-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E87sNGRXnzuqkmDweexcLeAz4FUCpoxe4xJBlvjuXz1ixK3VTNr8JZmlaxkRbuSv Gt8QCZLT7lMvlt/qBzjOcA== 0000950134-97-007020.txt : 19970926 0000950134-97-007020.hdr.sgml : 19970926 ACCESSION NUMBER: 0000950134-97-007020 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970925 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TANDY BRANDS ACCESSORIES INC CENTRAL INDEX KEY: 0000869487 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 752349915 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-18927 FILM NUMBER: 97685495 BUSINESS ADDRESS: STREET 1: 690 E LAMAR BLVD STE 200 CITY: ARLINGTON STATE: TX ZIP: 76011 BUSINESS PHONE: 8175480090 MAIL ADDRESS: STREET 1: 690 E LAMAR BLVD CITY: ARLINGTON STATE: TX ZIP: 76011 10-K 1 FORM 10-K FOR YEAR ENDED JUNE 30, 1997 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1997 COMMISSION FILE NUMBER 0-18927 TANDY BRANDS ACCESSORIES, INC. (Exact Name of Registrant as Specified in its Charter) A DELAWARE CORPORATION (State or other jurisdiction of incorporation or organization) 75-2349915 690 E. LAMAR BLVD., SUITE 200 (I.R.S. Employer ARLINGTON, TEXAS, 76011 Identification Number) (Address of Principal Executive Offices)
(Registrant's Telephone Number, Including Area Code) (817) 548-0090 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: TITLE OF CLASS Common Stock, Par Value $1 Per Share Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant (based on the closing price of such stock as reported on September 5, 1997, through the National Market System of the National Association of Securities Dealers Automated Quotation System) was approximately $55,722,000. There were 5,538,052 shares of common stock, $1.00 par value per share, outstanding at September 5, 1997. DOCUMENTS INCORPORATED BY REFERENCE: (a) Annual Report to Stockholders for Fiscal Year Ended June 30, 1997 (incorporated by reference in Parts II and IV). (b) Definitive Proxy Statement for the Annual Meeting to be held October 16, 1997 (incorporated by reference in Part III). ================================================================================ 2 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES FORM 10-K PART I ITEM 1. BUSINESS. Tandy Brands Accessories, Inc. ("the Company") designs, purchases, manufactures and markets fine leather goods, accessories and neckwear for men, women and children. The Company was incorporated on November 1, 1990. However, the predecessor companies to its leather product manufacturing division ("Accessories") have been manufacturers and marketers of men's and boys' leather accessories for more than 50 years and of neckwear for more than 10 years. Men's accessories are marketed and manufactured through not only the Accessories division, but also through Canterbury and H.A. Sheldon. In addition to its men's accessories operations, the Company designs and markets women's and children's accessories through Accessory Design Group, Inc. ("ADG") and Prince Gardner ("PG"). The Company's merchandising strategy is to provide value to retailers and to the ultimate consumer through a wide range of quality products. The Company's largest selling products are belts and personal leather goods. Management estimates these items represented approximately 86%, 87%, and 88% of the Company's sales in fiscal 1997, 1996 and 1995, respectively. Neckwear, women's handbags, men's jewelry, shaving kits, umbrellas and other fashion accessories collectively accounted for the remaining sales. Accessories, Canterbury, HAS, PG and ADG sell their products to a variety of retail outlets, including national chain stores, discount stores, major department stores, specialty stores, catalogue retailers and the retail exchange operations of the United States military. PG sells primarily women's belts, handbags and small leather accessories. ADG's largest selling category is belts, followed by scarves, hosiery, hair goods, evening accessories and various other fashion accessories. Accessories manufactures and markets its leather goods primarily under the labels HICKOK(R), GREG NORMAN COLLECTION(R), PRINCE GARDNER(R), BUGLE BOY(R), TEX TAN(R), DUCKS UNLIMITED(R), DON LOPER of BEVERLY HILLS(R), JOHN WEITZ(R), JONES NEW YORK(R), HAGGAR(R) and various private store labels. Although Accessories' leather product lines include similar types of merchandise, Accessories tailors each line to appeal to the customer base of the specific channel of distribution. The HICKOK(R), BUGLE BOY(R), and JOHN WEITZ(R) lines are sold principally through national chain stores and mass merchandisers. The TEX TAN(R), GREG NORMAN COLLECTION(R), PRINCE GARDNER(R), DUCKS UNLIMITED(R), DON LOPER of BEVERLY HILLS(R), HAGGAR(R) and JONES NEW YORK(R) lines are sold primarily through men's specialty stores and department stores. TEX TAN(R) and DON LOPER of BEVERLY HILLS(R) goods are also sold to military retail operations. Neckwear is sold under the labels BARRY WELLS(R), DUCKS UNLIMITED(R), LUCARELLI(R), RHYNECLIFF(R), LE-BIL'S(R), HICKOK(R), JAMES B. FAIRCHILD(R), ORLEANS(R), CARLOS TOMASSINI(TM) and various private store labels, and is sold through the majority of Accessories' channels of distribution. ADG and PG products are marketed under various labels including PRINCE GARDNER(R), PRINCESS GARDNER(R), JONES NEW YORK(R), ACCESSORY DESIGN GROUP, and under various private store labels. Canterbury manufactures and markets its products under the CANTERBURY(R) label and various private store labels. HAS manufactures and markets its products under the label JONES NEW YORK(R), GREG NORMAN COLLECTION(R), HAGGAR(R), KODIAK(R), DICKIES(R) and various private store labels. The Company designs all of its leather products, women's accessories and neckwear. Generally, new product styles are introduced each Spring and Fall. Wallets and certain other accessories are less subject to seasonal tastes and fashion trends. In order to reduce its exposure to periods of economic decline, the Company has diversified its channels of distribution and increased sales to other mass merchandisers and national chain and discount stores. Wal-Mart is the Company's largest customer, representing 36%, 35% and 40% of its total sales for the fiscal years 2 3 ended June 30, 1997, 1996 and 1995, respectively. The Company has no long-term contracts with any of its customers and all accounts are subject to periodic reviews. The Company had firm backlog orders for fiscal years 1997 and 1996 totaling $6,257,000 and $5,056,000, respectively. Shipment of backlog orders in fiscal 1998 is subject to product availability prior to customer order cancellation dates. The Company's marketing strategy is to develop and maintain relationships with its retail accounts by emphasizing service and product value. The Company's accounts are developed through the efforts of senior management, regional managers, account executives and a sales organization of salespeople and independent sales representatives. Senior management, regional managers, and account executives are all utilized for concentrated, specialized selling to national chain stores, discount stores, major department stores and catalogue retailers. Salespeople are involved in selling and servicing most account types and are primarily responsible for selling to specialty stores. The Company adjusts the respective percentages of domestically manufactured and imported products and the sources of imported products, as appropriate, to reduce labor and material costs, to diversify its product lines and to reduce exposure to interruption of its product flow. ADG and PG import the majority of their product lines from various foreign sources. The Company's inventory constitutes approximately 49% of total assets and has historically turned over about twice a year. This is consistent with other companies in the small leather goods and accessories industries, with slight variations from year to year. This rate of turnover is due to the long lead times associated with the purchase of raw materials to manufacture belts and the Company's commitment to satisfy customers' rapid delivery requirements. The major raw materials for the Company's products are readily available from a variety of foreign and domestic sources. The Company's operating results are subject to seasonal variations as well as the status of the economy. Its sales and operating results are fairly consistent throughout the fiscal year, but there is generally a seasonal increase during the second fiscal quarter. Due to receipt of cash from seasonal sales peaks and payment terms granted certain customers of Accessories, cash receipts increases usually occur in December and June. Current financial resources (working capital and borrowing arrangements) and anticipated funds from operations are expected to be adequate to meet capital requirements in the year ahead. The Company owns the trademarks HICKOK(R), CANTERBURY(R), PRINCE GARDNER(R), PRINCESS GARDNER(R), LUCARELLI(R), RHYNECLIFF(R), DON LOPER of BEVERLY HILLS(R), CARLOS TOMASSINI(R), ORLEANS(R), BARRY WELLS(R), and LE-BIL'S(R). The PRINCE GARDNER(R), PRINCESS GARDNER(R) and CANTERBURY(R) trade names, as well as various trade names used by HAS, were purchased by the Company through the acquisition transactions. Additionally, the Company holds licenses to use the JONES NEW YORK(R), GREG NORMAN COLLECTION(R), BUGLE BOY(R), DUCKS UNLIMITED(R), HAGGAR(R), TEX TAN(R), JOHN WEITZ(R), and JAMES B. FAIRCHILD(R) trademarks. Generally, the license agreements require that the Company pay annual royalties, ranging from 2% to 10%, based on minimum sales quotas or sales. The terms of the agreements are typically 4 to 10 years, with options to extend the terms, provided certain sales or royalty minimums are achieved. For fiscal 1997, no license agreement sales accounted for 5% or more of the Company's net sales. COMPETITION The market for finished leather goods, neckwear and women's accessories is fragmented and highly competitive. There are numerous competitors who serve the same customers and markets as the Company. EMPLOYEES The Company had approximately 669 employees at June 30, 1997. In the opinion of the Company's management, employee relations are good. The Company's employees are not subject to a collective bargaining agreement. 3 4 ITEM 2. PROPERTIES. The Company owns and operates a facility in Yoakum, Texas, which is used for leather product manufacturing, product distribution and offices. This facility has the capacity to manufacture approximately 4.5 million belts in a year. During fiscal 1997, the Company's utilization averaged about 72%. The Company leases facilities in Scarborough, Canada, and the Dominican Republic which are used for the manufacturing of leather goods. Additionally, the Company leases warehouse space in Dallas, Texas, for ADG and office space in Arlington, Texas, for the corporate headquarters, ADG and PG. The Company has a renewal option for its office space in Arlington. In the opinion of management, the various corporate, ADG, PG, and HAS spaces are adequate and suitable for the particular use involved. The Yoakum, Texas manufacturing and distribution centers are considered adequate. The total space owned, leased and occupied by the Company as of June 30, 1997, was as follows:
APPROXIMATE SQUARE FEET --------------------------- OWNED LEASED TOTAL ------- ------- ------- Warehouse and Office............................ 127,000 110,000 237,000 Factory......................................... 63,000 55,000 118,000 ------- ------- ------- Total........................................... 190,000 165,000 355,000 ======= ======= =======
ITEM 3. LEGAL PROCEEDINGS. The Company is not involved in any material pending legal proceedings, other than ordinary routine litigation incidental to the Company's business. No material legal proceedings were terminated during the fourth quarter of the 1997 fiscal year. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders during the fourth quarter of the 1997 fiscal year. 4 5 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) The principal market for the registrant's common stock is the NASDAQ National Market System. The high and low bid information for the Company's common stock for each full quarterly period within the two most recent fiscal years appears on page 24 of the Company's 1997 Annual Report to Stockholders, which information is incorporated herein by reference. (b) The approximate number of record holders of common stock on September 5, 1997, was 1,212. (c) The Company has not paid any cash dividends since its inception and does not intend to pay cash dividends in the foreseeable future. The Company presently intends to retain earnings for use in its business, although there are currently no restrictions on the Company's present or future ability to pay dividends. ITEM 6. SELECTED FINANCIAL DATA. The information required by this item appears on page 24 of the 1997 Annual Report to Stockholders, which information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this item appears on pages 20 through 23 of the 1997 Annual Report to Stockholders, which information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item appears on pages 6 through 24 of the 1997 Annual Report to Stockholders, which information is incorporated herein by reference. Following is a cross reference for location of the requested information:
PAGE NUMBER IN THE TANDY BRANDS ACCESSORIES, INC. 1997 ANNUAL REPORT TO STOCKHOLDERS ----------------- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Statements of Income for the Years Ended June 30, 1997, 1996 and 1995................................... 6 Consolidated Balance Sheets at June 30, 1997 and 1996....... 7 Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1996 and 1995.............................. 8 Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1997, 1996 and 1995.................. 9 Notes to Consolidated Financial Statements.................. 10-18 Selected Unaudited Quarterly Financial Data................. 18 Report of Independent Auditors.............................. 19 Selected Financial Data..................................... 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 5 6 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item appears under the captions "Election of Directors," "Executive Officers" and "Security Ownership of Certain Beneficial Owners -- Compliance with Section 16(a) of the Securities Exchange Act of 1934" included in the Company's definitive Proxy Statement relating to the Company's 1997 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item appears under the caption "Executive Compensation" included in the Company's definitive Proxy Statement relating to the Company's 1997 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item appears under the caption "Security Ownership of Certain Beneficial Owners" included in the Company's definitive Proxy Statement relating to the Company's 1997 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this Report: (1) The financial statements listed in response to Item 8 of this Report have been incorporated herein by reference to pages 6 through 24 of the Company's 1997 Annual Report to Stockholders. (2) Financial Statement Schedule: Report of Independent Auditors on Financial Statement Schedule For the three years in the period ended June 30, 1997, Schedule II -- Valuation and Qualifying Accounts The financial statement schedule should be read in conjunction with the consolidated financial statements in the Company's 1997 Annual Report to Stockholders. Financial statement schedules not included in this Report have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (3) Exhibits: A list of the exhibits required to be filed as part of this Report is set forth in the Index to Exhibits, which immediately precedes such exhibits and is incorporated herein by reference. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter of fiscal 1997. 6 7 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TANDY BRANDS ACCESSORIES, INC. (Registrant) /s/ J.S.B. JENKINS ------------------------------------ J.S.B. Jenkins President and Chief Executive Date: September 24, 1997 Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME POSITION DATE ---- -------- ---- /s/ CLAYTON E. NILES Director and Chairman September 24, 1997 - ----------------------------------------------------- of the Board Clayton E. Niles /s/ J.S.B. JENKINS Director September 24, 1997 - ----------------------------------------------------- J.S.B. Jenkins /s/ DR. JAMES GAERTNER Director September 24, 1997 - ----------------------------------------------------- Dr. James Gaertner /s/ C. A. RUNDELL, JR. Director September 24, 1997 - ----------------------------------------------------- C. A. Rundell, Jr. /s/ ROBERT E. RUNICE Director September 24, 1997 - ----------------------------------------------------- Robert E. Runice /s/ GENE STALLINGS Director September 24, 1997 - ----------------------------------------------------- Gene Stallings /s/ MAXINE CLARK Director September 24, 1997 - ----------------------------------------------------- Maxine Clark /s/ STANLEY T. NINEMIRE Senior Vice President and September 24, 1997 - ----------------------------------------------------- Chief Financial Officer Stanley T. Ninemire
7 8 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Tandy Brands Accessories, Inc. We have audited the consolidated financial statements of Tandy Brands Accessories, Inc. and subsidiaries as of June 30, 1997 and 1996, and for each of the three years in the period ended June 30, 1997, and have issued our report thereon dated August 7, 1997, incorporated by reference in this Annual Report on Form 10-K. Our audits also included the financial statement schedule listed in Item 14(a) of this Annual Report on Form 10-K. The schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Fort Worth, Texas August 7, 1997 8 9 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED JUNE 30,
ADDITIONS BALANCE AT ----------------------------------- BALANCE AT BEGINNING CHARGED TO COSTS CHARGED TO OTHER END OF DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD ----------- ---------- ---------------- ---------------- ------------- ---------- 1997 Allowance for Doubtful Accounts and Returns............... $606,000 $ 787,000 $-0- $ 317,000 $1,076,000 1996 Allowance for Doubtful Accounts and Returns............... $520,000 $ 343,000 $-0- $ 257,000 $ 606,000 1995 Allowance for Doubtful Accounts and Returns............... $379,000 $1,372,000 $-0- $1,231,000 $ 520,000
- --------------- (1) Represents uncollectable accounts written off, net of recoveries. 9 10 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES EXHIBIT INDEX
INCORPORATED BY REFERENCE (IF APPLICABLE) --------------------------------------- EXHIBIT NUMBER AND DESCRIPTION FORM DATE FILE NO. EXHIBIT ------------------------------ ---- ---- -------- ------- (3) Articles of Incorporation and by-laws 3.1 Certificate of Incorporation of Tandy Brands Accessories, Inc.................... S-1 11/02/90 33-37588 3.1 3.2 By-laws of Tandy Brands Accessories, Inc........................................ S-1 11/02/90 33-37588 3.2 (4) Instruments defining the rights of security holders, including indentures 4.1 Certificate of Designations, Powers, Preferences, and Rights of Series A Junior Participating Cumulative Preferred Stock of Tandy Brands Accessories, Inc.............. S-1 11/02/90 33-37588 4.1 4.2 Form of Common Stock Certificates of Tandy Brands Accessories, Inc.................... S-1 11/02/90 33-37588 4.2 4.3 Form of Preferred Share Purchase Rights Certificate of Tandy Brands Accessories, Inc........................................ S-1 11/02/90 33-37588 4.3 4.4 Rights Agreement dated November 7, 1990, between Tandy Brands Accessories, Inc. and First National Bank of Boston.............. S-1 11/02/90 33-37588 4.4 (10) Material Contracts 10.1 Form of Distribution Agreement dated December 31, 1990, between The Bombay Company, Inc. and Tandy Brands Accessories, Inc.......................... S-1 11/02/90 33-37588 10.1 10.2 Form of Service Agreement dated December 31, 1990, between The Bombay Company, Inc. and Tandy Brands Accessories, Inc......... S-1 11/02/90 33-37588 10.2 10.3 Form of Tax Sharing Agreement dated December 31, 1990, between The Bombay Company, Inc. and Tandy Brands Accessories, Inc.......................... S-1 11/02/90 33-37588 10.3 10.4 Form of Purchase Agreement dated December 31, 1990, between The Bombay Company, Inc. and Mr. J.S.B. Jenkins.................... S-1 11/02/90 33-37588 10.4 10.6 Tandy Brands Accessories, Inc. Stock Purchase Program.......................... S-1 11/02/90 33-37588 10.6 10.7 Tandy Brands Accessories, Inc. Employees Investment Plan........................... S-1 11/02/90 33-37588 10.7 *10.8 Tandy Brands Accessories, Inc. 1991 Stock Option Plan............................... S-1 11/02/90 33-37588 10.8
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INCORPORATED BY REFERENCE (IF APPLICABLE) --------------------------------------- EXHIBIT NUMBER AND DESCRIPTION FORM DATE FILE NO. EXHIBIT ------------------------------ ---- ---- -------- ------- *10.9 Form of Stock Option Agreement -- 1991 Stock Option Plan........................ S-1 11/02/90 33-37588 10.9 *10.10 Tandy Brands Accessories, Inc. Stock Bonus Plan............................... S-1 11/02/90 33-37588 10.10 10.11 Tandy Brands Accessories, Inc. Family Security Plan ........................... S-1 11/02/90 33-37588 10.11 10.12 Form of Agreement under Family Security Plan..................................... S-1 11/02/90 33-37588 10.12 *10.13 Tandy Brands Accessories, Inc. Key Executive Disability Plan................ S-1 11/02/90 33-37588 10.13 *10.14 Tandy Brands Accessories, Inc. Benefit Restoration Plan and related Trust Agreement and Amendments No. 1 and 2 thereto.................................. N/A N/A N/A N/A 10.15 Form of Indemnification Agreement between Tandy Brands Accessories, Inc. and Each of its directors and Officers............ S-1 11/02/90 33-37588 10.15 10.16 Office Lease Agreement dated March 6, 1991, between John Hancock Mutual Life Insurance Co. and Tandy Brands Accessories, Inc. relating to the corporate offices........................ S-1 11/02/90 33-37588 10.16 10.17 Tandy Brands Accessories, Inc. Nonqualified Formula Stock Option Plan for Non-Employee Directors............... S-8 02/10/94 33-75114 28.1 *10.18 Tandy Brands Accessories, Inc. 1993 Employee Stock Option Plan and form of Stock Option Agreement thereunder........ S-8 02/10/94 33-75114 28.2 10.19 Tandy Brands Accessories, Inc. NonQualified Stock Option Plan for Non-Employee Directors................... S-8 02/10/94 33-75114 28.3 10.20 Tandy Brands Accessories, Inc. 1995 Stock Deferral Plan for Non-Employee Directors................................ S-8 06/03/96 333-8579 99.1 10.21 Credit Agreement between Tandy Brands Accessories, Inc. and Texas Commerce Bank, N.A. dated as of June 30, 1994 and Amendments No. 1, 2 and 3 thereto........ N/A N/A N/A N/A 10.22 Credit Agreements between Tandy Brands Accessories, Inc. and NationsBank of Texas, N.A. dated as of May 16, 1997..... N/A N/A N/A N/A (11) Statement re computation of per share earnings 11.1 Earnings per share statement.............. N/A N/A N/A N/A (13) Annual Report to security holders, Form 10-Q or quarterly report to security holders 13.1 Annual Report to Stockholders of Tandy Brands Accessories, Inc................... N/A N/A N/A N/A
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INCORPORATED BY REFERENCE (IF APPLICABLE) --------------------------------------- EXHIBIT NUMBER AND DESCRIPTION FORM DATE FILE NO. EXHIBIT ------------------------------ ---- ---- -------- ------- (21) Subsidiaries of the registrant 21.1 List of subsidiaries...................... N/A N/A N/A N/A (23) Consents of experts and counsel 23.1 Consent of Ernst & Young LLP.............. N/A N/A N/A N/A (27) Financial Data Schedule 27.1 Financial Data Schedule................... N/A N/A N/A N/A
- --------------- * Management compensatory plan. EX-10.14 2 BENEFIT RESTORATION PLAN 1 EXHIBIT 10.14 TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN 2 TABLE OF CONTENTS
Page ---- ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II - ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE III - CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE IV - WITHDRAWALS . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE V - CREDITING OF CONTRIBUTIONS AND INCOME . . . . . . . . . . . . . 4 ARTICLE VI - BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE VII - PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE VIII - ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . 5 ARTICLE IX - CLAIM REVIEW PROCEDURE . . . . . . . . . . . . . . . . . . . . 7 ARTICLE X - LIMITATION OF RIGHTS . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE XI - LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS . . . . . . . . 8 ARTICLE XII - AMENDMENT TO OR TERMINATION OF THE PLAN . . . . . . . . . . . 9 ARTICLE XIII - STATUS OF PARTICIPANT AS UNSECURED CREDITOR . . . . . . . . 9 ARTICLE XIV - GENERAL AND MISCELLANEOUS . . . . . . . . . . . . . . . . . . 9
3 TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN PREAMBLE WHEREAS, Tandy Brands Accessories, Inc. desires to establish a benefit restoration plan for the exclusive benefit of a select group of its management and highly compensated employees to restore retirement benefits on behalf of such employees decreased due to limitations imposed by the Internal Revenue Code of 1986; WHEREAS, Tandy Brands Accessories, Inc. intends that any participant or beneficiary under the Plan shall have the status of an unsecured general creditor as to the plan and any trust fund established in connection with the plan; NOW, THEREFORE, Tandy Brands Accessories, Inc. hereby establishes the Tandy Brands Accessories, Inc. Benefit Restoration Plan, effective July 1, 1993. ARTICLE I DEFINITIONS 1.1 "Account" shall mean the account or record maintained by the Committee showing the monetary value of the individual interest in the Plan of each Participant or Beneficiary. Accounts shall be maintained primarily for accounting purposes and no segregation of the Accounts shall be required. 1.2 "Beneficiary" shall mean the Beneficiary designated under the Employees Investment Plan, provided that a Participant may designate a Beneficiary hereunder by delivering to the Committee a written beneficiary designation, in the form provided by the Committee, executed specifically with respect to this Plan. 1.3 "Board" shall mean the Board of Directors of Tandy Brands Accessories, Inc. 1.4 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time, and the rules and regulations promulgated thereunder. 1.5 "Committee" shall mean the Administrative Committee appointed by the Board pursuant to Article II of the Employees Investment Plan. 1.6 "Company" shall mean Tandy Brands Accessories, Inc. or its successor or successors. 4 1.7 "Disability" means a medically determinable physical or mental impairment that, as determined by the Committee, is of such permanence and degree that the Participant is, and for the indefinite future will be, unable to perform substantial gainful activity commensurate with his professional or other training, education, and experience, and comparable to his then or prior services for the Company. 1.8 "Effective Date" shall mean July 1, 1993. 1.9 "Employees Investment Plan" shall mean the Tandy Brands Accessories, Inc. Employees Investment Plan, as amended from time to time. 1.10 "Plan" shall mean the Tandy Brands Accessories, Inc. Benefit Restoration Plan, as amended from time to time. 1.11 "Plan Year" shall mean the annual period beginning July 1 and ending June 30, both dates inclusive of each year. 1.12 "Trust Agreement" shall mean the agreement, if any, including any amendments thereto entered into between the Company and the Trustee for the accumulation and investment of contributions made under the Plan. 1.13 "Trust Fund" shall mean the cash and other properties held and administered by the Trustee pursuant to the Trust Agreement. 1.14 "Trustee" shall mean the designated trustee acting at any time under the Trust Agreement. 1.15 "Valuation Date" shall mean the last day of each calendar quarter. ARTICLE II ELIGIBILITY Participation in the Plan shall be made available to a select group of individuals providing services to the Company in key positions of management and responsibility who are eligible to make contributions to the Employees Investment Plan, the amount of which is reduced by reason of the application of the limitations set forth in Sections 401(a)(17) or 402(g)(1) of the Code. Such individuals may elect to participate hereunder by executing a participation agreement in such form and at such time as the Committee shall require, provided that each participation agreement shall be executed no later than the last day of June immediately preceding the Plan Year for which an individual elects to make contributions to the Plan in accordance with the provisions of Section 3.1 hereof. Notwithstanding the foregoing, in the first year in which an individual becomes eligible to participate in the Plan, he may elect to participate in the Plan by -2- 5 executing a participation agreement, in such form as the Committee shall require, within thirty (30) days of the date on which he is notified by the Committee of his eligibility to participate in the Plan. In such event, his election to participate in the Plan shall become effective as of the first full payroll period beginning in the calendar quarter immediately following the Committee's receipt of his participation agreement. The determination as to the eligibility of any individual to participate in the Plan shall be in the sole and absolute discretion of the Board, whose decision in that regard shall be conclusive and binding for all purposes hereunder. ARTICLE III CONTRIBUTIONS 3.1 For any Plan Year, a Participant may elect to defer a portion of the gross salary and wages otherwise payable to him by the Company during such Plan Year, in the amount set forth below. The amount which a Participant may elect to defer under this Plan for any Plan Year is five percent (5%) of his gross salary and wages, reduced by the total contributions made by the Participant during such Plan Year to the Employees Investment Plan. For purposes of this Section 3.1, "gross salary and wages" shall mean all compensation paid in cash, including bonuses, and including contributions to the Employees Investment Plan, the Company's Section 125 cafeteria plan and this Plan. 3.2 Within thirty (30) days following the last day of each calendar quarter, the Company shall make matching contributions to the Plan on behalf of each Participant who has deferred amounts under the Plan during such calendar quarter in accordance with the provisions of Section 3.1 above, other than Participants who terminated service with the Company during such calendar quarter. The matching contribution shall equal one hundred fifty percent (150%) of the amount deferred by the Participant during such calendar quarter. In no event shall matching contributions be made in stock or other securities of the Company. ARTICLE IV WITHDRAWALS 4.1 In the event of an unforeseeable emergency, a Participant may make a written request to the Committee for a hardship withdrawal from his Account. For purposes of this Section, the term "unforeseeable emergency" shall mean a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Any determination of the existence of an unforeseeable emergency and the amount to be withdrawn on account thereof shall be made by the Committee. However, notwithstanding the foregoing, a withdrawal will not be permitted -3- 6 to the extent that the financial hardship is or may be relieved: (i) through reimbursement or compensation by insurance or otherwise, or (ii) by liquidation of the Participant's assets, to the extent that liquidation of such assets would not itself cause severe financial hardship. In no event shall the need to send a Participant's child to college or the desire to purchase a home be deemed to constitute an unforeseeable emergency. No member of the Committee shall vote or decide upon any matter relating to the determination of the existence of his own financial hardship or the amount to be withdrawn by him on account thereof. A request for a hardship withdrawal must be made in writing on a form provided by the Committee, and must be expressed as a specific dollar amount. The amount of a hardship withdrawal may not exceed the amount required to meet the severe financial hardship. All hardship withdrawals shall be paid in a lump sum in cash. ARTICLE V CREDITING OF CONTRIBUTIONS AND INCOME 5.1 All amounts deferred by a Participant pursuant to the provisions of Section 3.1 hereof and all Company matching contributions shall be credited to the Account of the Participant. All payments from an Account between Valuation Dates shall be charged against the Account as of the preceding Valuation Date. 5.2 The amounts credited to Participants' Accounts shall be invested and, except as otherwise provided in the Plan, as of each Valuation Date, the Committee shall credit to each Participant's Account the income, gains, losses, and other credits or charges attributable thereto. ARTICLE VI BENEFITS 6.1 Upon the death of a Participant, the Beneficiary of such Participant shall be entitled to the entire value of the Participant's Account, as of the Valuation Date coincident with or preceding the date of distribution, increased by the amount of Participant deferrals, if any, after such Valuation Date. If a Participant fails to name a Beneficiary, or if the Beneficiary named by a Participant predeceases him or dies before complete distribution of the Participant's Account, then the entire value of the Participant's Account shall be paid pursuant to the provisions of Section 6.12 of the Employees Investment Plan. 6.2 In the event of the termination of service of a Participant for reasons other than death, the Participant shall be entitled to the entire value of his Account, as of the Valuation Date coincident with or next preceding the date of distribution, increased by the amount of Participant deferrals, if any, after such Valuation Date. -4- 7 ARTICLE VII PAYMENT OF BENEFITS 7.1 The payment of a Participant's benefit shall be made either in a lump sum in cash, or in cash payments in monthly installments over a period certain not exceeding ten (10) years, such method of payment to be elected by the Participant on his initial participation agreement. Payment shall commence at the time specified by the Participant on his initial participation agreement, but in no event later than sixty (60) days following the calendar year in which the Participant attains age sixty-five (65). 7.2 Notwithstanding the provisions of Section 7.1, the benefits payable hereunder may be paid before they would otherwise be due if, based on a change in the federal or applicable state tax or revenue laws, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury, a decision by a court of competent jurisdiction involving a Participant or a Beneficiary, or a closing agreement made under Section 7121 of the Code that is approved by the Internal Revenue Service and involves a Participant, the Committee determines that a Participant has or will recognize income for federal or state income tax purposes with respect to amounts that are or will be payable under the Plan before they otherwise would be paid. The amount of any payments pursuant to this Section 7.2 shall not exceed the lesser of (i) the amount in the Participant's Account or (ii) the amount of taxable income with respect to which the tax liability is assessed or determined. 7.3 The payment of benefits under the Plan shall begin at the date specified by the Participant, in accordance with the provisions of Section 7.1 hereof; provided that, in case of administrative necessity, the starting date of payment of benefits may be delayed up to thirty (30) days as long as such delay does not result in the Participant or Beneficiary receiving the distribution in a different taxable year than he would if no such delay had occurred. ARTICLE VIII ADMINISTRATION OF THE PLAN 8.1 The Company may establish a Trust Fund for the purpose of retaining assets set aside by the Company pursuant to the Trust Agreement for payment of all or a portion of the benefits payable pursuant to the Plan. Any benefits not paid from a Trust shall be paid from the Company's general assets. The Trust Fund, if such shall be established, shall be subject to the claims of general creditors of the Company in the event the Company is Insolvent, as defined in the Trust Agreement. 8.2 Any benefits payable under the Employees Investment Plan shall be payable solely in accordance with the terms and provisions thereof, and nothing in this Agreement shall operate -5- 8 or be construed in any way to modify, amend or affect the terms and provisions of the Employees Investment Plan. 8.3 The Committee shall perform any act which the Plan authorizes expressed by a vote at a meeting or in a writing signed by a majority of its members without a meeting. The Committee may, by a writing signed by a majority of its members, appoint any member of the Committee to act on behalf of the Committee. Any person who is a member of the Committee shall not vote or decide upon any matter relating solely to himself or vote in any case in which his individual right or claim to any benefit under the Plan is particularly involved. If, in any matter or case in which a person is so disqualified to act, the remaining persons constituting the Committee cannot resolve such matter or case, the Board will appoint a temporary substitute to exercise all the powers of the disqualified person concerning the matter or case in which he is disqualified. 8.4 (a) The Committee may designate in writing other persons to carry out its responsibilities under the Plan. The Committee may remove any person designated to carry out its responsibilities under the Plan by notice in writing to that person. (b) The Committee may employ persons to render advice with regard to any of its responsibilities. Charges for all services rendered shall be paid by the Company. (c) The Company shall indemnify and hold harmless each member of the Committee from and against any and all claims and expenses (including, without limitation, attorney's fees and related costs), in connection with the performance by the person of his duties in that capacity, other than any of the foregoing arising in connection with the willful neglect or willful misconduct of the person so acting. 8.5 The Committee shall establish rules, not contrary to the provisions of the Plan, for the administration of the Plan and the transaction of its business. The Committee shall interpret the Plan in its sole and absolute discretion, and shall determine all questions arising in the administration, interpretation and application of the Plan. All determinations of the Committee shall be conclusive and binding on all employees, Participants and Beneficiaries, subject to the provisions of this Plan and applicable law. 8.6 Any action to be taken by the Company shall be taken by resolution adopted by the Board or an executive committee thereof; provided, however, that by resolution, the Board or an executive committee thereof may delegate to any officer of the Company the authority to take any actions hereunder, other than the power to amend or terminate the Plan. -6- 9 ARTICLE IX CLAIM REVIEW PROCEDURE 9.1 In the event that a Participant or Beneficiary is denied a claim for benefits under this Plan (the "claimant"), the Committee shall provide to the claimant written notice of the denial which shall set forth: (a) the specific reason or reasons for the denial; (b) specific references to pertinent Plan provisions on which the Committee based its denial; (c) a description of any additional material or information needed for the claimant to perfect the claim and an explanation of why the material or information is needed; (d) a statement that the claimant may: (i) Request a review upon written application to the Committee; (ii) Review pertinent Plan documents; and (iii) Submit issues and comments in writing; and (e) That any appeal the claimant wishes to make of the adverse determination must be in writing to the Committee within sixty (60) days after receipt of the Committee's notice of denial of benefits. The Committee's notice must further advise the claimant that his failure to appeal the action to the Committee in writing within the sixty (60) day period will render the Committee's determination final, binding, and conclusive. 9.2 If the claimant should appeal to the Committee, he, or his duly authorized representative, may submit, in writing, whatever issues and comments he, or his duly authorized representative, feels are pertinent. The Committee shall re-examine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances. The Committee shall advise the claimant in writing of its decision on his appeal, the specific reasons for the decision, and the specific Plan provisions on which the decision is based. The notice of the decision shall be given within sixty (60) days of the claimant's written request for review, unless special circumstances (such as a hearing) would make the rendering of a decision within the sixty (60) day period infeasible, but in no event shall the Committee render a decision regarding the denial of a claim for benefits later than 120 days after its receipt of a request for review. If an extension of time for review is required because of special circumstances, written notice of the extension shall be furnished to the claimant prior to the date the extension period commences. -7- 10 9.3 The Committee's notice of denial of benefits shall identify the address to which the claimant may forward his appeal. ARTICLE X LIMITATION OF RIGHTS The establishment of this Plan shall not be construed as giving to any Participant, employee of the Company or any person whomsoever, any legal, equitable or other rights against the Company, or its officers, directors, agents or shareholders, or as giving to any Participant or Beneficiary any equity or other interest in the assets or business of the Company or shares of Company stock or as giving any employee the right to be retained in the employment of the Company. All employees of the Company and Participants shall be subject to discharge to the same extent they would have been if this Plan had never been adopted. The rights of a Participant hereunder shall be solely those of an unsecured general creditor of the Company. ARTICLE XI LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS 11.1 No benefit which shall be payable under the Plan to any person shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of the same shall be void. No benefit shall in any manner be subject to the debts, contracts, liabilities, engagements or torts of any person, nor shall it be subject to attachment or legal process for or against any person, except to the extent required by law. 11.2 Whenever any benefit which shall be payable under the Plan is to be paid to or for the benefit of any person who is then a minor or determined by the Committee to be incompetent by qualified medical advice, the Committee need not require the appointment of a guardian or custodian, but shall be authorized to cause the same to be paid over to the person having custody of the minor or incompetent, or to cause the same to be paid to the minor or incompetent without the intervention of a guardian or custodian, or to cause the same to be paid to a legal guardian or custodian of the minor or incompetent if one has been appointed or to cause the same to be used for the benefit of the minor or incompetent. -8- 11 ARTICLE XII AMENDMENT TO OR TERMINATION OF THE PLAN The Company reserves the right at any time to amend or terminate the Plan in whole or in part. No amendments shall have the effect of retroactively changing or depriving Participants or Beneficiaries of rights already accrued under the Plan. In the event that the Company shall change its name, the Plan shall be deemed to be amended to reflect the name change without further action of the Company, and the language of the Plan shall be changed accordingly. ARTICLE XIII STATUS OF PARTICIPANT AS UNSECURED CREDITOR All benefits under the Plan shall be the unsecured obligations of the Company and, except for those assets which may be placed in a Trust Fund established in connection with this Plan, no assets will be placed in trust or otherwise segregated from the general assets of the Company for the payment of obligations hereunder. To the extent that any person acquires a right to receive payments hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company. ARTICLE XIV GENERAL AND MISCELLANEOUS 14.1 Severability. In the event that any provision of this Plan shall be declared illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of this Plan but shall be fully severable and this Plan shall be construed and enforced as if said illegal or invalid provision had never been inserted herein. 