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 1, 2004
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)
ITEM 8.01. OTHER EVENTS
On November 1, 2004, The Leather Factory, Inc. and its subsidiaries
(collectively referred to here as the "Company") entered into a Credit Agreement
(the "Credit Agreement") with BankOne, N. A. (the "Lender"), pursuant to which
the Lender agreed to provide a credit facility of up to $3,000,000 in debt (the
"Debt Facility"). The Debt Facility has a three-year term and is secured by the
Company's accounts receivable and inventory.
Proceeds of the closing of the Debt Facility in the amount of $980,898 were used
to pay all amounts due and owing by the Company pursuant to the Credit Agreement
by and between the Company and Wells Fargo Bank, N. A. ("WFB"). The Company's
revolving line of credit with WFB in the principal amount of $975,000 was
satisfied in its entirety. Moreover, at closing, the Company paid $5,898 to WFB
for accrued interest and fees. The principal terms and conditions of the Debt
Facility are described below.
The Company is required to pay an annual fee equal to 0.20% annually of the
average undrawn balance of this line of credit. In an effort to reduce these
fees, the Company elected to reduce the maximum amount of this line of credit to
$3.0 million, instead of $5.0 million provided in the prior credit agreement.
The Company believes that its liquidity resources will be adequate and this
additional amount of credit is not needed.
Amounts drawn under the Credit Agreement accrue interest at the base (or
"prime") rate of interest less 0.5% announced from time to time by the lender,
although the Company may elect to have advances accrue interest at the London
interbank eurodollar market rate for U.S. dollars (commonly know as "LIBOR")
plus 1.35%.
The Credit Agreement contains covenants by the Company that its Debt Service
Coverage Ratio will not be less than 1.5 to 1.0 for the twelve month period
ending as of each fiscal quarter end. Capital expenditures are limited to
$1,000,000 annually. Other covenants by the Company are also contained in the
Credit Agreement.
A copy of the Credit Agreement is attached as an exhibit to this report. See
Item 9.01.
This Item 8 contains forward-looking statements including statements about
the Registrant's need for additional sources of liquidity. Unforeseen events,
such as unanticipated requirements for liquid assets could cause these
forward-looking statements to be incorrect. See the Registrant's Form 10-K for
2003 for additional information about forward-looking statements.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
The Registrant files the following exhibits as a material contract:
10.1 Credit Agreement, dated as of October 6, 2004, made by and among The
Leather Factory, Inc.,a Delaware corporation and Bank One, National
Association.
10.2 Line of Credit Note, dated October 6, 2004, in the principal amount
of up to $3,000,000 given by The Leather Factory, Inc., a Delaware
corporation as borrower, payable to the order of Bank One, National
Association.
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.
BY: /s/ Wray Thompson
Wray Thompson, Chairman of the Board and
Chief Executive Officer
Date: November 5, 2004
Exhibit 10.1
CREDIT AGREEMENT
This agreement dated as of October 6, 2004 between Bank One, NA, with its main
office in Chicago, IL, and its successors and assigns, (the "Bank"), whose
address is 420 Throckmorton, Suite 400, Fort Worth, TX 76102, and The Leather
Factory, Inc. (a Delaware Corporation) (the "Borrower"), whose address is 3847
East Loop 820 South, Fort Worth, TX 76119-4388.
1. CREDIT FACILITIES.
1.1 SCOPE. This agreement governs Facility A, and, unless otherwise agreed
to in writing by the Bank and the Borrower or prohibited by applicable law,
governs the Credit Facilities.
1.2 FACILITY A (LINE OF CREDIT). The Bank has approved a credit facility to
the Borrower in the principal sum not to exceed $3,000,000.00 in the aggregate
at any one time outstanding ("Facility A"). Credit under Facility A shall be
repayable as set forth in a Line of Credit Note executed concurrently with this
agreement, and any renewals, modifications or extensions thereof. The proceeds
of Facility A shall be used for the following purposes: working capital,
acquisitions, and general corporate purposes.
NON USAGE FEE. The Borrower shall pay to the Bank a non-usage fee on the average
daily unused portion of Facility A at a rate per annum equal to the Applicable
Rate, payable in arrears within thirty (30) days after the end of each fiscal
quarter for which the fee is owing. The Applicable Rate shall be .2% with
respect to any fiscal quarter during which the Leverage Ratio is less than .50
to 1.00, .25% with respect to any fiscal quarter during which Borrower's
Leverage Ratio is .50 to 1.00 or more but less than 1.00 to 1.00, and .3% with
respect to any fiscal quarter during which Borrower's Leverage Ratio is greater
than, or equal to, 1.00 to 1.00. As used in this provision, Leverage Ratio
means, with respect to Borrower on a consolidated basis, the ratio of (i) the
total of all interest bearing debt and capital leases as of the end of a fiscal
quarter, to (ii) net income, plus amortization, depreciation, interest expense
and income taxes, for the twelve month period ending with such ended fiscal
quarter.
LETTER OF CREDIT SUB-LIMIT. At any time the Borrower is entitled to an advance
under Facility A, the Bank agrees to issue letters of credit for the account of
the Borrower in an amount not in excess of the maximum advance that the Borrower
would then be entitled to obtain under Facility A, provided that (a) the
aggregate maximum amount which is drawn and remains unreimbursed under all
letters of credit plus the aggregate maximum available amount which may be drawn
under all letters of credit which are outstanding at any time, including without
limitation all letters of credit issued for the account of the Borrower which
are outstanding on the date of the Line of Credit Note, shall not exceed
$1,000,000.00, (b) the issuance of any letter of credit with an expiration date
beyond the maturity date of the Line of Credit Note shall be entirely at the
discretion of the Bank, (c) any letter of credit shall be a standby or
commercial letter of credit and the form of the requested letter of credit shall
be satisfactory to the Bank, in the Bank's sole discretion, and (d) the Borrower
shall have executed an application and reimbursement agreement for any letter of
credit in the Bank's standard form. While any letter of credit is outstanding,
the maximum amount of advances that may be outstanding under the Line of Credit
Note shall be automatically reduced by the maximum amount available to be drawn
under any and all such letters of credit plus the aggregate of the amounts which
have been drawn and remain unreimbursed under all letters of credit. The
Borrower shall pay the Bank a fee for each standby letter of credit that is
issued, such fee to be agreed upon for each letter of credit from time to time
by the Bank and the Borrower, provided, however, that if such agreement is not
reached, the Bank shall be under no obligation to issue any letter of credit
hereunder. The Borrower shall pay the Bank a fee for each commercial letter of
credit that is issued, such fee to be agreed upon for each letter of credit from
time to time by the Bank and the Borrower, provided, however, that if such
agreement is not reached, the Bank shall be under no obligation to issue any
letter of credit hereunder, and shall pay the Bank a negotiation fee equal to
2.00% of the amount of each draft drawn under each commercial letter of credit.
No credit shall be given for fees paid due to early termination of any letter of
credit. The Borrower shall also pay the Bank's standard transaction fees with
respect to any transactions occurring on an account of any letter of credit.
Each fee shall be payable when the related letter of credit is issued, and
transaction fees shall be payable upon completion of the transaction as to which
they are charged. All fees may be debited by the Bank to any deposit account of
the Borrower carried with the Bank without further authority and, in any event,
shall be paid by the Borrower within ten (10) days following billing.
2. DEFINITIONS. As used in this agreement, the following terms have the
following respective meanings:
2.1 "Credit Facilities" means all extensions of credit from the Bank to the
Borrower, whether now existing or hereafter arising, including but not limited
to those described in Section 1.
