose consent to the selection
         of counsel shall not be unreasonably withheld or delayed.

<PAGE>

                                  ARTICLE VIII

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

8.1      Schedules.   The  Schedules  referred  to  in  this  Agreement  reflect
         information supplied to Purchaser in the course of its investigation of
         the Sellers.  Except with respect to Financial Statements,  Sellers may
         supplement  to or amend any  Schedule  from time to time prior to or at
         the Closing,  by notice in accordance with the terms of this Agreement,
         including  by  delivering  one or more  supplements  or  amendments  to
         correct   any  matter   which   would   constitute   a  breach  of  any
         representation or warranty contained herein.

8.2      Assignability.  Purchaser  may assign  all or part of its rights  under
         this  Agreement to any entity that it controls,  is controlled by or is
         under  common  control  with,  and which  entity  shall  assume  all of
         Purchaser's  obligations  hereunder  with  respect  to  the  rights  so
         assigned  and  such  assignment  shall  not  release  Purchaser  of any
         obligation created herein.

8.3      Brokers and Finders.  Purchaser and Sellers each  represent and warrant
         to each other that the  respective  party has not dealt with and is not
         aware of any dealings with any person,  firm or  corporation  who is or
         may be  entitled to a broker's  commission,  finder's  fee,  investment
         banker's  fee or similar  payment  from the other  party for  arranging
         these transactions or introducing the parties to each other.

8.4      Costs and Expenses. Purchaser and Sellers shall each be responsible for
         their  own  fees  and  expenses   incurred  in   connection   with  the
         negotiation,  execution and consummation of this transaction, including
         without limitation, legal and accounting fees and expenses.

8.5      Notices. All notices required to be given hereunder shall be in writing
         and  shall be deemed  given  when  delivered  in  person,  or three (3)
         business  days  after  being  placed  in the hands of  courier  service
         prepaid,  or  faxed,  provided  that a  confirming  copy  is  delivered
         forthwith as herein provided as follows:

         Sellers                            Tandy Leather Dealers, Inc.
                                            TLC Direct, Inc.
                                            c/o Mr. Russell L. Price
                                            1400 Everman Parkway
                                            Fort Worth, Texas 76140-5089


         Purchaser                          Leather Tan Acquisition, Inc.
                                            PO Box 50429
                                            Fort Worth, Texas 76105

                  With a copy to:           William M. Warren, Attorney
                                            4420 W. Vickery Blvd.
                                            Fort Worth, Texas 76107


         Tandycrafts, Inc.                  Michael Walsh
                                            1400 Everman Parkway
                                            Fort Worth, Texas 76140-5089

<PAGE>

8.6      Entire  Agreement.  This  Agreement  constitutes  the entire  agreement
         between the parties and shall be binding  upon and inure to the benefit
         of the  parties  hereto  and their  respective  legal  representatives,
         successors  and permitted  assigns.  Each exhibit and schedule shall be
         considered incorporated into this Agreement.  This Agreement may not be
         amended,  modified,  supplemented  or otherwise  altered in any respect
         except by an agreement in writing signed by the parties  hereto.  There
         are  no  other  representations,   warranties,   promises,  agreements,
         covenants,  or other statements other than those contained herein. This
         Agreement  supersedes  all prior written or oral  agreements  among the
         parties  hereto.  Neither  party is relying  upon any  representations,
         warranties,  promises, agreements, covenants or other statements of the
         other parties other than those contained herein.

8.7      Waivers.  The failure in any one or more instances of a party to insist
         upon performance of any of the terms,  covenants of this Agreement,  to
         exercise  any right or  privilege  conferred  in this  Agreement or the
         waiver by said party of any breach of any of the  terms,  covenants  or
         conditions  of this  Agreement,  shall not be construed as a subsequent
         waiver of any such terms, covenants,  conditions, rights or privileges,
         but the same shall  continue  and remain in full force and effect as if
         no such  forbearance  or  waiver  had  occurred.  No  waiver  shall  be
         effective  unless  it  is  in  writing  and  signed  by  an  authorized
         representative  of the waiving party.  A breach of any  representation,
         warranty  or  covenant  shall not be  affected  by the fact that a more
         general or more specific  representation,  warranty or covenant was not
         also breached.

8.8      Counterparts.  This Agreement may be executed in multiple counterparts,
         each  of  which  shall  be  deemed  to be an  original,  and  all  such
         counterparts shall constitute but one instrument.

8.9      Severability.  The  invalidity  of any  provision of this  Agreement or
         portion  of a  provision  shall not affect  the  validity  of any other
         provision of this Agreement or the remaining  portion of the applicable
         provision.

8.10     Applicable  Law,  Jurisdiction  and  Venue.  This  Agreement  shall  be
         governed and  controlled as to validity,  enforcement,  interpretation,
         construction,  effect and in all other respects by the internal laws of
         the State of Texas  applicable to contracts  made in that state without
         regard  to  the  conflicts  of  laws  and  principles  of  such  state.
         Jurisdiction  and venue for any dispute  associated with this Agreement
         will be in the  appropriate  Federal or State  District  Court  located
         within Tarrant County, Texas where this Agreement is entered.