14.2 Construction. The section headings and numbers are included only for convenience of reference and are not to be taken as limiting or extending the meaning of any of the terms and provisions of this Plan. Whenever appropriate, words used in the singular shall include the plural or the plural may be read as the singular. When used herein, the masculine gender includes the feminine gender. 14.3 Governing Law. The validity and effect of this Plan and the rights and obligations of all persons affected hereby shall be construed and determined in accordance with the laws of the State of Texas unless superseded by federal law. 14.4 No Requirement to Fund. The Company is not required to set aside any assets for payment of the benefits provided under this Plan; however, it may do so as provided in the Trust -9- 12 Agreement. A Participant shall have no security interest in any such amounts. It is the Company's intention that this Plan be construed as a plan which is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. 14.5 Taxes. All amounts payable hereunder shall be reduced by any and all federal, state and local taxes imposed upon the Participant or his Beneficiary which are required to be paid or withheld by the Company. IN WITNESS WHEREOF, Tandy Brands Accessories, Inc., the Company, has caused its corporate seal to be affixed hereto and these presents to be duly executed in its name and behalf by its proper officers thereunto duly authorized as of the date first written above. COMPANY: TANDY BRANDS ACCESSORIES, INC. By: /s/ J.S.B. Jenkins ------------------------------ ATTEST: - --------------------------------- (Title) [CORPORATE SEAL] -10- 13 AMENDMENT NO. 1 TO THE TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN Pursuant to the authority of the Board of Directors of Tandy Brands Accessories, Inc., and the provisions of Article XII thereof, the Tandy Brands Accessories, Inc. Benefit Restoration Plan is hereby amended effective as of April 1, 1996, in the following respect only: Article II is hereby amended and restated as follows: "Article II Eligibility Participation in the Plan shall be made available to a select group of individuals providing services to the Company in key positions of management and responsibility who are eligible to make contributions to the Employees Investment Plan, the amount of which is reduced by reason of the application of the limitations set forth in Sections 401(a)(17) or 402(g)(1) of the Code. Such individuals may elect to participate hereunder by executing a participation agreement in such form and at such time as the Committee shall require, provided that each participation agreement shall be executed no later than the last day of June immediately preceding the Plan Year for which an individual elects to make contributions to the Plan in accordance with the provisions of Section 3.1 hereof. Notwithstanding the foregoing, in the first year in which an individual becomes eligible to participate in the Plan, he may elect to participate in the Plan by executing a participation agreement, in such form as the Committee shall require, within thirty (30) days of the date on which he is notified by the Chief Executive Officer of the Company ("Chief Executive Officer") of his eligibility to participate in the Plan. In such event, his election to participate in the Plan shall become effective as of the first full payroll period immediately following the Chief Executive Officer's receipt of his participation agreement. The determination as to the eligibility of any individual to participate in the Plan shall be in the sole and absolute discretion of the Chief Executive Officer, whose decision in that regard shall be conclusive and binding for all purposes hereunder." IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the foregoing instrument comprising Amendment No. 1 to the Tandy Brands Accessories, Inc. Benefit Restoration Plan, the Company has caused its corporate seal to be affixed hereto and these 14 presents to be duly executed in its name and behalf by its proper officers thereunto duly authorized this 1st day of April, 1996. ATTEST: TANDY BRANDS ACCESSORIES, INC. By: /s/ J.S.B. Jenkins - ----------------------------- ----------------------------- Secretary President 15 AMENDMENT NO. 2 TO THE TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN This Amendment No. 2 to the Tandy Brands Accessories, Inc. Benefit Restoration Plan ("Amendment") is made this 8th day of July, 1997, by Tandy Brands Accessories, Inc., a corporation duly organized and existing under the laws of the State of Delaware ("Company"). WHEREAS, the Company desires to amend the Tandy Brands Accessories, Inc. Benefit Restoration Plan ("Plan") to permit participants under the Plan to direct the investment of certain amounts credited to their separate accounts in certain permitted investments; WHEREAS, pursuant to Article XII of the Plan, the Plan may be amended by the Company. NOW, THEREFORE, effective June 12, 1997, Section 5.2 of the Plan is hereby amended and restated as follows: 5.2 The amounts credited to each Participant's Account shall be separated into two Sub-Accounts: the "First Sub-Account" and the "Second Sub-Account." The First Sub-Account shall be credited with the Participant's contributions pursuant to Section 3.1 of the Plan and earnings and losses thereon. The amounts credited to each Participant's First Sub-Account shall be invested at the direction of each Participant, provided, however, such investment direction may only be made among those investment options established from time to time by the Committee, which options shall be listed on an Exhibit A attached hereto. (Exhibit A also contains policies to be followed with Participant direction of investments.) Each Participant is only authorized to direct the investment of amounts credited to his First Sub-Account. Participant direction of investments may only be made once every six (6) months, unless otherwise determined by the Committee. The Second Sub-Account shall be credited with Company matching contributions made pursuant to Section 3.2 of the Plan and earnings and losses thereon. Each Participant's Second Sub-Account shall be invested solely in Company stock. AMENDMENT NO. 2 TO THE TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN - PAGE 1 16 IN WITNESS WHEREOF, this Amendment is adopted this 8th day of July, 1997. ATTEST: TANDY BRANDS ACCESSORIES, INC. /s/ Stanley T. Ninemire By: /s/ J.S.B. Jenkins - ------------------------------- ------------------------------ Assistant Secretary Chief Executive Officer AMENDMENT NO. 2 TO THE TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN - PAGE 2 17 EXHIBIT A INVESTMENT POLICY FOR TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN Be it resolved that this investment policy is hereby established by the Administrative Committee ("Committee") under the Tandy Brands Accessories, Inc. Benefit Restoration Plan ("Plan") for Texas Commerce Bank National Association ("TCB") and this policy shall be reviewed periodically and adjusted as necessary in the light of such reviews. PURPOSE: The purpose of this investment policy is to establish an understanding between the Committee and TCB, regarding the asset options of the Plan and those of the employee participants and beneficiaries. The primary goal of the Plan is to establish a benefit restoration plan for the exclusive benefit of a select group of the management and highly compensated employees of Tandy Brands Accessories, Inc. ("Company") to restore retirement benefits on behalf of such employees decreased due to limitations imposed by the Internal Revenue Code of 1986. Although the Employer intends that any participant or beneficiary under the Plan shall have the status of an unsecured general creditor as to the Plan and any trust fund established in connection with the Plan, the Employer has empowered (for participant contributions only) each participant to select from the options listed below those funds which meet his or her unique risk and return objective and has enabled each participant to exercise independent control of the investment of assets for his or her separate account. Such funds are to be held and invested by TCB, to the extent not required for the payment of benefits under the Plan. The overall investment goal of the Plan is to allow each participant through their investment selection to achieve a long-term total return, resulting from tax-exempt income, capital appreciation or both. Capital preservation is also a primary investment consideration. The investment options are the responsibility of and have been selected by the Employer and/or Committee of the Plan. RESPONSIBILITY AND AUTHORITY OF THE TRUSTEE: It shall be the responsibility and authority of TCB, to effect investment directives received by it from the fiduciary with investment discretion. These directives, when received in proper form, will be executed as soon as it is administratively feasible. INVESTMENT OPTIONS: The following funds are available for investment as directed by Plan Participants: Texas Commerce Bank Tax-Exempt Money Market Trust 1 18 Texas Commerce Bank Short Intermediate Municipal Bond Trust Texas Commerce Bank Limited Term Tax-Exempt Trust Texas Commerce Bank Tax-Exempt Trust Tandy Brand Accessories, Inc. Common Stock* *NOTE: Stock trades shall be executed within a reasonable period of time after receipt of contributions into the Trust. A reasonable period of time is defined in this instance to be "within five (5) business days". Sales of stock will use the same reasonable period of time definition dating from the later of the receipt or effective date of the investment election form. Any account balances which have not been directed by the Participant (other than Employer Matching Contributions, which shall be invested in Employer Stock) will be invested in the Texas Commerce Bank Tax-Exempt Money Market Trust Fund. PARTICIPANT RESTRICTIONS: A participant may make a direction of investments only once every six (6) months, on January 1 or July 1, unless otherwise determined by the Committee. Investment election percentages are in 10% increments. The participant will initially and periodically receive a fund fact sheet or other pertinent information on the investment options selected by the Committee. Changes in the investment options will be communicated to the participants in a timely manner and will be implemented on a date agreed to between TCB and the Committee. REVIEW PROCESS: The Committee will periodically review the investment performance and appropriateness of the investment options. AFFIRMATION: This policy statement shall in no way diminish or alter TCB's, the Employer's or the Committee's responsibilities as set forth in the Plan and Trust. Executed this 8 day of July, 1997 by the undersigned Committee of the Tandy Brands Accessories, Inc. Benefit Restoration Plan. /s/ J. B. JENKINS ----------------------------- ----------------------------- Committee 2 19 TRUST UNDER TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN This Agreement made this 8th day of March, 1994, by and between TANDY BRANDS ACCESSORIES, INC. a corporation duly organized and existing under the laws of the State of Delaware (Company) and TEXAS COMMERCE BANK FORT WORTH, N.A., a national banking association (Trustee); WHEREAS, Company has adopted the nonqualified deferred compensation plan as listed in Appendix A; WHEREAS, Company has incurred or expects to incur liability under the terms of such plan with respect to the individuals participating in such plan; WHEREAS, Company wishes to establish a trust (hereinafter called "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of Company's creditors in the event of Company's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; WHEREAS, it is the intention of Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. ESTABLISHMENT OF TRUST (a) Company hereby deposits with Trustee in trust $2,613.17, which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement. (b) The Trust hereby established is revocable by Company; it shall become irrevocable upon a change of control, as defined herein. Upon such change of control, as defined herein, the President of the Company shall give written notification of such event to the Trustee. 20 (c) The Trust is intended to be a grantor trust, of which Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against Company. Any assets held by the Trust will be subject to the claims of Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein. (e) Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with trustee to augment the principal to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. Section 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES (a) Company shall deliver to Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by Company. (b) The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by Company or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. (c) Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. Company shall notify Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings -2- 21 thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, Company shall make the balance of each such payment as it falls due. Trustee shall notify Company where principal and earnings are not sufficient. Section 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT (a) Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay its debts as they become due, or (ii) Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of Company under federal and state law as set forth below. (1) The Board of Directors and the President of Company shall have the duty to inform Trustee in writing of Company's Insolvency. If a person claiming to be a creditor of Company alleges in writing to Trustee that Company has become Insolvent, Trustee shall determine whether Company is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. (2) Unless Trustee has actual knowledge of Company's Insolvency, or has received notice from Company or a person claiming to be a creditor alleging that Company is Insolvent, Trustee shall have no duty to inquire whether Company is Insolvent. Trustee may in all events rely on such evidence concerning Company's solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Company's solvency. (3) If at any time Trustee has determined that Company is Insolvent, Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of Company with respect to benefits due under the Plan or otherwise. (4) Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after Trustee has determined that Company is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, -3- 22 the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by Company in lieu of the payments provided for hereunder during any such period of discontinuance. Section 4. PAYMENTS TO COMPANY Except as provided in Section 3 hereof, after the Trust has become irrevocable, Company shall have no right or power to direct Trustee to return to Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan. Section 5. INVESTMENT AUTHORITY In no event may Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by Company, other than a de minimis amount held in common investment vehicles in which Trustee invests. All rights associated with assets of the Trust shall be exercised by Trustee or the person designated by Trustee, and shall in no event be exercisable by or rest with Plan participants. Company shall have the right at any time, and from time to time, in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust. The Trustee shall invest and reinvest the principal and income of the Trust Fund and keep the Trust Fund invested, without distinction between principal and income, in such property, either real or personal, including insurance contracts, securities, U.S. Treasury Bills, Notes or Bonds, U.S. Government Agency issues, time deposits, certificates of deposit, commercial paper, bankers' acceptances, repurchase agreements and pooled short-term investment funds, as the Trustee in its sole discretion shall determine. Section 6. DISPOSITION OF INCOME During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. Section 7. ACCOUNTING BY TRUSTEE Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Company and Trustee. Within ninety (90) days following the close of each calendar year and within ninety (90) days after the removal or resignation of Trustee, Trustee shall deliver to Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and -4- 23 other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Section 8. RESPONSIBILITY OF TRUSTEE (a) Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Company. In the event of a dispute between Company and a party, Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If Trustee undertakes or defends any litigation arising in connection with this Trust, Company agrees to indemnify Trustee against Trustee's reasonable costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If Company does not pay such costs, expenses and liabilities in a reasonably timely manner, Trustee may obtain payment from the Trust. (c) Trustee may consult with legal counsel (who may also be counsel for Company generally) with respect to any of its duties or obligations hereunder. (d) Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. -5- 24 Section 9. COMPENSATION AND EXPENSES OF TRUSTEE Company shall pay all administrative and Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. Section 10. RESIGNATION AND REMOVAL OF TRUSTEE (a) Trustee may resign at any time by written notice to Company, which shall be effective sixty (60) days after receipt of such notice unless Company and Trustee agree otherwise. (b) Trustee may be removed by Company on sixty (60) days notice or upon shorter notice accepted by Trustee. (c) Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within sixty (60) days after receipt of notice of resignation, removal or transfer, unless Company extends the time limit. (d) If Trustee resigns or its removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under paragraphs (a) or (b) of this section. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. Section 11. APPOINTMENT OF SUCCESSOR (a) If Trustee resigns or is removed in accordance with Section 10(a) or (b) hereof, Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new trustee, who shall have all of the rights and powers of the former trustee, including ownership rights in the Trust assets. The former trustee shall execute any instrument necessary or reasonably requested by Company or the successor Trustee to evidence the transfer. (b) The successor Trustee need not examine the records and acts of any prior trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor trustee shall not be responsible for any action or inaction of any prior trustee or from any other past event, or any condition existing at the time it becomes successor trustee. -6- 25 Section 12. AMENDMENT OR TERMINATION (a) This Trust Agreement may be amended by a written instrument executed by Trustee and Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable after it has become irrevocable in accordance with Section 1(b) hereof. (b) The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan, unless sooner revoked in accordance with Section 1(b) hereof. Upon termination of the Trust any assets remaining in the Trust shall be returned to Company. (c) Upon written approval of participants or beneficiaries entitled to payment of benefits pursuant to the terms of the Plan, Company may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be returned to Company. Section 13. MISCELLANEOUS (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity) alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed by and construed in accordance with the laws of the State of Texas. (d) For purposes of this trust, change of control shall mean the occurrence of any of the following events: (i) any "person" or "group" of persons, as such terms are used in Sections 13 and 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than any employee benefit plan sponsored by the Company, becomes the "beneficial owner", as such term is used in Section 13 of the Exchange Act, of thirty percent (30%) or more of the outstanding shares of the Company's stock entitled to vote for the election of directors; or (ii) any shares of any class of the Company's stock are purchased pursuant to a tender or exchange offer other than an offer by the Company; or (iii) the dissolution or liquidation of the Company or the consummation of any merger or consolidation of the Company or any sale or other disposition of all or substantially all of its assets, if the stockholders of the Company immediately before such transaction own, immediately after consummation of such transaction, equity securities -7- 26 (other than options and other rights to acquire equity securities) possessing less than thirty percent (30%) of the voting power of the surviving or acquiring corporation. Section 14. EFFECTIVE DATE The effective date of this Trust Agreement shall be as of the day and year first above written. COMPANY: ATTEST: TANDY BRANDS ACCESSORIES, INC. /s/ Stanley T. Ninemire By: /s/ J.S.B. Jenkins - ----------------------------- ----------------------------- Assistant Secretary President TRUSTEE: ATTEST: TEXAS COMMERCE BANK FORT WORTH, N.A. By: /s/ Nancy N. Black - ----------------------------- ----------------------------- Cashier -8- 27 Appendix A Tandy Brands Accessories, Inc. Benefit Restoration Plan 28 AMENDMENT NO. 1 TO THE TRUST UNDER TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN This Amendment No. 1 to the Trust under Tandy Brands Accessories, Inc. Benefit Restoration Plan ("Amendment") is made this 8th day of March, 1996, by Tandy Brands Accessories, Inc., a corporation duly organized and existing under the laws of the State of Delaware ("Company") and Texas Commerce Bank Fort Worth, N.A., a national banking association ("Trustee"). WHEREAS, in connection with the Company's adoption of the Tandy Brands Accessories, Inc. Benefit Restoration Plan, the Trust under Tandy Brands Accessories, Inc. Benefit Restoration Plan ("Trust") was established by the Company and the Trustee; WHEREAS, the Company and the Trustee desire to amend the Trust to permit the Trustee to invest in securities issued by the Company; and WHEREAS, pursuant to Section 12 of the Trust, the Trust may be amended by a written instrument executed by the Trustee and the Company. NOW, THEREFORE, the Trust is hereby amended in the following respect only: Section 5 is hereby amended and restated as follows: Section 5. INVESTMENT AUTHORITY Trustee may invest in securities (including stock or rights to acquire stock) or obligations issued by Company. All rights associated with assets of the Trust shall be exercised by Trustee or the person designated by Trustee, and shall in no event be exercisable by or rest with Plan participants, except that voting rights with respect to Trust assets will be exercised by Company. Company shall have the right at any time, and from time to time, in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust. The Trustee shall invest and reinvest the principal and income of the Trust Fund and keep the Trust Fund invested, without distinction between principal and income, in such property, either real or personal, including insurance contracts, securities (including securities of the Company), U.S. Treasury Bills, Notes or Bonds, U.S. Government Agency issues, time deposits, certificates of deposit, commercial paper, bankers' acceptances, repurchase agreements, and pooled short-term investment funds, as the Trustee in its sole discretion shall determine. 29 IN WITNESS WHEREOF, this Amendment is adopted this 8th day of March, 1996, to be effective as of such date. COMPANY: ATTEST: TANDY BRANDS ACCESSORIES, INC. /s/ R. Bruce Cole By: /s/ J.S.B. Jenkins - ------------------------------- ------------------------------- Secretary President TRUSTEE: ATTEST: TEXAS COMMERCE BANK FORT WORTH, N.A. /s/ Susan R. Gazzola By: /s/ Stephanie R. Beatty - ------------------------------- ------------------------------- Witness 30 AMENDMENT NO. 2 TO THE TRUST UNDER TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN This Amendment No. 2 to the Trust under Tandy Brands Accessories, Inc. Benefit Restoration Plan ("Amendment") is made this 8th day of July, 1997, by Tandy Brands Accessories, Inc., a corporation organized and existing under the laws of the State of Delaware ("Company") and Texas Commerce Bank Fort Worth, N.A., a national banking association ("Trustee"). WHEREAS, in connection with the Company's adoption of the Tandy Brands Accessories, Inc. Benefit Restoration Plan ("Plan"), the Trust under Tandy Brands Accessories, Inc. Benefit Restoration Plan ("Trust") was established by the Company and the Trustee; WHEREAS, the Company and the Trustee desire to amend the Trust to permit participants under the Plan to direct the investment of certain amounts credited to their separate accounts under the Plan in certain permitted investments; and WHEREAS, pursuant to Section 12 of the Trust, the Trust may be amended by a written instrument executed by the Trustee and the Company. NOW, THEREFORE, effective June 12, 1997, Section 5 of the Trust is hereby amended and restated as follows: Section 5. INVESTMENT AUTHORITY The amounts credited to each participant's account under the Plan shall be separated into two sub-accounts: the "First Sub-Account" and the "Second Sub-Account," both of which are defined in Section 5.2 of the Plan. Trustee will invest First Sub-Account assets in accordance with the investment direction of each of the participants of the Plan, provided, however, such participant direction of investments may only be made among those investment options established from time to time by the Committee under the Plan, which options shall be listed on AMENDMENT NO. 2 TO THE TRUST UNDER TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN - PAGE 1 31 an Exhibit A attached hereto. (Exhibit A also contains policies to be followed with Participant direction of investments.) Participant direction of investments may only be made once every six (6) months, unless otherwise determined by the Committee under the Plan. Trustee will invest Second Sub-Account assets solely in Company stock. Trustee will maintain separate accounts and sub-accounts for each Plan participant for these purposes. IN WITNESS WHEREOF, this Amendment is adopted this 8th day of July, 1997. ATTEST: COMPANY: TANDY BRANDS ACCESSORIES, INC. /s/ Stanley T. Ninemire - -------------------------------- Assistant Secretary By: /s/ J.S.B. Jenkins -------------------------------- Chief Executive Officer ATTEST: TRUSTEE: TEXAS COMMERCE BANK FORT WORTH, N.A. /s/ Candace Greene - -------------------------------- WITNESS By: /s/ Susan R. Gazzola -------------------------------- AMENDMENT NO. 2 TO THE TRUST UNDER TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN - PAGE 2 32 EXHIBIT A INVESTMENT POLICY FOR TANDY BRANDS ACCESSORIES, INC. BENEFIT RESTORATION PLAN Be it resolved that this investment policy is hereby established by the Administrative Committee ("Committee") under the Tandy Brands Accessories, Inc. Benefit Restoration Plan ("Plan") for Texas Commerce Bank National Association ("TCB") and this policy shall be reviewed periodically and adjusted as necessary in the light of such reviews. PURPOSE: The purpose of this investment policy is to establish an understanding between the Committee and TCB, regarding the asset options of the Plan and those of the employee participants and beneficiaries. The primary goal of the Plan is to establish a benefit restoration plan for the exclusive benefit of a select group of the management and highly compensated employees of Tandy Brands Accessories, Inc. ("Company") to restore retirement benefits on behalf of such employees decreased due to limitations imposed by the Internal Revenue Code of 1986. Although the Employer intends that any participant or beneficiary under the Plan shall have the status of an unsecured general creditor as to the Plan and any trust fund established in connection with the Plan, the Employer has empowered (for participant contributions only) each participant to select from the options listed below those funds which meet his or her unique risk and return objective and has enabled each participant to exercise independent control of the investment of assets for his or her separate account. Such funds are to be held and invested by TCB, to the extent not required for the payment of benefits under the Plan. The overall investment goal of the Plan is to allow each participant through their investment selection to achieve a long-term total return, resulting from tax-exempt income, capital appreciation or both. Capital preservation is also a primary investment consideration. The investment options are the responsibility of and have been selected by the Employer and/or Committee of the Plan. RESPONSIBILITY AND AUTHORITY OF THE TRUSTEE: It shall be the responsibility and authority of TCB, to effect investment directives received by it from the fiduciary with investment discretion. These directives, when received in proper form, will be executed as soon as it is administratively feasible. INVESTMENT OPTIONS: The following funds are available for investment as directed by Plan Participants: Texas Commerce Bank Tax-Exempt Money Market Trust 1 33 Texas Commerce Bank Short Intermediate Municipal Bond Trust Texas Commerce Bank Limited Term Tax-Exempt Trust Texas Commerce Bank Tax-Exempt Trust Tandy Brand Accessories, Inc. Common Stock* *NOTE: Stock trades shall be executed within a reasonable period of time after receipt of contributions into the Trust. A reasonable period of time is defined in this instance to be "within five (5) business days". Sales of stock will use the same reasonable period of time definition dating from the later of the receipt or effective date of the investment election form. Any account balances which have not been directed by the Participant (other than Employer Matching Contributions, which shall be invested in Employer Stock) will be invested in the Texas Commerce Bank Tax-Exempt Money Market Trust Fund. PARTICIPANT RESTRICTIONS: A participant may make a direction of investments only once every six (6) months, on January 1 or July 1, unless otherwise determined by the Committee. Investment election percentages are in 10% increments. The participant will initially and periodically receive a fund fact sheet or other pertinent information on the investment options selected by the Committee. Changes in the investment options will be communicated to the participants in a timely manner and will be implemented on a date agreed to between TCB and the Committee. REVIEW PROCESS: The Committee will periodically review the investment performance and appropriateness of the investment options. AFFIRMATION: This policy statement shall in no way diminish or alter TCB's, the Employer's or the Committee's responsibilities as set forth in the Plan and Trust. Executed this 8 day of July, 1997 by the undersigned Committee of the Tandy Brands Accessories, Inc. Benefit Restoration Plan. /s/ J. B. JENKINS ----------------------------- ----------------------------- Committee 2 EX-10.21 3 CREDIT AGREEMENT - TEXAS COMMERCE BANK 1 EXHIBIT 10.21 EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT BETWEEN TANDY BRANDS ACCESSORIES, INC. as Borrower AND TEXAS COMMERCE BANK NATIONAL ASSOCIATION as Bank - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS AND ACCOUNTING TERMS ............................. 1 1.1 Definitions .................................................... 1 1.2 Accounting Terms ............................................... 6 SECTION 2. THE LOANS . .................................................. 6 2.1 Note and Terms of Commitment ................................... 6 2.2 Reduction or Termination of Commitment ......................... 6 2.3 Commitment Fee ................................................. 6 SECTION 3. LETTERS OF CREDIT . .......................................... 6 3.1 Letters of Credit .............................................. 6 3.2 Applications ................................................... 7 3.3 Procedure for Issuing Letters of Credit ........................ 7 3.4 Reimbursement; Payments ........................................ 7 3.5 Letter of Credit Commissions ................................... 7 SECTION 4. TERMS FOR ACCEPTANCES . ...................................... 7 4.1 The Acceptances ................................................ 7 4.2 Creating Acceptances ........................................... 8 4.3 Supply of Drafts ............................................... 8 4.4 Acceptance Commission .......................................... 8 4.5 Discount ....................................................... 8 4.6 Termination of the Acceptance Commitment ....................... 8 4.7 Acceptance Obligation .......................................... 9 4.8 Mandatory Prepayment ........................................... 9 4.9 Interest on Overdue Payments ................................... 9 SECTION 5. CAPITAL ADEQUACY ............................................. 9 SECTION 6. CONDITIONS PRECEDENT ......................................... 10 6.1 All Advances ................................................... 10 6.2 First Loan, Letter of Credit and/or Acceptance ................. 10 SECTION 7. REPRESENTATIONS AND WARRANTIES . ............................. 10 7.1 Existence ..................................................... 10 7.2 Good Standing ................................................. 10 7.3 Power and Authority ........................................... 10 7.4 Loan Documents ................................................ 10 7.5 No Subsidiaries ............................................... 10 7.6 Consents ...................................................... 10 7.7 No Material Litigation ........................................ 10 7.8 No Default .................................................... 11 7.9 Taxes ......................................................... 11 7.10 ERISA ......................................................... 11 7.11 No Change...................................................... 11 7.12 Regulations G, T, U and X ..................................... 11 7.13 Accuracy and Completeness of Information ...................... 11 7.14 Environmental.................................................. 11
-i- 3 TABLE OF CONTENTS (CONTINUED)
Page ---- 7.15 Eligible Acceptance ........................................... 11 7.16 Drafts ........................................................ 11 7.17 Existing Indebtedness ......................................... 12 SECTION 8. AFFIRMATIVE COVENANTS ......................................... 12 8.1 Taxes .......................................................... 12 8.2 Licenses, Permits .............................................. 12 8.3 Existence....................................................... 12 8.4 Legal Requirements.............................................. 12 8.5 Property Maintenance............................................ 12 8.6 Insurance....................................................... 12 8.7 Financial Statements............................................ 12 8.8 Access.......................................................... 12 8.9 Notices......................................................... 12 8.10 Change of Name ................................................. 13 8.11 Further Assurances ............................................. 13 SECTION 9. NEGATIVE COVENANTS............................................. 13 9.1 Use of Proceeds.................................................. 13 9.2 Sale of Assets................................................... 13 9.3 Mergers and Consolidation........................................ 13 9.4 Liens ........................................................... 13 9.5 No Inconsistent Actions ......................................... 14 9.6 Transactions with Affiliates..................................... 14 9.7 ERISA ........................................................... 14 9.8 Funded Indebtedness to EBITDA Ratio.............................. 14 9.9 Fixed Charge Ratio............................................... 14 9.10 Inventory Turnover Ratio......................................... 15 SECTION 10. EVENTS OF DEFAULT............................................. 15 10.1 Nonpayment ...................................................... 15 10.2 Misrepresentations .............................................. 15 10.3 Loan Documents .................................................. 15 10.4 Nonperformance .................................................. 15 10.5 Other Indebtedness .............................................. 15 10.6 Change of Control ............................................... 15 10.7 Judgments ....................................................... 15 10.8 Bankruptcy ...................................................... 15 10.9 Reportable Event ................................................ 15 SECTION 11. REMEDIES ..................................................... 16 11.1 Additional Remedies ............................................. 16 11.2 Remedies Cumulative ............................................. 16
-ii- 4 Table of Contents (continued)
Page ---- SECTION 12. MISCELLANEOUS . .............................................. 16 12.1 No Waiver....................................................... 16 12.2 Notices......................................................... 16 12.3 Set-Off......................................................... 16 12.4 Governing and Venue............................................. 16 12.5 Survival of Warranties.......................................... 17 12.6 Usury........................................................... 17 12.7 Expenses........................................................ 17 12.8 Indemnification................................................. 17 12.9 Severability.................................................... 17 12.10 Entire Agreement ............................................... 18 12.11 Loan Sales and Assignments ..................................... 18 12.12 No Assignment .................................................. 18 12.13 Conflict between Loan Documents ................................ 18 EXHIBITS: EXHIBIT A...(Not attached to Credit Agreement is the Revolving Promissory Note for Alternate Base Rate, CD Rate, Negotiated Rate or Eurodollar Loans dated June 30, 1994 in the amount of $15,000,000.00 executed by Borrower and delivered to Bank) EXHIBIT B .......................................................... 20 EXHIBIT C .......................................................... 21 EXHIBIT D .......................................................... 22 EXHIBIT E .......................................................... 23 SCHEDULES: SCHEDULE I ........................................................... 24 SCHEDULE II ....................................................... 26