2.2 "Liabilities" means all obligations, indebtedness and liabilities of the
Borrower to any one or more of the Bank, JPMorgan Chase & Co., and any of their
subsidiaries, affiliates or successors, now existing or later arising,
including, without limitation, all loans, advances, interest, costs, overdraft
indebtedness, credit card indebtedness, lease obligations, or obligations
relating to any Rate Management Transaction, all monetary obligations incurred
or accrued during the pendency of any bankruptcy, insolvency, receivership or
other similar proceedings, regardless of whether allowed or allowable in such
proceeding, and all renewals, extensions, modifications, consolidations or
substitutions of any of the foregoing, whether the Borrower may be liable
jointly with others or individually liable as a debtor, maker, co-maker, drawer,
endorser, guarantor, surety or otherwise, and whether voluntarily or
involuntarily incurred, due or not due, absolute or contingent, direct or
indirect, liquidated or unliquidated. The term "Rate Management Transaction" in
this agreement means any transaction (including an agreement with respect
thereto) now existing or hereafter entered into among the Borrower, the Bank or
JPMorgan Chase & Co., or any of its subsidiaries or affiliates or their
successors, which is a rate swap, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity index swap, equity or equity
index option, bond option, interest rate option, foreign exchange transaction,
cap transaction, floor transaction, collar transaction, forward transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
these transactions) or any combination thereof, whether linked to one or more
interest rates, foreign currencies, commodity prices, equity prices or other
financial measures.
2.3 "Notes" means all promissory notes, instruments and/or contracts
evidencing the terms and conditions of any of the Credit Facilities.
2.4 "Account" means a trade account, account receivable, other receivable,
or other right to payment for goods sold or leased or services rendered owing to
the Borrower (or to a third party grantor acceptable to the Bank).
2.5 "Account Debtor" means the person or entity obligated upon an Account.
2.6 "Affiliate" means any person, corporation or other entity directly or
indirectly controlling, controlled by or under common control with the Borrower
and any director or officer of the Borrower or any subsidiary of the Borrower.
2.7 "Distributions" means all dividends and other distributions made by the
Borrower to its shareholders, partners, owners or members, as the case may be,
other than salary, bonuses, and other compensation for services expended in the
current accounting period.
2.8 "Leverage Ratio" means the ratio of (a) total funded indebtedness, on a
consolidated basis, to (b) earnings before interest, taxes, distributions and
amortization based on a consolidated basis.
2.9 "Related Documents" means all loan agreements, credit agreements,
reimbursement agreements, security agreements, mortgages, deeds of trust, pledge
agreements, assignments, guaranties, or any other instrument or document
executed in connection with this agreement or in connection with any of the
Liabilities.
3. AFFIRMATIVE COVENANTS. The Borrower shall:
3.1 INSURANCE. Maintain insurance with financially sound and reputable
insurers covering its properties and business against those casualties and
contingencies and in the types and amounts as are in accordance with sound
business and industry practices, and furnish to the Bank, upon request of the
Bank, reports on each existing insurance policy showing such information as the
Bank may reasonably request.
3.2 EXISTENCE. Maintain its existence and business operations as presently
in effect in accordance with all applicable laws and regulations, pay its debts
and obligations when due under normal terms, and pay on or before their due
date, all taxes, assessments, fees and other governmental monetary obligations,
except as they may be contested in good faith if they have been properly
reflected on its books and, at the Bank's request, adequate funds or security
has been pledged to insure payment.
3.3 FINANCIAL RECORDS. Maintain proper books and records of account, in
accordance with generally accepted accounting principles, and consistent with
financial statements previously submitted to the Bank.
3.4 INSPECTION. Permit the Bank, to inspect and copy the Borrower's business
records at such times and at such intervals as the Bank my reasonably require,
and to discuss the Borrower's business, operations, and financial condition with
the Borrower's officers and accountants.
3.5 FINANCIAL REPORTS. Furnish to the Bank whatever information, books and
records the Bank may from time to time reasonably request, including at a
minimum:
A. Via either the EDGAR System or its Home Page, within one hundred twenty
(120) days after the filing of its Annual Report on Form 10-K for the fiscal
year then ended with the Securities and Exchange Commission, but no event later
than one hundred twenty (120) days after the end of such fiscal year, the
financial statements for such fiscal year as contained in such Annual Report on
Form 10-K and, as soon as it shall become available, the annual report to
shareholders of the Borrower for the fiscal year then ended.
B. Via either the EDGAR System or its Home Page, within forty-five (45) days
after the filing of its Quarterly Report on Form 10-Q for the fiscal quarter
then ended with the Securities and Exchange Commission, but no event later than
forty five (45) days after the end of such fiscal quarter, copies of the
financial statements for such fiscal quarter as contained in such Quarterly
Report on Form 10-Q, and, as soon as it shall become available, a quarterly
report to shareholders of the Borrower for the fiscal quarter than ended.
C. Via either the EDGAR System or its Home Page, promptly after the same
become publicly available, copies of all periodic and other reports, proxy
statements and other materials filed by the Borrower or any subsidiary with the
Securities and Exchange Commission or any governmental authority succeeding to
any or all of the functions of said Commission.
If for any reason the EDGAR System and/or its Home Page are not available to the
Borrower as is required for making available the financial statements or reports
referred to above, the Borrower shall then furnish a copy of such financial
statements or reports to the Bank.
For the purposes of this section, "EDGAR System" means the Electronic Data
Gathering Analysis and Retrieval System owned and operated by the United States
Securities and Exchange Commission or any replacement system, and "Home Page"
means the Borrower's corporate home page on the World Wide Web accessible
through the Internet via the universal resource locator (URL) identified as "
http://www.leatherfactory.com/ " or such other universal resource locator that
the Borrower shall designate in writing to the Bank as its corporate home page
on the World Wide Web.
3.6 NOTICES OF CLAIMS, LITIGATION, DEFAULTS, ETC. Promptly inform the Bank
in writing of (1) all existing and all threatened litigation, claims,
investigations, administrative proceedings and similar actions affecting the
Borrower which could materially affect the financial condition of the Borrower;
(2) the occurrence of any event which gives rise to the Bank's option to
terminate the Credit Facilities; (3) the institution of steps by the Borrower to
withdraw from, or the institution of any steps to terminate, any employee
benefit plan as to which the Borrower may have liability; (4) any additions to
or changes in the locations of the Borrower's businesses; and (5) any alleged
breach of any provision of this agreement or of any other agreement related to
the Credit Facilities by the Bank.
3.7 OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between the Borrower and any
other party.
3.8 TITLE TO ASSETS AND PROPERTY. Maintain good and marketable title to all
of the Borrower's assets and properties, and defend such assets and properties
against all claims and demands of all persons at any time claiming any interest
in them.
3.9 ADDITIONAL ASSURANCES. Make, execute and deliver to the Bank such other
agreements as the Bank may reasonably request to evidence the Credit Facilities
and to perfect any security interests.
3.10 EMPLOYEE BENEFIT PLANS. Maintain each employee benefit plan as to which
the Borrower may have any liability, in compliance with all applicable
requirements of law and regulations.
3.11 BANKING RELATIONSHIP. Beginning not later than (180) days after the
date of this agreement, maintain its primary banking depository and disbursement
relationship with the Bank and establish such accounts and maintain balances
therein with the Bank sufficient to cover the cost of all the Bank's services
provided; provided, however, that nothing herein shall require the Borrower to
keep and maintain a specific minimum balance in such accounts.