8.11     Construction.  The parties hereto acknowledge and agree that each party
         has  participated  in the  drafting  of this  Agreement  and that  this
         document  has been  reviewed by the  respective  legal  counsel for the
         parties hereto and that normal rule of  construction to the effect that
         any ambiguities are to be resolved against the drafting party shall not
         be applied to the  interpretation  of this  Agreement.  No inference in
         favor of, or  against,  any party shall be drawn from the fact that one
         party has drafted any portion hereof.

<PAGE>

8.12     Release.  In  exchange  for the  consideration  set forth  herein,  The
         Leather  Factory,   Inc.,  Leather  Tan  Acquisition,   Inc  and  their
         subsidiaries,  affiliates,  parent corporations,  divisions,  officers,
         directors,  employees,  agents,  stockholders,   affiliates,  partners,
         customers,    distributors,    suppliers,     predecessors-in-interest,
         successors,  assigns,  and  attorneys  (individually  and  collectively
         referred  to  as  "Claimant")  hereby  fully,  completely  and  forever
         release,  settle,  compromise,  acquit,  and discharge  Sellers,  Tandy
         Leather Company, Tandycrafts, Inc. and their subsidiaries,  affiliates,
         parent corporations, divisions, officers, directors, employees, agents,
         stockholders, affiliates, partners, customers, distributors, suppliers,
         predecessors-in-interest,    successors,    assigns,    and   attorneys
         (individually and collectively referred to as "Company"),  from any and
         all liability,  damages,  claims,  actions,  lawsuits,  demands,  fees,
         costs,  or other expenses which have or may have been asserted  against
         Company  from any cause  whatsoever,  whether  known or  unknown,  from
         whatever source derived (past, present, or future),  whether in tort or
         contract or  otherwise,  including  but not  limited to any  copyright,
         trademark,  patent, trade secret, or other intellectual property rights
         infringement,  any contract (express or implied) claims,  any emotional
         distress claims,  including  infliction of emotional distress,  whether
         intentional or negligent,  any  defamation,  libel,  slander or similar
         claims,  any false light claims,  any unfair  competition  claims,  any
         tortious interference claims, any antitrust claims, any claims for lost
         profits  or other  remuneration,  any and all acts or failure to act in
         contravention  of any  federal,  state or local  laws,  ordinances,  or
         regulations,  including but not limited to state or federal  securities
         laws, any claims of fraud, any breach of fiduciary  duties claims,  any
         breach of any  special  trust or  relationships  claims,  and any other
         claims, charges, or demands of any sort which accrued or occurred on or
         before the date of  execution of this  Agreement,  asserted in or which
         might have been asserted in, connected with,  arising out of, or in any
         way related to the facts,  circumstances  and/or  transactions  between
         Company and The Leather Factory, Inc. and Leather Tan Acquisition, Inc.
         ("Claims"),  except for any claims  relating  solely to this Agreement,
         the Letter  Agreement  between  Sellers and The Leather  Factory,  Inc.
         dated October 16, 2000 and any  confidentiality  agreement  between the
         parties,  Tandycrafts,  Inc. or The  Leather  Factory,  Inc..  Claimant
         further  covenants  not to bring or assert or cause any third  party to
         bring or assert any claim,  causes of action or liabilities  whatsoever
         arising from, relating to or pertaining to the Claims. It is the intent
         of  Claimant  that  this be a full and  final  release  of  matters  of
         controversy between Claimant and Company.

<PAGE>

8.13     Release.   In  exchange  for  the   consideration   set  forth  herein,
         Tandycrafts,   Inc.   and   its   subsidiaries,    affiliates,   parent
         corporations,   divisions,  officers,  directors,   employees,  agents,
         stockholders, affiliates, partners, customers, distributors, suppliers,
         predecessors-in-interest,    successors,    assigns,    and   attorneys
         (individually and collectively referred to as "Claimant") hereby fully,
         completely  and  forever  release,  settle,  compromise,   acquit,  and
         discharge  Purchaser,  The  Leather  Factory,  Inc.,  and  Leather  Tan
         Acquisition, and their subsidiaries,  affiliates,  parent corporations,
         divisions,   officers,  directors,   employees,  agents,  stockholders,
         affiliates,    partners,    customers,     distributors,     suppliers,
         predecessors-in-interest,    successors,    assigns,    and   attorneys
         (individually and collectively referred to as "Company"),  from any and
         all liability,  damages,  claims,  actions,  lawsuits,  demands,  fees,
         costs,  or other expenses which have or may have been asserted  against
         Company  from any cause  whatsoever,  whether  known or  unknown,  from
         whatever source derived (past, present, or future),  whether in tort or
         contract or  otherwise,  including  but not  limited to any  copyright,
         trademark,  patent, trade secret, or other intellectual property rights
         infringement,  any contract (express or implied) claims,  any emotional
         distress claims,  including  infliction of emotional distress,  whether
         intentional or negligent,  any  defamation,  libel,  slander or similar
         claims,  any false light claims,  any unfair  competition  claims,  any
         tortious interference claims, any antitrust claims, any claims for lost
         profits  or other  remuneration,  any and all acts or failure to act in
         contravention  of any  federal,  state or local  laws,  ordinances,  or
         regulations,  including but not limited to state or federal  securities
         laws, any claims of fraud, any breach of fiduciary  duties claims,  any
         breach of any  special  trust or  relationships  claims,  and any other
         claims, charges, or demands of any sort which accrued or occurred on or
         before the date of  execution of this  Agreement,  asserted in or which
         might have been asserted in, connected with,  arising out of, or in any
         way related to the facts,  circumstances  and/or  transactions  between
         Company  and  Tandycrafts,  Inc.  ("Claims"),  except  for  any  claims
         relating  solely  to this  Agreement  or the  Letter  Agreement  or any
         Confidentiality  Agreement  between  and  among  Sellers,  The  Leather
         Factory,  Inc.,  and/or  Tandycrafts,  Inc.  dated  October  16,  2000.
         Claimant  further  covenants  not to bring or assert or cause any third
         party to bring or assert  any  claim,  causes of action or  liabilities
         whatsoever arising from, relating to or pertaining to the Claims. It is
         the intent of Claimant that this be a full and final release of matters
         of controversy between Claimant and Company.