5 AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT THIS AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this "Agreement" as the same may be amended, supplemented or restated from time to time) is by and between TANDY BRANDS ACCESSORIES, INC., A Delaware corporation ("Borrower") whose address for service of process is listed on the signature page hereof and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association ("the Bank") whose principal banking office is located in Houston, Harris County, Texas and whose address for notice purposes is listed on the signature page hereof. WHEREAS, the Borrower and Texas Commerce Bank - Fort Worth, National Association ("TCB-Ft. Worth") entered into that certain Revolving Credit Agreement dated January 2, 1991 which was amended by that certain First Amendment to Revolving Credit Agreement dated as of April 30, 1992, by that certain Second Amendment to Revolving Credit Agreement dated as of June 18, 1992, by that certain Third Amendment to Revolving Credit Agreement dated as of April 30, 1993 and by that certain Fourth Amendment to Revolving Credit Agreement dated as of April 30, 1994 (the "Credit Agreement"). TCB - Ft. Worth was merged into Texas Commerce Bank, National Association which was the predecessor in interest by merger into Texas Commerce Bank National Association. The Borrower has requested that the Bank amend, restate and replace the Credit Agreement and the Bank is willing to do so provided that Borrower execute and deliver this Agreement on the terms and subject to the conditions stated herein. This Agreement governs an unsecured revolving credit facility which may be used for issuance of letters of credit and creation of bankers' acceptances as well as money borrowings for the purpose of financing and supporting the general corporate purposes, including, without limitation, the working capital, the letters of credit and bankers' acceptance needs of Borrower and TB Acquisitions, Inc. and acquisition financing and treasury stock purchase requirements of the Borrower; and WHEREAS, the Bank is willing, upon and subject to the terms and conditions hereof, to make such credit facility available as long as terms and conditions set forth herein are met; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the Borrower and the Bank hereby agree as follows: SECTION 1. DEFINITIONS AND ACCOUNTING TERMS. 1. 1 Definitions. As used in this Agreement, the capitalized words below and terms shall have the following respective meaning: "Acceptance" shall mean any bankers' acceptance drawn by the Borrower on and created by the Bank pursuant to Section 4 hereof. "Acceptance Commitment" shall have the meaning specified in Section 4 hereof. "Acceptance Obligation" has the meaning specified in Section 4 herein. "Acquisition Capital Expenditures" shall mean, for any period, the aggregate expenditures, costs, financings (which shall include Capitalized Lease financings or transactions including such leases), cash expended, stock transactions or other methods of purchasing a tangible fixed asset or capital asset, i.e., the total "purchase price" of such acquisition which shall be supported by appraisals, accounting practices, sales contracts or other evidence generally utilized in reflecting the purchase price of acquisitions and which purchase price will be reflected in the Borrower's financial statements. "Advances" shall mean collectively, the Loans, Letter of Credits and Acceptances. "Affiliate" of any Person shall mean any other Person directly or indirectly, controlling, controlled by, or under common control with, such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the Page 1 of 19 Pages 6 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 management and policies of such person, whether through the ownership of Voting Shares or by contract or otherwise. "Application" shall mean the standard commercial and/or standby letter of credit application of the Bank in form and substance satisfactory to the Bank and its counsel. "Authorized Person" shall mean the Chief Executive Officer, President, any Vice President, Chief Financial Officer, Treasurer or Controller of the Borrower and such other individuals as are authorized in writing to the Bank to act on behalf of the Borrower, ADG (as defined hereinafter) or TBAC (as defined hereinafter), as the case may be. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States. "Business Day" means a day when the main office of the Bank is open for the conduct of commercial lending business. "Capital Expenditures" shall mean, for any period, the aggregate of all expenditures and costs of the Borrower (whether paid in cash or accrued as liabilities during that period and including that portion of Capitalized Leases of the Borrower) during such period that, in conformity with GAAP, are required to be included in or classified as property, plant or equipment or another similar fixed asset account reflected on the balance sheet of the Borrower. "Capitalized Lease' shall mean any lease which, in accordance with GAAP, would be treated as a capital item in the financial statements of Borrower. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Commitment" shall mean $15,000,000.00. "Change in Control" shall mean that an event has occurred which requires a Person, who reports beneficial ownership of more than 25 % of the then outstanding Voting Stock of the Borrower, to file a Schedule 13D with the SEC according to the Securities Act except for Tandy Brands Accessories, Inc. Employees Investment Plan. "Consolidated Inventory" shall mean (without duplication), as of any date, (i) the inventory which would be reflected on a consolidated balance sheet of Borrower prepared as of such date in accordance with GAAP, and (ii) the assets of Borrower held for sale or lease or furnished or to be furnished under contracts of service, raw materials, work-in-progress and materials used or consumed by Borrower. "Controlled Group" shall mean all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code. "Cost of Goods Sold" shall mean the amount of cost of goods sold from the consolidated financial statements of Borrower determined cumulatively for the immediately, preceding four (4) fiscal quarters prepared as of such date in accordance with GAAP, "Current Liabilities" shall mean, as of any date, the current liabilities which would be reflected on a consolidated balance sheet of Borrower prepared as of such date in accordance with GAAP. "Debtor Laws" shall mean all applicable liquidation, conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization or similar laws from time to time in effect affecting the rights of creditors generally. Page 2 of 19 Pages 7 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 "Default" shall mean any of the events specified in Section 10, or under the Loan Documents, provided that there shall have been satisfied any requirement in connection with such event for the giving of notice or lapse of time or both, or the happening of any further condition, event or act. "Discount Rate" means, with respect to any Acceptance at any time, the bid rate in effect at such time for discount by the Bank of commercial drafts or bills eligible for discount by the Federal Reserve Banks in the same face amount, with the same maturity, and of the same type, as such Acceptance. "Dollars" and "$" shall mean lawful currency of the United States of America. "Draft" shall mean the document as specified in Section 4 and in the form of Exhibit D hereto. "EBITDA" shall mean pretax income plus Interest Expense plus amortization and depreciation. "Effective Date" with respect of this Agreement, shall mean, June 30, 1994. "Eligible Acceptance" shall mean an Acceptance (a) which complies with the requirements for eligibility set forth in Section 13 of the Federal Reserve Act and with applicable regulations of the Board governing bankers' acceptances, (b) against the liability for which a bank is not required to maintain reserves under Regulation D of the Board in effect from time to time, or under any law or regulation, and (c) which is eligible for discount by Federal Reserve Banks. "Eligibility Certificate" shall mean the document described in Section 4 hereof and shall be in the form of Exhibit C. "ERISA" shall mean the Employment Retirement Income Security Act of 1974, as amended. "FDIC" shall mean the Federal Deposit Insurance Corporation or any successor thereto. "Fixed Charges" shall mean, as of any date, on a consolidated basis, the sum of Borrower's (i) cash Interest Expense, (ii) scheduled principal payments, (iii) Capital Expenditures excluding Acquisition Capital Expenditures, (iv) cash dividends, (v) treasury stock repurchased and (vi) cash tax expenses. "Funded Indebtedness" shall mean, as of any date, the sum of the following (without duplication): (i) all Indebtedness of Borrower as of such date, other than consolidated Current Liabilities, (ii) all Indebtedness which would be classified as "funded indebtedness' or "long-term indebtedness" on a consolidated balance sheet of Borrower prepared as of such date in accordance with GAAP, (iii) all Indebtedness, whether secured or unsecured, of Borrower having a final maturity (or which is renewable or extendable at the option of the obligor for a period ending more than one year after the date of creation thereof), notwithstanding the fact that payments in respect thereof (whether installment, serial maturity or sinking fund payments, or otherwise) are required to be made by the obligor less than one year after the date of the creation thereof and notwithstanding the fact that any amount thereof is at the time included also in consolidated Current Liabilities of such obligor, (iv) all Indebtedness of Borrower outstanding under a revolving credit or similar agreement providing for borrowings (and renewals and extensions thereof) over a period of more than one year, notwithstanding the fact that any such Indebtedness is created within one year of the expiration of such agreement, and (v) all obligations under guaranties of Borrower maturing more than one year from the date of calculation of the covenants in Section 9 hereof. "GAAP" shall mean generally accepted accounting principles in the United States of America, applied on a basis consistent with those used in the preparation of the financial statements required in Section 9. "Governmental Authority" shall mean any Federal, state, municipal or other governmental department, commission, board, bureau, agency, court or instrumentality, domestic or foreign. "Highest Lawful Rate" shall have the meaning ascribed thereto in the Note. Page 3 of 19 Pages 8 Amended And Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 "Indebtedness" shall mean, with respect to the Borrower, all indebtedness, obligations and liabilities of such Borrower, including without limitation: (i) all liabilities which would be reflected on a balance sheet of Borrower, prepared in accordance with GAAP, (ii) all obligations of Borrower in respect of any guaranty, (iii) all obligations of Borrower in respect of any Capitalized Lease, and (iv) all obligations, indebtedness and liabilities secured by any Encumbrance on any property or assets of Borrower. "Interest Expense" shall mean for any period, the interest charges paid or accrued during such period (including imputed interest on Capitalized Lease obligations, but excluding amortization of debt discount and expense) on the Indebtedness of Borrower. "Legal Requirement" shall mean any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority. "Letters of Credit" shall have the meaning specified in Section 3.1 hereof. "Lien" shall mean any claim, encumbrance, mortgage, lien, charge, pledge, security interest, priority payment, conditional sales agreement, right, or other title retention agreement right of any kind whatsoever, including but not limited to, any right under a Capitalized Lease of the type listed in Section 1. 1 hereof, in, upon or against any asset of the Borrower. "Loan" or "Loans" shall mean any loan by the Bank made to the Borrower pursuant to Section 2 hereof and includes an Alternate Base Loan, a CD Rate Loan and a Eurodollar Loan (each of which shall be a "type" of Loan as further described in the Note). "Note" shall mean the Revolving Promissory Note defined in Section 2 hereof and include any renewal, extension, modification, rearrangement, supplement, increase or replacement thereof. "Notice of Acceptance" shall mean the document specified in Section 4 and Exhibit D attached hereto. "Notice of Borrowing" shall mean the document specified in Exhibit B or any other such document mutually agreed upon by Borrower and Bank. "Loan Documents" shall mean (a) this Agreement and its Exhibits and Schedules, (b) the Note, (c) Applications, (d) Letters of Credit, (e) Acceptances, (f) Drafts and (g) any and all other agreements, documents or instruments now or hereafter executed in connection with any of the foregoing or the transactions evidenced thereby; as the same may be modified, amended, restated, supplemented, renewed, extended or replaced from time to time. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" shall mean, an individual, partnership, joint venture, group, corporation, bank, trust, unincorporated organization and/or a government or any department or agency thereof. "Plan" shall mean an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (a) maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group or (b) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which the Borrower or any member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five Plan years made contributions. Page 4 of 19 Pages 9 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 "Proper Form" shall mean in form and substance satisfactory to the Bank. "Regulation D" shall mean Regulation D of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof "Regulation G" shall mean Regulation G of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof "Regulation T" shall mean Regulation T of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation U" shall mean Regulation U of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation X" shall mean Regulation X of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof "Regulatory Change" shall mean any change on or after the date of this Agreement in United States Federal, state or foreign laws or regulations (including Regulation D) or the adoption or making on or after such date of any interpretations, directives or requests applying to a class of banks including the banks of or under any United States federal or state, or any foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Reportable Event" shall mean that event as defined in Section 7.1 hereof. "Schedules I and II" shall mean those schedules attached hereto listing Borrower's Subsidiaries and existing Indebtedness. "SEC" shall mean the Securities Exchange Commission and any successor commission. "Securities Act" shall mean the Securities Exchange Act of 1934, as amended. "Subsidiary" shall mean any corporation of which fifty percent (50 %) or more of the Voting Shares is owned, directly or indirectly, by Borrower. "Termination Date" shall mean the earlier to occur of: (i) April 30, 1996 or (ii) that date as specified by the Bank pursuant to Section 10 hereof or (iii) April 30, 1997 if such date is requested by Borrower in writing prior to April 30, 1995 and if such date is approved by Bank in its sole discretion. "Trust Company" shall mean Texas Commerce Trust Company, located at 80 Broad Street, New York, New York 10004. "Unfunded Vested Liabilities" shall mean, with respect to any Plan at any time, the amount (if any) by which (a) the present value of all vested nonforfeitable benefits under such Plan exceeds (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan using the interest rates and other factors for Plan termination as announced by the PBGC and in effect at such time, but only to the extent that such excess represents a potential liability to Borrower or any member of the Controlled Group to the PBGC under Title IV of ERISA. "Voting Shares" of Borrower shall mean shares of any class or classes (however designated) having ordinary voting power for the election of at least a majority of the members of the board of directors (or other governing bodies) of Borrower, other than shares having such power only by reason of the happening of a contingency. Page 5 of 19 Pages 10 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 1.2 Accounting Terms. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP as in effect from time to time, applied on a basis consistent with those followed in the preparation of the most recent financial statements delivered pursuant to Section 8.7 hereof. SECTION 2. THE LOANS. 2.1 Note and Terms of Commitment. Subject to the terms and conditions hereof, the Bank agrees to make advances or loans to Borrower from time to time before the Termination Date, not to exceed at any one time outstanding the amount of the Commitment. Advances shall take the form of Loans under the Note, issuances of Letters of Credit by Bank or Acceptances. The Loans shall be evidenced by, and shall bear interest and be payable as provided in the Note executed by Borrower dated as of the Effective Date and delivered to Bank which is given in renewal, extension, modification of and increase in the amount of that certain promissory note dated April 30, 1994 in the principal amount of $5,000,000.00 (including all prior notes of which said note represents a renewal, extension, modification, increase, substitution, rearrangement or replacement thereof, the "Renewed Note"). Each Loan shall be in an amount not less than that amount provided for in the Note. Borrower shall have the right to borrow, repay and reborrow under the Note provided that at no time shall the sum of the aggregate amount outstanding of: (i) Loans, (ii) L/C Obligations (as defined in Section 3) and (iii) Acceptances exceed the amount of the Commitment. 2.2 Reduction or Termination of Commitment. The Borrower may at any time or from time to time irrevocably reduce the amount of the Commitment or irrevocably terminate in whole the Commitment by giving not less than two full Business Days' prior written notice to such effect to the Bank, provided that (a) any partial reduction of the Commitment shall be in an aggregate amount of not less than $250,000.00 or whole number multiples thereof and (b) in no event shall the Borrower be entitled to terminate or reduce the Commitment if, after giving effect thereto and to any concurrent prepayments made hereunder, the Commitment shall be less than the sum of the aggregate amount of all outstanding Advances. After each such reduction, the commitment fee owing pursuant to Section 2.3 hereof shall be calculated upon the amount of Commitment as so reduced. Upon any termination or reduction pursuant to this Section 2.2, the Borrower shall pay to the Bank the commitment fee on the amount of the Commitment so terminated or reduced accrued through the date of such termination or reduction. 2.3 Commitment Fee. The Borrower agrees to pay to the Bank a commitment fee at the rate of 1/4 of 1% per annum on the average daily unused portion of the Commitment computed on the basis of a 365/366 day year consisting of twelve months having the respective number of days actually contained in each calendar month. Such commitment fee shall be payable on each June 30, September 30, December 31 and March 31 during the term of this Agreement, commencing September 30, 1994. SECTION 3. LETTERS OF CREDIT. 3.1 Letters of Credit. Subject to this Agreement, the Letters of Credit may be issued from time to time on and after the Effective Date, but, not including, the Termination Date for the account of the Borrower or for the account of TBA Acquisition, Inc. dba Accessories Design Group, Inc., a Delaware corporation ("ADG") or TBAC - Prince Gardner, Inc., a wholly-owned Subsidiary of Borrower ("TBAC") and in favor of such Person or Persons as may be designated by Borrower, ADG or TBAC. Each Letter of Credit shall expire on a date not later than 365 days from the date of issuance thereof for commercial letters of credit ("Commercial L/Cs") and expire not later than 12 months from date of issuance thereof for standby letters of credit ("Standby L/Cs") (except for letters of credit containing evergreen clauses) and, in any event, no later than the Termination Date and (d) be denominated in Dollars (or other currencies that are acceptable to the Bank). The Commitment shall be reduced by an amount equal to the sum of: (a) the face amount of all outstanding Letters of Credit; and (b) the amount of any unreimbursed drawings or other amounts owing to the Bank under or in respect of any Letter of Credit or Application (items (a) and (b) are hereinafter collectively referred to as the "L/C Obligations") such that, on any Page 6 of 19 Pages 11 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 date, the sum of (x) all Loans outstanding on such date and (y) all L/C Obligations on such date does not exceed the Commitment. The total aggregate amount of L/C Obligations shall never exceed $10,000,000.00. 3.2 Applications. As a condition precedent to the issuance of any Letter of Credit for the account of Borrower and/or ADG, the Bank shall have received an Application, duly completed and executed by ADG and by the Borrower in Proper Form, not less than three (3) Business Days prior to the date on which the Letter of Credit is to be issued and in the event that any Application is delivered to Bank for the account of ADG without the signature of Borrower, the Borrower agrees that for all purposes that any Application executed by ADG and delivered to Bank without Borrower's signature shall be as if the Borrower's signature did actually appear thereon and Borrower shall be deemed to be liable in the same capacity as ADG as a "co-applicant" thereon. In the event that any provision of a Letter of Credit Application shall be inconsistent with any provision of this Agreement, the provisions of this Agreement shall govern. 3.3 Procedure for Issuing Letters of Credit. The issuance of each Letter of Credit shall be subject to the following conditions precedent: (a) no Default shall have occurred and be continuing; (b) each request by Borrower for the issuance of a Letter of Credit shall be deemed to be a representation to that effect and to the further effect that the representations and warranties contained in Section 6 of the Agreement are true and correct as of the date of such request as if made on and as of such date; and (c) Bank receives an Application in Proper Form and any and all other such agreements and documents reasonably required by the Bank in connection with such Letter of Credit. 3.4 Reimbursement; Payments. In the event the Bank makes any payment under a Standby L/C, such action shall be deemed for all purposes of this Agreement and the other Loan Documents to constitute the making of Loan to the Borrower and, in connection therewith, the Borrower hereby unconditionally and irrevocably authorizes, empowers and directs the Bank to record and otherwise treat payments under such Standby L/C as Loans made to the Borrower hereunder. Any determination by the Bank of the outstanding amount of Loans made under this Section 3.4 shall be conclusive in the absence of manifest error. 3.5 Letter of Credit Commissions. In consideration for the issuance of each Letter of Credit, the Borrower agrees to pay to the Bank a letter of credit issuance fee ("Fee") in respect of such Letter of Credit in an amount equal to: (1) in the case of Commercial L/C's, one eighth of one percent (1/8%) per annum per quarter or fraction thereof on the face amount of such Letter of Credit; and (2) in the case of Standby L/C's, three-quarters of one percent (3/4%) per annum on the face amount of such Letter of Credit. The Fee shall be paid to the Bank at its main offices to the attention of the Manager, Documentary Services Division in advance of issuance of the Letter of Credit. SECTION 4. TERMS FOR ACCEPTANCES. 4.1 The Acceptances. Subject to the terms and conditions of this Agreement, the Bank agrees to create Acceptances by accepting a Draft, in Proper Form, as long as such Draft shall: (a) be drawn by the Borrower on the Bank in accordance with the terms hereof; (b) be dated the date of acceptance of such Draft by the Bank; (c) mature on a Business Day not less than thirty (30) days nor more than one hundred eighty (180) days after the date of such Draft, and in no event mature (i) earlier than 30 days or (ii) later than the Termination Date; (d) have a face amount of not less than $200,000.00 payable in Dollars; (e) be accompanied by an executed Eligibility Certificate and (f) be an Eligible Acceptance. Page 7 of 19 Pages 12 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 4.2 Creating Acceptances. (a) The creation of each Acceptance hereunder after notice given not later than 10:00 a.m. (Houston time) on the Business Day on which such Acceptance is requested by the Borrower from the Bank shall occur after all requirements in Section 4.1 and Section 6 are met by Borrower. Each such notice shall be by telephone, telecopy, telex or cable in substantially the form of Exhibit D (the "Notice of Acceptance"), from the Borrower to the Bank, specifying the information necessary to complete each such Notice of Acceptance. (b) Not later than 11:00 a.m. (Houston time) on the date of any such request for the creation on Acceptance by Borrower and upon fulfillment of the applicable conditions set forth in Section 6, the Bank or the Trust Company creating the Acceptance will, in accordance with such Notice of Acceptance, (i) fill in the date, amount and maturity of a Draft, (ii) stamp and complete the Eligibility Certificate on such Draft, and (iii) accept such Draft upon satisfactory determination of the applicable conditions precedent. 4.3 Supply of Drafts. To enable the Banks to create Acceptances in the manner specified in Section 4.2, the Borrower shall supply the Bank, upon the Borrower's execution of this Agreement and thereafter forthwith upon request by the Bank, with a sufficient number of blank Drafts as the Bank may reasonably request, duly executed by the Borrower. The Trust Company shall hold such Drafts in safekeeping to be filled in and completed as Acceptances in accordance with Section 4.2(b). In case any authorized signatory of the Borrower whose signature shall appear on any Draft shall cease to have such authority before the creation of an Acceptance with respect to such Draft, such signature shall nevertheless be valid and sufficient for all purposes as if such authority had remained in force at the time of such creation. 4.4 Acceptance Commission. The Borrower agrees to pay to the Bank an acceptance commission, with respect to each Acceptance created by such Bank hereunder, on the face amount of such Acceptance, for the period from the date of such Acceptance to the date of its maturity, of 3/4 of 1%, as a percentage per annum, payable in full on the date such Acceptance is created. Payment of such acceptance commission with respect to each Acceptance shall be made for account of the Borrower by the Bank deducting the amount of such acceptance commission from the proceeds of the discount of such Acceptance pursuant to Section 4.5. 4.5 Discount. The Bank agrees, subject to the terms and conditions of this Agreement, that on the date of the creation by Bank of each Acceptance hereunder, the Bank will (a) discount such Acceptance at the Discount Rate for such Acceptance in effect at the time of creation of such Acceptance and (b) make available to the Borrower in same day funds at the address referred to on the signature page hereof for Bank, an amount equal to the proceeds of such discount less the acceptance commission payable to the Bank with respect to such Acceptance under Section 4.4. The Bank may at any time or from time to time, sell, rediscount or otherwise dispose of such Acceptance. 4.6 Termination of the Acceptance Commitment. Notwithstanding anything to the contrary herein, if any of the following events shall occur: (a) There is a reasonable determination made in good faith by Bank or by any regulatory body (including, without limitation, the staff of any Federal Reserve Bank or the officers of the Office of the Comptroller of the Currency), or there is a change in, or change in interpretation of, any applicable rule or regulation, to the effect that any Acceptance created hereunder is not, or would not be, an Eligible Acceptance; or (b) Any restriction is imposed on the Bank by any regulatory body (including, without limitation, any change in acceptance limits imposed on the Bank) which would prevent the Bank from creating Acceptances or performing Bank commitment with respect of creation of Acceptances for Borrower; or Page 8 of 19 Pages 13 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 (c) Any Default as defined in Section 10 hereof shall occur and remain uncured; then the Bank may, by notice to the Borrower in writing or by telephone (confirmed in writing), terminate the Bank's obligation to create Acceptances for Borrower under the Commitment, effective on the date on which such Bank gives such notice; provided that, in the case of the occurrence of any event described in this Section 4.6(a) and (b), such notice shall describe in reasonable detail the nature of such event. Upon such termination of the Revolving Credit Commitment or any obligation with respect of creation of Acceptances hereunder, as the case may be, the Bank shall have no further obligation to the Borrower to create Acceptances or otherwise perform under this Section 4. 4.7 Acceptance Obligation. The Borrower is obligated, and hereby unconditionally agrees, to pay in immediately available funds, to the Bank, the face amount of each Acceptance created by the Bank hereunder not later than 3:00 p.m. (Houston time) on the maturity date of such Acceptance (the obligation of tile Borrower under this Section 4.7 with respect to any Acceptance being the 'Acceptance Obligation' with respect to such Acceptance). 4.8 Mandatory Prepayment. The Borrower shall, at any time after a Default has occurred and is continuing as defined in Section 10 hereof, or on the Termination Date with respect to Acceptances then outstanding, or upon receipt of a termination notice as contemplated by Section 4.6, prepay the Acceptance Obligation with respect to each such Acceptance then outstanding, by paying to the Bank, promptly after the demand for payment by Bank, the face amount of such Acceptance less (except as otherwise provided below) the Prepayment Discount for such Acceptance in effect for such prepayment. "Prepayment Discount" means, for any prepayment on any date of the Acceptance Obligation with respect to any Acceptance, an amount equal to (i) the product of the sum of (A) the face amount of such Acceptance and (B) the Discount Rate with respect to such Acceptance in effect at the time of such prepayment minus one-eighth of one percent (0.125%) per annum, multiplied by (ii) a fraction, the numerator of which is the number of days from such date to the maturity date of such Acceptance and the denominator of which is 360. In the event of a prepayment of an Acceptance as a result of a demand pursuant to Sections 4.6, the Borrower shall be required to prepay such Acceptance by paying the Banks the face amount of such Acceptance, without deducting any Prepayment Discount. 4.9 Interest on Overdue Payments. The Borrower agrees to pay interest on any amount of an Acceptance Obligation not paid when due (whether by scheduled maturity, mandatory prepayment, acceleration or otherwise), on demand, from the date such amount becomes due until such amount is paid in full, at the Default Rate (as defined in the Note). SECTION 5. CAPITAL ADEQUACY If Bank determines after the date of this Agreement that any change in applicable laws, rules or regulations regarding capital adequacy, or any change in the interpretation or administration thereof by any appropriate governmental agency, or compliance with any request or directive to Bank regarding capital adequacy (whether or not having the force of law) of any such agency, increases the capital required to be maintained with respect to the Loans, Letters of Credit or Note and therefor reduces the rate of return on Bank's capital below the level Bank could have achieved but for such change or compliance (taking into consideration Bank's policies with respect to capital adequacy), then Borrower will pay to Bank from time to time, within 15 days of Bank's request, any additional amount required to compensate Bank for such reduction. Bank will request any additional amount by delivering to Borrower a certificate of Bank setting forth the amount necessary to compensate Bank. The certificate will be conclusive and binding, absent manifest error. Bank may make any assumptions, and may use any allocations of costs and expenses and any averaging and attribution methods, which Bank in good faith finds reasonable. Page 9 of 19 Pages 14 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 SECTION 6. CONDITIONS PRECEDENT. 6.1 All Advances. The obligation of the Bank to make any Loan, issue any Letter of Credit, create any Acceptance or renew the Renewed Note is subject to satisfaction of the following conditions precedent: (a) the Bank shall have received the following, all of which shall be duly executed and in Proper Form: (1) for any Loan, a Notice of Borrowing, substantially in the form of Exhibit B, as provided for in the Note; (2) for the issuance of any Letter of Credit, a duly executed Application in Proper Form by Borrower or ADG within the time set forth in Section 3.2; (3) in the case of an Acceptance, the receipt of notice and Drafts by the Bank as required in Section 4.2 in Proper Form and the receipt by the Bank of all Acceptance fees and commissions due the Bank; and (b) no Default shall have occurred and be continuing; and (c) the making of or issuance of any Advance shall not be prohibited by, or subject the Bank to any penalty or onerous condition under, any Legal Requirement. 6.2 First Loan, Letter of Credit and/or Acceptance. In addition to the matters described in the preceding section, the obligation, if any, of the Bank to renew the Renewed Note, to make the first Loan, issue the first Letter of Credit or create the first Acceptance or to renew and extend any of the Letters of Credit or Acceptance is subject to the receipt by the Bank of all of the Loan Documents, all of which shall be in Proper Form. SECTION 7. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter into this Agreement and to make the Advances, the Borrower represents and warrants to the Bank that: 7.1 Existence. Borrower is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation. 7.2 Good Standing. To the best of Borrower's knowledge, Borrower is duly qualified and in good standing in every jurisdiction in which it presently engages in business and in which such qualification is required. 7.3 Power and Authority. Borrower has the power, authority and legal right to own or lease and enjoy undisturbed, the assets of its business and engage in business as now conducted. 7.4 Loan Documents. Borrower has the power, authority and legal right to execute, deliver and perform under this Agreement, the Note, and the other Loan Documents and when executed and delivered, the Loan Documents will constitute a legal, valid and binding obligation enforceable in accordance with their terms, except as may be limited by bankruptcy, insolvency and other similar laws affecting creditors' rights generally and by general equitable principles. 7.5 No Subsidiaries. Borrower has no subsidiaries except those listed on Schedule I attached hereto. 7.6 Consents. To the best of Borrower's knowledge, no consent of any Person, and no consent, license, permit, approval or authorization of, exemption by, or registration, filing or declaration with any Government Authority is required in connection with the execution, delivery, performance, validity or enforceability by or against Borrower of the Loan Documents to which it is or will be a party. 7.7 No Material Litigation. No litigation, investigation or administrative proceeding of or before any court, arbitrator or Governmental Authority is presently pending or, to the knowledge of Borrower, threatened against it or any of its properties or assets (a) with respect to any Loan Document or any of the transactions contemplated hereby or thereby or (b) which, if adversely determined, could reasonably be expected to materially and adversely affect the business, operations, properties, assets or financial or other condition of the Borrower. Page 10 of 19 Pages 15 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 7.8 No Default. Borrower is not in default, and the execution, delivery and performance of the Loan Documents will not result in a default, in the payment or performance of any of the Borrower's obligations or in the performance of any mortgage, indenture, lease, contract or other agreement or undertaking to which it is a party or by which it or any of its properties or assets may be bound, and no Default hereunder has occurred and is continuing. The Borrower is not in default under any order, award or decree of any court, arbitrator or Governmental Authority binding upon or materially affecting it or by which any of its properties or assets is bound or materially affected, and no such order, award or decree has or will materially affect the ability of the Borrower to perform its obligations under the Loan Documents or the ability of the Borrower to carry on its businesses. 7.9 Taxes. Borrower, to the best of its knowledge, has filed or caused to be filed all tax returns material for the continuation of its business which are required to be filed, and have paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its properties and all other taxes, fees or other charges imposed on the Borrower or any of its properties by any Governmental Authority and no tax liens have been filed and, to the knowledge of the Borrower, no material claims are being asserted with respect to any such taxes, fees or other charges. 7.10 ERISA. Borrower, to the best of its knowledge, is in compliance in all material respects with ERISA and the rules and regulations thereunder. There exists no Unfunded Vested Liabilities under any Plan to which the Borrower is a party. No "Reportable Event", as such term is defined in Section 4043(b) of Title IV of ERISA, has occurred and is continuing with respect to any Plan. 7.11 No Change. Since the date of the most recent balance sheet delivered to the Bank pursuant to Section 8.7 hereof, there has been no material adverse change in the business, operations, property or financial or other condition of the Borrower. 7.12 Regulations G, T, U and X. Borrower is not engaged nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board. No part of the proceeds of the Commitment hereunder will be used for any purpose which violates the provisions of Regulations G, T, U or X of said Board. 7.13 Accuracy and Completeness of Information. All information, exhibits, reports, other papers and data with respect to the Borrower prepared and furnished to the Bank by or on behalf of the Borrower in connection with the Loan Documents were at the time the same were so furnished complete, accurate and correct in all material respects. No document furnished or statement made to the Bank by the Borrower in connection with the negotiation, preparation or execution of this Agreement contains any untrue statement of a fact material to the creditworthiness of the Borrower or omits to state any such material fact necessary in order to make the statements contained therein not misleading, in either case which has not been corrected, supplemented or remedied by subsequent documents furnished or statements made in writing to the Bank. 7.14 Environmental. Borrower has complied and continues to comply with all environmental laws materially applicable to the operation of its property and business, and has not received any summons, complaint, order or other notice that it is not in compliance with, or any governmental authority is investigating its compliance with, any environmental laws. 7.15 Eligible Acceptance. Each Acceptance when created hereunder is an Eligible Acceptance. 7.16 Drafts. At the time of presentation to the Banks, each Draft shall represent one or more transactions involving the sale, transportation or storage of goods in existence at such time; and Borrower's Eligibility Certificate shall identify the goods, the countries from and to which they are shipped, the approximate date of each shipment and any other relevant information that the Banks may request with respect of each transaction. Page 11 of 19 Pages 16 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 7.17 Existing Indebtedness. Borrower has no other existing Indebtedness as of the Effective Date except that Indebtedness listed on Schedule II attached hereto. SECTION 8. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees with the Bank that prior to the termination of this Agreement Borrower will do, and if necessary cause to be done each and all of the following: 8.1 Taxes. Pay all taxes and establish reserves deemed adequate therefore, unless and only to the extent that the same shall be contested in good faith and by appropriate proceedings; 8.2 Licenses, Permits. Renew and keep in full force and effect all material licenses, permits, patents, trademarks, tradenames, and franchises required to conduct Borrower's business; 8.3 Existence. Do all things to preserve its existence, qualifications, rights and franchises in all jurisdictions where such qualification is necessary; 8.4 Legal Requirements. Comply with all material legal requirements in respect of the ownership of its property and the conduct of its business; 8.5 Property Maintenance. Preserve, repair, and maintain all of it property necessary to conduct its business in an efficient and proper manner; 8.6 Insurance. Maintain adequate insurance with such insurers, on such of its property, in such amounts and against such risks as is customary with companies conducting similar businesses, and furnish the Bank satisfactory evidence thereof promptly upon request; 8.7 Financial Statements. Furnish to the Bank the following: (a) Not later than 90 days after the end of its fiscal year, its balance sheet and income statement and cash flow statement ("Financial Statements"), prepared in accordance with GAAP consistently applied and certified in a manner satisfactory to the Bank by independent, certified public accountants acceptable to the Bank and also furnish along with such Financial Statements, unaudited consolidating Financial Statements, if any; (b) Not later than 45 days after the end of each fiscal quarter, its balance sheet, statements of income and cash flow certified in a manner satisfactory to the Bank by the chief financial officer of Borrower; (c) With each set of financial statements described in (a) and (b) above, the certificate of the chief financial officer of Borrower certifying that no event exists which alone or with notice, the passage of time, or both, would constitute a Default and setting forth the calculations and information necessary to demonstrate the compliance or noncompliance with the financial covenants of Section 9 hereof; and (d) Upon the request of the Bank, all such additional information, financial or otherwise, of Borrower as the Bank may reasonably request from time to time; 8.8 Access. Upon written request and the Bank's agreement to maintain the confidentiality of same, the Bank's representatives and agents shall be permitted access to any or all of Borrower's property and financial records, to abstract from such records and to discuss the finances, business and affairs of Borrower with its officers and accountants, all at such times and intervals and to such extent as the Bank may reasonably require; 8.9 Notices. Give prompt written notice to the Bank of, Page 12 of 19 Pages 17 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 (a) The details of any Reportable Event which has occurred; (b) The occurrence of any event which alone or with notice, the passage of time or both, would constitute a Default hereunder; (c) The commencement of any proceeding or litigation which, if adversely determined, would have a material adverse affect upon its financial condition or ability to conduct business as currently conducted; (d) The occurrence of any material adverse change in its property, assets, financial condition, business or affairs; or (e) The formation of any Subsidiary after the date of this Agreement. 8.10 Change of Name. Notify the Bank in writing at least 30 Business Days prior to the date Borrower changes its name or location of its principal place of business; and 8.11 Further Assurances. Promptly execute and deliver any and all other agreements, documents, instruments and certificates which may be reasonably requested by the Bank to cure any defect in the execution and delivery of any of the Loan Documents. SECTION 9. NEGATIVE COVENANTS. The Borrower covenants and agrees with the Bank that prior to the termination of this Agreement Borrower will NOT do each and all of the following: 9.1 Use of Proceeds. Use, directly or indirectly, the proceeds of any Advance for any purpose other than for working capital purposes or for the financing of acquisitions or purchase of treasury stock. Specifically, such proceeds will not be used for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock", within the meaning of Regulation U of the Board. The Borrower will not engage principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock within the meaning of such Regulation U nor will the Borrower otherwise act so as to cause the Bank to be in contention of Regulations T and U; 9.2 Sale of Assets. Sell, assign, lease or otherwise dispose of any of its assets or property without prior written consent of the Bank and such consent will not be unreasonably withheld, except that no consent is required for sales in the ordinary course of business and sales in an aggregate amount of $500,000.00 or less of the Borrower's Tangible Assets during any twelve (12) month period. 