3.12 COMPLIANCE CERTIFICATES. Provide the Bank, within forty-five (45) days
after the end of each calendar quarter and within one hundred twenty days (120)
after the end of each calendar year, with a certificate executed by the
Borrower's chief financial officer, or other officer or a person acceptable to
the Bank, certifying that, as of the date of the certificate, no default exists
under any provision of this agreement.
4. NEGATIVE COVENANTS.
4.1 Unless otherwise noted, the financial requirements set forth in this
section will be computed in accordance with generally accepted accounting
principles applied on a basis consistent with financial statements previously
submitted by the Borrower to the Bank.
4.2 Without the written consent of the Bank, the Borrower will not:
A. INDEBTEDNESS. Incur, contract for, assume, or permit to remain
outstanding, indebtedness for borrowed money, installment obligations, or
obligations under capital leases or operating leases which exceed $200,000.00 in
the aggregate unpaid principal amount, other than (1) unsecured trade debt
incurred in the ordinary course of business, (2) indebtedness owing to the Bank,
(3) indebtedness reflected in the latest financial statement of the Borrower
furnished to the Bank prior to execution of this agreement and that is not to be
paid with proceeds of borrowings under the Credit Facilities, and (4)
indebtedness outstanding as of the date hereof that has been disclosed to the
Bank in writing and that is not to be paid with proceeds of borrowings under the
Credit Facilities, (5) the capital lease in the amount of $402,200.88 between De
Lage Landen Financial Services, Inc. and The Leather Factory, Inc.
B. GUARANTIES. Guarantee or otherwise become or remain secondarily liable on
the undertaking of another, except for endorsement of drafts for deposit and
collection in the ordinary course of business.
C. LIENS. Create or permit to exist any lien on any of its property, real or
personal, except: existing liens known to the Bank; liens to the Bank; liens
incurred in the ordinary course of business securing current non-delinquent
liabilities for taxes, worker's compensation, unemployment insurance, social
security and pension liabilities.
D. USE OF PROCEEDS. Use, or permit any proceeds of the Credit Facilities to
be used, directly or indirectly, for: (1) any personal, family or household
purpose; or (2) the purpose of "purchasing or carrying any margin stock" within
the meaning of Federal Reserve Board Regulation U. At the Bank's request, the
Borrower will furnish a completed Federal Reserve Board Form U-1.
E. CONTINUITY OF OPERATIONS. (1) Engage in any business activities
substantially different from those in which the Borrower is presently engaged;
(2) cease operations, liquidate, merge, transfer, or consolidate with any other
entity, change its name, dissolve, or sell any assets out of the ordinary course
of business; (3) enter into any arrangement with any person providing for the
leasing by the Borrower or any subsidiary of real or personal property which has
been sold or transferred by the Borrower or subsidiary to such person; or (4)
change its business organization, the jurisdiction under which its business
organization is formed or organized, or its chief executive office, or any
places of its businesses.
F. LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into any agreement with any
person other than the Bank which prohibits or limits the ability of the Borrower
or any of its subsidiaries to create or permit to exist any lien on any of its
property, assets or revenues, whether now owned or hereafter acquired.
G. CONFLICTING AGREEMENTS. Enter into any agreement containing any provision
which would be violated or breached by the performance of the Borrower's
obligations under this agreement.
H. ACQUISITIONS. Purchase or acquire any securities of, or a substantial
portion of the assets of, any person, firm or corporation, other than (i)
securities or assets with respect to which the total consideration does not
exceed $750,000.00 per transaction, (ii) securities or assets with respect to
which the total consideration does not exceed $1,200,000.00 in any fiscal year,
and (iii) securities of, or assets of, any person, firm or corporation which is
primarily engaged in a line of business which is similar to that of Borrower.
I. CAPITAL EXPENDITURES. Acquire, whether by purchase or capital lease,
fixed assets if the aggregate purchase price of such assets to the Borrower, and
all subsidiaries if any, shall exceed $1,000,000.00 in the aggregate in any one
fiscal year.
J. DEBT SERVICE COVERAGE RATIO. Permit, as of each fiscal quarter end, with
respect to Borrower on a consolidated basis, the ratio of (i) net income, plus
interest expense, plus depreciation and amortization expenses, minus cash
dividends paid, minus the aggregate cost of purchases of treasury stock, for the
twelve month period then ending, to (ii) current maturities of long term debt
and capital leases, plus interest expense, for the same such period, to be less
than 1.50 to 1.00.
K. GOVERNMENT REGULATION. (1) Be or become subject at any time to any law,
regulation, or list of any government agency (including, without limitation, the
U.S. Office of Foreign Asset Control list) that prohibits or limits Bank from
making any advance or extension of credit to Borrower or from otherwise
conducting business with Borrower, or (2) fail to provide documentary and other
evidence of Borrower's identity as may be requested by Bank at any time to
enable Bank to verify Borrower's identity or to comply with any applicable law
or regulation, including, without limitation, Section 326 of the USA Patriot Act
of 2001, 31 U.S.C. Section 5318.
5. REPRESENTATIONS.
5.1 REPRESENTATIONS BY THE BORROWER. The Borrower represents and warrants to
the Bank that: (a) its principal residence or chief executive office is at the
address shown above, (b) its name as it appears in this agreement is its exact
name as it appears in its organizational documents, as amended, including any
trust documents, (c) the execution and delivery of this agreement and the Notes,
and the performance of the obligations they impose, do not violate any law,
conflict with any agreement by which it is bound, or require the consent or
approval of any governmental authority or other third party, (d) this agreement
and the Notes are valid and binding agreements, enforceable according to their
terms, (e) all balance sheets, profit and loss statements, and other financial
statements and other information furnished to the Bank in connection with the
Liabilities are accurate and fairly reflect the financial condition of the
organizations and persons to which they apply on their effective dates,
including contingent liabilities of every type, which financial condition has
not changed materially and adversely since those dates, (f) no litigation,
claim, investigation, administrative proceeding or similar action (including
those for unpaid taxes) against the Borrower is pending or threatened, and no
other event has occurred which may in any one case or in the aggregate
materially adversely affect the Borrower's financial condition and properties,
other than litigation, claims, or other events, if any, that have been disclosed
to and acknowledged by the Bank in writing, (g) all of the Borrower's tax
returns and reports that are or were required to be filed, have been filed, and
all taxes, assessments and other governmental charges have been paid in full,
except those presently being contested by the Borrower in good faith and for
which adequate reserves have been provided, (h) the Borrower is not an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended, (i) the
Borrower is not a "holding company", or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended, (j) there are no defenses or counterclaims, offsets or
adverse claims, demands or actions of any kind, personal or otherwise, that the
Borrower could assert with respect to this agreement or the Credit Facilities,
(k) the Borrower owns, or is licensed to use, all trademarks, trade names,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted, and (l) the execution and delivery of this
agreement and the Notes and the performance of the obligations they impose, if
the Borrower is other than a natural person (i) are within its powers, (ii) have
been duly authorized by all necessary action of its governing body, and (iii) do
not contravene the terms of its articles of incorporation or organization, its
by-laws, or any partnership, operating or other agreement governing its affairs.
5.2 CONTINUING REPRESENTATIONS. Each request for an advance or conversion or
continuation of an advance under any of the Credit Facilities shall constitute a
representation and warranty by the Borrower that all of the representations and
warranties set forth in this agreement shall be true and correct on and as of
such date with the same effect as though such representations and warranties had
been made on such date, except to the extent that such representations and
warranties are stated to expressly relate solely to an earlier date.