<PAGE>

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

         SELLERS:              TLC DIRECT, INC.


                               By:               /s/  Ron Perry
                                   ---------------------------------------------

                               Print Name:       Ron Perry
                                           -------------------------------------


                               TANDY LEATHER DEALER, INC.


                               By:               /s/  Jim Vollwock
                                   ---------------------------------------------

                               Print Name:       Jim Villwock
                                           -------------------------------------


                               TANDYCRAFTS, INC.

                               (as to Sections 1.7, 6.1(B and C), and 8.13 only)



                               By:               /s/  Michael J. Walsh
                                   ---------------------------------------------

                               Print Name:       Michael J. Walsh
                                           -------------------------------------


PURCHASER:                     LEATHER TAN ACQUISITION, INC.


                               By:               /s/Wray Thompson
                                   ---------------------------------------------

                               Print Name:       Wray Thompson, President
                                           -------------------------------------



                               THE LEATHER FACTORY, INC.

                                (as to Section 8.12 only)



                               By:               /s/Wray Thompson
                                   ---------------------------------------------

                               Print Name:       Wray Thompson, President
                                           -------------------------------------

<PAGE>

                      Description of Exhibits and Schedules


Exhibit or Schedule                            Description
- -------------------                            -----------

    Exhibit A              List of patents and  trademarks,  registered,  common
                           law, unregistered and expired.

    Exhibit B              List   of   copyrights,   registered,   common   law,
                           unregistered and expired.

    Exhibit C              List of leases, sublease and rights thereunder.

    Exhibit D              Contracts,   indentures,    agreements,    mortgages,
                           instruments  of  indebtedness,   security   interest,
                           guarantees,  royalty  agreements,  dealer  contracts,
                           other similar agreements and rights thereunder.

    Exhibit E              Accounts,  notes,  other  receivables,  including any
                           uncollected claims.

    Exhibit G              List of leather  craft art.

    Exhibit H              Assignment  of certain  trademarks  and  intellectual
                           property from TAC Holdings, Inc. to TLC Direct, Inc.

   Schedule 1.3            Certain assumed obligations and liabilities.

    Exhibit I              Allocation of purchase price.

  Schedule 3.2(D)          Conflicts  with  Seller's  Article of  Incorporation,
                           bylaws,   licenses,    instruments,    contracts   or
                           agreements.

                           Conflicts  with any  law,  order,  rule,  regulation,
                           writ, injunction or decree.

                           Liens,   claims,   rights,   charges,   encumbrances,
                           security  interests  with  respect  to  the  Acquired
                           Assets that result from the transaction.

                           Any consents, permits, licenses,  approvals,  filings
                           needed to accomplish the transaction.

                           Any contract, lease, sub-lease, license, sub-license,
                           franchise,  permit, indenture,  agreement,  mortgage,
                           instrument of  indebtedness,  security  interest,  or
                           other arrangement that would be breached,  defaulted,
                           accelerated, create a right to accelerate, terminate,
                           modify,  cancel or require  any notice in  connection
                           with this transaction.

  Schedule 3.2(J)          List of certain material agreements of the Sellers.

<PAGE>

  Schedule 3.2(L)          List  of  charges,  claims,   complaints  and  suits,
                           alleging     any     interference,      infringement,
                           misappropriation  or  violation by the Sellers of any
                           Intellectual Property.

                           List   of   any    interference,    infringement   or
                           misappropriation,  alleged  or  actual,  by any third
                           party of any of the Sellers' Intellectual Property.

                           Licenses  of  Intellectual  Property  created  by the
                           Sellers as licensor.

                           Licenses  of  Intellectual  Property  granted  to the
                           Sellers as licensee.

                           Any  royalty  or  other  payment  obligations  of the
                           Sellers with respect to Intellectual Property.

  Schedule 3.2(M)          Any charge,  complaint,  claim or notice alleging any
                           interference,   infringement,   misappropriation   or
                           violation of each of the Sellers' Internet Rights.

                           Any  Internet  Right used by the Sellers  pursuant to
                           license, sub-license, agreement or permission.

  Schedule 3.2(O)          List of any  pending or  threatened  labor  disputes,
                           grievances,   strikes,   work  stoppages,   involving
                           Sellers   employees  and  any  threatened  charge  or
                           complaint of the National Labor Relations  Board, the
                           Occupational  Safety and Health  Administration,  the
                           Department of Labor or any other board or agency.