9.3 Mergers and Consolidations. Merge or consolidate with any other Person, except that so long as no Default has occurred and is continuing or would result as a consequence thereof, the Borrower may merge or consolidate with any other Person, provided the continuing or surviving Person is Tandy Brands Accessories, Inc. 9.4 Liens. Create, assume, incur or permit to exist or allow to be created, assumed or incurred or permitted to exist any Lien upon any of its properties, now owned or hereafter acquired, nor acquire nor agree to acquire any kind of property subject to a Lien provided, however, that the foregoing restrictions shall not prevent the Borrower from: (a) having Liens on Indebtedness existing prior to the Effective Date hereof and as listed on Schedule II; Page 13 of 19 Pages 18 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 (b) making pledges or deposits to secure the Borrower's obligations under workmen's compensation laws or similar legislation; (c) in the ordinary course of business, making good faith deposits in connection with bids, tenders, contracts or leases to which the Borrower is a party, or making deposits to secure public or statutory obligations; (d) incurring mechanics', carriers', workmen's, repairmen's or other like Liens in the ordinary course of business in respect of obligations which are not overdue or being contested in good faith, or making deposits to obtain the release of such Liens; (e) making deposits to secure replevin, surety, attachment or appeal bonds relating to legal proceedings to which the Borrower is a party; (f) incurring Liens arising out of judgments or awards against the Borrower with respect to which it is currently engaged in proceedings for review or appeal and with respect to which it shall have secured a stay of execution pending such proceedings for review or appeal; (g) in the ordinary course of business, granting leases or subleases to others or acquiring property subject to leases; (h) permitting Liens consisting of zoning restrictions, easements, restrictions on the use of real property or minor irregularities in titles thereto which do not, in the opinion of the Borrower's management, impair the use of such property by the Borrower in the operation of its business; and (i) incurring Liens when acquiring assets or properties as contemplated in this Agreement. 9.5 No Inconsistent Actions. Undertake any course of action inconsistent with the provisions of the Loan Documents. The Borrower will promptly do all acts and things and take all such measures as may be appropriate to comply as soon as practicable with the representations, warranties, terms, conditions and provisions of this Agreement. 9.6 Transactions with Affiliates. Enter into any material transaction (including, without limitation, the purchase, sale or exchange of any property or the rendering of any service) with any Affiliate except in the ordinary course of and pursuant to the reasonable requirements of the Borrower's business and upon fair and reasonable terms no less favorable to the Borrower than it would obtain in any other arms' length business transaction. 9.7 ERISA. (i) voluntarily terminate any Plan if such termination is likely to result in any material liability of the Borrower to the PBGC or any Person or (ii) enter into any 'prohibited transaction' (as defined in the Code or in ERISA) involving any Plan which might result in any material liability of Borrower to the PBGC or any Person, (iii) permit the occurrence of any Reportable Event which might result in any material liability of the Borrower to the PBGC or any other Person or (iv) permit to exist any other event or condition which might result in any material liability of the Borrower to the PBGC or any other Person. 9.8 Funded Indebtedness to EBITDA Ratio. Permit the ratio of Borrower's Funded Indebtedness to EBITDA for the trailing four (4) quarters to be greater than 2.50 to 1.00 at any time during the term of this Agreement, but tested as of the end of each fiscal quarter, beginning June 30, 1994. 9.9 Fixed Charge Ratio. Permit the ratio of EBITDA to Fixed Charges for the trailing four (4) quarters to be less than 1.50 to 1.00 at any time during the term of this Agreement, but tested as of the end of each fiscal quarter, beginning June 30, 1994. Page 14 of 19 Pages 19 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 9.10 Inventory Turnover Ratio. Permit the ratio of Costs of Goods Sold to the amount of the average inventory (the sum of: (i) amount of Inventory for the most recent quarter's end plus (ii) the amount of the Inventory as of the end of each of the prior three quarters divided by 4) for the trailing four (4) quarters to be less than 1.50 to 1.00 at any time during the term of this Agreement, but tested as of the end of each fiscal quarter, beginning June 30, 1994. SECTION 10. EVENTS OF DEFAULT. In the event any of the following events shall occur and be continuing (a 'Default"): 10.1 Nonpayment. Nonpayment of any principal and interest or any other amount such as commissions, fees and legal expenses as and when due in accordance with the terms of the Loan Documents and the same shall not have been cured within 3 days of the occurrence of the Default; 10.2 Misrepresentations. Any representation or warranty made in or in connection with the Loan Documents or in any other agreement, instrument or certificate furnished in connection with any of the foregoing shall prove false or misleading in any material respect when made or deemed made; 10.3 Loan Documents. Subject to Section 10.04 below, the occurrence of any event of default as such is defined in any of the Loan Documents other than the Note and this Agreement; 10.4 Nonperformance. Borrower shall default in the due observance or performance of any term, covenant or agreement contained in this Agreement or in any of the other Loan Documents except that any Default under Sections 8 and 9 shall not be cured within 30 days of the occurrence of said Default; 10.5 Other Indebtedness. Borrower shall (x) fail to make one or more payments when due on aggregate Indebtedness for borrowed money exceeding $500,000 and such failure results in the acceleration of any Indebtedness, (y) default in the performance of its material obligations under any promissory note, credit agreement, loan agreement or collateral documents relating to or securing any aggregate Indebtedness for borrowed money exceeding $500,000 and such default results in the acceleration of any Indebtedness, or (z) fail to pay when due any other Indebtedness in an aggregate amount in excess of $500,000 beyond any applicable grace period, unless the payment thereof is being contested in good faith and Borrower has adequate reserves set aside for such payment; 10.6 Change of Control. There is an occurrence of a Change in Control of Borrower; 10.7 Judgements. Any final, nonappealable judgment or judgments in excess of $500,000.00 in the aggregate against Borrower or any attachment or other levy against the property of Borrower with respect to a claim remains unpaid, unstayed on appeal, undischarged, not bonded or not dismissed for 60 days; 10.8 Bankruptcy. Except, in the event of an involuntary bankruptcy, which has not been dismissed within 60 days, Borrower makes an assignment for the benefit of creditors, files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver or any trustee of any substantial part of its property, commences any action relating to Borrower under any reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether or not hereafter in effect, or if there is commenced against Borrower any such action, or Borrower by any act indicates its consent to or approval of any trustee for Borrower or any substantial part of its property, or suffers any such receivership or trustee to continue undischarged; 10.9 Reportable Event. A Reportable Event shall have occurred with respect to any Plan as defined in ERISA and (i) the Bank has notified the Borrower in writing that it has determined that such Reportable Event constitutes reasonable grounds for termination of such Plan by the PBGC or the appointment of a trustee, to administer the Plan, by an appropriate U.S. District Court or (ii) such termination proceedings are commenced or such appointment occurs; Page 15 of 19 Pages 20 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 THEN, the Bank's obligation to make any Loan, issue any Letter of Credit or create any Acceptance is canceled without the need for notice to Borrower of any kind and the Note and all Loans and any other amounts owing under the other Loan Documents shall be immediately due and payable in full, without presentment, demand, protest or notice of any kind, notice of intent to accelerate and notice of acceleration all of which are hereby expressly waived and Borrower shall deposit with the Bank cash equal to or cash equivalent securities equal to the sum of the aggregate outstanding L/C Obligations and Acceptances as security for Borrower's obligations under this Agreement. SECTION 11. REMEDIES. 11.1 Additional Remedies. If any of the above events ("Events of Default") shall occur, then, in addition to the remedies provided for above in Section 6.1, the Bank may do any or all of the following: (1) declare the Note to be, and thereupon such Note shall forthwith become, immediately due and payable, together with all accrued and unpaid interest thereon and all other obligations and indebtedness of the Borrower under the Loan Documents, without notice of acceleration or of intention to accelerate, presentment and demand or protest, all of which are hereby expressly waived; (2) without notice to Borrower, terminate the Commitment and accelerate the Termination Date, provided that should an event occur and not be cured within the applicable grace period provided for above, Bank will not be obligated to make any Loan, issue any Letter of Credit or create any Acceptance until such Event of Default is cured; and (3) exercise any and all other rights pursuant to the Loan Documents, at law, in equity or otherwise. 11.2 Remedies Cumulative. No remedy, right or power of the Bank is intended to be exclusive of any other remedy, right or power, and each and every remedy, right and power shall be cumulative and in addition to every other remedy, right and power given under this Agreement or now or hereafter existing at law or in equity or by statute or otherwise. SECTION 12. MISCELLANEOUS. 12.1 No Waiver. No failure to exercise or delay in exercising any right or power under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any further or other exercise thereof or the exercise of any other right or power. No amendment, modification or waiver of any of the Loan Documents shall be effective unless the same is in writing and signed by the Person against whom such amendment is sought to be enforced. 12.2 Notices. All notices under the Loan Documents, except a Notice of Borrowing or notices of payment or prepayment, which can be made by telephone provided the same is promptly confirmed in writing shall be in writing and either (i) delivered against receipt therefore, (ii) mailed by registered or certified mail, return receipt requested, or (iii) sent by telecopy, telex or telegram, in each case addressed to the names and addresses as set forth on the execution page of this Agreement or to such other name or address as a party may designate. Notices shall be deemed to have been given when delivered (or, if mailed, on the third Business Day from date of posting). 12.3 Set-Off. If one or more Events of Default shall occur and be continuing, the Bank shall have the right, in addition to all other rights and remedies available to Bank, to set-off against the unpaid balance of the Indebtedness owing to Bank on account of any Advance of Borrower, including, without limitation, any funds in any deposit account whatsoever maintained by the Borrower with the Bank, and nothing in this Agreement or any of the other Loan Documents shall be deemed a waiver or prohibition of the Bank's right of banker's lien or set-off. Bank shall immediately give Borrower notice of any such set-off. 12.4. Governing and Venue. UNLESS OTHERWISE SPECIFIED HEREIN, OR OTHERWISE REQUIRED BY ANY APPLICABLE LAW, EACH OF THE LOAN DOCUMENTS (INCLUDING THIS AGREEMENT AND THE NOTE) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF Page 16 of 19 Pages 21 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 AMERICA. THE NOTE HAS BEEN ENTERED INTO IN THE COUNTY OF THE BANK'S PRINCIPAL OFFICE IN TEXAS, SHALL BE PERFORMABLE FOR ALL PURPOSES IN SUCH COUNTY AND THE BORROWER AND THE BANK AGREE THAT THE COUNTY IN WHICH BANK'S PRINCIPAL OFFICE IS LOCATED IN TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY THE BORROWER OR THE BANK, WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY ACTION OR PROCEEDING AGAINST THE BORROWER MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN SUCH COUNTY. THE BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. THE BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW. NOTHING HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF THE BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER JURISDICTIONS OR VENUES. 12.5 Survival of Warranties All representations and warranties made by or on behalf of Borrower in connection with this Agreement shall survive the execution and delivery of the Loan Documents and shall bind Borrower and its administrators, successors, trustees, receivers and assigns and inure to the benefit of the successors and assigns of the Bank. The term of this Agreement shall be until the Termination Date and final maturity of the Note and the payment of all amounts due under the Loan Documents. 12.6 Usury. Borrower and Bank intend to conform strictly to applicable usury laws. Therefore, the total amount of interest (as defined under applicable law) contracted for, charged or collected under this Agreement or any other Loan Document will never exceed the Highest Lawful Rate (as defined in the Note). If Bank contracts for, charges or receives any excess interest, it will be deemed a mistake. Bank will automatically reform the Loan Document or charge to conform to applicable law, and if excess interest has been received, Bank will either refund the excess to Borrower or credit the excess on any unpaid principal amount of the Note or any other Loan Document. All amounts constituting interest will be spread throughout the full term of the Loan Document or applicable Note in determining whether interest exceeds lawful amounts. 12.7 Expenses. Any provision to the contrary notwithstanding, and whether or not the transactions contemplated by this Agreement shall be consummated, the Borrower shall pay, on demand costs and administrative expenses including, without limitation, the expenses of counsel for the Bank in connection with the preparation, execution, filing, and recording of this Agreement and Borrower shall pay on demand, all reasonable out-of-pocket expenses in connection with the refiling, re-recording, modification, supplementing and waiver of the Loan Documents and the making, servicing and collection of any Advances. 12.8 Indemnification. THE BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD THE BANK, ITS DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS (THE "BANK" FOR THIS PARAGRAPH ONLY) HARMLESS FROM AND AGAINST ANY AND ALL LOSS, LIABILITY, OBLIGATION, DAMAGE, PENALTY, JUDGMENT, CLAIM, DEFICIENCY AND EXPENSE (INCLUDING INTEREST, PENALTIES, ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT) EXCEPT FOR THE GROSS NEGLIGENCE AND WILLFUL MISCONDUCT OF THE BANK TO WHICH THE BANK MAY BECOME SUBJECT TO OR ARISING OUT OF, OR BASED UPON THE LOAN DOCUMENTS OR ANY ADVANCES. 12.9 Severability. If any provision of any of the Loan Documents shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby. Page 17 of 19 Pages 22 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 12.10 Entire Agreement. The Loan Documents embody the entire agreement and understanding between the Borrower and the Bank, relating to the subject matter hereof and thereof and supersedes all prior proposals, negotiations, agreements, oral and written communications and understandings relating to such subject matter. The Borrower and the Bank certify that each is relying on no other representation, warranty, covenant or agreement except for those set forth in the Loan Documents. NO COURSE OF DEALING BY BORROWER WITH BANK, NO COURSE OF PERFORMANCE AND NO TRADE PRACTICES OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE MAY BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS AGREEMENT. 12.11 Loan Sales and Assignments. The Bank reserves the right, in its sole discretion, without notice to the Borrower to sell participations or assign its interest, or both, in all or any part of the Advances or other Loan Documents. 12.12 No Assignment. The Borrower may not assign at any time during the existence of the Advances its interests, rights, powers, obligations or liabilities under any of the Loan Documents without the express written consent of the Bank. 12.13 Conflict between Loan Documents. In the event any provision herein shall be inconsistent with any provision of any of the other Loan Documents, this Agreement shall control. Page 18 of 19 Pages 23 Amended and Restated Revolving Credit Agreement TANDY BRANDS ACCESSORIES, INC. June 30, 1994 THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE, AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMEPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. TANDY BRANDS ACCESSORIES, INC. By: /s/ STANLEY T. NINEMIRE ------------------------------ Name: Stanley T. Ninemire Title: Vice-President and Chief Financial Officer Address for mail delivery: Tandy Brands Accessories, Inc. 690 East Lamar, Suite 200 Arlington, Texas 76011 Attention: Stan Ninemire Telecopy No: (817) 548-1144 TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ LOREN K. JENSEN ------------------------------ Name: Loren K. Jensen Title: Senior Vice President Address for mail delivery: 201 Main Street Fort Worth, Texas 76102 Attention: Loren Jensen, S.V.P. Telecopy No: (817) 878-7591 Page 19 of 19 Pages 24 EXHIBIT B Date Texas Commerce Bank National Association 201 Main Street Fort Worth, Texas 76102 Attention: Loren Jensen or Susan Sheffield Re: Notice of Borrowing under Amended and Restated Credit Agreement Ladies and Gentlemen: Pursuant to that certain Amended and Restated Revolving Credit Agreement dated as of June 30, 1994 (the "Credit Agreement" or "Agreement"; the defined terms herein being used herein as therein defined) between Tandy Brands Accessories, Inc., a Delaware corporation (the "Borrower") and the Bank, the Borrower hereby: 1. Gives you notice pursuant to Section 2 of the Agreement and the Note that the Borrower hereby requests a Loan under the Note which is subject to the Agreement, and in that connection sets forth below the information relating to such Loan ("the Proposed Loan") as required by the Note: (i) The Borrowing Date of the Proposed Loan is _________, 19__; (ii) The type of the Proposed Loan is (check one): ______________ Alternate Base Rate Loan ______________ CD Rate Loan ______________ Eurodollar Loan ______________ Negotiated Rate Loan (iii) The Interest Period of the Proposed Loan is ____________; (iv) The principal amount of the Proposed Loan is $__________, and such amount, together with the sum of (i) the aggregate principal amount of all outstanding Loans, (ii) the aggregate outstanding L/C Obligations; and (iii) Acceptances (as defined in the Credit Agreement) does not exceed the amount of the Commitment (as defined in the Credit Agreement); (v) The account of the Borrower into which the proceeds of the Proposed Loan should be deposited is:_________________________. 2. Certifies that (a) no Default has occurred and is continuing or will result from the making of such Proposed Loan, and (b) all representations and warranties of the Borrower contained in Section 5 of the Agreement are true and correct as of the date hereof (other than those of such representations and warranties which speak to a date on or before the date hereof) to the best of our knowledge, with the same effect as if made on such date. Very truly yours, TANDY BRANDS ACCESSORIES, INC. By: --------------------------- Name: --------------------------- Title: --------------------------- EXHIBIT B Page 1 of 1 25 EXHIBIT C ELIGIBILITY CERTIFICATE ______________, 19__ Texas Commerce Bank National Association 201 Main Street Fort Worth, Texas 76102 Re: Draft to be discounted to create an Acceptance subject to the Amended and Restated Revolving Credit Agreement dated June 30, 1994 by and between Tandy Brands Accessories, Inc. and Texas Commerce Bank National Association Ladies and Gentlemen: The Drafts (Numbers:_____________) relevant to the attached Notice of Acceptance shall (check or "X" the applicable box below): [ ] Grow out of transactions involving the importation or exportation of goods, to wit: Bill of Lading No. Goods Destination and/or Origin and/or Date ----- ------------------------- ----------- [ ] Grow out of transactions involving the domestic shipment of goods, to wit: Bill of Lading No. Goods Destination and/or Origin and/or Date ----- ------------------------- ----------- [ ] Are presently secured (and will remain secured at least until the time your Acceptance is created) by a warehouse receipt or other such documents of title, conveying or securing title, covering readily marketable staples, to wit: Warehouse receipt No. Staples Security and/or Date ------- -------- -------------------- [ ] Will mature at least 30 days and less than 181 days from date of Draft; and [ ] Are considered "Eligible Acceptances" as defined in the Amended and Restated Revolving Credit Agreement dated June 30, 1994 by and between the Borrower and Bank. Borrower agrees to maintain records available for the Bank's inspection to justify the foregoing and to show that the value of the relevant transaction is at least equal to the amount of the applicable Drafts. Borrower certifies to Bank that there is no other financing supporting this transaction. TANDY BRANDS ACCESSORIES, INC. By: -------------------------------- Name: -------------------------------- Title: -------------------------------- EXHIBIT C Page 1 of 1 26 EXHIBIT D NOTICE OF ACCEPTANCE Texas Commerce Bank National Association 201 Main Street Fort Worth, Texas 76102 Attention: Loren Jensen or Susan Sheffield Re: Amended and Restated Revolving Credit Agreement by and between Tandy Brands Accessories, Inc. ("Borrower") and Texas Commerce Bank National Association (the "Bank") Ladies and Gentlemen: Pursuant to the Amended and Restated revolving Credit Agreement dated June 30, 1994 (the "Agreement", the capitalized terms herein shall have the same meanings as the capitalized terms in the Agreement) by and between the Borrower and the Bank, the Borrower hereby: 1. Gives Bank confirmation of Borrower's notice pursuant to Section 4.2 of the Agreement and in connection therewith sets forth below the information relating to such Acceptance as required in Section 4 of the Agreement: (i) The date of the Acceptance will be: ______________________; (ii) The amount of the Acceptance will be: $___________ and such amount, together with the sum of (a) the aggregate amount of Loans outstanding, (b) the amount of L/C Obligations outstanding and (c) the amount of Acceptances outstanding does not exceed the amount of the Commitment; (iii) The maturity of the proposed Acceptance will be: __________________________; (iv) The account of the Borrower into which the "proceeds" (the amount of the proceeds shall be net of the amount of the commission fee charged Borrower by Bank with respect of the creation of the Acceptance as set forth in Section 4.5 of the Agreement) of the Acceptance should be deposited in: ___________________________________; 2. Borrower certifies, warrants and represents that (a) no Default has occurred and is continuing or will result from the creation of such Acceptance and (b) all representations and warranties of the Borrower contained in Section 7 of the Credit Agreement are true and correct to the best of Borrower's knowledge as of the date hereof. 3. Accompanying this Notice of Acceptance is an Eligibility Certificate which will be attached to the Acceptance. Sincerely yours, TANDY BRANDS ACCESSORIES, INC. By: _______________________________________ Name: _____________________________________ Title: ____________________________________ EXHIBIT D Page 1 of 1 27 EXHIBIT E HOLD HARMLESS ADDENDUM Texas Commerce Bank National Association 201 Main Street Fort Worth, Texas 76102 Re: Tandy Brands Accessories, Inc. (the "Borrower") $15,000,000 Commitment Dear Sir: Please hold as custodian, blank pre-signed and pre-endorsed Drafts drawn by us and payable by you under the terms herein set forth. The blank pre-signed Drafts shall be received, completed, and accepted from time to time by the Bank for Borrower's account, pursuant to the Amended and Restated Revolving Credit Agreement (the "Agreement") dated June 30, 1994. The Bank will exercise the same care with respect to the safekeeping of such drafts as it exercises with respect to its own affairs. The Bank and its Trust Company will hold such drafts and complete them with such amounts, dates and other data as the Borrower shall instruct in accordance with the terms of this Hold Harmless Addendum (the "Addendum") which is an integral part of the Agreement to which this Addendum is attached, and of which this Addendum is expressly made a part. The Bank shall accept and be entitled to rely upon all instructions given on Borrower's behalf, including instructions given by telephone or in writing. All instructions given by telephone shall be promptly confirmed in writing. Each of the following individuals is singly authorized, relevant to the Agreement and this Addendum, to give you instructions on Borrower's behalf: - ------------------------------- ------------------------------ - ------------------------------- ------------------------------ - ------------------------------- ------------------------------ The Bank's and Borrower's duties and responsibilities for these Drafts shall be set forth in the Agreement. The Borrower further agrees to defend, indemnify and hold the Bank and its liabilities, claims, damages, causes of action, costs, expenses, and attorneys' fees, in connection with the Bank's agents' handling of the herein described Drafts; provided that nothing contained herein shall render the Bank liable to Borrower for any exemplary or consequential damages. Receipt of funds for each Draft shall be deposited in Borrower's account with the Bank, numbered _________________ or other of Borrower's accounts with the Bank as may be directed by any one of the above mentioned individuals. We have herewith delivered blank pre-signed and pre-endorsed Drafts numbered _______________ through _______________ to the Bank. The Bank, by its signature below, acknowledges receipt thereof. TANDY BRANDS ACCESSORIES, INC. By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- ATTEST: ------------------------------ TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- ATTEST: ------------------------------ 28 SCHEDULE I SUBSIDIARIES
Name and Address Percentage of Subsidiaries Borrower? State of Organization Ownership - --------------- -------- --------------------- --------- TBA Acquisition, Inc. Yes Delaware ______ % TBAC - Prince Gardner, Inc. Yes TBAC-AIS
SCHEDULE I Page 1 of 1 29 SCHEDULE II List of Indebtedness Existing Before Effective Date Encumbered Indebtedness Unencumbered Indebtedness SCHEDULE II Page 1 of 1 30 FIRST AMENDMENT TO CREDIT AGREEMENT -ENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (THIS "AMENDMENT") dated effective as of April 30, 1995 (the "Effective Date"), is by and between TANDY BRANDS ACCESSORIES, INC., a Delaware corporation, ("Borrower"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association whose principal office is located in Houston, Texas (the "Bank"). PRELIMINARY STATEMENT The Bank and the Borrower have entered into an Amended and Restated Revolving Credit Agreement dated as of June 30, 1994 (the "Credit Agreement"). The "Agreement", as used in the Credit Agreement, shall also refer to the Credit Agreement as amended by this Amendment. All capitalized terms defined in the Credit Agreement and not otherwise defined herein shall have the same meanings herein as in the Credit Agreement. The Bank and the Borrower have agreed to amend the Credit Agreement to the extent set forth herein, and in order to, among other things, renew, modify, extend and increase the Commitment to Borrower for the issuance of letters of credit and money borrowings for the purpose of financing and supporting the general corporate purposes, including, without limitation, the working capital, the letters of credit needs and acquisition financing and treasury stock purchase requirements of the Borrower. NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Bank and the Borrower hereby agree as follows: Section 1. Section 1.1 Definitions of the Credit Agreement is amended by deleting therefrom the definitions of "Acceptance", "Acceptance Commitment", "Acceptance Obligation", "Eligible Acceptance", "Eligibility Certificate", "Draft" and "Notice of Acceptance" in their entirety. Section 2. Section 1.1 Definitions of the Credit Agreement is amended by substituting the following for the definition of Commitment: ""Commitment" shall mean $20,000,000.00." Section 3. Section 1.1 Definitions of the Credit Agreement is amended by substituting the following for the definition of EBITDA: ""EBITDA" shall mean pretax income from continuing operations plus Interest Expense plus amortization and depreciation." Section 4. Section 1.1 Definitions of the Credit Agreement is amended by substituting the following for the definition of Loan or Loans: ""Loan" or "Loans" shall mean any loan by the Bank made to the Borrower pursuant to Section 2 hereof and includes an Alternate Base Rate Loan, a CD Rate Loan, a Negotiated Rate Loan or a Eurodollar Loan (each of which shall be a "type" of loan as further described in the Note)." Section 5. Section 1.1 Definitions of the Credit Agreement is amended by substituting the following for the definition of Termination Date: ""Termination Date" shall mean the earlier to occur of: (i) April 30, 1997; or (ii) that date as specified by the Bank pursuant to Section 10 hereof." Page 1 of 5 Pages 31 First Amendment to Credit Agreement TANDY BRANDS ACCESSORIES, INC. April 30, 1995 Section 6. Section 1.1 Definitions of the Credit Agreement is amended by substituting the following for the definition of Advances: ""Advances" shall mean collectively the Loans and Letters of Credit." Section 7. Section 2.1 of the Credit Agreement is amended by substituting the following for Section 2.1 of the Credit Agreement: "2.1 Note and Terms of Commitment. Subject to the terms and conditions hereof, the Bank agrees to make advances or loans to Borrower from time to time before the Termination Date, not to exceed at any one time outstanding the amount of the Commitment. Advances shall take the form of Loans under the Note or issuances of Letters of Credit by Bank. The Loans shall be evidenced by, and shall bear interest and be payable as provided in the Note executed by Borrower dated as of the Effective Date and delivered to Bank which is given in renewal, extension, modification of and increase in the amount of that certain promissory note dated April 30, 1994 in the principal amount of $15,000,000.00 (including all prior notes of which said note represents a renewal, extension, modification, increase, substitution, rearrangement or replacement thereof, the "Renewed Note"). Each Loan shall be in an amount not less than that amount provided for in the Note. Borrower shall have the right to borrow, repay and reborrow under the Note provided that at no time shall the sum of the aggregate amount outstanding of: (i) Loans, and (ii) L/C Obligations (as defined in Section 3) exceed the amount of the Commitment." Section 8. Section 3.1 of the Credit Agreement is amended by substituting the following for Section 3.1 of the Credit Agreement: "3.1 Letters of Credit. Subject to this Agreement, the Letters of Credit may be issued from time to time on and after the Effective Date, but, not including, the Termination Date for the account of the Borrower or each of its subsidiaries and in favor of such Person or Persons as may be designated by the Borrower and each of its subsidiaries. Each Letter of Credit shall (a) expire on a date not later than 365 days from the date of issuance thereof for commercial letters of credit ("Commercial L/Cs") and expire not later than 12 months from date of issuance thereof for standby letters of credit ("Standby L/Cs") (except for letters of credit containing evergreen clauses) and, in any event, no Letter of Credit shall have an expiration date later than the Termination Date and (b) be denominated in Dollars (or other currencies that are acceptable to the Bank). The Commitment shall be reduced by an amount equal to the sum of: (a) the face amount of all outstanding Letters of Credit; and (b) the amount of any unreimbursed drawings or other amounts owing to the Bank under or in respect of any Letter of Credit or Application (items (a) and (b) are hereinafter collectively referred to as the "L/C Obligations") such that, on any date, the sum of (x) all Loans outstanding on such date and (y) all L/C Obligations on such date does not exceed the Commitment. The total aggregate amount of L/C Obligations shall never exceed $10,000,000.00." Section 9. Section 3.2 of the Credit Agreement is amended by substituting the following for Section 3.2 of the Credit Agreement: "3.2 Applications. As a condition precedent to the issuance of any Letter of Credit for the account of Borrower and for each of its subsidiaries, the Bank shall have received an Application, duly completed and executed by the Borrower and for each of its subsidiaries in Proper Form, not less than three (3) Business Days prior to the date on which the Letter of Credit is to be issued. In the event that any provision of a Letter of Credit Application shall be inconsistent with any provision of this Agreement, the provisions of this Agreement shall govern." Page 2 of 5 Pages 32 First Amendment to Credit Agreement TANDY BRANDS ACCESSORIES, INC. April 30, 1995 Section 10. Section 3.5 of the Credit Agreement is amended by substituting the following for Section 3.5 of the Credit Agreement: "3.5 Letter of Credit Commissions. In consideration for the issuance of each Letter of Credit, the Borrower agrees to pay to the Bank a letter of credit issuance fee ("Fee") in respect of such Letter of Credit in an amount equal to: (1) in the case of Commercial L/C's: (a) one eighth of one percent (1/8%) per annum per quarter or fraction thereof on the face amount of such Letter of Credit or (b) the minimum fee for such Letter of Credit extended by the Bank and in effect as of the date on which such Letter of Credit is to be issued; and (2) in the case of Standby L/C's: (a) three-quarters of one percent (3/4%) per annum on the face amount of such Letter of Credit or (b) the minimum fee for such Letter of Credit extended by the Bank and in effect as of the date on which such Letter of Credit is to be issued. The Fee shall be paid to the Bank at its main offices to the attention of the Manager, Documentary Services Division in advance of issuance of the Letter of Credit." Section 11. The Credit Agreement is amended by deleting therefrom Section 4 in its entirety. Section 12. Section 6 of the Credit Agreement is amended by substituting the following for Section 6 of the Credit Agreement: "6.1 All Advances. The obligation of the Bank to make any Loan, issue any Letter of Credit or renew the Renewed Note is subject to satisfaction of the following conditions precedent: (a) the Bank shall have received the following, all of which shall be duly executed and in Proper Form: (1) for any Loan, a Notice of Borrowing, substantially in the form of Exhibit B, as provided for in the Note; (2) for the issuance of any Letter of Credit, a duly executed Application in Proper Form by Borrower within the time set forth in Section 3.2; and (b) no Default shall have occurred and be continuing; and (c) the making of or issuance of any Advance shall not be prohibited by, or subject the Bank to any penalty or onerous condition under, any Legal Requirement. 6.2 First Loan and/or Letter of Credit. In addition to the matters described in the preceding section, the obligation, if any, of the Bank to renew the Renewed Note, to make the first Loan, issue the first Letter of Credit or to renew and extend any of the Letters of Credit is subject to the receipt by the Bank of all of the Loan Documents, all of which shall be in Proper Form." Section 13. Sections 7.15 and 7.16 of the Credit Agreement is amended by deleting Sections 7.15 and 7.16 therefrom in their entirety. Section 14. The last paragraph of Section 10 of the Credit Agreement is amended by substituting the following for the last paragraph of Section 10: "THEN, the Bank's obligation to make any Loan or issue any Letter of Credit is canceled without the need for notice to Borrower of any kind and the Note and all Loans and any other amounts owing under the other Loan Documents shall be immediately due and payable in full, without presentment, demand, protest or notice of any kind, notice of intent to accelerate and notice of acceleration all of which are hereby expressly waived and Borrower shall deposit with the Bank cash equal to or cash equivalent securities equal to the sum of the aggregate outstanding L/C Obligations as security for Borrower's obligations under this Agreement." Page 3 of 5 Pages 33 First Amendment to Credit Agreement TANDY BRANDS ACCESSORIES, INC. April 30, 1995 Section 15. Section 11.1 of the Credit Agreement is amended by substituting the following for Section 11.1 of the Credit Agreement: "11.1 Additional Remedies. If any of the above events ("Events of Default") shall occur, then, in addition to the remedies provided for above in Section 6.1, the Bank may do any or all of the following: (1) declare the Note to be, and thereupon such Note shall forthwith become, immediately due and payable, together with all accrued and unpaid interest thereon and all other obligations and indebtedness of the Borrower under the Loan Documents, without notice of acceleration or of intention to accelerate, presentment and demand or protest, all of which are hereby expressly waived; (2) without notice to Borrower, terminate the Commitment and accelerate the Termination Date, provided that should an event occur and not be cured within the applicable grace period provided for above, Bank will not be obligated to make any Loan or issue any Letter of Credit until such Event of Default is cured; and (3) exercise any and all other rights pursuant to the Loan Documents, at law, in equity or otherwise." Section 16. Exhibit B of the Credit Agreement is hereby amended by replacing prior Exhibit B with the Exhibit B attached hereto and hereby incorporated into this Amendment and the Credit Agreement for all purposes. Section 17. Schedule I of the Credit Agreement is hereby amended by replacing prior Schedule I with the Schedule I attached hereto and hereby incorporated into this Amendment and the Credit Agreement for all purposes. Section 18. The Credit Agreement is hereby amended by deleting therefrom Exhibits C, D and E in their entirety. Section 19. The Borrower hereby represents and warrants to the Bank that after giving effect to the execution and delivery of this Amendment: (a) the representations and warranties set forth in the Credit Agreement are true and correct on the date hereof as though made on and as of such date; and (b) no Event of Default, or event which with passage of time, the giving of notice or both would become an Event of Default, has occurred and is continuing as of the date hereof. Section 20. This Amendment shall become effective as of the Effective Date upon its execution and delivery by each of the parties named in the signature lines below, and the "Agreement" as used in the Credit Agreement shall also refer to the Credit Agreement as amended by this Amendment. Section 21. The Borrower further acknowledges that each of the other Loan Documents is in all other respects ratified and confirmed, and all of the rights, powers and privileges created thereby or thereunder are ratified, extended, carried forward and remain in full force and effect except as the Credit Agreement is amended by this Amendment. Section 22. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed an original and all of which taken together shall constitute but one and the same agreement. Section 23. This Amendment shall be included within the definition of "Loan Documents" as used in the Agreement. Section 24. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA. THE BORROWER AND THE BANK AGREE THAT THE COUNTY IN WHICH BANK'S PRINCIPAL OFFICE IS LOCATED IN TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY THE BORROWER OR THE BANK, WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY ACTION OR PROCEEDING AGAINST THE BORROWER MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN SUCH COUNTY. THE BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO Page 4 of 5 Pages 34 First Amendment to Credit Agreement TANDY BRANDS ACCESSORIES, INC. April 30, 1995 THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. THE BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW. NOTHING HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF THE BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER JURISDICTIONS OR VENUES. THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE, AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed effective as of the Effective Date. BORROWER: TANDY BRANDS ACCESSORIES, INC. By: /s/ BRUCE COLE ----------------------------------------------------------- Name: Bruce Cole ----------------------------------------------------------- Title: Chief Financial Officer & Vice President ----------------------------------------------------------- Address for mail delivery: Tandy Brands Accessories, Inc. 690 East Lamar, Suite 200 Arlington, Texas 76011 Attention: Bruce Cole Telecopy No: (817) 548-1144 BANK: TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ B.B. WUTHRICH ----------------------------------------------------------- Name: B. B. Wuthrich ----------------------------------------------------------- Title: Vice President ----------------------------------------------------------- Address for mail delivery: 201 Main Street Fort Worth, Texas 76102 Attention: Buddy Wuthrich, S.V.P. Telecopy No: (817) 878-7591 Page 5 of 5 Pages 35 EXHIBIT B Date Texas Commerce Bank National Association 201 Main Street Fort Worth, Texas 76102 Attention: Buddy Wuthrich Re: Notice of Borrowing under Amended and Restated Credit Agreement Ladies and Gentlemen: Pursuant to that certain Amended and Restated Revolving Credit Agreement dated as of June 30, 1994, as amended from time to time, (the "Credit Agreement" or "Agreement"; the defined terms herein being used herein as therein defined) by and between Tandy Brands Accessories, Inc., a Delaware corporation (the "Borrower") and the Bank, the Borrower hereby: 1. Gives you notice pursuant to Section 2 of the Agreement and pursuant to the Note that the Borrower hereby requests a Loan under the Note which is subject to the Agreement, and in that connection sets forth below the information relating to such Loan ("the Proposed Loan") as required by the Note: (i) The Borrowing Date of the Proposed Loan is __________ 19_; (ii) The type of the Proposed Loan is (check one): _______ Alternate Base Rate Loan _______ CD Rate Loan _______ Eurodollar Loan _______ Negotiated Rate Loan (iii) The Interest Period of the Proposed Loan is ________; (iv) The principal amount of the Proposed Loan is $_______ and such amount, together with the sum of (i) the aggregate principal amount of all outstanding Loans, and (ii) the aggregate outstanding L/C Obligations, does not exceed the amount of the Commitment; (v) The account of the Borrower into which the proceeds of the Proposed Loan should be deposited is: _________________________. 2. Certifies that (a) no Default has occurred and is continuing or will result from the making of such Proposed Loan, and (b) all representations and warranties of the Borrower contained in Section 5 of the Agreement are true and correct as of the date hereof (other than those of such representations and warranties which speak to a date on or before the date hereof) to the best of our knowledge, with the same effect as if made on such date. Very truly yours, TANDY BRANDS ACCESSORIES, INC. By: /s/ BRUCE COLE -------------------------------- Name: Bruce Cole -------------------------------- Title: Chief Financial Officer & Vice President -------------------------------- EXHIBIT B Page 1 of 1 36 SCHEDULE I SUBSIDIARIES