6. DEFAULT/REMEDIES.
6.1 EVENTS OF DEFAULT/ACCELERATION. If any of the following events occurs
the Notes shall become due immediately, without notice, at the Bank's option,
and the Borrower hereby waives notice of intent to accelerate maturity of the
Notes and notice of acceleration of the Notes upon any of the following events:
A. The Borrower, or any guarantor of the Notes (the "Guarantor"), fails to
pay when due any amount payable under the Notes, under any of the Liabilities,
or under any agreement or instrument evidencing debt to any creditor.
B. The Borrower or any Guarantor (1) fails to observe or perform any other
term of the Notes; (2) makes any materially incorrect or misleading
representation, warranty, or certificate to the Bank; (3) makes any materially
incorrect or misleading representation in any financial statement or other
information delivered to the Bank; or (4) defaults under the terms of any
agreement or instrument relating to any debt for borrowed money (other than the
debt evidenced by the Notes) and the effect of such default will allow the
creditor to declare the debt due before its maturity.
C. In the event (1) there is a default under the terms of any Related
Document, (2) any guaranty of the loan evidenced by the Notes is terminated or
becomes unenforceable in whole or in part, (3) any Guarantor fails to promptly
perform under its guaranty, or (4) the Borrower fails to comply with, or pay, or
perform under any agreement, now or hereafter in effect, between the Borrower
and JPMorgan Chase & Co., or any of its subsidiaries or affiliates or their
successors.
D. There is any loss, theft, damage, or destruction of any collateral
securing the Credit Facilities not covered by insurance.
E. A "reportable event" (as defined in the Employee Retirement Income
Security Act of 1974 as amended) occurs that would permit the Pension Benefit
Guaranty Corporation to terminate any employee benefit plan of the Borrower or
any affiliate of the Borrower.
F. The Borrower or any Guarantor becomes insolvent or unable to pay its
debts as they become due.
G. The Borrower or any Guarantor (1) makes an assignment for the benefit of
creditors; (2) consents to the appointment of a custodian, receiver, or trustee
for itself or for a substantial part of its assets; or (3) commences any
proceeding under any bankruptcy, reorganization, liquidation, insolvency or
similar laws of any jurisdiction.
H. A custodian, receiver, or trustee is appointed for the Borrower or any
Guarantor or for a substantial part of its assets without its consent.
I. Proceedings are commenced against the Borrower or any Guarantor under any
bankruptcy, reorganization, liquidation, or similar laws of any jurisdiction,
and they remain undismissed for thirty (30) days after commencement; or the
Borrower or the Guarantor consents to the commencement of those proceedings.
J. Any judgment is entered against the Borrower or any Guarantor, or any
attachment, levy, or garnishment is issued against any property of the Borrower
or any Guarantor.
K. The Borrower or any Guarantor dies, or a guardian or conservator is
appointed for the Borrower or any Guarantor or all or any portion of the
Borrower's assets, any Guarantor's assets, or the Collateral.
L. The Borrower or any Guarantor, without the Bank's written consent (1) is
dissolved, (2) merges or consolidates with any third party, (3) leases, sells or
otherwise conveys a material part of its assets or business outside the ordinary
course of its business, (4) leases, purchases, or otherwise acquires a material
part of the assets of any other business entity, except in the ordinary course
of its business, or (5) agrees to do any of the foregoing (notwithstanding the
foregoing, any subsidiary may merge or consolidate with any other subsidiary, or
with the Borrower, so long as the Borrower is the survivor).
M. There is a substantial change in the existing or prospective financial
condition of the Borrower or any Guarantor that the Bank in good faith
determines to be materially adverse.
N. The Bank in good faith deems itself insecure.
O. There shall occur a Change of Control. As used herein, "Change of
Control" means (a) when any Person or two or more persons (acting as a "group"
within the meaning of Section 13(d)(3) of the Exchange Act), excluding Persons
who are on the date of this agreement executive officers or directors of
Borrower ("Insiders") or Permitted Transferees, shall have acquired "beneficial
ownership' (as such term is defined in Rule 13d-3 of the SEC under the Exchange
Act), directly or indirectly, of, or shall have acquired by contract or
otherwise, or shall have entered into a contract or arrangement that, upon
consummation, will result in its or their acquisition of, control over, Voting
Stock of Borrower (or other securities convertible into such Voting Stock)
representing more than 25% of the combined voting power of all Voting Stock of
Borrower, and shall have filed or shall have become required to file, a Schedule
13D with the SEC disclosing that it is the intention of such Person or group to
acquire control of Borrower, or (b) a majority of the Board of Directors of
Borrower existing on the date of this agreement changes. As used herein:
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and any
successor thereto; "Person" means any individual, partnership, joint venture,
firm, corporation, limited liability company, association, trust or other
enterprise (whether or not incorporated) or any Governmental Authority;
"Governmental Authority" means any Federal, state, local or foreign court or
governmental agency, authority, instrumentality or regulatory body; "Permitted
Transferee" means (i) the spouse, any lineal descendant, and/or any parent
(collectively, the "Family Members" of an Insider, (ii) a corporation in respect
of which an Insider and/or Family Members hold beneficial ownership of all
shares of capital stock of such corporation, (iii) a partnership in respect of
which an Insider and/or Family Members hold beneficial ownership of all
partnership interests in such partnership, (iv) a limited liability company in
respect of which an Insider and/or Family Members hold beneficial ownership of
all memberships in or interests of such company, (v) the estate of an Insider
and/or Family Members, or (vi) any other holder of capital stock of Borrower who
or which becomes a holder in accordance with (i), (ii), (iii), or (iv) above;
provided, however, that none of the foregoing will be deemed a Permitted
Transferee if the transfer results in the failure of Borrower to meet the
criteria for listing on the American Stock Exchange or its successor; "SEC"
means the Securities and Exchange Commission or any agency or instrumentality of
the United States of America succeeding to the powers and duties thereof; and
"Voting Stock" means, with respect to any Person, capital stock, shares,
interests, participations, rights or other equivalents (however designated)
issued by such Person , the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of directors (or persons
performing similar functions) of such Person, even though the right so to vote
has been suspended by the happening of such a contingency.
6.2 REMEDIES.
A. GENERALLY. If any of the Liabilities are not paid at maturity, whether by
acceleration or otherwise, or if a default by anyone occurs under the terms of
any agreement related to any of the Liabilities, then the Bank shall have the
rights and remedies provided by law or this agreement. The Borrower is liable to
the Bank for all reasonable costs and expenses of every kind incurred in the
collection of the Notes, or in connection with the enforcement or preservation
of rights under this agreement, or any amendment, supplement, or modification
thereto, including without limitation reasonable attorneys' fees and court
costs. These costs and expenses include without limitation any costs or expenses
incurred by the Bank in any bankruptcy, reorganization, insolvency or other
similar proceeding.
B. BANK'S RIGHT OF SETOFF. The Borrower grants to the Bank a security
interest in, and the Bank is authorized to setoff and apply, all Deposits,
Securities and Other Property, and Bank Debt against any and all Liabilities of
the Borrower. This right of setoff may be exercised at any time and from time to
time, and without prior notice to the Borrower. This security interest and right
of setoff may be enforced or exercised by the Bank regardless of whether or not
the Bank has made any demand under this paragraph or whether the Liabilities are
contingent, matured, or unmatured. Any delay, neglect or conduct by the Bank in
exercising its rights under this paragraph will not be a waiver of the right to
exercise this right of setoff or enforce this security interest. The rights of
the Bank under this paragraph are in addition to other rights the Bank may have
in the Related Documents or by law. In this paragraph: (a) the term "Deposits"
means any and all accounts and deposits of the Borrower (whether general,
special, time, demand, provisional or final) at any time held by the Bank
(including all Deposits held jointly with another, but excluding any IRA or
Keogh Deposits, or any trust Deposits in which a security interest would be
prohibited by law); (b) the term "Securities and Other Property" means any and
all securities and other property of the Borrower in the custody, possession or
control of the Bank (other than property held by the Bank in a fiduciary
capacity); and (c) the term "Bank Debt" means all indebtedness at any time owing
by the Bank, to or for the credit or account of the Borrower.