  Schedule 3.2(P)          List  of  all   employees  of  Sellers  to  whom  the
                           Purchaser  intends to offer  employment upon or after
                           Closing.

                           All employment and arrangements,  written or oral, by
                           Sellers with their employees and consultants.

                           Amounts  owed  to past or  present  employees  of the
                           Sellers other than accrued wages and salaries for the
                           current   payroll  period,   reimbursable   expenses,
                           accrued  vacation and holiday pay, sick leave rights,
                           amounts payable under employee benefit plans.

                           Any  violations  by  Sellers  of  employment  law  or
                           regulation  including  OSHA,  EEOC,  Fair  Employment
                           Practices,  sex, race, religion,  age discrimination,
                           Medicare or Medicaid laws and regulations.

  Schedule 3.2(S)          Debts,   liabilities,   or   obligations,   fixed  or
                           contingent, of Sellers incurred on or after September
                           30,  2000  that  should  be  disclosed  in  financial
                           statements  in  accordance  with  generally  accepted
                           accounting principles.

  Schedule 3.2(W)          Sellers' pending and threatened litigation.

    Exhibit J              Lease  agreement for office and warehouse  located at
                           1400 Everman Parkway, Fort Worth, Texas.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>FIRST AMENDMENT TO CREDIT & SECURITY AGREEMENT
<TEXT>


                                                                    Exhibit 99.1


                FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT



         This Amendment, dated as of November 30, 2000, is made by and among The
Leather Factory,  Inc., a Delaware  corporation  ("TLF  Delaware"),  The Leather
Factory,  Inc., a Texas corporation ("TLF Texas"), The Leather Factory, Inc., an
Arizona corporation,  Roberts,  Cushman & Company,  Inc., a New York corporation
("RCC"), Hi-Line Leather & Manufacturing Company, a California corporation (each
an " Original Borrower" and collectively the "Original Borrowers"),  and Leather
Tan  Acquisition,  Inc., a Texas  corporation  (the "New  Borrower" and with the
Original  Borrowers,  the "Borrowers") and Wells Fargo Business Credit,  Inc., a
Minnesota corporation (the "Lender").

                                    Recitals

         The Original  Borrowers and the Lender,  have entered into a Credit and
Security  Agreement  dated as of  November  22,  1999 (as  amended,  restated or
supplemented from time to time, the "Credit Agreement").  Capitalized terms used
in these Recitals shall have the meanings given to them in the Credit  Agreement
and as set forth below.

         The Original  Borrowers have requested that the Lender amend the Credit
Agreement  to include the New  Borrower  as a party,  and the New  Borrower  has
agreed to become a party to the Credit Agreement and to be jointly and severally
liable for all  Obligations  of the Original  Borrowers  to the Lender  incurred
thereunder.  The Borrowers have also requested that certain other  amendments be
made to the Credit Agreement. The Lender is willing to grant these requests upon
the terms and conditions set forth herein.

                  ACCORDINGLY, the parties hereto hereby agree as follows:

         1. Defined Terms.  Capitalized  terms used in this Amendment  which are
defined in the  Recitals  above or in the Credit  Agreement  shall have the same
meanings as defined therein, unless otherwise defined herein.

                  "`Acquisition  Documents'  means that certain  Asset  Purchase
         Agreement  by and among the New  Borrower and the Sellers and all other
         documents executed and delivered in connection therewith."

                  "`Eligible  Borrower' means Leather Tan Acquisition,  Inc., or
         TLF  Texas,  or  RCC  and  "Eligible   Borrowers"   means  Leather  Tan
         Acquisition, Inc., TLF Texas, and RCC."

<PAGE>

                  "Eligible Inventory Advance Rate" and "Eligible Inventory Cap"
         mean during each period set forth below the  percentage  and the dollar
         amount, respectively, set forth next to such period:

- ----------------------------- -------------------- -----------------------------
         Period                Eligible Inventory       Eligible Inventory Cap
                                 Advance Rate

- ----------------------------- -------------------- -----------------------------
First  Amendment   Effective
Date - 12/31/2000                      60%                   $5,500,000

- ----------------------------- -------------------- -----------------------------
1/1/2001 - 1/31/2001                   60%                   $5,500,000

- ----------------------------- -------------------- -----------------------------
2/1/2001 - 2/28/2001                   59%                   $5,500,000

- ----------------------------- -------------------- -----------------------------
3/1/2001 - 3/31/2001                   58%                   $5,500,000

- ----------------------------- -------------------- -----------------------------
4/1/2001 - 4/30/2001                   57%                   $5,500,000

- ----------------------------- -------------------- -----------------------------
5/1/2001 - 5/31/2001                   56%                   $5,500,000

- ----------------------------- -------------------- -----------------------------
6/1/2001 - 6/30/2001                   55%                   $5,500,000

- ----------------------------- -------------------- -----------------------------
7/1/2001 - 7/31/2001                   54%                   $5,500,000

- ----------------------------- -------------------- -----------------------------
8/1/2001 - 8/31/2001                   53%                   $5,500,000

- ----------------------------- -------------------- -----------------------------
9/1/2001 - 9/30/2001                   52%                   $5,500,000

- ----------------------------- -------------------- -----------------------------
10/1/2001 - 10/31/2001                 51%                   $5,500,000

- ----------------------------- -------------------- -----------------------------
11/1/2001 - 11/30/2001                 50%                   $5,500,000

- ----------------------------- -------------------- -----------------------------
12/1/2001 and thereafter               50%                   $5,000,000

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


                  "`First  Amendment"  means that  certain  First  Amendment  to
         Credit and Security Agreement, dated as of November 30, 2000."