Name and Address Percentage of Subsidiaries State of Organization Ownership - ---------------- --------------------- --------- TBA Acquisition, Inc. Delaware _________% - ----------------------- - ----------------------- TBAC - _________% Prince Gardner, Inc. ------------- - ----------------------- - ----------------------- TBAC-AIS _________% - ----------------------- ------------- - -----------------------
SCHEDULE I Page 1 of 1 37 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated effective as of April 30, 1996 (the "Effective Date"), is by and between TANDY BRANDS ACCESSORIES, INC., a Delaware corporation, ("Borrower"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association whose principal office is located in Houston, Texas (the "Bank"). PRELIMINARY STATEMENT The Bank and the Borrower have entered into an Amended and Restated Revolving Credit Agreement dated as of June 30,1994 amended pursuant to a First Amendment to Credit Agreement dated effective as of April 30, 1995 (the "Credit Agreement"). The "Agreement", as used in the Credit Agreement shall also refer to the Credit Agreement as amended by this Amendment. All capitalized terms defined in the Credit Agreement and not otherwise defined herein shall have the same meanings herein as in the Credit Agreement. The Bank and the Borrower have agreed to amend the Credit Agreement to the extent set forth herein, and in order to, to, among other things, renew, modify and extend the Commitment to Borrower for the issuance of letters of credit and money borrowings for the purpose of financing and supporting the general corporate purposes, including, without limitation, the working capital, the letters of credit needs and acquisition financing and treasury stock purchase requirements of the Borrower. NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Bank and the Borrower hereby agree as follows: Section 1. Section 1.1 of the Credit Agreement entitled, "Definitions" is amended by substituting the following for the definition of Termination Date: "Termination Date" shall mean the earlier to occur of: (i) April 30, 1998; or (ii) &at date as specified by the Bank pursuant to Section 10 hereof." Section 2, Section 2.1 of the Credit Agreement entitled, "Note and Terms of Commitment" is amended by substituting the following for Section 2.1 of the Credit Agreement: "2.1 Note and Terms of Commitment. Subject to the terms and conditions hereof, the Bank agrees to make advances or loans to Borrower from time to time before the Termination Date, not to exceed at. any one time outstanding the amount of the Commitment. Advances shall take the form of Loans under the Note or issuances of Letters of Credit by Bank. The Loan shall be evidenced by, and shall bear interest and be payable as provided in the Note executed by Borrower dated as of April 30, 1996 and delivered to Bank which is given in renewal, extension and modification of that certain promissory note dated April 30, 1995 in the principal amount of $20,000,000.00 (including all prior notes of which said note represents a renewal, extension, modification, increase, substitution, rearrangement or replacement thereof, the "Renewed Note"). Each Loan shall be in an amount not less than that amount provided for in the Note. Borrower shall have the right to borrow, repay and reborrow under the Note provided that at no time shall the sum of the aggregate amount outstanding of (i) Loans, and (ii) L/C Obligations (as defined in Section 3) exceed the amount of the Commitment" Section 3. Section 9.8 of t the Credit Agreement entitled, "Funded Indebtedness to EBITDA Ratio" is amended by substituting the following for Section 9.8 of the Credit Agreement "Permit the ratio of Borrower's Funded Indebtedness to EBITDA for the trailing four (4) quarters to be greater than 2.75 to 1.0 at any time during the term of this Agreement, but tested as of the end of each fiscal quarter beginning June 30, 1996." Section 4. The Borrower hereby represents and warrants to the Bank that after giving effect to the execution and delivery of this Amendment: (a) the representations and warranties set forth in the Credit Agreement are true and correct on the date hereof as though made on and as of such date; and (b) no Event of Default, or event which with passage of time, the giving of notice or both would become an Event of Default, has occurred and is continuing as of the date hereof. 1 38 Second Amendment to credit Agreement TANDY BRANDS ACCESSORIES, INC. April 30, 1996 Section 5. This Amendment shall become effective as of the Effective Date upon its execution and delivery by each of the parties named in the signature lines below, and the "Agreement" as used in the Credit Agreement shall also refer to the Credit Agreement as amended by this Amendment. Section 6. The Borrower further acknowledges that each of the other Loan Documents is in all other respects ratified and confirmed, and all of the rights, powers and privileges created thereby or thereunder are ratified, extended, carried forward and remain in full force and effect except as the Credit Agreement as amended by this Amendment. Section 7. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed an original and all of which taken together shall constitute but one and the same agreement. Section 8. This Amendment shall be included within the definition of "Loan Documents" as used in the Agreement. Section 9. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA. THE BORROWER AND THE BANK AGREE THAT THE COUNTY IN WHICH BANK'S PRINCIPAL OFFICE IS LOCATED IN TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY THE BORROWER OR THE BANK, WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY ACTION OR PROCEEDING AGAINST THE BORROWER MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN SUCH COUNTY. THE BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO THE NON EXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. THE BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW. NOTHING HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF THE BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER JURISDICTIONS OR VENUES. THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE, AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed effective as of the Effective Date. BORROWER: TANDY BRANDS ACCESSORIES, INC. By: /s/ BRUCE COLE ------------------------------------------------------------------- Name: Bruce Cole ------------------------------------------------------------------- Title: Chief Financial Officer & Vice President ------------------------------------------------------------------- 2 39 Second Amendment to credit Agreement TANDY BRANDS ACCESSORIES, INC. April 30, 1996 Address for mail delivery: Tandy Brands Accessories, Inc. 690 East Lamar, Suite 200 Arlington, Texas 76011 Attention: Bruce Cole Telecopy No: (817) 548-1144 BANK: TEXAS BANK NATIONAL ASSOCIATION By: /s/ B. B. WUTHRICH ------------------------------------------------------------------- Title: Vice President ------------------------------------------------------------------- Name: B. B. Wuthrich ------------------------------------------------------------------- Address for mail delivery: 201 Main Street Fort Worth, Texas 76102 Attention: Buddy Wuthrich, S.V.P. Telecopy No: (817) 878-7591 3 40 THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated effective as of April 30, 1997 (the "Effective Date"), is by and between TANDY BRANDS ACCESSORIES, INC., a Delaware corporation, ("Borrower"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association whose principal office is located in Houston, Texas (the "Bank"). PRELIMINARY STATEMENT The Bank and the Borrower have entered into an Amended and Restated Revolving Credit Agreement dated as of June 30, 1994 which has been amended by a First Amendment dated as of April 30, 1995 and a Second Amendment dated as of April 30, 1996 (the "Credit Agreement"). The "Agreement", as used in the Credit Agreement, shall also refer to the Credit Agreement as amended by this Amendment. All capitalized terms defined in the Credit Agreement and not otherwise defined herein shall have the same meanings herein as in the Credit Agreement. The Bank and the Borrower have agreed to amend the Credit Agreement to the extent set forth herein, and in order to, among other things, renew, modify and extend the Commitment to Borrower for the issuance of letters of credit and money borrowings for the purpose of financing and supporting the general corporate purposes, including, without limitation, the working capital, the letters of credit needs and acquisition financing and treasury stock purchase requirements of the Borrower. NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Bank and the Borrower hereby agree as follows: Section 1. Section 1.1 of the Credit Agreement entitled, "Definitions" is amended by substituting the following for the definition of Termination Date: "Termination Date" shall mean the earlier to occur of: (i) April 30, 1999; or (ii) that date as specified by the Bank pursuant to Section 10 hereof." Section 2. Section 2.1 of the Credit Agreement entitled, "Note and Terms of Commitment" is amended by substituting the following for Section 2.1 of the Credit Agreement: "2.1 Note and Terms of Commitment Subject to the terms and conditions hereof, the Bank agrees to make advances or loans to Borrower from time to time before the Termination Date, not to exceed at any one time outstanding the amount of the Commitment. Advances shall take the form of Loans under the Note or issuances of Letters of Credit by Bank. The Loans shall be evidenced by, and shall bear interest and be payable as provided in the Note executed by Borrower dated as of April 30, 1997 and delivered to Bank, which is given in renewal, extension and modification of that certain promissory note dated April 30, 1996 in the principal amount of $20,000,000.00 (including all prior notes of which said note represents a renewal, extension, modification, increase, substitution, rearrangement or replacement thereof, the "Renewed Note"). Each Loan shall be in an amount not less than that amount provided for in the Note. Borrower shall have the right to borrow, repay and reborrow under the Note provided that at no time shall the sum of the aggregate amount outstanding of: (i) Loans, and (ii) L/C Obligations (as defined in Section 3) exceed the amount of the Commitment." Section 3. Section 9.8 of the Credit Agreement entitled, "Funded Indebtedness to EBITDA Ratio" is amended by substituting the following for Section 9.8 of the Credit Agreement: "Permit the ratio of Borrower's Funded Indebtedness to EBITDA for the trailing four (4) quarters to be greater than 3.0 to 1.0 at any time during the term of this Agreement, but tested as of the end of each fiscal quarter beginning June 30, 1997." Section 4. Exhibit B of the Credit Agreement is replaced by Exhibit B attached to this Amendment. Page 1 of 3 Pages 41 Third Amendment to credit Agreement TANDY BRANDS ACCESSORIES, INC. April 30, 1997 Section 5. The Borrower hereby represents and warrants to the Bank that after giving effect to the execution and delivery of this Amendment: (a) the representations and warranties set forth in the Credit Agreement are true and correct on the date hereof as though made on and as of such date; and (b) no Event of Default, or event which with passage of time, the giving of notice or both would become an Event of Default, has occurred and is continuing as of the date hereof. Section 6. This Amendment shall become effective as of the Effective Date upon its execution and delivery by each of the parties named in the signature lines below, and the "Agreement" as used in the Credit Agreement shall also refer to the Credit Agreement as amended by this Amendment. Section 7. The Borrower further acknowledges that each of the other Loan Documents is in all other respects ratified and confirmed, and all of the rights, powers and privileges created thereby or thereunder are ratified, extended, carried forward and remain in full force and effect except as the Credit Agreement is amended by this Amendment. Section 8. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed an original and all of which taken together shall constitute but one and the same agreement. Section 9. This Amendment shall be included within the definition of "Loan Documents" as used in the Agreement. Section 10. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA. THE BORROWER AND THE BANK AGREE THAT THE COUNTY IN WHICH BANK'S PRINCIPAL OFFICE IS LOCATED IN TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY THE BORROWER OR THE BANK, WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY ACTION OR PROCEEDING AGAINST THE BORROWER MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN SUCH COUNTY. THE BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. THE BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW. NOTHING HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF THE BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER JURISDICTIONS OR VENUES. THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE, AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed effective as of the Effective Date. Page 2 of 3 Pages 42 Third Amendment to credit Agreement TANDY BRANDS ACCESSORIES, INC. April 30, 1997 BORROWER: TANDY BRANDS ACCESSORIES, INC. By: /s/ J. S. B. JENKINS --------------------------------------------------------------------- Name: --------------------------------------------------------------------- Title: --------------------------------------------------------------------- Address for mail delivery: Tandy Brands Accessories, Inc. 690 East Lamar, Suite 200 Arlington, Texas 76011 Attention: Stan Ninemire Telecopy No: (817) 548-1144 BANK: TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ JERRY S. PETREY --------------------------------------------------------------------- Name: Jerry Petrey Title: Vice President Address for mail delivery: 500 East Border Street Arlington, Texas 76010 Attention: Jerry Petrey Telecopy No: (817) 856-3183 Page 3 of 3 Pages 43 EXHIBIT B Date Texas Commerce Bank National Association 500 East Border Street P.O. Box 250 Arlington, Texas 76010 Attention: Jerry Petrey Re: Notice of Borrowing under Amended and Restated Credit Agreement Gentlemen: Pursuant to that certain Amended and Restated Revolving Credit Agreement dated as of June 30, 1994, as amended from time to time, (the "Agreement", capitalized terms used in this notice shall have the meanings assigned to them in the Agreement) by and between Tandy Brands Accessories, Inc., a Delaware corporation (the "Borrower") and the Bank, the Borrower hereby: 1. Gives you notice pursuant to the Agreement and the Note that the Borrower hereby requests a Loan; and in that connection sets forth below the information relating to such Loan ("the Proposed Loan"): (i) The Borrowing Date of the Proposed Loan is _________, 19__; (ii) The type of the Proposed Loan is (check one): _____ Alternate Base Rate Loan _____ Libor Loan _____ Negotiated Rate Loan (iii) The Interest Period of the Proposed Loan is _________. (iv) The principal amount of the Proposed Loan is $______, and such amount, together with the sum of (i) the aggregate principal amount of all outstanding Loans, and (ii) the aggregate outstanding L/C Obligations, does not exceed the amount of the Commitment; (v) The account of the Borrower into which the proceeds of the Proposed Loan should be deposited is: ___________________________. 2. Certifies that (a) no Default has occurred and is continuing or will result from the making of such Proposed Loan, and (b) all representations and warranties of the Borrower contained in Section 7 of the Agreement are true and correct as of the date hereof (other than those of such representations and warranties which speak to a date on or before the date hereof) to the best of our knowledge, with the same effect as if made on such date. Very truly yours, TANDY BRANDS ACCESSORIES, INC. By: -------------------------------- Name: -------------------------------- Title: -------------------------------- EXHIBIT B Page 1 of 1 44 PROMISSORY NOTE FOR LOANS (this "Note") U.S. $20,000,000.00 April 30, 1997 FOR VALUE RECEIVED, TANDY BRANDS ACCESSORIES, INC. (the "Maker"), a Delaware corporation, promises to pay to the order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION (the "Bank") on or before April 30, 1999, (the "Termination Date"), at its banking house at 712 Main Street Houston, Texas 77002 or at such other location as the Bank may designate, in lawful money of the United States of America, the lesser of: (i) the principal sum of TWENTY MILLION AND NO/100THS (U.S. $20,000,000.00) (the "Commitment"); or (ii) the aggregate unpaid principal amount of all loans made by the Bank hereunder (each such loan being a "Loan"), which may be outstanding on the Termination Date. Each Loan shall be due and payable on the maturity date agreed to by the Bank and the Maker with respect to such Loan (the "Maturity Date"). In no event shall any Maturity Date fall on a date after the Termination Date. SUBJECT TO THE LIMITATIONS SET FORTH HEREIN, MAKER MAY BORROW, REPAY AND REBORROW HEREUNDER AND THERE IS NO LIMITATION ON THE NUMBER OF LOANS MADE HEREUNDER SO LONG AS THE TOTAL UNPAID PRINCIPAL AMOUNT AT ANYTIME OUTSTANDING DOES NOT EXCEED THE COMMITMENT. The Loans may be either Negotiated Rate Loans, Alternate Base Rate Loans or Libor Loans. The Maker shall pay interest on each Alternate Base Rate Loan for the Interest Period with respect thereto at a rate per annum equal to the lesser of: (i) the Alternate Base Rate in effect from time to time (the "Effective Alternate Base Rate"); or (ii) the Highest Lawful Rate, which interest shall be due and payable on the last day of each calendar quarter and on the last day of each Interest Period. The Maker shall pay interest on each Negotiated Rate Loan for the Interest Period with respect thereto on the unpaid principal amount thereof at a rate per annum equal to the Negotiated Rate for such Interest Period, which interest shall be due and payable on the last day of each such Interest Period, and if such Interest Period has a duration exceeding ninety days, on each ninetieth day during such Interest Period. The Maker shall pay interest on each Libor Loan for the Interest Period with respect thereto on the unpaid principal amount thereof at a rate per annum equal to the lesser of: (i) the Adjusted Libor Rate plus three- quarters of one percent (3/4%) (the "Effective Libor Rate"); or (ii) the Highest Lawful Rate, which interest shall be due and payable on the last day of each such Interest Period, and if such Interest Period has a duration exceeding three months, on the day that is three months after the commencement of such Interest Period. Any amount not paid when due with respect to principal (whether at Maturity Date, by acceleration or otherwise), costs, expenses, and to the extent permitted by applicable law, interest, shall bear interest at a rate per annum equal to the lesser of: (i) the Alternate Base Rate in effect from time to time plus three percent (3%); or (ii) the Highest Lawful Rate, which interest shall be due and payable on demand. The principal of any Loan shall be deemed past due if not paid on or before the Maturity Date or any earlier maturity date resulting from acceleration in accordance with the terms of this Note or as provided by law or otherwise. Interest accrued and unpaid with respect to any Loan shall be deemed past due if not paid on or before the applicable interest payment due date as provided for herein. Notwithstanding the foregoing, if at any time the effective rate of interest which would otherwise be payable on any Loan evidenced by this Note exceeds the Highest Lawful Rate, the rate of interest to accrue on the unpaid principal balance of such Loan during all such times shall be limited to the Highest Lawful Rate, but any subsequent reductions in such interest rate shall not become effective to reduce such interest rate below the Highest Lawful Rate until the total amount of interest accrued on the unpaid principal balance of such Loan equals the total amount of interest which would have accrued if the Effective Alternate Base Rate, Negotiated Rate, or Effective Libor Rate whichever is applicable, had at all times been in effect. Each Alternate Base Rate Loan, Negotiated Rate Loan or Libor Loan shall be in an amount not less than $250,000.00 and an integral multiple of $100,000.00. Interest with respect to Alternate Base Rate Loans shall be calculated on the basis of a 365 day year or 366 day year, as the case may be, for the actual number of days elapsed. Interest with respect to Negotiated Rate Loans and Libor Loans shall be calculated on the basis of a 360 day year for the actual days elapsed, unless such calculation would result in a usurious interest rate, in which case such interest shall be calculated on the basis of a 365 day or 366 day year, as the case may be. The following terms shall have the respective meanings indicated: "Adjusted Libor Rate" means a per annum interest rate determined by Bank by dividing: (i) the Libor Rate by (ii) Statutory Reserves provided that Statutory Reserves is greater than zero, otherwise Adjusted Libor Rate means a per annum interest rate equal to the Libor Rate. "Libor Rate" means with respect to any Libor Loan for any Interest Period the interest rate determined by Bank by reference to the British Bankers' Association Interest Settlement Rates (as set forth by any service selected by Bank which has been nominated by the British Bankers' Association as an authorized information vender for the purpose of displaying such rates including but not limited to Bloomberg, Reuters or Telerate) to be the rate at approximately 11:00 a.m. London time, two Business Days prior to the commencement of such Interest Period for dollar deposits in an amount comparable to such Libor Loan with a maturity comparable to such Interest Period. "Alternate Base Rate" shall mean for any day, a rate per annum (rounded upwards, if necessary, to the next higher 1/16 of 1%) equal to the greatest of: (a) the Prime Rate in effect on such day; (b) the Base CD Rate in effect on Page 1 of 6 Pages Signed for Identification By: /s/ JSP --------------------- 45 Promissory Note Tandy Brands Accessories, Inc. April 30, 1997 such day plus 1%; and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate of interest per annum determined from time to time by the Bank as its prime rate in effect at its principal office in Houston, Texas; each change in the Prime Rate shall be effective on the date such change is determined; without special notice to the Maker or any other person or entity. THE PRIME RATE IS A REFERENCE RATE AND DOES NOT NECESSARILY REPRESENT THE LOWEST OR BEST RATE ACTUALLY CHARGED TO ANY CUSTOMER AND ANY STATEMENT, REPRESENTATION OR WARRANTY IN THAT REGARD OR TO THAT EFFECT IS EXPRESSLY DISCLAIMED BY BANK. BANK MAY MAKE LOANS AT RATES OF INTEREST AT, ABOVE OR BELOW THE PRIME RATE. "Base CD Rate" shall mean an interest rate per annum determined by the Bank to be the sum of: (a) the rate per annum obtained by dividing: (i)the Three-Month Secondary CD Rate by (ii) Statutory Reserves; plus (b) the Assessment Rate. "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the Secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Bank from three New York City negotiable certificate of deposit dealers of recognized standing selected by Bank. "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Bank from three Federal funds brokers of recognized standing selected by Bank. If for any reason the Bank shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate, or both, for any reason, including the inability or failure of the Bank to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "Alternate Base Rate Loan" means a Loan which bears interest at a rate determined by reference to the Alternate Base Rate. "Assessment Rate" means, for any date, the annual rate (rounded upwards, if not already a whole multiple of 1/16 of 1%, to the next higher 1/16 of 1%) most recently estimated by the Bank as the then current net annual assessment rate that will be employed in determining amounts payable by the Bank to the Federal Deposit Insurance Corporation for insurance by the Corporation of time deposits made in dollars at its domestic offices. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States. "Borrowing Date" means any Business Day on which the Bank shall make a Loan hereunder. "Business Day" means a day: (i) on which the Bank and commercial banks in New York City are generally open for business; and (ii) with respect to Libor Loans, on which dealings in United States Dollar deposits are carried out in the London interbank market. "Credit Agreement" shall mean that certain Amended and Restated Credit Agreement dated June 30, 1994 by and between Maker and Bank as amended by a First Amendment dated April 30, 1995, a Second Amendment dated April 30, 1996, a Third Amendment dated April 30, 1997 and as it may be amended, restated or supplemented from time to time. "Highest Lawful Rate" as used herein shall mean the maximum nonusurious interest rate permitted from time to time to be contracted for, taken, reserved, charged or received on any Loan under applicable federal or Texas laws, whichever permits the higher lawful rate; provided, however, that in the event: (i) such maximum nonusurious interest rate shall, at any time or times during the term of a Loan evidenced hereby, be reduced to a rate less than the maximum nonusurious rate in effect on the date of such Loan; and (ii) applicable law permits contracting for, taking, reserving, charging, and receiving on such Loan throughout the duration thereof the maximum nonusurious rate in effect on the date such Loan was made, then and at all such times the Highest Lawful Rate shall be the maximum nonusurious rate permitted to be contracted for, taken, reserved, charged or received on such Loan under applicable law in effect on the date of such Loan. At all such times, if any, as Texas law shall establish the Highest Lawful Rate, the Highest Lawful Rate shall be the "indicated rate ceiling" (as defined in Tex. Rev. Civ. Stat. art. 5069-1.04) from time to time in effect. "Interest Period" means, with respect to any Loan, the period commencing on the Borrowing Date and ending on the Maturity Date, consistent with the following provisions. The duration of each Interest Period shall be: (a) in the case of an Alternate Base Rate Loan, a period of up to 90 days; and Page 2 of 6 Pages Signed for Identification By: /s/ JSP --------------------- 46 Promissory Note Tandy Brands Accessories, Inc. April 30, 1997 (b) in the case of a Negotiated Rate Loan, a period of less than 90 days; and (c) in the case of a Libor Loan, 1, 2, 3 or 6 months; in each case as selected by the Maker and agreed to by the Bank. The Maker's choice of Interest Period is also subject to the following limitations: (i) No Interest Period shall end on a date after the Termination Date; and (ii) If the last day of an Interest Period would be a day other than a Business Day, the Interest Period shall end on the next succeeding Business Day (unless the Interest Period relates to a Libor Loan and the next succeeding Business Day is in a different calendar month than the day on which the Interest Period would otherwise end, in which case the Interest Period shall end on the next preceding Business Day). "Libor Loan" means a Loan which bears interest at a rate determined by reference to the Adjusted Libor Rate. "Negotiated Rate" means, with respect to each Negotiated Rate Loan hereunder, the rate of interest per annum quoted by the Bank to the Maker at the time of the borrowing request with respect to such Negotiated Rate Loan as the rate such Negotiated Rate Loan shall bear for the requested Interest Period. "Negotiated Rate Loan" means a Loan which bears interest at a rate determined by reference to the Negotiated Rate. "Statutory Reserves" shall mean the difference (expressed as a decimal) of the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any marginal, special, emergency, or supplemental reserves) expressed as a decimal established by the Board and any other banking authority to which the Bank is subject for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include, without limitation, those imposed under such Regulation D. Libor Loans shall be deemed to constitute Eurocurrency Liabilities and as such shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to any Bank under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. The unpaid principal balance of this Note at any time shall be the total of all Loans made by the Bank to or for the benefit of the Maker, less the amount of all payments of principal made hereon by or for the account of the Maker. The Bank's records shall serve as presumptive evidence of any and all amounts outstanding hereunder. Any Loan which the Bank agrees to make hereunder shall be made on the Maker's irrevocable notice, given not later than 10:00 A.M. (Houston time) on, in the case of Libor Loans, the third Business Day prior to the proposed Borrowing Date, or in the case of Alternate Base Rate Loans or Negotiated Rate Loans, the first Business Day prior to the proposed Borrowing Date, from the Maker to the Bank. Each such notice of a requested borrowing (a "Notice of Requested Borrowing") under this paragraph may be oral or written, and shall specify: (i) the requested amount of such Loan; (ii) the proposed Borrowing Date; (iii) whether the requested Loan is to be an Alternate Base Rate Loan, Negotiated Rate Loan, or Libor Loan; and (iv) the Interest Period for such Loan. If any Notice of Requested Borrowing shall be oral, the Maker shall deliver to the Bank prior to the Borrowing Date a confirmatory written Notice of Requested Borrowing, substantially in the form of Exhibit B attached to the Credit Agreement. If at any time the Bank determines in good faith (which determination shall be conclusive) that any change in any applicable law, rule or regulation or in the interpretation, application or administration thereof makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for the Bank or its foreign branch or branches to maintain or fund any Loan by means of dollar deposits obtained in the London interbank market (any of the above being described as a "Libor Event"), then, at the option of the Bank, the aggregate principal amount of the Banks Libor Loans then outstanding, which Loans are directly affected by such Eurodollar Event shall be prepaid by the Maker. Upon the occurrence of any Libor Event, and at any time thereafter so long as such Eurodollar Event shall continue, the Bank may exercise its aforesaid option by giving written notice thereof to the Maker. Any prepayment of any Libor Loan which is required under the preceding paragraph shall be made, together with accrued and unpaid interest and all other amounts payable to the Bank under this Note with respect to such prepaid Libor Loan on the date stated in the notice to the Maker referred to above, which date ("required prepayment date") shall be not less than 15 days from the date of such notice. If any Libor Loan is required to be prepaid under the preceding paragraph, the Bank shall make on the required prepayment date an Alternate Base Rate Loan in the same principal amount and with an Interest Period ending on the same day as the Libor Loan so prepaid. If any domestic or foreign law, treaty, rule or regulation (whether now in effect or hereinafter enacted or promulgated, including Regulation D of the Board of Governors of the Federal Reserve System) or any interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law): Page 3 of 6 Pages Signed for Identification By: /s/ JSP --------------------- 47 Promissory Note Tandy Brands Accessories, Inc. April 30, 1997 (a) changes, imposes, modifies, applies or deems applicable any reserve, special deposit or similar requirements in respect of any such Loan or against assets of, deposits with or for the account of, or credit extended or committed by, the Bank; or (b) imposes on the Bank or the interbank eurocurrency deposit and transfer market or the market for domestic bank certificates or deposit any other condition affecting any such Loan; and the result of any of the foregoing is to impose a cost to the Bank of agreeing to make, funding or maintaining any such Loan or to reduce the amount of any sum receivable by the Bank in respect of any such Loan, then the Bank may notify the Maker in writing of the happening of such event and Maker shall upon demand pay to the Bank such additional amounts as will compensate the Bank for such costs. Without prejudice to the survival of any other agreement of the Maker under this Note, the obligations of the Maker under this paragraph shall survive the termination of this Note. The Maker may on any Business Day prepay the outstanding principal amount of any Alternate Base Rate Loan, in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid. Partial prepayments shall be in an aggregate principal amount of $50,000.00 or a greater integral multiple of $100,000.00. Except as specified in this paragraph, the Maker shall have no right to prepay any Loan. The Maker will indemnify the Bank against, and reimburse the Bank on demand for, any loss, cost or expense incurred or sustained by the Bank (including without limitation any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Bank to fund or maintain Loans bearing interest at the Negotiated Rate or the Adjusted Libor Rate) as a result of: (a) any payment or prepayment (whether permitted by the Bank or required hereunder or otherwise) of all or a portion of any Negotiated Rate Loan or Libor Loan on a day other than Maturity Date of such Loan; (b) any payment or prepayment, whether required hereunder or otherwise, of any Negotiated Rate Loan or Libor Loan made after the delivery of a Notice of Requested Borrowing but before the applicable Borrowing Date if such payment or prepayment prevents the proposed Loan from becoming fully effective; or (c) the failure of any Negotiated Rate Loan or Libor Loan to be made by the Bank due to any action or inaction of the Maker. For purposes of this paragraph, funding losses arising by reason of liquidation or reemployment of deposits or other funds acquired by the Bank to fund or maintain Loans bearing interest at the Negotiated Rate or Adjusted Libor Rate shall be calculated as the remainder obtained by subtracting: (i) the yield (reflecting both stated interest rate and discount, if any) to maturity of obligations of the United States Treasury in an amount equal or comparable to such Loan for the period of time commencing on the date of the payment, prepayment or change of rate as provided above and ending on the last day of the subject Interest Period; from (ii) the interest payable at the Negotiated Rate or Adjusted Libor Rate for the period commencing on the date of such payment, prepayment or change of rate and ending on the last day of such Interest Period. Such funding losses and other costs and expenses shall be calculated and billed by the Bank and such bill shall, as to the costs incurred, be conclusive absent manifest error. If after the date of this Note, the Bank shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Bank's capital as a consequence of making any Loans hereunder to a level below that which the Bank could have achieved but for such adoption, change or compliance (taking into consideration the Bank's policies with respect to capital adequacy) by an amount deemed by the Bank in good faith to be material, then from time to time, the Maker shall pay to the Bank such additional amount or amounts as will compensate the Bank for such reduction. A certificate of the Bank setting forth such amount or amounts as shall be necessary to compensate the Bank as specified in the immediately preceding paragraphs above shall be delivered as soon as practicable to the Maker and shall be conclusive and binding, absent manifest error. The Maker shall pay the Bank the amount shown as due on any such certificate within 15 days after Bank delivers such certificate. In preparing such certificate, the Bank may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method. If any payment of interest or principal herein provided for is not paid when due, or any other Default shall occur and be in existence under the Credit Agreement, then the owner or holder of this Note may at its option, as provided for in the Credit Agreement or any other Loan Document (i) declare the unpaid principal balance of all Loans, all accrued and unpaid interest thereon and all other amounts payable under this Note to be forthwith due and payable, whereupon the Loans, all such interest and all such amounts shall become and be forthwith due and payable in full, without presentment, demand, protest, notice of intent to accelerate, notice of actual acceleration or further notice of any kind, all of which are hereby expressly waived by the Maker; (ii) terminate the Commitment; and (iii) exercise any and all other rights, powers and remedies granted pursuant to any provision of any of the Loan Documents or under any applicable law. If default is made in the payment of this Note and it is placed in the hands of an attorney for collection, or collected through probate or bankruptcy proceedings, or if suit is brought on the same, the Maker agrees to pay attorneys' fees and all costs and expenses. Page 4 of 6 Pages Signed for Identification By: /s/ JSP --------------------- 48 Promissory Note Tandy Brands Accessories, Inc. April 30, 1997 This Note is issued by the Maker to evidence Loans outstanding from time to time not to exceed in the aggregate the Commitment under a $20,000,000.00 revolving line of credit extended by the Bank to the Maker extended pursuant to the terms of the Credit Agreement. Capitalized terms used in this Note but not defined in this Note shall have the meanings assigned to them in the Credit Agreement. This Note is given in renewal, extension and modification of the promissory note dated April 30, 1996, executed by Maker and payable to the order of the Bank in the principal amount of $20,000,000.00. The Maker warrants and represents to the Bank, and to all other owners and/or holders of any indebtedness evidenced hereby, that all Loans evidenced by this Note are for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use, as such terms are used in Chapter One of the Texas Credit Code, Tex. Rev. Civ. Stat. arts. 5069-1.01 et. seq. The Maker warrants and represents to the Bank and to all other owners or holders of this Note that no Loans shall be used for the purchase or carrying of any "margin stock" within the meaning of Regulation "U" of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 221, as in effect on the date hereof. Except as otherwise specified in this Note, the Maker and any and all co-makers, endorsers, guarantors and sureties hereby severally waive grace, presentment, demand, notice of default, notice of intent to accelerate, notice of acceleration, and all other demands and notices of any nature or type whatsoever, in connection with the delivery, acceptance, performance, default, dishonor or enforcement of, or entry of judgment in connection with this Note, and further waive the filing of suit hereon for the purpose of fixing liability. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THE MAKER AND THE BANK AGREE THAT THE COUNTY IN WHICH BANK'S PRINCIPAL OFFICE IS LOCATED IN TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY THE MAKER OR THE BANK, WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY ACTION OR PROCEEDING AGAINST THE MAKER MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN SUCH COUNTY. THE MAKER HEREBY IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. THE MAKER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW. NOTHING HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF THE BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE MAKER OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER JURISDICTIONS OR VENUES. The Maker and the Bank expressly agree, pursuant to Article 15.10(b) of Chapter 15 ("Chapter 15") of the Texas Credit Code, that Chapter 15 shall not apply to this Note or to any Loan and that this Note and all such Loans shall not be governed by or subject to the provisions of Chapter 15 in any manner whatsoever. It is the intention of Maker and Bank to comply with usury laws in force in the State of Texas and in the United States of America as applicable. Anything in this Note to the contrary notwithstanding, the Maker shall never be required to pay unearned interest on this Note and shall never be required to pay interest on this Note at a rate in excess of the Highest Lawful Rate, and if the effective rate of interest which would otherwise be payable under this Note would exceed the Highest Lawful Rate, or if the holder of the Note shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable under this Note to a rate in excess of the Highest Lawful Rate, then: (i) the amount of interest which would otherwise be payable under this Note shall be reduced to the amount allowed under applicable law; and (ii) any unearned interest paid by the Maker or any interest paid by the Maker in excess of the Highest Lawful Rate shall, at the option of the holder of this Note, be either refunded to the Maker or credited on the principal of this Note. It is further agreed that, without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received by the Bank or any holder of this Note that are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate shall be made, to the extent permitted by usury laws applicable to the Bank (now or hereafter enacted), by amortizing, prorating and spreading in equal parts during the period of the full stated term of the Loans evidenced by this Note all interest at any time contracted for, charged or received by the Bank in connection therewith. The Bank reserves the right in its sole discretion without notice to Maker, to sell participations or assign its interest, or both in all or part of the Loans, the Note, or the Commitment. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Page 5 of 6 Pages Signed for Identification By: /s/ JSP --------------------- 49 Promissory Note Tandy Brands Accessories, Inc. April 30, 1997 IN WITNESS WHEREOF, the Maker has executed this Note effective the day, month and year first aforesaid. MAKER: TANDY BRANDS ACCESSORIES, INC. BY: /s/ J. S. B. JENKINS --------------------------------------- Name: J. S. B. Jenkins ------------------------------------- Title: ------------------------------------- Acknowledged for purposes of notice pursuant to the above cited statute by: TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ JERRY S. PETREY ----------------------------------- Name: Jerry Petrey Title: Vice President Page 6 of 6 Pages Signed for Identification By: --------------------- 50 PROMISSORY NOTE FOR DISCRETIONARY LOANS (this "Note") U.S. $5,000,000.00 April 30,1997 FOR VALUE RECEIVED, TANDY BRANDS ACCESSORIES, INC. (the "Maker"), a Delaware corporation, promises to pay to the order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION (the "Bank") on or before April 30, 1998, (the "Termination Date"), at its banking house at 712 Main Street, Houston, Texas 77002 or at such other location as the Bank may designate, in lawful money of the United States of America, the lesser of: (i) the principal sum of FIVE MILLION AND NO/100THS (U.S. $5,000,000.00 ) (the "Maximum Loan Total"); or (ii) the aggregate unpaid principal amount of all loans made by the Bank at its sole and absolute discretion hereunder (each such loan being a "Loan"), which may be outstanding on the Termination Date. Each Loan shall be due and payable on the maturity date agreed to by the Bank and the Maker with respect to such Loan (the "Maturity Date"). In no event shall any Maturity Date fall on a date after the Termination Date. SUBJECT TO THE LIMITATIONS SET FORTH HEREIN, MAKER MAY BORROW, REPAY AND REBORROW HEREUNDER AT BANK'S SOLE DISCRETION AND THERE IS NO LIMITATION ON THE NUMBER OF LOANS MADE HEREUNDER AT BANK'S SOLE DISCRETION SO LONG AS THE TOTAL UNPAID PRINCIPAL AMOUNT AT ANYTIME OUTSTANDING DOES NOT EXCEED THE MAXIMUM LOAN TOTAL. The Loans may be either Libor Loans, Negotiated Rate Loans or Alternate Base Rate Loans. The Maker shall pay interest on each Alternate Base Rate Loan for the Interest Period with respect thereto at a rate per annum equal to the lesser of: (i) the Alternate Base Rate in effect from time to time (the "Effective Alternate Base Rate"); or (ii) the Highest Lawful Rate, which interest shall be due and payable on the last day of each calendar quarter and on the last day of each Interest Period. The Maker shall pay interest on each Negotiated Rate Loan for the Interest Period with respect thereto on the unpaid principal amount thereof at a rate per annum equal to the Negotiated Rate for such Interest Period, which interest shall be due and payable on the last day of each such Interest Period. The Maker shall pay interest on each Libor Loan for the Interest Period with respect thereto at a rate per annum equal to the lesser of: (i) the Adjusted Libor Rate for such Interest Period plus three-quarters of one percent (3/4%) (the "Effective Libor Rate"); or (ii) the Highest Lawful Rate, which interest shall be due and payable on the last day of each such Interest Period, and if such Interest Period has a duration exceeding three months, on the day that is three months after the commencement of such Interest Period. Any amount not paid when due with respect to principal (whether at Maturity Date, by acceleration or otherwise), costs, expenses, and to the extent permitted by applicable law, interest, shall bear interest at a rate per annum equal to the lesser of: (i) the Alternate Base Rate in effect from time to time plus three percent (3%); or (ii) the Highest Lawful Rate, which interest shall be due and payable on demand. The principal of any Loan shall be deemed past due if not paid on or before the Maturity Date or any earlier maturity date resulting from acceleration in accordance with the terms of this Note or as provided by law or otherwise. Interest accrued and unpaid with respect to any Loan shall be deemed past due if not paid on or before the applicable interest payment due date as provided for herein. Notwithstanding the foregoing, if at any time the effective rate of interest which would otherwise be payable on any Loan evidenced by this Note exceeds the Highest Lawful Rate, the rate of interest to accrue on the unpaid principal balance of such Loan during all such times shall be limited to the Highest Lawful Rate, but any subsequent reductions in such interest rate shall not become effective to reduce such interest rate below the Highest Lawful Rate until the total amount of interest accrued on the unpaid principal balance of such Loan equals the total amount of interest which would have accrued if the Effective Alternate Base Rate, Negotiated Rate or Effective Libor Rate whichever is applicable, had at all times been in effect. Each Loan shall be in an amount not less than $100,000.00 and an integral multiple of $25,000.00. Interest with respect to Alternate Base Rate Loans shall be calculated on the basis of a 365 day year or 366 day year, as the case may be, for the actual number of days elapsed. Interest with respect to Negotiated Rate Loans or Libor Rate Loans shall be calculated on the basis of a 360 day year for the actual days elapsed, unless such calculation would result in a usurious interest rate, in which case such interest shall be calculated on the basis of a 365 day or 366 day year, as the case may be. The following terms shall have the respective meanings indicated: "Adjusted Libor Rate" means a per annum interest rate determined by Bank by dividing: (i) the Libor Rate by (ii) Statutory Reserves provided that Statutory Reserves is greater than zero, otherwise Adjusted Libor Rate means a per annum interest rate equal to the Libor Rate. "Libor Rate" means with respect to any Libor Loan for any Interest Period the interest rate determined by Bank by reference to the British Bankers' Association Interest Settlement Rates (as set forth by any service selected by Bank which has been nominated by the British Bankers' Association as an authorized information vender for the purpose of displaying such rates including but not limited to Bloomberg, Reuters or Telerate) to be the rate at approximately 11:00 a.m. London time, two Business Days prior to the commencement of such Interest Period for dollar deposits in an amount comparable to such Libor Loan with a maturity comparable to such Interest Period. "Alternate Base Rate" shall mean for any day, a rate per annum (rounded upwards, if necessary, to the next higher 1/6 of 1%) equal to the greatest of: (a) the Prime Rate in effect on such day; and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate of interest per annum determined from time to time by the Bank as its prime rate in effect at its principal office in Houston, Texas; each Page 1 of 5 Pages Signed for Identification By: /s/ JSP ------------------------- 51 Promissory Note for Discretionary Loans Tandy Brands Accessories, Inc. April 30, 1997 change in the Prime Rate shall be effective on the date such change is determined; without special notice to the Maker or any other person or entity. THE PRIME RATE IS A REFERENCE RATE AND DOES NOT NECESSARILY REPRESENT THE LOWEST OR BEST RATE ACTUALLY CHARGED TO ANY CUSTOMER AND ANY STATEMENT, REPRESENTATION OR WARRANTY IN THAT REGARD OR TO THAT EFFECT IS EXPRESSLY DISCLAIMED BY BANK. BANK MAY MAKE LOANS AT RATES OF INTEREST AT, ABOVE OR BELOW THE PRIME RATE. "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Bank from three Federal funds brokers of recognized standing selected by Bank. If for any reason the Bank shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate, for any reason, including the inability or failure of the Bank to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Alternate Base Rate Loan" means a Loan which bears interest at a rate determined by reference to the Alternate Base Rate. "Assessment Rate" means, for any date, the annual rate (rounded upwards, if not already a whole multiple of 1/16 of 1%, to the next higher 1/16 of 1%) most recently estimated by the Bank as the then current net annual assessment rate that will be employed in determining amounts payable by the Bank to the Federal Deposit Insurance Corporation for insurance by the Corporation of time deposits made in dollars at its domestic offices. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States. "Borrowing Date" means any Business Day on which the Bank shall make a Loan hereunder. "Business Day" means a day: (i) on which the Bank and commercial banks in New York City are generally open for business; and (ii) with respect to Libor Loans, on which dealings in United States Dollar deposits are carried out in the London interbank market. "Credit Agreement" shall mean that certain Amended and Restated Credit Agreement dated June 30, 1994 by and between Maker and Bank as amended by a First Amendment dated April 30, 1995, a Second Amendment dated April 30, 1996, a Third Amendment dated April 30, 1997 and as, may be amended, restated or supplemented from time to time. "Highest Lawful Rate" as used herein shall mean the maximum nonusurious interest rate permitted from time to time to be contracted for, taken, reserved, charged or received on any Loan under applicable federal or Texas laws, whichever permits the higher lawful rate; provided, however, that in the event: (i) such maximum nonusurious interest rate shall, at any time or times during the term of a Loan evidenced hereby, be reduced to a rate less than the maximum nonusurious rate in effect on the date of such Loan; and (ii) applicable law permits contracting for, taking, reserving, charging, and receiving on such Loan throughout the duration thereof the maximum nonusurious rate in effect on the date such Loan was made, then and at all such times the Highest Lawful Rate shall be the maximum nonusurious rate permitted to be contracted for, taken, reserved, charged or received on such Loan under applicable law in effect on the date of such Loan. At all such times, if any, as Texas law shall establish the Highest Lawful Rate, the Highest Lawful Rate shall be the "indicated rate ceiling" (as defined in Tex. Rev. Civ. Stat. art. 5069-1.04) from time to time in effect. "Interest Period" means, with respect to any Loan, the period commencing on the Borrowing Date and ending on the Maturity Date, consistent with the following provisions. The duration of each Interest Period shall be: (a) in the case of an Alternate Base Rate Loan, a period of up to 90 days; (b) in the case of a Negotiated Rate Loan, a period of not longer than 30 days; and (c) in the case of a Libor Loan, 1, 2, 3, or 6 months. in each case as selected by the Maker and agreed to by the Bank at Bank's sole discretion. The Maker's choice of Interest Period is also subject to the following limitations: (i) No Interest Period shall end on a date after the Termination Date; and (ii) If the last day of an Interest Period would be a day other than a Business Day, the Interest Period shall end on the next succeeding Business Day. "Libor Loan" means a Loan which bears interest by reference to the Adjusted Libor Rate. "Negotiated Rate" means, with respect to each Negotiated Rate Loan hereunder, the rate of interest per annum quoted by the Bank to the Maker at the time of the borrowing request with respect to such Negotiated Rate Loan as the rate such Negotiated Rate Loan shall bear for the requested Interest Period. Page 2 of 5 Pages Signed for Identification By: /s/ JSP --------------------- 52 Promissory Note for Discretionary Loans Tandy Brands Accessories, Inc. April 30, 1997 "Negotiated Rate Loan" means a Loan which bears interest at a rate determined by reference to the Negotiated Rate. "Statutory Reserves" shall mean the difference (expressed as a decimal) of the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any marginal, special, emergency, or supplemental reserves) expressed as a decimal established by the Board and any other banking authority to which the Bank is subject for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include, without limitation, those imposed under such Regulation D. Libor Loans shall be deemed to constitute Eurocurrency Liabilities and as such shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to any Bank under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. The unpaid principal balance of this Note at any time shall be the total of all Loans made by the Bank to or for the benefit of the Maker, less the amount of all payments of principal made hereon by or for the account of the Maker. The Bank's records shall serve as presumptive evidence of any and all amounts outstanding hereunder. Any Loan which the Bank agrees in its sole discretion to make hereunder shall be made on the Maker's irrevocable notice, given not later than 10:00 A.M. (Houston time) on, in the case of Libor Loans, the third Business Day prior to the proposed Borrowing Date, or in the case of Alternate Base Rate Loans or Negotiated Rate Loans, the first Business Day prior to the proposed Borrowing Date, from the Maker to the Bank. Each such notice of a requested borrowing (a "Notice of Requested Borrowing") under this paragraph may be oral or written, and shall specify: (i) the requested amount of such Loan; (ii) the proposed Borrowing Date; (iii) whether the requested Loan is to be an Alternate Base Rate Loan, Libor Rate Loan or Negotiated Rate Loan; and (iv) the Interest Period for such Loan. If any Notice of Requested Borrowing shall be oral, the Maker shall deliver to the Bank prior to the Borrowing Date a confirmatory written Notice of Requested Borrowing. If any domestic or foreign law, treaty, rule or regulation (whether now in effect or hereinafter enacted or promulgated, including Regulation D of the Board of Governors of the Federal Reserve System) or any interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law): (a) changes, imposes, modifies, applies or deems applicable any reserve, special deposit or similar requirements in respect of any such Loan or against assets of, deposits with or for the account of, or credit extended or committed by, the Bank; or (b) imposes on the Bank or the interbank eurocurrency deposit and transfer market or the market for domestic bank certificates or deposit any other condition affecting any such Loan; and the result of any of the foregoing is to impose a cost to the Bank of agreeing to make, funding or maintaining any such Loan or to reduce the amount of any sum receivable by the Bank in respect of any such Loan, then the Bank may notify the Maker in writing of the happening of such event and Maker shall upon demand pay to the Bank such additional amounts as will compensate the Bank for such costs. Without prejudice to the survival of any other agreement of the Maker under this Note, the obligations of the Maker under this paragraph shall survive the termination of this Note. The Maker may on any Business Day prepay the outstanding principal amount of any Alternate Base Rate Loan, in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid. Partial prepayments shall be in an aggregate principal amount of $100,000.00 or a greater integral multiple of $25,000.00. Except as specified in this paragraph, the Maker shall have no right to prepay any Loan. The Maker will indemnify the Bank against, and reimburse the Bank on demand for, any loss, cost or expense incurred or sustained by the Bank (including without limitation any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Bank to fund or maintain Loans bearing interest at the Negotiated Rate or the Libor Rate) as a result of: (a) any payment or prepayment (whether permitted by the Bank or required hereunder or otherwise) of all or a portion of any Negotiated Rate Loan or Libor Loan on a day other than Maturity Date of such Loan; (b) any payment or prepayment, whether required hereunder or otherwise, of any Negotiated Rate Loan or Libor Loan made after the delivery of a Notice of Requested Borrowing but before the applicable Borrowing Date if such payment or prepayment prevents the proposed Loan from becoming fully effective; or (c) the failure of any Negotiated Rate Loan or Libor Loan to be made by the Bank due to any action or inaction of the Maker. For purposes of this paragraph, funding losses arising by reason of liquidation or reemployment of deposits or other funds acquired by the Bank to fund or maintain Loans bearing interest at the Negotiated Rate or the Adjusted Libor Rate shall be calculated as the remainder obtained by subtracting: (i) the yield (reflecting both stated interest rate and discount, if any) to maturity of obligations of the United States Treasury in an amount equal or comparable to such Loan for the period of time commencing on the date of the payment, prepayment or change of rate as provided above and ending on the last day of the subject Interest Period; from (ii) the interest payable at the Negotiated Rate or the Adjusted Libor Rate for the period commencing on the date of such payment, prepayment or change of rate and ending on the last day of such Interest Period. Such funding losses and other costs and expenses shall be calculated and billed by the Bank and such bill shall, as to the costs incurred, be conclusive absent manifest error. If after the date of this Note, the Bank shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or Page 3 of 5 Pages Signed for Identification By: /s/ JSP --------------------- 53 Promissory Note for Discretionary Loans Tandy Brands Accessories, Inc. April 30, 1997 compliance by the Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Bank's capital as a consequence of making any Loans hereunder to a level below that which the Bank could have achieved but for such adoption, change or compliance (taking into consideration the Bank's policies with respect to capital adequacy) by an amount deemed by the Bank in good faith to be material, then from time to time, the Maker shall pay to the Bank such additional amount or amounts as will compensate the Bank for such reduction. A certificate of the Bank setting forth such amount or amounts as shall be necessary to compensate the Bank as specified in the immediately preceding paragraphs above shall be delivered as soon as practicable to the Maker and shall be conclusive and binding, absent manifest error. The Maker shall pay the Bank the amount shown as due on any such certificate within 15 days after Bank delivers such certificate. In preparing such certificate, the Bank may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method. If any payment of interest or principal herein provided for is not paid when due, or if there shall exist a Default under that certain Amended and Restated Revolving Credit Agreement dated as of June 30, 1994 by and between Maker and Bank, as amended from time to time, or if the Maker shall default under or with respect to any other debts, obligations or liabilities of the Maker due to the Bank, (whether such debts, obligations or liabilities be direct or indirect, primary or secondary, joint or several, fixed or contingent and whether such debt, obligations or liabilities are evidenced by note, open account, overdraft endorsement application for letter of credit guaranty or otherwise), then the owner or holder of this Note may at its option, by notice to the Maker, (i) declare the unpaid principal balance of all Loans, all accrued and unpaid interest thereon and all other amounts payable under this Note to be forthwith due and payable, whereupon the Loans, all such interest and all such amounts shall become and be forthwith due and payable in full, without presentment, demand, protest, notice of intent to accelerate, notice of actual acceleration or further notice of any kind, all of which are hereby expressly waived by the Maker, (ii) terminate the Line of Credit (as hereinafter defined), and (ii) exercise any and all other rights, powers and remedies granted pursuant to any provision of any of the Loan Documents or under any applicable law. If default is made in the payment of this Note and it is placed in the hands of an attorney for collection, or collected through probate or bankruptcy proceedings, or if suit is brought on the same, the Maker agrees to pay attorneys' fees and all costs and expenses. This Note is issued by the Maker to evidence Loans outstanding from time to time not to exceed the Maximum Loan Total in the aggregate, pursuant to a $5,000,000.00 uncommitted discretionary line of credit (the "Line of Credit") extended by the Bank to the Maker. THE BANK IS NOT OBLIGATED IN ANY WAY TO MAKE ANY LOANS HEREUNDER, AND ALL ADVANCES HEREUNDER AND ANY LOANS SHALL BE AT THE BANK'S SOLE AND ABSOLUTE DISCRETION. This Note is given in renewal and extension and modification of that certain promissory note dated April 30, 1996, executed by Maker and payable to the order of the Bank in the principal amount of $5,000,000.00. THE BANK IS NOT OBLIGATED IN ANY WAY TO MAKE ANY LOANS HEREUNDER AND NOTHING HEREIN OR IN ANY OTHER AGREEMENTS OR OTHER WRITINGS EXECUTED OR DELIVERED IN CONNECTION WITH THE LINE OF CREDIT OR THIS NOTE IS INTENDED OR TO BE CONSTRUED AS A COMMITMENT ON THE PART OF THE BANK OR ANY SUBSEQUENT OWNER OR HOLDER OF THIS NOTE TO MAKE ANY LOAN HEREUNDER OR UNDER THE LINE OF CREDIT. ALL LOANS HEREUNDER OR UNDER THE LINE OF CREDIT SHALL BE AT THE SOLE AND ABSOLUTE DISCRETION OF THE BANK OR ANY SUBSEQUENT OWNER OR HOLDER OF THIS NOTE AND THE BANK OR ANY SUBSEQUENT OWNER OR HOLDER OF THIS NOTE MAY, FOR ANY REASON OR NO REASON AT ALL, REFUSE TO MAKE ANY LOAN TO THE MAKER HEREUNDER OR UNDER THE LINE OF CREDIT. The Maker warrants and represents to the Bank, and to all other owners and/or holders of any indebtedness evidenced hereby, that all Loans evidenced by this Note are for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use, as such terms are used in Chapter One of the Texas Credit Code, Tex. Rev. Civ. Stat. arts. 5069-1.01 et. seq. The Maker warrants and represents to the Bank and to all other owners or holders of this Note that no Loans shall be used for the purchase or carrying of any "margin stock" within the meaning of Regulation "U" of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 221, as in effect on the date hereof. Except as otherwise specified in this Note, the Maker and any and all co-makers, endorsers, guarantors and sureties hereby severally waive grace, presentment demand, notice of default, notice of intent to accelerate, notice of acceleration, and all other demands and notices of any nature or type whatsoever, in connection with the delivery, acceptance, performance, default, dishonor or enforcement of, or entry of judgment in connection with this Note, and further waive the filing of suit hereon for the purpose of fixing liability. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THE MAKER AND THE BANK AGREE THAT THE COUNTY IN WHICH BANK'S PRINCIPAL OFFICE IS LOCATED IN TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY THE MAKER OR THE BANK WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY ACTION OR PROCEEDING AGAINST THE MAKER MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN SUCH COUNTY. THE MAKER Page 4 of 5 Pages Signed for Identification By: /s/ JSP --------------------- 54 Promissory Note for Discretionary Loans Tandy Brands Accessories, Inc. April 30, 1997 HEREBY IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. THE MAKER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW. NOTHING HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF THE BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE MAKER OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER JURISDICTIONS OR VENUES. The Maker and the Bank expressly agree, pursuant to Article 15.10(b) of Chapter 15 ("Chapter 15") of the Texas Credit Code, that Chapter 15 shall not apply to this Note or to any Loan and that this Note and all such Loans shall not be governed by or subject to the provisions of Chapter 15 in any manner whatsoever. It is the intention of Maker and Bank to comply with usury laws in force in the State of Texas and in the United States of America as applicable. Anything in this Note to the contrary notwithstanding, the Maker shall never be required to pay unearned interest on this Note and shall never be required to pay interest on this Note at a rate in excess of the Highest Lawful Rate, and if the effective rate of interest which would otherwise be payable under this Note would exceed the Highest Lawful Rate, or if the holder of the Note shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable under this Note to a rate in excess of the Highest Lawful Rate, then: (i) the amount of interest which would otherwise be payable under this Note shall be reduced to the amount allowed under applicable law; and (ii) any unearned interest paid by the Maker or any interest paid by the Maker in excess of the Highest Lawful Rate shall, at the option of the holder of this Note, be either refunded to the Maker or credited on the principal of this Note. It is further agreed that, without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received by the Bank or any holder of this Note that are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate shall be made, to the extent permitted by usury laws applicable to the Bank (now or hereafter enacted), by amortizing, prorating and spreading in equal parts during the period of the full stated term of the Loans evidenced by this Note all interest at any time contracted for, charged or received by the Bank in connection therewith. The Bank reserves the right in its sole discretion without notice to Maker, to sell participations or assign its interest, or both in all or part of the Loans, the Note, or the Line of Credit. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the Maker has executed this Note effective the day, month and year first aforesaid. MAKER: TANDY BRANDS ACCESSORIES, INC. By: /s/ J.S.B. JENKINS -------------------------------- Name: J.S.B. Jenkins ----------------------------- Title: ----------------------------- Acknowledged for purposes of notice pursuant to the above cited statute by: TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ JERRY S. PETREY ------------------------------------ Name: JERRY PETREY Title: Vice President Page 5 of 5 Pages Signed for Identification By: --------------------- EX-10.22 4 CREDIT AGREEMENT - NATIONSBANK OF TEXAS 1 EXHIBIT 10.22 NationsBank of Texas, NA. LOAN AGREEMENT This Loan Agreement (the "Agreement") dated as of May 16,1997, by and between NationsBank, N.A. a national banking association ("Bank") and the Borrower described below. [THIS AGREEMENT CONTAINS SOME PROVISIONS PRECEDED BY BOXES. MARK ONLY THOSE BOXES BESIDE PROVISIONS WHICH WILL BE APPLICABLE TO THIS TRANSACTION. A BOX WHICH IS NOT MARKED MEANS THAT THE PROVISION BESIDE IT IS NOT APPLICABLE TO THIS TRANSACTION.] In consideration of the Loan or Loans described below and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, Bank and Borrower agree as follows: 1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms defined herein, the following terms shall have the meaning set forth with respect thereto: A. BORROWER: Tandy Brands Accessories, Inc. --------------------------- a Delaware Corporation ---------------------------------- B. BORROWER'S ADDRESS: 690 East Lamar Blvd. ------------------------------------ Suite 200 ------------------------------------ Arlington, Texas 76011 ------------------------------------ C. Accounting Terms. All accounting terms not specifically defined or specified herein shall have the meanings generally attributed to such terms under generally accepted accounting principles ("GAAP") as in effect from time to time consistently applied, with respect to the financial statements referenced in Section 3.H. hereof. D. "Acquistion Capital Expenditures" shall mean for any period the aggregate expenditures, costs, financings (which shall include Capitalized Lease financings or transactions including such leases) cash expended, stock transactions or other methods of purchasing a tangible fixed asset or capital asset i.e., the total "Purchase Price" of such acquisition which shall be supported by appraisals, accounting practices sales contracts or other evidence generally utilized in reflecting the purchase price of acquisitions and which purchase price will be reflected in the Borrower's financial statements. E. "Capital Expenditures" shall mean, for any period, the aggregate of all expenditures and costs of the Borrower (whether paid in cash or accrued as liabilities during that period and including that portion of Capitalized Leases of the Borrower) during such period that, in conformity with GAAP, are required to be included in or classified as property, plant or equipment or another similar fixed asset account reflected on the balance sheet of the Borrower. F. Current Assets. Current Assets means the aggregate amount of all Borrower's assets which would, in accordance with GAAP properly be defined as current assets. G. Current Liabilities. Current Liabilities means the aggregate amount of all current liabilities as determined in accordance with GAAP, but in any event shall include all liabilities except those having a maturity date which is more than one year from the date as of which such computation is being made. H. "EBITDA" Shall mean pretax income plus Interest Expense plus amortization and depreciation. I. "Effective Date" with respect of this Agreement, shall mean May 16, 1997. 2 J. "Fixed Charges" shall mean, as of any date, on a consolidated basis, the sum of Borrower's (i) cash Interest Expense, (ii) scheduled principal payments, (iii) Capital Expenditures excluding Acquisition Capital Expenditures, (iv) cash dividends, (v) treasury stock repurchased and (vi) cash tax expenses. K. "Funded Indebtedness" shall mean, as of any date, the sum of the following (without duplication): (i) all Indebtedness of Borrower as of such date, other than consolidated Current Liabilities, (ii) all Indebtedness which would be classified as "funded indebtedness" or "long-term indebtedness" on a consolidated balance sheet of Borrower prepared as of such date in accordance with GAAP, (iii) all Indebtedness, whether secured or unsecured, of Borrower having a final maturity (or which is renewable or extendible at the option of the obligor for a period ending more than one year after the date of creation thereof), notwithstanding the fact that payments made by the obligor less than one year after the date of creation thereof and notwithstanding the fact that any amount thereof is at the time included also in consolidated Current Liabilities of such obligor, (iv) all Indebtedness of Borrower outstanding under a revolving credit or similar agreement providing for borrowings (and renewals and extensions thereof) over a period of more than one year, notwithstanding the fact that any such Indebtedness is created within one year of the expiration of such agreement. L. "GAAP" shall mean generally accepted accounting principles in the United States of America, applied on a basis consistent with those used in the preparation of the financial statements. M. "Governmental Authority" shall mean any Federal, state, municipal or other governmental department, commission, board, bureau, agency court or instrumentality, domestic or foreign. N. "Highest Lawful Rate" shall have the meaning ascribed thereto in the Note. 0. Hazardous Materials Hazardous Materials include all materials defined as hazardous materials or substances under any local, state or federal environmental laws, rules or regulations, and petroleum, petroleum products, oil and asbestos. P. Loan. Any loan described in Section 2 hereof and any subsequent loan which states that is subject to this Loan Agreement. Q. Loan Documents. Loan Documents means this Loan Agreement and any and all promissory notes executed by Borrower in favor of Bank and all other documents, instruments, guarantees, certificates and agreements executed and/or delivered by Borrower, any guarantor or third party in connection with any Loan. R. Maturity Date. Shall mean two (2) years from the effective date, unless otherwise extended by Bank at its sole discretion. S. Permitted Liens. Liens permitted as described in Exhibit A attached hereto. 2. LOANS. A. Loan. Bank hereby agrees to make (or has made) one or more loans to Borrower in the aggregate principal face amount of $5,000,000. The obligation to repay the loans is evidenced by a promissory note or notes dated May 16, 1997 (the promissory note or notes together with any and all renewals, extensions or rearrangements thereof being hereafter collectively referred to as the "Note") having a maturity date, repayment terms and interest rate as set forth in the Note. i. [X] Revolving Credit Feature. The Loan provides for a revolving line of credit (the "Line") under which Borrower may from time to time, borrow, repay and re-borrow funds. - 2 - 3 ii. [X] Useage Fee. Borrower will pay hereafter on August 1, 1997 and on the lst day of each Aug., Nov., Feb., May for the period from and including the date the Line was established to and including the maturity date of the Line, a usage fee at a rate per annum of 1/4% of the [X] average daily unused portion of the Line during such period [ ] average daily used portion of the Line during such period [ ] committed amount of the Line. The Borrower may at any time upon written notice to the Bank permanently reduce the amount of the Line at which time the obligation of the Borrower to pay a usage fee shall thereupon correspondingly be reduced. 3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrant to Bank as follows: A. Good Standing. Borrower is a Corporation, duly organized, validly existing and in good standing under the laws of Delaware and has the power and authority to own its property and to carry on its business in each jurisdiction in which Borrower does business. B. Authority and Compliance. Borrower has full power and authority to execute and deliver the Loan Documents and to incur and perform the obligations provided for therein, all of which have been duly authorized by all proper and necessary action of the appropriate governing body of Borrower. No consent or approval of any public authority or other third party is required as a condition to the validity of any Loan Document, and Borrower is in compliance with all laws and regulatory requirements to which it is subject. C. Binding Agreement. This Agreement and the other Loan Documents executed by Borrower constitute valid and legally binding obligations of Borrower, enforceable in accordance with their terms. D. Litigation. There is no proceeding involving Borrower pending or, to the knowledge of Borrower, threatened before any court or governmental authority, agency or arbitration authority, except as disclosed to Bank in writing and acknowledged by Bank prior to the date of this Agreement. E. No Conflicting Agreements. There is no charter, bylaw, stock provision, partnership agreement or other document pertaining to the organization, power or authority of Borrower and no provision of any existing agreement, mortgage, indenture or contract binding on Borrower or affecting its property, which would conflict with or in any way prevent the execution, delivery or carrying out of the terms of this Agreement and the other Loan Documents. F. Ownership of Assets. Borrower has good title to its assets, and its assets are free and clear of liens, except those granted to Bank and as disclosed to Bank in writing prior to the date of this Agreement, except permitted liens hereinafter defined. G. Taxes. All taxes and assessments due and payable by Borrower have been paid or are being paid are being contested in good faith by appropriate proceedings and the Borrower has filed all tax returns which it is required to file. H. Financial Statements. The financial statements of Borrower heretofore delivered to Bank have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved and fairly present Borrower's financial condition as of the date or the dates thereof, and there has been no material adverse change in Borrower's financial condition or operations since December 31, l997. All factual information furnished by Borrower to Bank in connection with this Agreement and the other Loan Documents is and will be accurate and complete in all material respects on the date as of which such information is delivered to Bank and is not and will not be incomplete by the omission of any material fact necessary to make such information not misleading. - 3 - 4 I. PLACE OF BUSINESS. Borrower's chief executive office is located at 690 East Lamar Blvd. --------------------------------------------------- Suite 200 --------------------------------------------------- Arlington, TX 76011 --------------------------------------------------- J. ENVIRONMENTAL. The conduct of Borrower's business operations and the condition of Borrower's property does not and will not violate any federal laws, rules or ordinances for environmental protection, regulations of the Environmental Protection Agency, any applicable local or state law, rule, regulation or rule of common law or any judicial interpretation thereof relating primarily to the environment or Hazardous Materials. K. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made under this Agreement shall be deemed to be made at and as of the date hereof and at and as of the date of any advance under any Loan. 4. AFFIRMATIVE COVENANTS. Until full payment and performance of all obligations of Borrower under the Loan Documents, Borrower will, unless Bank consents otherwise in writing (and without limiting any requirement of any other Loan Document): A. FINANCIAL CONDITION. Maintain Borrower's financial condition as follows, determined in accordance with GAAP applied on a consistent basis throughout the period involved except to the extent modified by the following definitions: Funded Indebtedness to EBITDA Ratio. Not permit the ratio of Borrower's Funded Indebtedness to EBITDA for the trailing four (4) quarters to be greater than 3.00 to 1.00 at any time during the term of this Agreement, but tested as of the end of each fiscal quarter, beginning June 30, 1997. Fixed Charge Ratio. Not permit the ratio of EBITDA to Fixed Charges for the trailing four (4) quarters to be less than 1.50 to 1.00 at any time during the term of this Agreement, but tested as of the end of each fiscal quarter, beginning June 30, 1997. B. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a system of accounting reasonably satisfactory to Bank and in accordance with GAAP applied on a consistent basis throughout the period involved, permit Banks's officers or authorized representatives to visit and inspect Borrower's books of account and other records at such reasonable times and as often as Bank may desire, and pay the reasonable fees and disbursements of any accountants or other agents of Bank selected by Bank for the foregoing purposes. Unless written notice of another location is given to Bank, Borrower's books and records will be located at Borrower's chief executive office set forth above. All financial statements called for below shall be prepared in form and content reasonably acceptable to Bank and by independent certified public accountants acceptable to Bank, except the quarterly financial statements referred to in paragraph 4.B ii below which will be internally prepared by borrower. In addition, Borrower will: i.[X] Furnish to Bank Audited financial statements of Borrower for each fiscal year Borrower, within 90 days after the close of each such fiscal year. ii.[X] Furnish to Bank Internally Prepared financial statements (including a balance sheet and profit and loss statement) of Borrower for each Quarter of each of the first three quarters of each fiscal year of Borrower, within 45 days after the close of each such period. iii.[X] Furnish to Bank a compliance certificate for (and executed by an authorized officer of) Borrower concurrently with and dated as of the date of delivery of each of the financial statements as -4- 5 required in paragraphs i and ii above, containing (a) a certification that the financial statements of even date fairly present in all material respects the financial position and results of operation and cash flow of Borrower at the date and for the period indicated subject to changes resulting from year-end adjustments, and that the borrower is not in default under the terms of this Agreement, and (b) computations and conclusions, in such detail as Bank may request, with respect to compliance with this Agreement, and the other Loan Documents, including computations of all quantitative covenants. iv. [X] Furnish to Bank promptly such additional information, reports and statements respecting the business operations and financial condition of Borrower, from time to time, as Bank may reasonably request. C. INSURANCE. Maintain insurance with responsible insurance companies on such of its properties, in such amounts and against such risks as is customarily maintained by similar businesses, specifically to include fire and extended coverage insurance covering all assets, workers compensation insurance and liability insurance. Satisfactory evidence of such insurance will be supplied to Bank prior to funding under the Loan(s) and 30 days prior to each policy renewal. D. EXISTENCE AND COMPLIANCE. Maintain its existence, good standing and qualification to do business, where required and comply with all laws, regulations and governmental requirements including, without limitation, environmental laws applicable to it or to any of its property, business operations and transactions. E. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in writing of (i) any condition, event or act which comes to its attention that would or might materially adversely affect Borrower's financial condition or operations or Bank's rights under the Loan Documents, (ii) any material litigation filed by or against Borrower, (iii) any event that has occurred that would constitute an event of default under any Loan Documents and (iv) any material uninsured or partially uninsured loss through fire, theft, liability or property damage. F. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes, assessments and other obligations, including, but not limited to taxes, costs or other expenses arising out of this transaction, as the same become due and payable, except to the extent the same are being contested in good faith by appropriate proceedings in a diligent manner. G. MAINTENANCE. Maintain all of its tangible property in good condition and repair, ordinary wear and tear excepted and make all necessary replacements thereof, and preserve and maintain all licenses, trademarks, privileges, permits, franchises, certificates and the like necessary for the operation of its business. H. ENVIRONMENTAL. Immediately advise Bank in writing of (i) any and all enforcement, cleanup, remedial, removal, or other governmental or regulatory actions instituted, completed or threatened pursuant to any applicable federal, state, or local laws, ordinances or regulations relating to any Hazardous Materials affecting Borrower's business operations; and (ii) all claims made or threatened by any third party against Borrower relating to damages, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials. Borrower shall immediately notify Bank of any remedial action taken by Borrower with respect to Borrower's business operations. Borrower will not use or permit any other party to use any Hazardous Materials at any of Borrower's places of business or at any other property owned by Borrower except such materials as are incidental to Borrower's normal course of business, maintenance and repairs and which are handled in compliance with all applicable environmental laws. Borrower agrees to permit Bank, its agents, contractors and employees to enter and inspect any of Borrower's places of business or any other property of Borrower at any reasonable times upon three (3) days prior notice for the purposes of conducting an environmental investigation and audit (including taking physical samples) to insure that Borrower is complying with this covenant and Borrower shall reimburse Bank on demand for the costs of any such environmental investigation and audit. Borrower shall provide Bank, its agents, contractors, employees and -5- 6 representatives with access to and copies of any and all data and documents relating to or dealing with any Hazardous Materials used, generated, manufactured, stored or disposed of by Borrower's business operations within five (5) days of the request therefore. 