7. MISCELLANEOUS.
7.1 NOTICE. Any notices and demands under or related to this document shall
be in writing and delivered to the intended party at its address stated herein,
and if to the Bank, at its main office if no other address of the Bank is
specified herein, by one of the following means: (a) by hand, (b) by a
nationally recognized overnight courier service, or (c) by certified mail,
postage prepaid, with return receipt requested. Notice shall be deemed given:
(a) upon receipt if delivered by hand, (b) on the Delivery Day after the day of
deposit with a nationally recognized courier service, or (c) on the third
Delivery Day after the notice is deposited in the mail. "Delivery Day" means a
day other than a Saturday, a Sunday or any other day on which national banking
associations are authorized to be closed. Any party may change its address for
purposes of the receipt of notices and demands by giving notice of such change
in the manner provided in this provision.
7.2 NO WAIVER. No delay on the part of the Bank in the exercise of any right
or remedy waives that right or remedy. No single or partial exercise by the Bank
of any right or remedy precludes any other future exercise of it or the exercise
of any other right or remedy. No waiver or indulgence by the Bank of any default
is effective unless it is in writing and signed by the Bank, nor shall a waiver
on one occasion bar or waive that right on any future occasion.
7.3 INTEGRATION. This agreement, the Notes, and any agreement related to the
Credit Facilities embody the entire agreement and understanding between the
Borrower and the Bank and supersede all prior agreements and understandings
relating to their subject matter. If any one or more of the obligations of the
Borrower under this agreement or the Notes is invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
obligations of the Borrower shall not in any way be affected or impaired, and
the invalidity, illegality or unenforceability in one jurisdiction shall not
affect the validity, legality or enforceability of the obligations of the
Borrower under this agreement or the Notes in any other jurisdiction.
7.4 GOVERNING LAW AND VENUE. This agreement is delivered in the State of
Texas and governed by Texas law (without giving effect to its laws of
conflicts). The Borrower agrees that any legal action or proceeding with respect
to any of its obligations under this agreement may be brought by the Bank in any
state or federal court located in the State of Texas, as the Bank in its sole
discretion may elect. By the execution and delivery of this agreement, the
Borrower submits to and accepts, for itself and in respect of its property,
generally and unconditionally, the non-exclusive jurisdiction of those courts.
The Borrower waives any claim that the State of Texas is not a convenient forum
or the proper venue for any such suit, action or proceeding.
7.5 CAPTIONS. Section headings are for convenience of reference only and do
not affect the interpretation of this agreement.
7.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Borrower understands and
agrees that in extending the Credit Facilities, the Bank is relying on all
representations, warranties, and covenants made by the Borrower in this
agreement or in any certificate or other instrument delivered by the Borrower to
the Bank under this agreement. The Borrower further agrees that regardless of
any investigation made by the Bank, all such representations, warranties and
covenants will survive the making of the Credit Facilities and delivery to the
Bank of this agreement, shall be continuing in nature, and shall remain in full
force and effect until such time as the Borrower's indebtedness to the Bank
shall be paid in full.
7.7 NON-LIABILITY OF THE BANK. The relationship between the Borrower on one
hand and the Bank on the other hand shall be solely that of borrower and lender.
The Bank shall have no fiduciary responsibilities to the Borrower. The Bank
undertakes no responsibility to the Borrower to review or inform the Borrower of
any matter in connection with any phase of the Borrower's business or
operations.
7.8 INDEMNIFICATION OF THE BANK. The Borrower agrees to indemnify, defend
and hold the Bank and JPMorgan Chase & Co., or any of its subsidiaries or
affiliates or their successors, and each of their respective shareholders,
directors, officers, employees and agents (collectively, the "Indemnified
Persons") harmless from any and all obligations, claims, liabilities, losses,
damages, penalties, fines, forfeitures, actions, judgments, suits, costs,
expenses and disbursements of any kind or nature (including, without limitation,
any Indemnified Person's attorneys' fees) (collectively, the "Claims") which may
be imposed upon, incurred by or assessed against any Indemnified Person (whether
or not caused by any Indemnified Person's sole, concurrent, or contributory
negligence) arising out of or relating to this agreement; the exercise of the
rights and remedies granted under this agreement (including, without limitation,
the enforcement of this agreement and the defense of any Indemnified Person's
action or inaction in connection with this agreement); and in connection with
the Borrower's failure to perform all of the Borrower's obligations under this
agreement, except to the limited extent that the Claims against any such
Indemnified Person are proximately caused by such Indemnified Person's gross
negligence or willful misconduct. The indemnification provided for in this
section shall survive the termination of this agreement and shall extend to and
continue to benefit each individual or entity who is or has at any time been an
Indemnified Person.
The Borrower's indemnity obligations under this section shall not in any way be
affected by the presence or absence of covering insurance, or by the amount of
such insurance or by the failure or refusal of any insurance carrier to perform
any obligation on its part under any insurance policy or policies affecting the
Borrower's assets or the Borrower's business activities. Should any Claim be
made or brought against any Indemnified Person by reason of any event as to
which the Borrower's indemnification obligations apply, then, upon any
Indemnified Person's demand, the Borrower, at its sole cost and expense, shall
defend such Claim in the Borrower's name, if necessary, by the attorneys for the
Borrower's insurance carrier (if such Claim is covered by insurance), or
otherwise by such attorneys as any Indemnified Person shall approve. Any
Indemnified Person may also engage its own attorneys at its reasonable
discretion to defend the Indemnified Person and to assist in its defense and the
Borrower agrees to pay the fees and disbursements of such attorneys.
WITHOUT LIMITATION OF THE FOREGOING, IT IS THE INTENTION OF BORROWER AND
BORROWER AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED
PERSON WITH RESPECT TO CLAIMS, OBLIGATIONS, DAMAGES, LOSSES, COSTS, EXPENSES
(INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES), DEMANDS, LIABILITIES,
PENALTIES, FINES AND FORFEITURES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR
ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PERSON.
7.9 COUNTERPARTS. This agreement may be executed in multiple counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts, taken together, shall constitute one and the same agreement.
7.10 ADVICE OF COUNSEL. The Borrower acknowledges that it has been advised
by counsel, or had the opportunity to be advised by counsel, in the negotiation,
execution and delivery of this agreement and any documents executed and
delivered in connection with the Credit Facilities.
7.11 CONFLICTING TERMS. If this agreement is inconsistent with any provision
in any agreement related to the Credit Facilities, the Bank shall determine, in
the Bank's sole and absolute discretion, which of the provisions shall control
any such inconsistency.
7.12 EXPENSES. The Borrower agrees to pay or reimburse the Bank for all its
out-of-pocket costs and expenses and reasonable attorneys' fees incurred in
connection with the preparation and execution of this agreement, any amendment,
supplement, or modification thereto, and any other documents prepared in
connection herewith or therewith.
7.13 REINSTATEMENT. All parties liable on the Notes agree that to the extent
any payment is received by the Bank in connection with the Liabilities, and all
or any part of such payment is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid by the Bank or
paid over to a trustee, receiver or any other entity, whether under any
bankruptcy act or otherwise (any such payment is hereinafter referred to as a
"Preferential Payment"), then the Notes shall continue to be effective or shall
be reinstated, as the case may be, and whether or not the Bank is in possession
of the Notes, and, to the extent of such payment or repayment by the Bank, the
Liabilities or part thereof intended to be satisfied by such Preferential
Payment shall be revived and continued in full force and effect as if said
Preferential Payment had not been made.