                  "`First  Amendment  Effective Date' means the date that all of
         the  conditions  in  paragraph  11 of the  First  Amendment  have  been
         satisfied."

                  "`New Borrower' means Leather Tan  Acquisition,  Inc., a Texas
         corporation."

                  "`Sellers' means TLC DIRECT,  INC., a Texas  corporation,  and
         TANDY LEATHER DEALER, INC., a Texas corporation."

<PAGE>

         2. Financial Covenants. Sections 6.12 through 6.14 and Section 7.11 are
amended to read as follows:

         "Section 6.12 - Reserved.

         "Section  6.13  Minimum  Book  Net  Worth.  The  Parent  Borrower  will
maintain,  as of each date  listed  below or as of the end of each month  during
each period  described  below, its Book Net Worth at an amount not less than the
amount set forth opposite such date or period:

              Date/Period                          Minimum Book Net Worth
              -----------                          ----------------------
       November 30, 2000 through              $1,000,000 greater than Book Net
           December 30, 2000                        Worth on December 31, 1999
           December 31, 2000                  $1,250,000 greater than Book Net
                                                     Worth on December 31, 1999
 January 1, 2001 through March 30, 2001      $50,000 less than Book Net Worth on
                                                      December 31, 2000

  March 31, 2001 through June 29, 2001      $150,000 greater than Book Net Worth
                                                     on December 31, 2000
June 30, 2001 through September 29, 2001    $250,000 greater than Book Net Worth
                                                     on December 31, 2000
       September 30, 2001 through           $400,000 greater than Book Net Worth
            December 30, 2001                        on December 31, 2000
            December 31, 2001               $600,000 greater than Book Net Worth
                                                     on December 31, 2000
 January 1, 2002 through March 30, 2002      $50,000 less than Book Net Worth
                                                     on December 31, 2001

              March 31, 2002                $150,000 greater than Book Net Worth
                                                     on December 31, 2001

         "Section 6.14 Minimum Net Income.  The Parent  Borrower will achieve as
of each date set forth  below or as of the end of each month  during each period
described below, Net Income, of not less than the amount set forth opposite such
date or period (numbers in parentheses are negative):

              Date/Period                            Minimum Net Income
              -----------                            ------------------
September 30, 2000 through December 30, 2000             $1,000,000
            December 31, 2000                            $1,250,000
   January 1, 2001 through March 30, 2001                  ($50,000)
    March 31, 2001 through June 29, 2001                   $150,000
  June 30, 2001 through September 29, 2001                 $250,000
September 30, 2001 through December 30, 2001               $400,000
            December 31, 2001                              $600,000
   January 1, 2002 through March 30, 2002                  ($50,000)
              March 31, 2002                               $150,000

<PAGE>

                  "Section 7.11 Capital  Expenditures.  The  Borrowers  will not
         incur or contract to incur Capital  Expenditures  of more than $500,000
         in the  aggregate  during the fiscal year ending  December 31, 2001, or
         any fiscal year thereafter."

         3.  Acquisition  Documents.  The Borrowers have furnished to the Lender
true, complete and correct copies of all Acquisition Documents.  The Acquisition
Documents have not  subsequently  been amended,  supplemented  or modified.  The
Acquisition  Documents  constitute the complete  understanding among the parties
thereto  in  respect  of the  matters  and  transactions  covered  thereby.  The
Acquisition  Documents  have been duly  executed  and  delivered  by the parties
thereto and are in full force and effect.  All  representations  and  warranties
made by the Borrowers in the Acquisition  Documents,  and, to the best knowledge
of the Borrowers after due inquiry,  all  representations and warranties made by
the other  parties to the  Acquisition  Documents,  are true and  correct in all
material respects.

         4. Consent to Acquisition and Waiver of Compliance.  The Borrowers have
requested  that the Lender  consent to the  Borrowers  using  $2,850,000  of the
proceeds  of the  Advances  to  acquire  certain  assets  under the  Acquisition
Documents.  The Lender hereby grants such consent. This consent and waiver shall
be  effective  only in this  specific  instance  and it shall  not  entitle  the
Borrowers  to any other or  further  consent  or waiver in any  similar or other
circumstances.

         5.  Assumption of Loan Documents.  The New Borrower hereby  irrevocably
assumes  and  promises to pay and  perform  all of the  covenants,  obligations,
liabilities  and  duties  of the  Original  Borrowers  arising  under  the  Loan
Documents from and after the First  Amendment  Effective Date and agrees that as
of the  First  Amendment  Effective  Date the New  Borrower  shall be a  primary
obligor, under each such document.