5. NEGATIVE COVENANTS. Until full payment and performance of all obligations of Borrower under the Loan Documents, Borrower will not, without the prior written consent of Bank (and without limiting any requirement of any other Loan Documents). A. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign or otherwise dispose of or transfer any assets, except in the normal course of its business, or enter into any merger or consolidation, in which Borrower is not the surviving entity, or transfer control or ownership of the Borrower. B. LIENS. Grant, suffer, or permit any contractual or noncontractual lien on or security interest in its assets, except in favor of Bank and except as described in Exhibit A attached hereto, or fail to promptly pay when due all lawful claims, whether for labor, materials or otherwise. C. CHARACTER OF BUSINESS. Change the general character of business as conducted at the date hereof, or engage in any type of business not reasonably related to its business as presently conducted. 6. DEFAULT. Borrower shall be in default under this Agreement and under each of the other Loan Documents if it shall default in the payment of any amounts due and owing under the Loan or should it fail to timely and properly observe, keep or perform any term, covenant, agreement or condition in any Loan Document or in any other loan agreement, promissory note, security agreement, deed of trust, deed to secure debt, mortgage, assignment or other contract securing or evidencing payment of any indebtedness of Borrower to Bank or any affiliate or subsidiary of NationsBank Corporation. 7. REMEDIES UPON DEFAULT. If an event of default shall occur, Bank shall have all rights, powers and remedies available under each of the Loan Documents as well as all rights and remedies available at law or in equity. 8. NOTICES. All notices, requests or demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to the other party under any provision of this Agreement must be in writing delivered to the other party at the following address: Borrower: Tandy Brands Accessories, Inc. ---------------------------------------------------- 690 E. Lamar Blvd. Suite 200 ---------------------------------------------------- Arlington, TX 76011 Attn: Stan Ninemire ---------------------------------------------------- Fax. No. ----------------------- Bank: NationsBank of Texas, N.A. ---------------------------------------------------- 500 W. 7th Street ---------------------------------------------------- Fort Worth, TX 76113 Attn: Vince Liberio ---------------------------------------------------- Fax. No. ----------------------- or to such other address as any party may designate by written notice to the other party. Each such notice, request and demand shall be deemed given or made as follows: A. If sent by mail, upon the earlier of the date of receipt or five (5) days after deposit in the U.S. Mail, first class postage prepaid: B. If sent by any other means, upon delivery. -6- 7 9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel if permitted by applicable law), incurred by Bank in connection with (a) negotiation and preparation of this Agreement and each of the Loan Documents, and (b) all other costs and attorneys' fees incurred by Bank for which Borrower is obligated to reimburse Bank in accordance with the Terms of the Loan Documents. 10. MISCELLANEOUS. Borrower and Bank further covenant and agree as follows, without limiting any requirement of any other Loan Document: A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to Bank under any Loan Document, or allowed it by law or equity shall be cumulative of each other and may be exercised in addition to any and all other rights of Bank, and no delay in exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise by Bank of any right preclude any other or future exercise thereof or the exercise of any other right. Borrower expressly waives any presentment, demand, protest or other notice of any kind, including but not limited to notice of intent to accelerate and notice of acceleration. No notice to or demand on Borrower in any case shall, of itself, entitle Borrower to any other or future notice or demand in similar or other circumstances. B. APPLICABLE LAW. This Loan Agreement and the rights and obligations of the parties hereunder shall be governed by and interpreted in accordance with the laws of Texas and applicable United States federal law. C. AMENDMENT. No modification, consent, amendment or waiver of any provision of this Loan Agreement, nor consent to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by an officer of Bank, and then shall be effective only in the specified instance and for the purpose for which given. This Loan Agreement is binding upon Borrower, its successors and assigns, and inures to the benefit of Bank, its successors and assigns; however, no assignment or other transfer of Borrower's rights or obligations hereunder shall be made or be effective without Bank's prior written consent, nor shall it relieve Borrower of any obligations hereunder. There is no third party beneficiary of this Loan Agreement. D. DOCUMENTS. All documents, certificates, and other items required under this Loan Agreement to be executed and/or delivered to Bank shall be in form and content satisfactory to Bank and its counsel. E. PARTIAL INVALIDITY. the unenforceability or invalidity of any provision of this Loan Agreement shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of any Loan Document to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. F. INDEMNIFICATION. Notwithstanding anything to the contrary contained in Section 10(G), Borrower shall indemnify, defend and hold Bank and its successors and assigns harmless from and against any and all claims, demands, suits, losses, damages, assessments, fines, penalties, costs or other expenses (including reasonable attorneys' fees and court costs) arising from or in any way related to any of the transactions contemplated hereby, including but not limited to actual or threatened damage to the environment, agency costs of investigation, personal injury or death, or property damage, due to a release or alleged release of Hazardous Materials, arising from Borrower's business operations, any other property owned by Borrower or in the surface or ground water arising from Borrower's business operations, or gaseous emissions arising from Borrower's business operations or any other condition existing or arising from Borrower's business operations resulting from the use or existence of Hazardous Materials, whether such claim proves to be true or false. Borrower further agrees that its indemnity obligations shall include, but are not limited to, liability for damages resulting from the personal injury or death of an employee of the Borrower, regardless of whether the Borrower has paid the employee under -7- 8 fines, penalties, costs or other expenses (including reasonable attorney's fees and court costs) arising from or in any way related to any of the transactions contemplated hereby, including but not limited to actual or threatened damage to the environment, agency costs of investigation, personal injury or death, or property damage, due to a release or alleged release of Hazardous Materials, arising from Borrower's business operations, any other property owned by Borrower or in the surface or ground water arising from Borrower's business operations, or gaseous emissions arising from Borrower's business operations of any other condition existing or arising from Borrower's business operations resulting from the use or existence of Hazardous Materials, whether such claim proves to be true or false. Borrower further agrees that its indemnity obligations shall include, but are not limited to, liability for damages resulting from the personal injury or death of an employee of the Borrower, regardless of whether the Borrower has paid the employee under the workmen's compensation laws of any state or other similar federal or state legislation for the protection of employees. The term "property damage" as used in this paragraph includes, but is not limited to, damage to any real or personal property of the Borrower, the Bank, and of any third parties. The Borrower's obligations under this paragraph shall survive the repayment of the Loan and any deed in lieu of foreclosure or foreclosure of any Deed to Secure Debt, Deed of Trust, Security Agreement or Mortgage securing the Loan. G. SURVIVABILITY. All covenants, agreements, representations and warranties made herein or in the other Loan Documents shall survive the making of the Loan and shall continue in full force and effect so long as the Loan is outstanding or the obligation of the Bank to make any advances under the Line shall not have expired. 11. GOVERNING LAW. THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS COUNTY, TEXAS, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA. TEX. REV. CIV. STAT. ANN. ART. 5069 CH. 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THE LOANS EVIDENCED BY THIS NOTE. WITHOUT EXCLUDING ANY OTHER JURISDICTION, BORROWER AGREES THAT THE COURTS OF THE STATE OF TEXAS SITTING IN DALLAS, DALLAS COUNTY, TEXAS, AND THE FEDERAL COURTS SITTING IN DALLAS, DALLAS COUNTY, TEXAS, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. 12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal by their duly authorized representatives as of the date first above written. BORROWER: BANK: By: /s/ JS. B. JENKINS (Seal) By: /s/ VINCE LIBERIO (Seal) ----------------------- --------------------- Name: JS. B. Jenkins Name: Vince Liberio --------------------- ------------------- Title: PRESIDENT, CEO Title: SVP -------------------- ------------------ [Corporate Seal] If the Borrower is a corporation, the signature should be attested by the Secretary or Assistant Secretary of the corporation and the corporate seal affixed. Attest: /s/ STAN NINEMIRE (Seal) ------------------- Name: Stan Ninemire --------------------- Title: CFO -------------------- 9 EXHIBIT "A" Permitted Liens Borrower may grant, suffer or permit any contractual or non-contractual liens or security interests in its assets, as set forth below (liens described below are herein referred to as "Permitted Liens"): 1. Inchoate liens for taxes, assessments or governmental charges or levies not yet due or liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; 2. Liens in respect to property or assets of the Borrower or any of its subsidiaries imposed by law, which were incurred in the ordinary course of business, and do not secure indebtedness for borrowed money, such as carriers', warehousemen's materialmen's and mechanics' liens and other similar liens arising in the ordinary course of business, and which do not in the aggregate materially detract from the value of the Borrower's or such subsidiary's property or assets or materially impair the use thereof in the operation of the business of the Borrower or such subsidiary, or which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale or property or assets subject to any such lien; 3. Liens in existence on the date of this Agreement, plus renewals and extensions of such liens to the extent that the aggregate principal amount of the indebtedness, if any, secured by such liens is not increased from the amount outstanding at the time of any such renewal or extension, and any such renewals or extensions do not encumber any additional assets or properties of the Borrower or any of its subsidiaries; 4. Leases or subleases granted to other persons not materially interfering with the conduct of the business of the Borrower and its subsidiaries taken as a whole; 5. Liens placed on equipment or machinery used in the ordinary course of business of Borrower of any of its subsidiaries, or on real property of the Borrower or any of its subsidiaries, in each case at the time of acquisition thereof by the Borrower or any such subsidiary or within sixty days thereafter to secure indebtedness incurred to pay all or a portion of the purchase price thereof, provided that the lien encumbering the equipment, machinery or real property so acquired does not encumber any other asset of the Borrower or such subsidiary; 6. Easements, right-of-way restrictions, encroachments and other similar charges or encumbrances and minor title deficiencies in each case not securing indebtedness and not materially interfering with the conduct of the business of the Borrower or any of its subsidiaries; 7. Statutory and common law landlord's liens under leases to which the Borrower or any of its subsidiaries is a party; and 10 8. Liens resulting from pledges or deposits to secure payments of workmen's compensation, unemployment insurance or other social security programs or securing the performance of surety and bid and performance bonds, tenders, leases and other obligations of similar nature, in each case incurred in the ordinary course of business (exclusive of obligations in respect to the payment for borrowed money). 11 NATIONSBANK OF TEXAS, N.A. 4393245 Texas 35901 M993552-001-001 NS PROMISSORY NOTE Date: MAY 16, 1997 NEW Amount: $5,000,000.00 =============================================================================== Bank: Borrower: NationsBank of Texas, N.A. Banking Center: Fort Worth Tandy Brands Accessories, Inc. 500 West 7th Street 690 East Lamar Blvd. Fort Worth, TX 76102-4700 Suite 200 Arlington, TX 76011 Tarrant County Tarrant County
=============================================================================== FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and severally, if more than one) promises to pay to the order of Bank, its successors and assigns, without setoff, at its offices indicated at the beginning of this Note, or at such other place as may be designated by Bank, the principal amount of FIVE MILLION DOLLARS AND NOT CENTS ($5,000,000.00), or so much thereof as may be advanced from time to time in immediately available funds, together with interest computed daily on the outstanding principal balance hereunder, at an annual interest rate, and in accordance with the payment schedule, indicated below. 1. RATE. See "Exhibit A, Interest Rate Option Provisions", attached hereto and made a part hereof by reference. Notwithstanding any provision of this Note, Bank does not intend to charge and Borrower shall not be required to pay any amount of interest or other charges in excess of the maximum permitted by applicable law. Borrower agrees that during the full term hereof, the maximum lawful interest rate for this Note as determined under Texas law shall be the indicated rate ceiling as specified in Article 5069-1.04 of VATS. Further, to the extent that any other lawful rate ceiling exceeds the rate ceiling so determined then the higher rate ceiling shall apply. Any payment in excess of such maximum shall be refunded to Borrower or credited against principal, at the option of Bank. 2. ACCRUAL METHOD. Interest at the Rate set forth above will be calculated by the actual/360 day method (a daily amount of interest is computed for a hypothetical year of 360 days; that amount is multiplied by the actual number of days for which any principal is outstanding hereunder). 3. RATE CHANGE DATE. Any Rate based on a fluctuating index or base rate will change, unless otherwise provided, each time and as of the date that the index or base rate changes. In the event any index is discontinued, Bank shall substitute an index determined by Bank to be comparable, at its sole discretion. 4. PAYMENT SCHEDULE. All payments received hereunder shall be applied first to the payment of any expense or charges payable hereunder or under any other loan documents executed in connection with this Note, then to interest due and payable, with the balance applied to principal, or in such other order as Bank shall determine at its option. See "Exhibit A, Interest Rate Option Provisions", attached hereto and made a part hereof by reference. 5. REVOLVING FEATURE. Borrower may borrow, repay and reborrow hereunder at any time, up to a maximum aggregate amount outstanding at any one time equal to the principal amount of this Note, provided, that Borrower is not in default under any provision of this Note, any other documents executed in connection with this Note, or any other note or other loan documents now or hereafter executed in connection with any other obligation of Borrower to Bank, and provided that the borrowings hereunder do not exceed any borrowing base or other limitation on borrowings by Borrower. Bank shall incur no liability for its refusal to advance funds based upon its determination that any conditions of such further advances have not been met. Bank records of the amounts borrowed from time to time shall be conclusive proof thereof. 6. 7. WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser or guarantor hereof, or any other party hereto (individually an "Obligor" and collectively "Obligors") and each of them jointly and severally: (a) waive presentment, demand, protest, notice of demand, notice of intent to accelerate, notice of acceleration of maturity, notice of protest, notice of nonpayment, notice of dishonor, and any other notice required to be given under the law to any Obligor in connection with the delivery, acceptance, performance, default or enforcement of this Note, any indorsement or guaranty of this Note, or any other documents executed in connection with this Note or any other note or other loan documents now or hereafter executed in connection with any obligation of Borrower to Bank (the "Loan Documents"); Promissory Note Page 1 Legal Version: 9/95 AS041 Power 1 Version: 5/31/96 Printed: 05/12/97 3:11pm 12 (b) consent to all delays, extensions, renewals or other modifications of this Note or the Loan Documents, or waivers of any term hereof or of the Loan Documents, or release or discharge by Bank of any of Obligors, or release, substitution or exchange of any security for the payment hereof, or the failure to act on the part of Bank, or any indulgence shown by Bank (without notice to or further assent from any of Obligors), and agree that no such action, failure to act or failure to exercise any right or remedy by Bank shall in any way affect or impair the obligations of any Obligors or be construed as a waiver by Bank of, or otherwise affect, any of Bank's rights under this Note, under any indorsement or guaranty of this Note or under any of the Loan Documents; and (c) agree to pay, on demand, all costs and expenses of collection or defense of this Note or of any indorsement or guaranty hereof and/or the enforcement or defense of Bank's rights with respect to, or the administration, supervision, preservation, or protection of, or realization upon, any property securing payment hereof, including, without limitation, reasonable attorney's fees, including fees related to any suit, mediation or arbitration proceeding, out of court payment agreement, trial, appeal, bankruptcy proceedings or other proceeding, in such amount as may be determined reasonable by any arbitrator or court, whichever is applicable. 8. PREPAYMENTS. Prepayments may be made in whole or in part at any time on any loan for which the Rate is based on the Prime Rate. All prepayments of principal shall be applied in the inverse order of maturity, or in such other order as Bank shall determine in its sole discretion. No prepayment of any other loan shall be permitted without the prior written consent of Bank. Notwithstanding such prohibition, if there is a prepayment of any such loan, whether by consent of Bank, or because of acceleration or otherwise, Borrower shall, within 15 days of any request by Bank, pay to Bank any loss or expense which Bank may incur or sustain as a result of such prepayment. For the purposes of calculating the amounts owed only, it shall be assumed that Bank actually funded or committed to fund the loan through the purchase of an underlying deposit in an amount and for a term comparable to the loan, and such determination by Bank shall be conclusive, absent a manifest error in computation. 9. EVENTS OF DEFAULT. The following are events of default hereunder: (a) the failure to pay or perform any obligation, liability or indebtedness of any Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation, whether under this Note or any Loan Documents, as and when due (whether upon demand, at maturity or by acceleration); (b) the failure to pay or perform any other obligation, liability or indebtedness of any Obligor to Texas Commerce Bank, N.A. (e) the commencement of a proceeding against any Obligor for dissolution or liquidation, the voluntary or involuntary termination or dissolution of any Obligor or the merger or consolidation of any Obligor with or into another entity in which the Obligor is not the surviving entity; (f) the insolvency of, the business failure of, the appointment of a custodian, trustee, liquidator or receiver for or for any of the property of, the assignment for the benefit of creditors by, or the filing of a petition under bankruptcy, insolvency or debtor's relief law or the filing of a petition for adjustment of indebtedness, composition or extension by or against any Obligor; (g) the determination by Bank that any material representation or warranty made to Bank by any Obligor in any Loan Documents or otherwise is or was, when it was made, untrue or materially misleading; (h) the failure of any Obligor to timely deliver such financial statements, including tax returns, other statements of condition or other information, as Bank shall reasonably request from time to time; 10. REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a) the entire balance outstanding hereunder and all other obligations of any Obligor to Bank (however acquired or evidenced) shall, at the option of Bank, become immediately due and payable and any obligation of Bank to permit further borrowing under this Note shall immediately cease and terminate, and/or (b) to the extent permitted by law, the Rate of interest on the unpaid principal shall be increased at Bank's discretion up to the maximum rate allowed by law, or if none, 25% per annum (the "Default Rate"). The provisions herein for a Default Rate shall not be deemed to extend the time for any payment hereunder or to constitute a "grace period" giving Obligors a right to cure any default. At Bank's option, any accrued and unpaid interest, fees or charges may, for purposes of computing and accruing interest on a daily basis after the due date of the Note or any installment thereof, be deemed to be a part of the principal balance, and interest shall accrue on a daily compounded basis after such date at the Default Rate provided in this Note until the entire outstanding balance of principal and interest is paid in full. Upon a default under this Note, Bank is hereby authorized at any time, at its option and without notice or demand, to set off and charge against any deposit accounts of any Obligor, (as well as any money, instruments, securities, documents, chattel paper, credits, claims, demands, income and any other property, rights and interests of any Obligor), which at any time shall come into the possession or custody or under the control of Bank or any of its agents, affiliates or correspondents, any and all obligations due hereunder. Additionally, Bank shall have all rights and remedies available under each of the Loan Documents, as well as all rights and remedies available at law or in equity. 11. NON-WAIVER. The failure at any time of Bank to exercise any of its options or any other rights hereunder shall not constitute a waiver thereof, nor shall it be a bar to the exercise of any of its options or rights at a later date. All rights and remedies of Bank shall be cumulative and may be pursued singly, successively or together, at the option of Bank. The acceptance by Bank of any partial payment shall not constitute a waiver of any default or of any of Bank's rights under this Note. No waiver of any of its rights hereunder, and no modification or amendment of this Note, shall be deemed to be made by Bank unless the same shall be in writing, duly signed on behalf of Bank; each such waiver shall apply only with respect to the specific instance involved, and shall in no way impair the rights of Bank or the obligations of Obligors to Bank in any other respect at any other time. 12. APPLICABLE LAW, VENUE AND JURISDICTION. Borrower agrees that this Note shall be deemed to have been made in the State of Texas at Bank's address indicated at the beginning of this Note and shall be governed by, and construed in accordance with, the laws of the State of Texas, and is performable in the City and County of Texas indicated at the beginning of this Note. In any litigation in connection with or to enforce this Note or any indorsement or guaranty of this Note or any Loan Documents, Obligors, and each of them, irrevocably consent to and confer personal jurisdiction on the courts of the State of Texas or the United States courts located within the State of Texas. Nothing contained herein shall, however, prevent Bank from bringing any action or exercising any rights within any other state or jurisdiction or from obtaining personal jurisdiction by any other means available under applicable law. 13. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of this Note shall not affect the enforceability or validity of any other provision herein and the invalidity or enforceability of any provision of this Note or of the Loan Documents to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. 14. BINDING EFFECT. This Note shall be binding upon and inure to the benefit of Borrower, Obligors and Bank and their Promissory Note Page 2 Legal Version: 9/95 AS041 Power 1 Version: 5/31/96 Printed: 05/12/97 3:11pm 13 Obligors hereunder can be assigned without prior written consent of Bank. 15. CONTROLLING DOCUMENT. To the extent that this Note conflicts with or is in any way incompatible with any other document related specifically to the loan evidenced by this Note, this Note shall control over any other such document, and if this Note does not address an issue, then each other such document shall control to the extent that it deals most specifically with an issue. 16. GOVERNING LAW. THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS COUNTY, TEXAS, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA. TEX. REV. CIV. STAT. ANN. ART. 5069 CH.15 (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THE LOANS EVIDENCED BY THIS NOTE. WITHOUT EXCLUDING ANY OTHER JURISDICTION, BORROWER AGREES THAT THE COURTS OF THE STATE OF TEXAS SITTING IN DALLAS, DALLAS COUNTY, TEXAS, AND THE FEDERAL COURTS SITTING IN DALLAS, DALLAS COUNTY, TEXAS, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. Borrower represents to Bank that the proceeds of this loan are to be used primarily for business, commercial or agricultural purposes. Borrower acknowledges having read and understood, and agrees to be bound by, all terms and conditions of this Note. NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. BORROWER: TANDY BRANDS ACCESSORIES, INC. (A DELAWARE CORPORATION) By: /s/ STAN NINEMIRE ------------------------------------------ Name: Stan Ninemire -------------------------------- Title: CFO -------------------------------- (Corporate Seal) Bank: NationsBank of Texas, N.A. By: /s/ VINCE LIBERIO SVP ------------------------------------------ Name: Vince Liberio Title: Sr. Vice President Promissory Note Page 3 Legal Version: 9/95 AS041 Power 1 Version: 5/31/96 Printed: 05/12/97 3:11pm 14 Customer # 4393425 EXHIBIT A INTEREST RATE OPTION PROVISIONS THIS EXHIBIT A is attached to and forms a part of that certain PROMISSORY NOTE (the "Note"), dated MAY 16, 1997, executed by TANDY BRANDS ACCESSORIES, INC., a DELAWARE CORPORATION ("Borrower"), and made payable to the order of NationsBank of Texas, N.A. ("Bank"). 1. Borrower's Rates. On the terms and subject to the conditions set forth below, Borrower will be able to select, from one of the following Rate Options, an interest rate which will be applicable to a particular dollar increment of amounts outstanding, or to be disbursed, under the Note: [check the available options] [X] The Prime Rate plus 0.00 (the "Prime Rate Option"); [ ] The Treasury Securities Rate plus _ (the "Treasury Securities Rate Option"); or [X] The LIBOR Funding Rate, plus .75 (the "LIBOR Rate Option"); [ ] The Eurodollar Rate, plus _ (the "Eurodollar Rate Option"); [ ] The CD Rate plus _ (the "CD Rate Option"); or [ ] The Quoted Rate, plus _ (the "Quoted Rate Option"); [ ] The Transaction Rate of - (the "Transaction Rate Option"). Interest based on the Prime Rate Option is a floating rate and will change on and as of the date of a change in the Prime Rate. The period of time during which the Prime Rate shall be applicable shall be a Prime Rate Interest Period. Interest based on the Treasury Securities Rate Option will be fixed for periods of _ year(s) (each a "Treasury Securities Interest Period"). Interest based on the LIBOR Rate Option will be fixed for periods of ONE, TWO, THREE, OR SIX MONTHS (each a "LIBOR Interest Period"). Interest based on the Eurodollar Rate Option will be fixed for periods of _ (each a "Eurodollar Interest Period"). Interest based on the CD Rate Option will be fixed for periods of _(each a "CD Interest Period"). Interest based on the Quoted Rate Option will be fixed for periods of _ (each a "Quoted Interest Period"). Interest based on the Transaction Rate Option will be fixed for periods of _ (each a "Transaction Interest Period"). The Treasury Securities Rate, the LIBOR Rate, the Eurodollar Rate, the CD Rate, the Quoted Rate, and the Transaction Rate each being hereafter from time to time referred to as a "Fixed Rate Option"). 2. Selection of Applicable Interest Rate. (a) Request. Borrower may request (a "Rate Request") that a $100,000.00 increment or any amount in excess thereof (an "Increment") of the outstanding principal of, or amounts to be disbursed under, the Note bear interest at the Prime Rate Option, Treasury Securities Rate Option, the LIBOR Rate Option, the Eurodollar Rate Option, the CD Rate Option, the Quoted Rate Option or the Transaction Rate Option, as applicable, by telephonic notice no later than 10:00 a.m. (Central time) a sufficient (in Bank's sole discretion) number of Business Days prior to the effective date of the Rate Request to permit Bank to quote the rate requested. (b) Applicable Interest Rates. Borrower's Rate Request will become effective, and interest on the Increment designated will be calculated at the rate (the "Effective Rate") requested by Borrower for the applicable Interest Period, subject to the following: (i) Notwithstanding any Rate Request, interest shall be calculated on the basis of the Prime Rate Option if (a) Bank, in good faith, is unable to ascertain the requested Fixed Rate Option by reason of circumstances then affecting the applicable money market or otherwise, (b) it becomes unlawful or impracticable for the Bank to maintain loans based upon the requested Fixed Rate Option, or (c) Bank, in good faith, determines that it is impracticable to maintain loans based on the requested Fixed Rate Option because of increased taxes, regulatory costs, reserve requirements, expenses or any other costs or charges that affect such Interest Rate Options. Upon the occurrence of any of the above events, any Increment to which a requested Fixed Rate Option applies, shall be immediately (or at the option of Bank, at the end of the current Fixed Rate Interest Period), without further action of Borrower or Bank, converted to an Increment to which the Prime Rate Option applies. (ii) Borrower may have no more than a total of 10 Effective Rates applicable to amounts outstanding under the Note at any given time. (iii) A Rate Request shall be effective as to amounts to be distributed under the Note only if, on the effective date of the Rate Requests, such amounts are in fact disbursed to or for the account of the Borrower in accordance with the provisions of the Note and any related loan TX045 -1- Approved: 11/10/95 Revised: 05/30/96 15 documents. (iv) Any amounts of outstanding principal for which a Rate Request has not been made, or is otherwise not effective, shall bear interest until paid in full at the Prime Rate Option. (v) Any amounts of outstanding principal bearing interest based upon a Fixed Rate Option shall bear interest at such rate until the end of the Interest Period therefor, and thereafter shall bear interest based upon the Prime Rate Option unless a new Rate Request for a Fixed Rate Option complying with the terms hereof has been made and has become effective. (vi) If Borrower shall be in default under the Note ("Default"), then Bank shall no longer be obligated to honor any Rate Requests. (vii) No Fixed Rate Interest Period shall extend beyond the maturity date of the Note. (c) Repayment. Principal shall be payable on May 14, 1999 and interest shall be payable as follows: [check all that apply] [X] For any Interest Period during which the Prime Rate is applicable to any of the outstanding principal, interest thereon shall be payable Quarterly and continuing on the same day of each successive month, quarter or other period (as applicable) thereafter, with a final payment of all accrued and unpaid interest on the last day of such Interest Period. [] For any Interest Period during which the Quoted Rate is applicable to any of the outstanding principal, interest thereon shall be payable _ and continuing on the _ day of each successive month, quarter or other period (as applicable) thereafter, with a final payment of all accrued and unpaid interest on the last day of such Interest Period. [] For any Interest Period during which the Transaction Rate is applicable to any of the outstanding principal, interest thereon shall be payable - and continuing on the _ day of each successive month, quarter or other period (as applicable) thereafter, with a final payment of all accrued and unpaid interest on the last day of such Interest Period. [X] For any Interest Period during which the LIBOR Funding Rate is applicable to any of the outstanding principal, all accrued and unpaid interest thereon shall be payable on the last day of each applicable Interest Period and, in the case of an Interest Period greater than three months, at three month intervals after the first day of such Interest Period. [] For any Interest Period during which the Eurodollar Rate is applicable to any of the outstanding principal, all accrued and unpaid interest thereon shall be payable on the last day of each applicable Interest Period and, in the case of an Interest Period greater than three months, at three month intervals after the first day of such Interest Period. [] For any Interest Period during which the CD Rate is applicable to any of the outstanding principal, all accrued and unpaid interest thereon shall be payable on the last day of each applicable Interest Period and, in the case of an Interest Period greater than 90 days, at 90 day intervals after the first day of such Interest Period. [] For any Interest Period during which the Treasuries Securities Rate is applicable to any outstanding principal, interest thereon shall be payable _ and continuing on the _ day of each successive month, quarter or other period (as applicable) thereafter, with a final payment of all accrued and unpaid interest on the last day of such Interest Period. 3. Defined Terms. The following terms as used in this Exhibit A shall have the following meanings: "Business Day" shall mean a day on which Bank is open for business and dealing in deposits in FORT WORTH, TEXAS. "Treasury Securities Rate" shall mean the rate of interest per annum determined by Bank, in accordance with its customary general practice from time to time, to be the weekly average yield on all United States Treasury Securities adjusted to a constant maturity for a term comparable to such Interest Period, as most recently reported by the Federal Reserve System in the weekly FEDERAL RESERVE STATISTICAL RELEASE NO. H-15(519), entitled "Selected Interest Rates" (or any succeeding publication)(the "Treasury Securities Rate") adjusted from time to time in Bank's sole discretion for then applicable reserve requirements, deposit insurance assessment rates and other regulatory costs. "CD Rate" shall mean the rate of interest per annum (rounded upwards, if necessary, to the next higher 1/16 of 1%) determined by Bank, in accordance with its customary general practice from time to time, paid from time to time by major banks on negotiable certificates of deposit (secondary market) in amounts of $1,000,000.00 or more for a term comparable to such Interest Period, as most recently reported by the Federal Reserve System in the weekly FEDERAL RESERVE STATISTICAL RELEASE NO. H-15(519), entitled "Selected Interest Rates" (or any succeeding publication) (the "CD Rate") adjusted from time to time in Bank's sole discretion for then applicable reserve requirements, deposit insurance assessment rates and other regulatory costs. TX045 -2- Approved: 11/10/95 Revised: 05/30/96 16 "LIBOR Funding Rate" shall mean the rate of interest set by Bank as the LIBOR Funding Rate as of and at any time during the second Business Day immediately preceding the first day of such Interest Period, for a term comparable to such Interest Period, as adjusted from time to time in Bank's sole discretion for then applicable reserve requirements, deposit insurance assessment rates and other regulatory costs. "Eurodollar Rate" shall mean the rate of interest set by Bank as the Eurodollar Rate, as of and at any time during the second Business Day immediately preceding the first day of such Interest Period, for a term comparable to such Interest Period, as adjusted from time to time in Bank's sole discretion for then applicable reserve requirements, deposit insurance assessment rates and other regulatory costs. "Prime Rate" is the fluctuating rate of interest established by Bank from time to time, at its discretion, whether or not such rate shall be otherwise published. The Prime Rate is established by Bank as an index and may or may not at any time be the best or lowest rate charged by Bank on any loan. "Quoted Rate" shall mean a fixed rate of interest per annum agreed upon by the Bank and Borrower on or prior to the first day of the Interest Period for which such rate shall be in effect. "Transaction Rate" shall mean the fixed rate of _ % per annum. 4. Notices; Authority to Act. Borrower acknowledges and agrees that the agreement of Bank herein to receive certain notices by telephone is solely for the convenience of Borrower. Bank shall be entitled to rely on the authority of the person purporting to be a person authorized by Borrower to give such notice, and Bank shall have no liability to Borrower on account of any action taken by Bank in reliance upon such telephonic notice. The obligation of Borrower to repay all sums owing under the Note shall not be affected in any way or to any extent by any failure by Bank to receive written confirmation of any telephonic notice or the receipt by Bank of a confirmation which is at variance with the terms understood by Bank to be contained in the telephonic notice. IN WITNESS WHEREOF, the parties hereto have executed this Exhibit A to Note as of the 14 day of May 1997. Borrower: Tandy Brands Accessories, Inc. By: /s/ STAN NINEMIRE ------------------------------------ Bank: NationsBank Texas, N.A. By: /s/ VINCE LIBERIO ------------------------------------ Vince Liberio, Sr., Vice President TX045 -3- Approved: 11/10/95 Revised: 05/30/96 17 NOTE $10,000,000 Fort Worth, Texas May 16, 1997 For value received, TANDY BRANDS ACCESSORIES, INC., a Delaware Corporation (the "Borrower"), promises to pay to the order of NATIONSBANK OF TEXAS, N.A. (the "Bank") the unpaid principal amount of each advance made by the Bank to the Borrower pursuant to the Letter Agreement referred to below ON DEMAND or, if not theretofore demanded, on the maturity date therefore determined in accordance with the Letter Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such advance ON DEMAND or, if not theretofore demanded, on such maturity date and at the rate determined in accordance with the Letter Agreement. AR such payments of principal and interest shall be made in lawful money of the the United States in Federal or other immediately available funds at the office of the Bank, 500 West Seventh Street, Fort Worth, Texas 76102-4700. All advances made by the Bank, the respective interest rates applicable thereto and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof, provided that the inaccuracy of, or the failure of the Bank to make, any such recordation shall not affect the obligations of the Borrower hereunder. This note is the Note referred to in the Letter Agreement dated as of October 31, 1996 between the Borrower and the Bank (as the same may be amended from time to time, the "Letter Agreement"). Reference is made to the Letter Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. TANDY BRANDS ACCESSORIES, INC. By: /s/ STAN NINEMIRE --------------------------- Title: CFO ------------------------ 18 NOTE $10,000,000 Fort Worth, Texas May 16,1997 For value received, TANDY BRANDS ACCESSORIES, INC., a Delaware Corporation (the "Borrower"), promises to pay to the order of NATIONSBANK OF TEXAS, N.A. (the "Bank") the unpaid principal amount of each advance made by the Bank to the Borrower pursuant to the Letter Agreement referred to below ON DEMAND or, if not theretofore demanded, on the maturity date therefore determined in accordance with the Letter Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such advance ON DEMAND or, if not theretofore demanded, on such maturity date and at the rate determined in accordance with the Letter Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of the Bank, 500 West Seventh Street, Fort Worth, Texas 76102-4700. All advances made by the Bank, the respective interest rates applicable thereto and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof, provided that the inaccuracy of, or the failure of the Bank to make, any such recordation shall not affect the obligations of the Borrower hereunder. This note is the Note referred to in the Letter Agreement dated as of May 16, 1996 between the Borrower and the Bank (as the same may be amended from time to time, the "Letter Agreement"). Reference is made to the Letter Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. TANDY BRANDS ACCESSORIES, INC. By: /s/ STAN NINEMIRE --------------------------- Title: CFO ------------------------ EX-11.1 5 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES Statement Re: Computation Of Earnings Per Share EXHIBIT (11): STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 11.1 Earnings per share statement Earnings per Share - Earnings per share is determined by dividing net income by the average number of common shares outstanding plus common stock equivalents of dilutive stock options. Earnings per share, as presented, is both primary and fully diluted.