7.14 SEVERABILITY. If any provision of this agreement cannot be enforced,
the remaining portions of this agreement shall continue in effect.
7.15 ASSIGNMENTS. The Borrower agrees that the Bank may provide any
information or knowledge the Bank may have about the Borrower or about any
matter relating to the Notes or the Related Documents to JPMorgan Chase & Co.,
or any of its subsidiaries or affiliates or their successors, or to any one or
more purchasers or potential purchasers of the Notes or the Related Documents.
The Borrower agrees that the Bank may at any time sell, assign or transfer one
or more interests or participations in all or any part of its rights and
obligations in the Notes to one or more purchasers whether or not related to the
Bank.
7.16 WAIVERS. Any party liable on the Notes waives (a) any right to receive
notice of the following matters before the Bank enforces any of its rights: (i)
any demand, diligence, presentment, dishonor and protest, or (ii) any action
that the Bank takes regarding anyone else, any collateral, or any of the
Liabilities, that it might be entitled to by law or under any other agreement;
(b) any right to require the Bank to proceed against any other obligor or
guarantor of the Liabilities, or any collateral, or pursue any remedy in the
Bank's power to pursue; (c) any defense based on any claim that any endorser or
other parties' obligations exceed or are more burdensome than those of the
Borrower; (d) the benefit of any statute of limitations affecting liability of
any endorser or other party liable hereunder or the enforcement hereof; (e) any
defense arising by reason of any disability or other defense of the Borrower or
by reason of the cessation from any cause whatsoever (other than payment in
full) of the obligation of the Borrower for the Liabilities; and (f) any defense
based on or arising out of any defense that the Borrower may have to the payment
or performance of the Liabilities or any portion thereof. Any party liable on
the Notes consents to any extension or postponement of time of its payment
without limit as to the number or period, to any substitution, exchange or
release of all or any part of any collateral, to the addition of any other
party, and to the release or discharge of, or suspension of any rights and
remedies against, any person who may be liable for the payment of the Notes. The
Bank may waive or delay enforcing any of its rights without losing them. Any
waiver affects only the specific terms and time period stated in the waiver. No
modification or waiver of any provision of the Notes is effective unless it is
in writing and signed by the party against whom it is being enforced.
8. USA PATRIOT ACT NOTIFICATION. The following notification is provided to
Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C.
Section 5318:
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the
government fight the funding of terrorism and money laundering activities,
Federal law requires all financial institutions to obtain, verify, and record
information that identifies each person or entity that opens an account,
including any deposit account, treasury management account, loan, other
extension of credit, or other financial services product. What this means for
Borrower: When Borrower opens an account, if Borrower is an individual Bank will
ask for Borrower's name, taxpayer identification number, residential address,
date of birth, and other information that will allow Bank to identify Borrower,
and if Borrower is not an individual Bank will ask for Borrower's name, taxpayer
identification number, business address, and other information that will allow
Bank to identify Borrower. Bank may also ask, if Borrower is an individual to
see Borrower's driver's license or other identifying documents, and if Borrower
is not an individual to see Borrower's legal organizational documents or other
identifying documents.
9. WAIVER OF SPECIAL DAMAGES. THE BORROWER WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM
THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES.
10. JURY WAIVER. THE BORROWER AND THE BANK HEREBY VOLUNTARILY, KNOWINGLY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN
THE BORROWER AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT.
THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING
DESCRIBED HEREIN.
ADDRESS(ES) FOR NOTICES: BORROWER:
3847 East Loop 820 South The Leather Factory, Inc. (a Delaware
Fort Worth, TX 76119-4388 Corporation)
Attn: Shannon L. Greene, CFO By: ________________________
Wray Thompson, Chief Executive Officer
Date Signed: November 1, 2004
ADDRESS(ES) FOR NOTICES: BANK:
420 Throckmorton, Suite 400 Bank One, NA, with its main office in
Fort Worth, TX 76102 Chicago, IL
Attn: _______________________ By: ________________________
Robert A. Humphreys, Vice President
Date Signed: November 1, 2004
Exhibit 10.2
LINE OF CREDIT NOTE
$3,000,000.00
DUE: OCTOBER 6, 2007 DATE: OCTOBER 6,2004
PROMISE TO PAY. On or before October 6, 2007, for value received, The Leather
Factory, Inc. (a Delaware Corporation) (the "Borrower") promises to pay to Bank
One, NA, with its main office in Chicago, IL, whose address is 420 Throckmorton,
Suite 400, Fort Worth, TX 76102 (the "Bank") or order, in lawful money of the
United States of America, the sum of Three Million and 00/100 Dollars
($3,000,000.00) or such lesser sum as is indicated on Bank records, plus
interest as provided below.
DEFINITIONS. As used in this Note, the following terms have the following
respective meanings:
"ADVANCE" means a Eurodollar Advance or a Prime Rate Advance and "ADVANCES"
means all Eurodollar Advances and all Prime Rate Advances under this Note.
"APPLICABLE MARGIN" means with respect to any Prime Rate Advance or Eurodollar
Advance, as the case may be, the rate per annum set forth below opposite the
applicable Leverage Ratio. Leverage Ratio is defined in the Credit Agreement.
Leverage Ratio Applicable Margin
Prime Rate Advance Eurodollar Advance
------------------- -------------------
Greater than or equal to 1.00 to 1.00 0.50% 2.00%
------------------------------------- ------------------- -------------------
Greater than or equal 0.50 to 1.00. . 0.50% 1.75%
------------------------------------- ------------------- -------------------
Less than 0.50 to 1.00. . . . . . . . 0.50% 1.35%
------------------------------------- ------------------- -------------------
The Applicable Margin for each Eurodollar Advance shall be determined and
adjusted quarterly on the first day of the month after the date of delivery of
the quarterly and annual financial statements required by the Credit Agreement,
provided, however, that if such financial statements are not delivered within
two Business Days after the required date (each, an "Interest Determination
Date"), the Applicable Margin shall increase to the maximum percentage amount
set forth in the table above from the date such financial statements were
required to be delivered to the Bank until received by the Bank. The Applicable
Margin shall be effective from an Interest Determination Date until the next
Interest Determination Date. Such determinations by the Bank shall be conclusive
absent manifest error. The initial Applicable Margin for Prime Rate Advances is
minus 0.50% and for Eurodollar Advances is 1.35%.
"CREDIT AGREEMENT" means a certain Credit Agreement, dated October 6, 2004,
between the Borrower and the Bank.
"BUSINESS DAY" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Texas and/or New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day other than a Saturday, Sunday or any other day on
which national banking associations are authorized to be closed.
"EURODOLLAR BASE RATE" means, with respect to the relevant Interest Period, the
applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars
as reported by any generally recognized financial information service as of
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, and having a maturity equal to such Interest Period, provided
that, if no such British Bankers' Association LIBOR rate is available to the
Bank, the applicable Eurodollar Base Rate for the relevant Interest Period shall
instead be the rate determined by the Bank to be the rate at which JPMorgan
Chase & Co. or one of its affiliate banks offers to place deposits in U.S.
dollars with first-class banks in the London interbank market at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, in the approximate amount of the principal amount outstanding
on such date and having a maturity equal to such Interest Period.
"EURODOLLAR ADVANCE" means any borrowing under this Note when and to the extent
that its interest rate is determined by reference to the Eurodollar Rate.