         6. Collateral.  The Borrowers  hereby  expressly  acknowledge and agree
that the Collateral has been at all times and shall continue to be encumbered by
and subject to the Security  Interest.  The New  Borrower  agrees that as of the
First  Amendment  Effective  Date it shall be a debtor  and  borrower  under the
Credit Agreement for all purposes,  including (without  limitation) for purposes
of granting to the Lender a first perfected  security interest in all Collateral
whether owned as of the First  Amendment  Effective Date or acquired  thereafter
and the New  Borrower  hereby  grants to the  Lender  as of the First  Amendment
Effective  Date a security  interest in all of its right,  title and interest in
the  Collateral.  All  financing  statements  currently  outstanding  naming the
Original Borrowers as debtors shall continue in full force and effect to perfect
the Lender's  Security  Interest in the  Collateral  and the New Borrower  shall
execute and deliver to the Lender such new  financing  statements  as the Lender
may require to perfect the Lender's Security Interest in all Collateral.

<PAGE>

         7.  Acknowledgment of Outstanding  Principal Balance and Enforceability
of Loan  Documents.  The Borrowers  hereby  acknowledge and agree (i) that as of
November 30, 2000, the outstanding  principal  balance of the Revolving Note was
$3,350,380.26,  with interest paid through  October 31, 2000,  and (ii) that all
Loan  Documents are and shall remain in full force and effect,  are  enforceable
against  the  Borrowers  in  accordance  with their  terms and are subject to no
defenses,  off-sets or counterclaims on behalf of either the New Borrower or the
Original Borrowers.

         8.  Changing  Borrower  Names.  Effective  as of  the  First  Amendment
Effective  Date, the Loan Documents are hereby amended by adding the name of the
New Borrower wherever the names of the Original Borrowers are set forth so as to
add the New  Borrower as a party to each Loan  Document as if it were a party as
of the date such Loan Document was executed.

         9. New  Compliance  Certificate.  Exhibit C to the Credit  Agreement is
hereby amended in its entirety and replaced with Exhibit A to this Amendment.

         10. No Other Changes.  Except as explicitly  amended by this Amendment,
all of the terms and  conditions  of the Credit  Agreement  shall remain in full
force and effect and shall apply to any advance or letter of credit thereunder.

         11.  Conditions  Precedent.  This  Amendment  shall be  effective  upon
receipt  by the  Lender  of an  executed  original  hereof,  together  with  the
following,  each in form and  substance  acceptable  to the  Lender  in its sole
discretion:

         (a) A certificate of the secretary or assistant secretary of the Parent
         Borrower  certifying (i) that attached to such certificate are true and
         correct copies of the executed Acquisition  Documents and (ii) that all
         conditions  precedent  to the  obligations  of  each  party  under  the
         Acquisition Documents have been satisfied or waived.

         (b)  A  certificate  of  the  New  Borrower's  secretary  or  assistant
         secretary   certifying  (i)  that  attached  to  such  certificate  are
         resolutions of the New Borrower's board of directors,  and if required,
         shareholders,  authorizing  the execution,  delivery and performance of
         this  Amendment,  (ii) that attached to such  certificate  are true and
         correct  copies of the New  Borrower's  articles of  incorporation  and
         bylaws,  and (iii) that attached to or incorporated in such certificate
         are the facsimile  signatures of the New Borrower's  officers or agents
         authorized  to  execute  and  deliver  this  Amendment  and  all  other
         instruments, agreements and certificates, on the New Borrower's behalf.

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

         (d) Such UCC-1 financing  statements  naming the New Borrower as debtor
         and the Lender as secured  party as the  Lender may deem  necessary  or
         useful to perfect the Security Interest.

<PAGE>

         (e) Current searches of appropriate  filing offices showing that (i) no
         state or federal tax liens have been filed and remain in effect against
         the New  Borrower  or the  Sellers,  (ii) no  financing  statements  or
         assignments  of patents,  trademarks or copyrights  have been filed and
         remain in effect  against the New Borrower or the Sellers  except those
         financing   statements  and  assignments  of  patents,   trademarks  or
         copyrights  relating to Permitted  Liens,  to assets of the Sellers not
         purchased  by the New  Borrower,  or to liens held by Persons  who have
         agreed in writing that upon receipt of proceeds of the  Advances,  they
         will  deliver UCC  releases  and/or  terminations  and releases of such
         assignments of patents,  trademarks or copyrights  satisfactory  to the
         Lender,  and (iii) the Lender has duly filed all  financing  statements
         necessary to perfect the Security Interest,  to the extent the Security
         Interest is capable of being perfected by filing.

         (f) Updated  certificates  of the insurance  required  under the Credit
         Agreement, with all hazard insurance containing a lender's loss payable
         endorsement  in the  Lender's  favor and with all  liability  insurance
         naming the Lender as an additional insured.

         (g) A true and correct  copy of any and all leases  entered  into after
         the date of the Credit  Agreement  pursuant  to which any  Borrower  is
         leasing any Premises, together with a landlord's disclaimer and consent
         with respect to each such lease.

         (h) An opinion of counsel to the Borrowers, addressed to the Lender.

         (i) The First  Amendment to Copyright  Security  Agreement of even date
         herewith.

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


         12. Representations and Warranties.  The Borrowers hereby represent and
warrant to the Lender as follows:

         (a) The  Borrowers  have all  requisite  power and authority to execute
         this  Amendment and to perform all of their  obligations  hereunder and
         under the Loan  Documents and this Amendment has been duly executed and
         delivered on behalf of the Borrowers and constitutes  the legal,  valid
         and binding  agreement of the  Borrowers,  enforceable  against them in
         accordance with its terms.

         (b) The  execution,  delivery and  performance by the Borrowers of this
         Amendment has been duly authorized by all necessary action and does not
         (i) require any authorization,  consent or approval by any governmental
         department,  commission,  board,  bureau,  agency  or  instrumentality,
         domestic or foreign  (ii)  violate any  provision  of any law,  rule or
         regulation or of any order,  writ,  injunction  or decree  presently in
         effect,  having  applicability to the Borrowers,  or the organizational
         agreements applicable to the Borrowers,  or (iii) result in a breach of
         or constitute a default under any indenture or credit  agreement or any
         other  agreement,  lease or instrument to which any Borrower is a party
         or by which any properties of any Borrower may be bound or affected.

         (c) All of the representations and warranties contained in Article V of
         the Credit Agreement are correct on and as of the date hereof as though
         made  on  and  as  of  such  date,  except  to  the  extent  that  such
         representations and warranties relate solely to an earlier date.

<PAGE>

         13.  References.  All  references  in the  Credit  Agreement  to  "this
Agreement"  shall be deemed to refer to the Credit  Agreement as amended hereby;
and any and all references in the Loan Documents  hereto to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.

         14. No Other  Waiver.  Except as set forth in  Paragraph 4 hereof,  the
execution of this First Amendment and acceptance of any documents related hereto
shall not be deemed to be a waiver of any Default or Event of Default  under the
Credit  Agreement  or breach,  default or event of  default  under any  Security
Document  or other  document  held by the  Lender,  whether  or not known to the
Lender and whether or not existing on the date of this Amendment.

         15.  Release.  The  Borrowers  hereby  absolutely  and  unconditionally
release and forever discharge the Lender,  and any and all participants,  parent
corporations,   subsidiary,  affiliated  corporations,   insurers,  indemnitors,
successors and assigns,  together with all of the present and former  directors,
officers, agents and employees of any of the foregoing, from any and all claims,
demands or causes of action of any kind, nature or description,  whether arising
in law or equity or upon  contract  or tort or under any state or federal law or
otherwise,  which any  Borrower  has had,  or now has, or has made claim to have
against any such person for or by reason of any act, omission,  matter, cause or
thing whatsoever arising from the beginning of time to and including the date of
this Amendment,  whether such claims demands and causes of action are matured or
unmatured or known or unknown.

         16. Costs and Expenses.  The Borrowers  hereby reaffirm their agreement
under the  Credit  Agreement  to pay or  reimburse  the Lender on demand for all
costs and expenses  incurred by the Lender in connection with the Loan Documents
and all other documents  contemplated thereby,  including without limitation all
reasonable  fees  and  disbursements  of legal  counsel.  Without  limiting  the
generality of the foregoing,  the Borrowers  specifically  agree to pay all fees
and  disbursements  of counsel to the Lender for the services  performed by such
counsel in connection  with the  preparation of this Amendment and the documents
and instruments  incidental  hereto.  The Borrowers hereby agree that the Lender
may, at any time or from time to time in its sole discretion and without further
authorization  by the Borrowers,  make a loan to the Borrowers  under the Credit
Agreement, or apply the proceeds of any loan, for the purpose of paying any such
fees, disbursements, costs and expenses.

         17.  Counterparts.  This  Amendment  may be  executed  in any number of
counterparts,  each of which when so executed and  delivered  shall be deemed an
original and all of which counterparts,  taken together, shall constitute one in
the same instrument.


<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.

WELLS FARGO BUSINESS CREDIT, INC.   THE  LEATHER   FACTORY,   INC.,  a  Delaware
                                    corporation,  THE LEATHER FACTORY,  INC., an
                                    Arizona  corporation,  THE LEATHER  FACTORY,
                                    INC., a Texas corporation,  ROBERTS, CUSHMAN
                                    &   COMPANY,   INC.,   HI-LINE   LEATHER   &
                                    MANUFACTURING   COMPANY,   and  LEATHER  TAN
                                    ACQUISITION, INC.









By   /s/Thomas J. Krueger                       By    /s/Wray Thompson
  ----------------------------                     ----------------------------
     Thomas J. Krueger                                Wray Thompson
     Its Vice President                               Its President



<PAGE>

                                                Exhibit A to First Amendment
                                                to Credit and Security Agreement


                             Compliance Certificate
                             ----------------------

To:               Thomas J. Krueger
                  Wells Fargo Business Credit, Inc.

Date:             __________________, 200__

Subject:          The Leather Factory, Inc.
                  Financial Statements

                  In accordance with our Credit and Security  Agreement dated as
of November 22,  1999,  and a First  Amendment to Credit and Security  Agreement
dated as of  November  __,  2000  (the  "Credit  Agreement"),  attached  are the
financial statements of The Leather Factory,  Inc., a Delaware corporation,  The
Leather  Factory,  Inc., a Texas  corporation,  The Leather  Factory,  Inc.,  an
Arizona corporation,  Roberts,  Cushman & Company, Inc., a New York corporation,
Hi-Line Leather & Manufacturing Company, a California  corporation,  and Leather
Tan Acquisition,  Inc., a Texas corporation  (collectively,  the "Borrowers" and
each  "Borrower") as of and for  ________________,  __________  (the  "Reporting
Date") and the year-to-date  period then ended (the "Current  Financials").  All
terms used in this certificate have the meanings given in the Credit Agreement.