"EURODOLLAR RATE" means, with respect to a Eurodollar Advance for the relevant
Interest Period, the sum of (i) the Applicable Margin plus (ii) the quotient of
(a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b)
one minus the Reserve Requirement (expressed as a decimal) applicable to such
Interest Period.
"INTEREST PERIOD" means, with respect to a Eurodollar Advance, a period of one
(1), two (2) or three (3) month(s) commencing on a Business Day selected by the
Borrower pursuant to this Note. Such Interest Period shall end on the day which
corresponds numerically to such date one (1), two (2) or three (3) month(s)
thereafter, as applicable, provided, however, that if there is no such
numerically corresponding day in such first, second or third succeeding
month(s), as applicable, such Interest Period shall end on the last Business Day
of such first, second or third succeeding month(s), as applicable. If an
Interest Period would otherwise end on a day which is not a Business Day, such
Interest Period shall end on the next succeeding Business Day, provided,
however, that if said next succeeding Business Day falls in a new calendar
month, such Interest Period shall end on the immediately preceding Business Day.
"PRIME RATE" means a rate per annum equal to the prime rate of interest
announced from time to time by the Bank or its parent (which is not necessarily
the lowest rate charged to any customer), changing when and as said prime rate
changes.
"PRIME RATE ADVANCE" means any Advance under this Note when and to the extent
that its interest rate is determined by reference to the Prime Rate.
"PRINCIPAL PAYMENT DATE" is defined in the paragraph entitled "Principal
Payments" below.
"REGULATION D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"RESERVE REQUIREMENT" means, with respect to an Interest Period, the maximum
aggregate reserve requirement (including all basic, supplemental, marginal and
other reserves) which is imposed under Regulation D.
INTEREST RATES. The Advance(s) evidenced by this Note may be drawn down and
remain outstanding as up to five (5) Eurodollar Advances and/or a Prime Rate
Advance. The Borrower shall pay interest to the Bank on the outstanding and
unpaid principal amount of each Prime Rate Advance at the greater of (a) the
Prime Rate minus the Applicable Margin, or (b) 0.00% per annum, and each
Eurodollar Advance at the Eurodollar Rate. Interest shall be calculated on the
basis of the actual number of days elapsed in a year of 360 days. In no event
shall the interest rate applicable to any Advance exceed the maximum rate
allowed by law. Any interest payment which would for any reason be deemed
unlawful under applicable law shall be applied to principal.
BANK RECORDS. The Bank shall, in the ordinary course of business, make notations
in its records of the date, amount, interest rate and Interest Period of each
Advance hereunder, the amount of each payment on the Advances, and other
information. Such records shall, in the absence of manifest error, be conclusive
as to the outstanding principal balance of and interest rate or rates applicable
to this Note.
NOTICE AND MANNER OF ELECTING INTEREST RATES ON ADVANCES. The Borrower shall
give the Bank written notice (effective upon receipt) of the Borrower's intent
to draw down an Advance under this Note no later than 11:00 a.m. Central time,
one (1) Business Day before disbursement, if the full amount of the drawn
Advance is to be disbursed as a Prime Rate Advance and three (3) Business Days
before disbursement, if any part of such Advance is to be disbursed as a
Eurodollar Advance. The Borrower's notice must specify: (a) the disbursement
date, (b) the amount of each Advance, (c) the type of each Advance (Prime Rate
Advance or Eurodollar Advance), and (d) for each Eurodollar Advance, the
duration of the applicable Interest Period; provided, however, that the Borrower
may not elect an Interest Period ending after the maturity date of this Note.
Each Eurodollar Advance shall be in a minimum amount of One Hundred Thousand and
00/100 Dollars ($100,000.00). All notices under this paragraph are irrevocable.
By the Bank's close of business on the disbursement date and upon fulfillment of
the conditions set forth herein and in any other of the Related Documents, the
Bank shall disburse the requested Advances in immediately available funds by
crediting the amount of such Advances to the Borrower's account with the Bank.
CONVERSION AND RENEWALS. The Borrower may elect from time to time to convert one
type of Advance into another or to renew any Advance by giving the Bank written
notice no later than 11:00 a.m. Central time, one (1) Business Day before
conversion into a Prime Rate Advance and three (3) Business Days before
conversion into or renewal of a Eurodollar Advance, specifying: (a) the renewal
or conversion date, (b) the amount of the Advance to be converted or renewed,
(c) in the case of conversion, the type of Advance to be converted into (Prime
Rate Advance or Eurodollar Advance), and (d) in the case of renewals of or
conversion into a Eurodollar Advance, the applicable Interest Period, provided
that (i) the minimum principal amount of each Eurodollar Advance outstanding
after a renewal or conversion shall be One Hundred Thousand and 00/100 Dollars
($100,000.00); (ii) a Eurodollar Advance can only be converted on the last day
of the Interest Period for the Advance; and (iii) the Borrower may not elect an
Interest Period ending after the maturity date of this Note. All notices given
under this paragraph are irrevocable. If the Borrower fails to give the Bank the
notice specified above for the renewal or conversion of a Eurodollar Advance by
11:00 a.m. Central time three (3) Business Days before the end of the Interest
Period for that Advance, the Advance shall automatically be converted to a Prime
Rate Advance on the last day of the Interest Period for the Advance.
INTEREST PAYMENTS. Interest on the Advances shall be paid as follows:
A. For each Prime Rate Advance, on the sixth day of each quarter beginning
with the first quarter following disbursement of the Advance or following
conversion of an Advance into a Prime Rate Advance, and at the maturity or
conversion of the Advance into a Eurodollar Advance;
B. For each Eurodollar Advance, on the last day of the Interest Period for
the Advance and, if the Interest Period is longer than three months, at
three-month intervals beginning with the day three months from the date the
Advance is disbursed.
PRINCIPAL PAYMENTS. All outstanding principal and interest is due and payable in
full on October 6, 2007, which is defined herein as the "Principal Payment
Date".
DEFAULT RATE OF INTEREST. After a default has occurred under this Note, whether
or not the Bank elects to accelerate the maturity of this Note because of such
default, all Advances outstanding under this Note, including all Eurodollar
Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus
three percent (3.00%) from the date the Bank elects to impose such rate.
Imposition of this rate shall not affect any limitations contained in this Note
on the Borrower's right to repay principal on any Eurodollar Advance before the
expiration of the Interest Period for that Advance.
PREPAYMENT. The Borrower may prepay all or any part of any Prime Rate Advance at
any time without premium or penalty. The Borrower may prepay any Eurodollar
Advance only at the end of an Interest Period.
FUNDING LOSS INDEMNIFICATION. Upon the Bank's request, the Borrower shall pay
the Bank amounts sufficient (in the Bank's reasonable opinion) to compensate it
for any loss, cost, or expense incurred as a result of:
A. Any payment of a Eurodollar Advance on a date other than the last day of
the Interest Period for the Advance, including, without limitation, acceleration
of the Advances by the Bank pursuant to this Note or the Related Documents; or
B. Any failure by the Borrower to borrow or renew a Eurodollar Advance on
the date specified in the relevant notice from the Borrower to the Bank.
ADDITIONAL COSTS. If any applicable domestic or foreign law, treaty, government
rule or regulation now or later in effect (whether or not it now applies to the
Bank) or the interpretation or administration thereof by a governmental
authority charged with such interpretation or administration, or compliance by
the Bank with any guideline, request or directive of such an authority (whether
or not having the force of law), shall (a) affect the basis of taxation of
payments to the Bank of any amounts payable by the Borrower under this Note or
the Related Documents (other than taxes imposed on the overall net income of the
Bank by the jurisdiction or by any political subdivision or taxing authority of
the jurisdiction in which the Bank has its principal office), or (b) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by
the Bank, or (c) impose any other condition with respect to this Note or the
Related Documents and the result of any of the foregoing is to increase the cost
to the Bank of maintaining any Eurodollar Advance or to reduce the amount of any
sum receivable by the Bank on such an Advance, or (d) affect the amount of
capital required or expected to be maintained by the Bank (or any corporation
controlling the Bank) and the Bank determines that the amount of such capital is
increased by or based upon the existence of the Bank's obligations under this
Note or the Related Documents and the increase has the effect of reducing the
rate of return on the Bank's (or its controlling corporation's) capital as a
consequence of the obligations under this Note or the Related Documents to a
level below that which the Bank (or its controlling corporation) could have
achieved but for such circumstances (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by the Bank to be material,
then the Borrower shall pay to the Bank, from time to time, upon request by the
Bank, additional amounts sufficient to compensate the Bank for the increased
cost or reduced sum receivable. Whenever the Bank shall learn of circumstances
described in this section which are likely to result in additional costs to the
Borrower, the Bank shall give prompt written notice to the Borrower of the basis
for and the estimated amount of any such anticipated additional costs. A
statement as to the amount of the increased cost or reduced sum receivable,
prepared in good faith and in reasonable detail by the Bank and submitted by the
Bank to the Borrower, shall be conclusive and binding for all purposes absent
manifest error in computation.
ILLEGALITY. If any applicable domestic or foreign law, treaty, rule or
regulation now or later in effect (whether or not it now applies to the Bank) or
the interpretation or administration thereof by a governmental authority charged
with such interpretation or administration, or compliance by the Bank with any
guideline, request or directive of such an authority (whether or not having the
force of law), shall make it unlawful or impossible for the Bank to maintain or
fund the Eurodollar Advances, then, upon notice to the Borrower by the Bank, the
outstanding principal amount of the Eurodollar Advances, together with accrued
interest and any other amounts payable to the Bank under this Note or the
Related Documents on account of the Eurodollar Advances shall be repaid (a)
immediately upon the Bank's demand if such change or compliance with such
requests, in the Bank's judgment, requires immediate repayment, or (b) at the
expiration of the last Interest Period to expire before the effective date of
any such change or request provided, however, that subject to the terms and
conditions of this Note and the Related Documents the Borrower shall be entitled
to simultaneously replace the entire outstanding balance of any Eurodollar
Advance repaid in accordance with this section with a Prime Rate Advance in the
same amount.
INABILITY TO DETERMINE INTEREST RATE. If the Bank determines that (a) quotations
of interest rates for the relevant deposits referred to in the definition of
Eurodollar Rate are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining the interest rate on a
Eurodollar Advance as provided in this Note, or (b) the relevant interest rates
referred to in the definition of Eurodollar Rate do not accurately cover the
cost to the Bank of making or maintaining Eurodollar Advances, then the Bank
shall forthwith give notice of such circumstances to the Borrower, whereupon (i)
the obligation of the Bank to make Eurodollar Advances shall be suspended until
the Bank notifies the Borrower that the circumstances giving rise to the
suspension no longer exists, and (ii) the Borrower shall repay in full the then
outstanding principal amount of each Eurodollar Advance, together with accrued
interest, on the last day of the then current Interest Period applicable to the
Advance, provided, however, that, subject to the terms and conditions of this
Note and the Related Documents, the Borrower shall be entitled to simultaneously
replace the entire outstanding balance of any Eurodollar Advance repaid in
accordance with this section with a Prime Rate Advance in the same amount.
OBLIGATIONS DUE ON NON-BUSINESS DAY. Whenever any payment under this Note
becomes due and payable on a day that is not a Business Day, if no default then
exists under this Note, the maturity of the payment shall be extended to the
next succeeding Business Day, except, in the case of a Eurodollar Advance, if
the result of the extension would be to extend the payment into another calendar
month, the payment must be made on the immediately preceding Business Day.
MATTERS REGARDING PAYMENT. The Borrower will pay the Bank at the Bank's address
shown above or at such other place as the Bank may designate. Payments shall be
allocated among principal, interest and fees at the discretion of the Bank
unless otherwise agreed or required by applicable law. Acceptance by the Bank of
any payment which is less than the payment due at the time shall not constitute
a waiver of the Bank's right to receive payment in full at that time or any
other time.
CREDIT FACILITY. The Bank has approved a credit facility to the Borrower in a
principal amount not to exceed the face amount of this Note. The credit facility
is in the form of advances made from time to time by the Bank to the Borrower.
This Note evidences the Borrower's obligation to repay those advances. The
aggregate principal amount of debt evidenced by this Note is the amount
reflected from time to time in the records of the Bank. Until the earliest of
maturity, the occurrence of any default, or the occurrence of any event that
would constitute a default but for the giving of notice or the lapse of time or
both until the end of any grace or cure period, the Borrower may borrow, pay
down and reborrow under this Note subject to the terms of the Related Documents.
USURY. The Bank does not intend to charge, collect or receive any interest that
would exceed the maximum rate allowed by law. If the effect of any applicable
law is to render usurious any amount called for under this Note or the other
Related Documents, or if any amount is charged or received with respect to this
Note, or if any prepayment by the Borrower results in the Borrower having paid
any interest in excess of that permitted by law, then all excess amounts
collected by the Bank shall be credited on the principal balance of this Note
(or, if this Note and all other indebtedness arising under or pursuant to the
other Related Documents have been paid in full, refunded to the Borrower), and
the provisions of this Note and the other Related Documents immediately shall be
deemed reformed and the amounts thereafter collectable reduced, without the
necessity of the execution of any new document, so as to comply with the then
applicable law. All sums paid, or agreed to be paid, by the Borrower for the
use, forbearance, or detention of money under this Note or the other Related
Documents shall, to the maximum extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the usury ceiling from time to time
in effect and applicable to such indebtedness for so long as such indebtedness
is outstanding. To the extent federal law permits the Bank to contract for,
charge or receive a greater amount of interest, the Bank will rely on federal
law instead of the Texas Finance Code. In no event shall Chapter 346 of the
Texas Finance Code apply to this Note. To the extent that Chapter 303 of the
Texas Finance Code is applicable to this Note, the "weekly ceiling" specified in
Chapter 303 is the applicable ceiling.
MISCELLANEOUS. This Note binds the Borrower and its successors, and benefits the
Bank, its successors and assigns. Any reference to the Bank includes any holder
of this Note. This Note is issued pursuant and entitled to the benefits of that
certain Credit Agreement by and between the Borrower and the Bank, dated October
6, 2004, and all replacements thereof (the "Credit Agreement") to which
reference is hereby made for a more complete statement of the terms and
conditions under which the loan evidenced hereby is made and is to be repaid.
The terms and provisions of the Credit Agreement are hereby incorporated and
made a part hereof by this reference thereto with the same force and effect as
if set forth at length herein. No reference to the Credit Agreement and no
provisions of this Note or the Credit Agreement shall alter or impair the
absolute and unconditional obligation of the Borrower to pay the principal and
interest on this Note as herein prescribed. Capitalized terms not otherwise
defined herein shall have the meanings assigned to such terms in the Credit
Agreement.
ADDRESS: BORROWER:
3847 East Loop 820 South The Leather Factory, Inc. (a Delaware
Fort Worth, TX 76119-4388 Corporation)
Attn: Shannon L. Greene, CFO By: ________________________
Wray Thompson, Chief Executive Officer
Date Signed: November 1, 2004