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

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

         |_|      The undersigned does not have knowledge of the occurrence of a
                  Default or Event of Default under the Credit Agreement.

         |_|      The  undersigned  has knowledge of the occurrence of a Default
                  or Event of Default  under the Credit  Agreement  and attached
                  hereto is a  statement  of the facts with  respect to thereto.
                  The Borrowers  acknowledge that pursuant to Section 2.9(d) the
                  Lender  may  impose the  Default  Rate at any time  during the
                  resulting Default Period.

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

<PAGE>

         1.  Minimum  Book Net Worth.  Pursuant  to  Section  6.13 of the Credit
         Agreement,  as of the  Reporting  Date the Parent  Borrower's  Book Net
         Worth was  $____________  which |_|  satisfies |_| does not satisfy the
         requirement  that such  amount be not less than  $_____________  on the
         Reporting Date as set forth in table below:

      -----------------------------    ----------------------------------
               Date/Period                   Minimum Book Net Worth
               -----------                   ----------------------
      -----------------------------    ----------------------------------
        November 30, 2000 through       $1,000,000 greater than Book Net
          December 30, 2000             Worth on December 31, 1999
      -----------------------------    ----------------------------------
            December 31, 2000           $1,250,000  greater than Book Net
                                        Worth on December 31, 1999
      -----------------------------    ----------------------------------
        January 1, 2001  through        $50,000 less than Book Net
              March 30, 2001            Worth on December 31, 2000
      -----------------------------    ----------------------------------
         March 31, 2001 through         $150,000 greater than Book Net
               June 29, 2001            Worth on December 31, 2000
      -----------------------------    ----------------------------------
          June 30, 2001 through         $250,000 greater than Book Net
            September 29, 2001          Worth on December 31, 2000
      -----------------------------    ----------------------------------
       September 30, 2001 through       $400,000 greater than Book Net
            December 30, 2001           Worth on December 31, 2000
      -----------------------------    ----------------------------------
            December 31, 2001           $600,000 greater than Book Net
                                        Worth on December 31, 2000
      -----------------------------    ----------------------------------
         January 1, 2002 through        $50,000 less than Book Net
             March 30, 2002             Worth on December 31, 2001
      -----------------------------    ----------------------------------
            March 31, 2002              $150,000  greater than Book Net
                                        Worth onDecember 31, 2001
      -----------------------------    ----------------------------------

         2.  Minimum  Net  Income.  Pursuant  to  Section  6.14  of  the  Credit
         Agreement, the Parent Borrower's Earnings Before Taxes for the ________
         period  ending on the  Reporting  Date,  was  $____________,  which |_|
         satisfies |_| does not satisfy the requirement  that such amount be not
         less  than  $_____________  during  such  period  as set forth in table
         below:

- --------------------------------------------- --------------------------------
                Date/Period                          Minimum Net Income
                -----------                          ------------------
- --------------------------------------------- --------------------------------
September 30, 2000 through December 30, 2000             $1,000,000
- --------------------------------------------- --------------------------------
            December 31, 2000                            $1,250,000
- --------------------------------------------- --------------------------------
   January 1, 2001 through March 30, 2001                  ($50,000)
- --------------------------------------------- --------------------------------
    March 31, 2001 through June 29, 2001                   $150,000
- --------------------------------------------- --------------------------------
  June 30, 2001 through September 29, 2001                 $250,000
- --------------------------------------------- --------------------------------
September 30, 2001 through December 30, 2001               $400,000
- --------------------------------------------- --------------------------------
            December 31, 2001                              $600,000
- --------------------------------------------- --------------------------------
   January 1, 2002 through March 30, 2002                  ($50,000)
- --------------------------------------------- --------------------------------
              March 31, 2002                               $150,000
- --------------------------------------------- --------------------------------
         3.  Capital  Expenditures.  Pursuant  to  Section  7.11  of the  Credit
         Agreement,  for the  year-to-date  period ending on the Reporting Date,
         the  Borrowers  have  expended  or  contracted  to  expend  during  the
         _____________   year  ended   ______________,   200___,   for   Capital
         Expenditures,   $__________________   in  the  aggregate  and  at  most
         $______________  in any one  transaction,  which ? satisfies ? does not
         satisfy the requirement that such  expenditures not exceed  $__________
         in the aggregate and $___________  for any one transaction  during such
         year.

<PAGE>

         4. Salaries. As of the Reporting Date, the Borrowers ? are ? are not in
         compliance  with  Section  7.18  of  the  Credit  Agreement  concerning
         salaries.

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

                                    THE  LEATHER   FACTORY,   INC.,  a  Delaware
                                    Corporation,  THE LEATHER  FACTORY,  INC., a
                                    Texas  corporation,   THE  LEATHER  FACTORY,
                                    INC.,  an  Arizona   corporation,   ROBERTS,
                                    CUSHMAN & COMPANY,  INC.,  HI-LINE LEATHER &
                                    MANUFACTURING   COMPANY,   and  LEATHER  TAN
                                    ACQUISITION, INC.

                                    By ____________________________
                                    Its Chief Financial Officer/ Chief Executive
                                    Officer/Chief Operating Officer





</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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