(In thousands) Year Ended June 30, ------------------------------ 1997 1996 1995 -------- -------- -------- Common shares outstanding: Weighted average shares outstanding 5,444 5,329 5,201 Share equivalents 44 36 68 -------- -------- -------- Total 5,488 5,365 5,269 ======== ======== ========
16 EX-13.1 6 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13.1 CONSOLIDATED STATEMENT OF INCOME - ------------------------------------------------------------------------------- Tandy Brands Accessories, Inc. and Subsidiaries (In thousands except per share amounts)
YEAR ENDED JUNE 30, 1997 1996 1995 -------------------------------------------- Net sales.......................................................... $102,507 $ 86,694 $ 83,721 Royalty, interest and other income................................. 141 151 224 102,648 86,845 83,945 Costs and expenses: Cost of goods sold............................................ 64,249 53,974 50,892 Selling, general and administrative expenses 28,123 25,279 23,618 Depreciation and amortization................................. 1,750 2,103 1,780 Interest expense.............................................. 1,242 1,267 1,048 Prince Gardner impairment write-off........................... -- 3,976 -- 95,364 86,599 77,338 Income from continuing operations before income taxes 7,284 246 6,607 Provision for income taxes..................................... 2,720 145 2,412 Income from continuing operations............................. 4,564 101 4,195 Discontinued operation: (1,341) Pre-tax loss from operations of discontinued operation........ -- -- (3,685) Pre-tax loss from liquidation of discontinued operation....... -- -- 1,784 Income tax benefit applicable to discontinued operation....... -- -- (3,242) Loss from discontinued operation.............................. -- -- Net income................................................ $ 4,564 $ 101 $ 953 Average common shares and common share equivalents outstanding....................................... 5,488 5,365 5,269 Earnings per average common share and common share equivalent: Income from continuing operations............................. $ .83 $ .02 $ .80 Loss from discontinued operation.............................. -- -- (.62) Net income.................................................... $ .83 $ .02 $ .18
The accompanying notes are an integral part of these consolidated financial statements. 6 2 CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- Tandy Brands Accessories, Inc. and Subsidiaries (Dollars in thousands)
JUNE 30, ASSETS 1997 1996 -------------------- Current assets: Cash and cash equivalents................................................................... $ 554 $ 88 Accounts receivable, net of allowances of $1,076 and $606................................... 15,210 13,746 Inventories................................................................................. 32,260 26,610 Other current assets........................................................................ 2,489 2,505 Total current assets..................................................................... 50,513 42,949 Property, plant and equipment, at cost: Buildings................................................................................... 2,446 2,436 Leasehold improvements...................................................................... 855 553 Machinery and equipment..................................................................... 6,351 6,337 9,652 9,326 Accumulated depreciation.................................................................... (4,797) (4,246) Net property, plant and equipment........................................................ 4,855 5,080 Other assets: Goodwill, net of accumulated amortization of $2,990 and $2,437.............................. 7,941 8,526 Other intangibles, net of accumulated amortization of $1,709 and $1,468..................... 1,175 1,230 Other noncurrent assets..................................................................... 880 626 Total other noncurrent assets............................................................ 9,996 10,382 $ 65,364 $ 58,411 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................................ $ 3,180 $ 4,624 Notes payable............................................................................... -- 2,200 Accrued payroll and bonuses................................................................. 1,867 656 Accrued expenses............................................................................ 2,112 1,387 Total current liabilities................................................................ 7,159 8,867 Other liabilities: Notes payable............................................................................... 15,850 12,400 Other noncurrent liabilities................................................................ 226 297 Total other liabilities.................................................................. 16,076 12,697 Commitments (Note 7) Stockholders' equity: Preferred stock, $1 par value; 1,000,000 shares authorized; none issued..................... -- -- Common stock, $1 par value; 10,000,000 shares authorized; 5,490,091 shares.................. and 5,382,267 shares issued and outstanding as of June 30, 1997 and 1996, respectively... 5,490 5,382 Additional paid in capital.................................................................. 18,732 18,038 Retained earnings........................................................................... 17,907 13,427 Total stockholders' equity............................................................... 42,129 36,847 $ 65,364 $ 58,411
The accompanying notes are an integral part of these consolidated financial statements 7 3 CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- Tandy Brands Accessories, Inc. and Subsidiaries (In thousands)
YEAR ENDED JUNE 30, 1997 1996 1995 ------------------------------------ Cash flows from operating activities: Net income ................................................................. $ 4,564 $ 101 $ 953 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Prince Gardner impairment write-off .................................... -- 3,976 -- Loss from discontinued operation ....................................... -- -- 3,242 Depreciation ........................................................... 1,074 985 908 Amortization ........................................................... 849 1,222 952 Deferred taxes ......................................................... (265) (607) (457) Other .................................................................. (76) (376) 43 Change in assets and liabilities, net of effects from acquisitions and liquidation of discontinued operation: Accounts receivable .................................................... (1,464) (466) 1,506 Inventories ............................................................ (5,650) 3,600 (6,757) Accounts payable ....................................................... (1,444) 352 434 Accrued expenses ....................................................... 1,865 (1,320) (1,939) Other assets ........................................................... 276 (244) (1,992) Net operating activities of discontinued operation ......................... -- (67) (609) Net cash provided by (used for) operating activities ....................... (271) 7,156 (3,716) Cash flows from investing activities: Purchases of property and equipment ........................................ (1,507) (796) (1,438) Sale of property and equipment ............................................. 192 234 -- Payment for purchase of the assets and liabilities, net of cash acquired and notes retired, for the following: Canterbury Belts, Ltd. ................................................. -- -- (6,546) H.A. Sheldon, Inc. ..................................................... -- -- (3,960) Net cash used for investing activities ..................................... (1,315) (562) (11,944) Cash flows from financing activities: Sale of stock to stock purchase program ................................... 802 862 1,002 Exercise of employee stock options, net of purchase and retirement of treasury stock ............................................. -- 21 -- Proceeds from borrowings ................................................... 44,750 26,845 60,745 Payments under borrowings .................................................. (43,500) (35,722) (45,268) Net cash provided by (used for) financing activities ....................... 2,052 (7,994) 16,479 Net increase (decrease) in cash and cash equivalents ........................ 466 (1,400) 819 Cash and cash equivalents at beginning of period ............................ 88 1,488 669 Cash and cash equivalents at end of period ................................... $ 544 $ 88 $ 1,488 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest ................................................................ $ 1,179 $ 1,259 $ 1,001 Income taxes ............................................................. 2,278 691 1,683
The accompanying notes are an integral part of these consolidated financial statements. 8 4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- Tandy Brands Accessories, Inc. and Subsidiaries (Dollars in thousands)
COMMON STOCK ADDITIONAL ------------------------ PAID IN RETAINED SHARES AMOUNT CAPITAL EARNINGS --------------------------------------------------------------- Balance at June 30,1994 ........................................ 5,155,349 $ 5,155 $ 16,011 $ 12,407 Sale of stock to the Tandy Brands Accessories, Inc. Stock Purchase Program ........................................ 78,420 78 924 -- Compensation related to director stock option grants and employment contracts ...................................... 23,689 24 345 -- Foreign currency translation adjustment ........................ -- -- -- (58) Net income ..................................................... -- -- -- 953 Balance at June 30, 1995 ...................................... 5,257,458 5,257 17,280 13,302 Sale of stock to the Tandy Brands Accessories, Inc. Stock Purchase Program ........................................ 117,384 117 745 -- Sale of unissued common stock to employees for exercise of stock options ................................. 7,425 8 13 -- Foreign currency translation adjustment ........................ -- -- -- 24 Net income ..................................................... -- -- -- 101 Balance at June 30, 1996 ....................................... 5,382,267 5,382 18,038 13,427 Sale of stock to the Tandy Brands Accessories, Inc. Stock Purchase Program ........................................ 107,824 108 694 -- Foreign currency translation adjustment ........................ -- -- -- (84) Net income ..................................................... -- -- -- 4,564 Balance at June 30,1997 ........................................ 5,490,091 $ 5,490 $ 18,732 $ 17,907
The accompanying notes are an integral part of these consolidated financial statements. 9 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Tandy Brands Accessories, Inc. and Subsidiaries NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- THE COMPANY AND BASIS OF PRESENTATION Tandy Brands Accessories, Inc. (the "Company") designs, manufactures and markets fine leather goods, accessories and neckwear for men, women and children. The Company sells its products to a variety of retail outlets, including national chain stores, discount stores, major department stores, specialty stores, catalogue retailers and the retail exchange operations of the United States military. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Company considers cash on hand, deposits in banks and short-term investments with original maturities of less than three months as cash and cash equivalents. INVENTORIES Inventories are stated at the lower of cost (principally standard cost which approximates actual cost on a first-in, first-out basis) or market. Cost includes materials, direct and indirect labor and factory overhead. Market, with respect to raw materials, is replacement cost, and for work-in-process and finished goods, it is net realizable value. Inventories consist of the following:
June 30, 1997 1996 ----------------------------- Raw materials.................... $ 4,881,000 $ 3,882,000 Work-in-process.................. 1,101,000 2,164,000 Finished goods................... 26,278,000 20,564,000 $ 32,260,000 $ 26,610,000
PROPERTY AND EQUIPMENT Property and equipment are depreciated over the estimated useful lives of the assets using the straight-line method and at the rates shown: Buildings 3% Leasehold improvements The lesser of the life of the lease or asset Machinery and equipment 10% to 33 1/3%
Maintenance and repairs are charged to expense as incurred. Renewals and betterments which materially prolong the useful lives of the assets are capitalized. The cost and the related accumulated depreciation of property retired or sold are removed from the accounts, and gains or losses from retirements and sales are recognized in the consolidated statements of income. GOODWILL AND OTHER INTANGIBLES Goodwill and other intangibles are amortized using the straight-line method over their estimated useful lives ranging from three to forty years. The weighted average number of years over which goodwill and other intangibles are amortized is 16 years. Goodwill and other intangibles are reviewed for impairment based on estimated future undiscounted cash flows. 10 6 - -------------------------------------------------------------------------------- REVENUES The Company recognizes revenue when merchandise is shipped to customers and title to the goods has passed from the Company to the customer. Sales returns and allowances are recorded at the time the amounts can be reasonably estimated by the Company. The Company performs periodic credit evaluations of its customers' financial conditions and generally does not require collateral. Credit losses have historically been within management's expectations. MAJOR CUSTOMERS Consolidated net sales to Wal-Mart accounted for approximately 36%, 35%, and 40% of the Company's sales in fiscal 1997, 1996, and 1995, respectively. No other customers accounted for 10% or more of total revenues. STOCK-BASED COMPENSATION The Company may with the approval of its Board of Directors grant stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting For Stock Issued To Employees," and, accordingly, recognizes no compensation expense for the stock option grants. The Company has adopted the disclosure-only provisions as specified by Financial Accounting Standards Board (FASB) Statement No. 123, "Accounting For Stock-Based Compensation." INCOME TAXES Income taxes have been provided for using the liability method in accordance with FASB Statement No. 109, "Accounting for Income Taxes." Under FASB Statement No. 109, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws. EARNINGS PER SHARE Net income per share is based upon the weighted average number of common shares outstanding during each year and common stock equivalents of dilutive stock options. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the FASB issued Statement No. 128, "Earnings per Share." The Company is required to adopt Statement No. 128 in the second quarter of fiscal 1998. The adoption of this standard will impact earnings per share calculations; however, the adoption will have no impact on the Company's results of operations. NOTE 2 - PRINCE GARDNER IMPAIRMENT WRITE-OFF - -------------------------------------------------------------------------------- On April 4, 1994, the Company purchased for $7,690,000 certain assets of Prince Gardner Incorporated (PG) through a foreclosure sale held by PG's primary secured lender. PG is a manufacturer and marketer of women's and men's small leather goods. After a thorough review conducted in 1996 by management based upon future estimated undiscounted cash flows, it was determined that future cash flows would be insufficient to recover the Prince Gardner division's goodwill and other intangibles. Accordingly, an impairment write-off of $3,976,000 was recognized in the fourth quarter of fiscal 1996. NOTE 3 - ACQUISITION - -------------------------------------------------------------------------------- On May 1, 1995, TBAC-Canterbury, Inc. (Canterbury), a wholly owned subsidiary of Tandy Brands Accessories, Inc., acquired substantially all the assets and assumed substantially all the liabilities of Canterbury Belts, Ltd., and its wholly owned subsidiary. The assets acquired included, but were not limited to, accounts receivable, inventory, equipment, trade names and other intangibles. The cash 11 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (continued) Tandy Brands Accessories, Inc. and Subsidiaries purchase price of approximately $4,946,000 was provided by drawing on existing bank credit lines. In connection with the purchase, the Company immediately retired approximately $1,600,000 in bank indebtedness, which was part of the assumed liabilities. The acquisition has been accounted for under the purchase method of accounting and the resultant goodwill of approximately $4,250,000 is being amortized over a 15 year period. On August 30, 1994, H.A. Sheldon Canada, Ltd. (HAS), a wholly owned Canadian subsidiary of Tandy Brands Accessories, Inc., acquired substantially all the assets and assumed substantially all the liabilities of H.A. Sheldon, Inc. The cash purchase price of approximately $2,550,000 was provided by drawing on existing bank credit lines. In conjunction with the acquisition, the Company immediately retired approximately $1,410,000 in notes payable. The acquisition has been accounted for under the purchase method of accounting and the resultant goodwill of approximately $2,350,000 is being amortized over a 15 year period. Operations of the acquired companies have been included in the Company's consolidated statements of income since the applicable date of their acquisition. The pro forma results shown in the following table have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually been obtained if the acquisitions had been consummated at the beginning of the periods presented, nor does it purport to be indicative of 12 8 - -------------------------------------------------------------------------------- results which may be obtained in the future. Unaudited pro forma consolidated results from continuing operations of Tandy Brands Accessories, Inc., Canterbury and HAS, as if the acquisitions had occurred at the beginning of fiscal year 1995, are as follows:
(Unaudited) 1995 ----------- Net sales ......................................... $ 91,950,000 Income from continuing operations ................. $ 4,375,000 Income from continuing operations per share ....... $ .83
NOTE 4 - DISCONTINUED OPERATION - -------------------------------------------------------------------------------- During fiscal 1995, the Company announced its decision to dispose of the Always In Style operations. Always In Style was acquired in November of 1993 for total consideration of $1,350,000 which included 36,364 shares of Company common stock and cash. Always In Style was originally acquired by the Company in an effort to establish a position in the emerging shop-at-home market. The decision to discontinue Always In Style was made after a reevaluation of the Company's present position in the home-TV shopping business. The consolidated statements of income for fiscal years 1997, 1996 and 1995 exclude sales and expenses of the discontinued operation from captions applicable to continuing operations. Net sales for Always In Style were approximately $2,690,000 for the period prior to the measurement date in 1995. The after-tax loss from discontinuing Always In Style, including the write-off of $1,363,000 of goodwill, reduced income by approximately $3,242,000, or $0.62 per share, for the year ended June 30, 1995. NOTE 5 - CREDIT ARRANGEMENTS - -------------------------------------------------------------------------------- The Company has an unsecured line of credit with a bank for $25,000,000. Of this amount, $20,000,000, which expires on April 30, 1999, is a committed facility that requires the maintenance of certain financial covenants and the payment of a commitment fee of 1/4% on the unused balance. The line may be used for borrowings or letters of credit and bears interest at negotiated rates. The remaining $5,000,000, which expires on April 30, 1998, is an uncommitted facility that may be used for borrowings or letters of credit and bears interest at various rates and durations at the option of the Company. At June 30, 1997 and 1996, the Company had borrowings under this line of $10,850,000 and $12,400,000, bearing interest at 7% and 6.20%, respectively. In fiscal 1996, the Company had an uncommitted, unsecured line of credit with another bank for $10,000,000 that could have been used for borrowings or letters of credit. Borrowings bore interest at negotiated rates. As of June 30, 1996, there were no borrowings under this line; however, the Company had $5,014,000 in letters of credit outstanding at June 30, 1996, which were issued in conjunction with merchandise procurement. This line of credit has expired and is no longer available for borrowings or letters of credit at June 30, 1997. The Company has an unsecured line of credit with another bank for $25,000,000. Of this amount, $5,000,000, which expires on May 14, 1999, is a committed facility that requires the maintenance of certain financial covenants and the payment of a commitment fee of 1/4% on the unused balance. The line may be used for borrowings or letters of credit and bears interest at negotiated rates. The remaining $20,000,000, which expires on various dates during fiscal year 1998, is an uncommitted facility that may be used for borrowings or letters of credit and bears interest at various rates and durations at the option of the Company. At June 30, 1997 and 1996, the Company had borrowings under the committed facility of $5,000,000 and $2,200,000, bearing interest at 6.44% and 6.48%, respectively. Additionally, the Company had $4,985,0OO in letters of credit outstanding at June 30, 1997, which were used in conjunction with merchandise procurement. The Company also has a Canadian line of credit for approximately $1,000,000 secured by a letter of credit from a U.S. bank. At June 30, 1997 and 1996, there were no borrowings under this line of credit. Under the above credit facilities, future payments required for debt maturities will be $15,850,000 in fiscal 1999. 13 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (continued) Tandy Brands Accessories, Inc. and Subsidiaries NOTE 6 - INCOME TAXES - -------------------------------------------------------------------------------- Significant components of the Company's deferred tax assets and liabilities as of June 30, 1997 and 1996, are as follows:
1997 1996 ---------------------------- Deferred tax assets: Allowance for accounts receivable....... $ 348,000 $ 175,000 Inventory valuation..................... 592,000 545,000 Goodwill and other intangibles.......... 569,000 616,000 Accrued insurance....................... 47,000 63,000 Other, net.............................. 193,000 151,000 Total deferred tax assets.............. 1,749,000 1,550,000 Deferred tax liabilities: Depreciation............................ (64,000) (130,000) Total deferred tax liabilities......... (64,000) (130,000) Net deferred tax asset................. $1,685,000 $1,420,000
Significant components of the provision for income taxes from continuing operations are as follows:
1997 1996 1995 ---------------------------------------- Current: Federal.................. $2,722,000 $ 709,000 $2,683,000 Foreign.................. 51,000 (66,000) 121,000 State and local.......... 212,000 109,000 65,000 2,985,000 752,000 2,869,000 Deferred: Federal.................. (254,000) (547,000) (457,000) State and local.......... (11,000) (60,000) -- (265,000) (607,000) (457,000) Income tax provision..... $2,720,000 $ 145,000 $2,412,000
The following table reconciles the statutory federal income tax rate to the effective income tax rate for continuing operations:
1997 1996 1995 ---------------------------- Statutory rate............................... 34.0% 34.0% 34.0% State and local taxes, net of federal income tax benefit........................ 1.8% 23.6% 0.6% Other, net................................... 1.5% 1.3% 1.9% 37.3% 58.9% 36.5%
14 10 - -------------------------------------------------------------------------------- NOTE 7 - COMMITMENTS - -------------------------------------------------------------------------------- The Company leases property which includes office, manufacturing and warehouse facilities under operating leases, expiring through the year 2006 with varying renewal and escalation clauses. Rental expense for 1997, 1996 and 1995 totaled $1,074,000, $851,000 and $862,000, respectively. The Company has entered into licensing agreements with other companies for the purpose of using their trademarks on the Company's products. Royalty expense for 1997, 1996 and 1995 totaled $1,209,000, $909,000 and $881,000, respectively. Future minimum rental and royalty commitments as of June 30, 1997, are as follows:
FISCAL YEAR AMOUNT ---------------------------------------------- 1998............................ $ 1,473,000 1999............................ 1,512,000 2000............................ 974,000 2001............................ 926,000 2002............................ 621,000 Thereafter...................... 1,509,000 $ 7,015,000
NOTE 8 - EMPLOYEE STOCK OPTIONS - -------------------------------------------------------------------------------- The Company has adopted various stock option incentive plans for officers and key management employees. All options will be granted at market price as of the date of grant and have a contractual life of ten years. Options are generally exercisable annually at a rate of 20% per year beginning one year after the grant date. At June 30, 1997 and 1996, the number of shares available for grant were 107,317 and 170,267, respectively. The following table reflects the employee stock option transactions subsequent to June 30, 1994:
NUMBER OF WEIGHTED-AVERAGE SHARES EXERCISE PRICE --------------------------------- Outstanding at June 30, 1994..... 258,893 $ 12.81 Options granted.................. 90,750 $ 10.29 Options exercised................ (1,012) $ 2.81 Options cancelled or expired..... (2,000) $ 19.91 Outstanding at June 30, 1995..... 346,631 $ 12.16 Options granted.................. -- -- Options exercised................ (7,425) $ 2.74 Options cancelled or expired..... (52,602) $ 16.28 Outstanding at June 30, 1996..... 286,604 $ 11.68 Options granted.................. 82,000 $ 6.72 Options exercised................ -- -- Options cancelled or expired..... (19,050) $ 11.04 Outstanding at June 30, 1997..... 349,554 $ 10.55 Exercisable at June 30, 1997..... 206,312 $ 11.06
15 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Tandy Brands Accessories, Inc. and Subsidiaries The following table segregates outstanding options into groups based on price ranges of less than and more than ten dollars per share:
$2.07-$9.25 $10.33-$19.75 ----------------------------- All outstanding options: Number of shares............................. 192,701 156,853 Weighted-average exercise price.............. $6.38 $15.67 Weighted-average remaining contractual life.. 6.3 years 6.2 years Exercisable options: Number of shares............................. 78,001 128,311 Weighted-average exercise price.............. $4.72 $14.92
Pro forma information regarding net income and earnings per share is required by FASB No. 123, "Accounting for Stock-Based Compensation," and has been determined as if the Company had accounted for its stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 1997 and 1996: dividend yield of 0.0%; expected volatility of 0.55%; a risk free interest rate of 6.42%; and an expected holding period of seven years. Using these assumptions for the options granted during fiscal 1997, the weighted-average grant date fair value of such options was $4.25. The Black-Scholes valuation models are used in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and the average holding period of options. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense on a straight-line basis over the options' vesting period. The pro forma effects on net income for 1997 and 1996 are not representative of the pro forma effect on net income in future years because they do not take into consideration pro forma compensation expense related to grants made prior to 1996. The Company's pro forma information follows:
1997 1996 ----------------- Net income: As reported............. $4,564 $ 101 Pro forma............... $4,527 $ 101 Earnings per share: As reported............. $ .83 $ .02 Pro forma............... $ .82 $ .02
NO. 9 - NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN - ------------------------------------------------------------------------------- In fiscal 1995, the stockholders of the Company adopted the Tandy Brands Accessories, Inc. 1995 Stock Deferral Plan for NonEmployee Directors (the Deferral Plan). The Deferral Plan was established to provide non-employee directors an equity interest in the Company in order to attract and retain well-qualified individuals to serve as non-employee directors and to enhance the identity of interests between the non-employee directors and the stockholders of the Company. The Deferral Plan provides the directors with an election to defer the receipt of their annual and committee chair retainer fees until a future date determined by each director. The pay- 16 12 - -------------------------------------------------------------------------------- ment of such fees will be in the form of shares of the Company's common stock. The shares are calculated by dividing the deferred cash amount by the average closing price of the stock for each day of the period during which such cash amount would have been paid but for the deferral election. The Company records compensation expense for the amount of the directors' retainer fees. The Company benefits from cash retained when directors elect to defer their retainer fees and receive stock. The Deferral Plan provides for the granting of up to 50,000 shares of the Company's common stock to non-employee directors. The Deferral Plan became active in May 1996. There were no shares issued to the directors during fiscal years 1997 and 1996. Amounts recorded as compensation expense related to the Deferral Plan for 1997 and 1996 were $98,395 and $15,327, respectively. The Company offers other stock incentive plans for non-employee directors. In conjunction with these plans, 55,222 options were outstanding as of June 30, 1997. The options range in price from $8.00 to $19.00 and are generally exercisable at a rate of 20% per year beginning one year after the grant date. There have been no options exercised as of June 30, 1997. NOTE 10 - EMPLOYEE BENEFIT PLANS - -------------------------------------------------------------------------------- The Tandy Brands Accessories Employees Investment Plan (the Plan) is open to substantially all employees who have been employed by the Company for over two years. Under the Plan, participants may contribute 5% of their earnings, with the Company matching 150%. The contributions are paid to a trustee and invested primarily in Company common stock. Employer contributions are fully vested upon payment. The Tandy Brands Accessories Stock Purchase Program (the Program) is open to all full-time employees who are enrolled in the Tandy Brands Accessories Employees Investment Plan. Under the Program, participants may contribute 5% or 10% of their earnings, with the Company matching 50% of each participant's contribution. The Program also permits employees with six months to two years of service to participate in the Program with the Company matching 25% of each participant's contribution. The Program purchases treasury, if available, or unissued common stock directly from the Company at monthly average market prices. The participant's shares are fully vested upon purchase, the employee may withdraw at any time and the shares purchased under the Program are distributed to participants annually. Total Company contributions to these plans were approximately $952,000, $692,000 and $733,000 in 1997, 1996 and 1995, respectively. NOTE 11 - RELATED PARTY TRANSACTION - -------------------------------------------------------------------------------- During 1997 and 1996, the Company purchased inventory of approximately $18,900,000 and $13,000,000, respectively, from a supplier who is controlled by a principal shareholder of the Company. The merchandise is purchased at amounts which approximate fair market value. Although the potential exposure for product flow interruption may be significant, this exposure is mitigated in that the inventory may be purchased from various other sources. NOTE 12 - PREFERRED STOCK AND PREFERRED SHARE PURCHASE RIGHTS - -------------------------------------------------------------------------------- PREFERRED STOCK The Company's Board of Directors is authorized to approve the issuance of preferred stock without further stockholder approval. The Board of Directors of the Company is also authorized to determine, without any further action by the holders of the Company's common stock, the dividend rights, dividend rate, conversion or exchange rights, voting rights, rights and terms of redemption, liquidation preferences and sinking fund terms of any series of preferred stock, the number of shares constituting any such series and the designation thereof. No shares of preferred stock have been issued. In connection with the adoption of its Preferred Share Purchase Rights Plan (the Rights Plan), the Company has designated and reserved for issuance upon exercise of such rights 150,000 shares of Series A Junior Participating Cumulative Preferred Stock. 17 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (continued) Tandy Brands Accessories, Inc. and Subsidiaries Should the Board of Directors elect to exercise its authority to issue any additional series of preferred stock, the rights, preferences and privileges of holders of the Company's common stock would be made subject to the rights, preferences and privileges of such additional series. PREFERRED SHARE PURCHASE RIGHTS Prior to the spin-off of the Company, the Board of Directors authorized the Rights Plan. In conjunction with the spin-off, each share of the Company's common stock was distributed with one preferred share purchase right (collectively, the Rights) which entities the registered holder to purchase from the Company one one-hundredth (1/100) of a share of Series A Junior Participating Cumulative Preferred Stock at a price of $36 per one one-hundredth of a share, subject to adjustment. The Rights Plan is designed to deter coercive or unfair takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of the Company's stockholders. The Rights will cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Company's Board of Directors, except pursuant to an offer conditioned upon a substantial number of Rights being acquired. The description and terms of the Rights are set forth in a Rights Agreement between the Company and BankBoston, N.A., as Rights Agent. The Rights are not exercisable until the Rights Distribution Date as defined in the Rights Agreement and will expire on December 31, 2000, unless earlier redeemed by the Company NOTE 13 - SELECTED QUARTERLY FINANCIAL DATA - ------------------------------------------------------------------------------- (UNAUDITED) OPThe summarized quarterly financial data (in thousands, except per share amounts) for the two years ended June 30, 1997, is set forth below:
FIRST SECOND THIRD FOURTH FISCAL 1997 QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Net sales ................................................ $23,661 $29,879 $23,922 $25,045 Gross profit ............................................. 8,933 10,886 8,937 9,502 Income before income taxes ............................... 1,681 2,680 1,241 1,682 Net income ............................................... 1,063 1,700 745 1,056 Net income per average common share and common share equivalent ............................ $ .20 $ .31 $ .14 $ .19 FISCAL 1996 Net sales ................................................ $22,703 $24,406 $19,180 $20,405 Gross profit ............................................. 8,602 9,508 7,265 7,345 Income (loss) before income taxes (1) .................... 1,312 1,305 659 (3,030) Net income (loss) ........................................ 846 841 429 (2,015) Net income (loss) per average common share and common share equivalent ...................... $ .16 $ .16 $ .08 $ (.37)
(1) See Note 2 for discussion of the Prince Gardner goodwill impairment write-off of $3,976,000 recorded in the fourth quarter. 18 14 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- To the Board of Directors of Tandy Brands Accessories, Inc. We have audited the accompanying consolidated balance sheets of Tandy Brands Accessories, Inc. and subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended June 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tandy Brands Accessories, Inc. and subsidiaries at June 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1997, in conformity with generally accepted accounting principles /s/ Ernst & Young LLP Fort Worth, Texas August 7, 1997 19 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Tandy Brands Accessories, Inc. and Subsidiaries GENERAL Tandy Brands Accessories, Inc. (the Company) manufactures and markets men's, women's and children's accessories. Key product categories include belts, wallets, neckwear, handbags and socks. Merchandise is sold under various national brand names, as well as private labels, to all major levels of retail distribution. The business is conducted primarily in the United States; however, the Company does have manufacturing and marketing operations in Canada through its H.A. Sheldon division. The Company's sales and operating results are fairly consistent throughout the fiscal year, with a seasonal increase during the second quarter. Although the Company's operations are affected by general economic trends, the Company does not believe that inflation has had a material effect on the results of the Company during the past three fiscal years. The Company seeks increased accessory sales and earnings through a variety of means, including increased sales through the Company's current operating units, as well as growth through acquisition of similar businesses. During years 1997 and 1996, no acquisitions were made by the Company; however, during the period between fiscal 1992 and 1995, the Company acquired five businesses. See Note 3 for a description of the acquisitions completed in fiscal 1995. On May 1, 1995, the Company acquired Canterbury Belts, Ltd. (Canterbury), under which name the Company has continued to manufacture and market leather and fabric accessories for men, women and children to better specialty stores and golf pro-shops. On August 30, 1994, the Company purchased substantially all the assets and assumed substantially all the liabilities of H.A. Sheldon, Inc. (HAS). HAS is a manufacturer and marketer of men's belts, wallets and suspenders, located in Toronto, Canada. HAS sells to a broad range of retail distribution, including department stores, chain stores, and mass merchants, as well as specialty stores across Canada. On April 4, 1994, the Company purchased certain assets of Prince Gardner Incorporated (PG) through a foreclosure sale held by PG's primary secured lender. PG has historically been a manufacturer and marketer of women's and men's small leather goods. During fiscal 1997, in addition to its small leather goods products, PG began selling handbags under the Jones New York label to department stores and better specialty stores. After a thorough review conducted in 1996 by management, based upon the future estimated undiscounted cash flows of its PG division, it was determined that future cash flows would be insufficient to recover the PG division's goodwill and other intangibles. Accordingly, an impairment write-off of $3,976,000 was recognized in the fourth quarter of fiscal 1996. On March 27, 1995, after conducting an extensive review, the Company announced its decision to discontinue its Always In Style operations. This business was originally acquired by the Company in November of 1993, to establish an early position in home-TV shopping through the sales of women's apparel and accessory items. See Note 4. 20 16 - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS Comparison of Fiscal Years Ended June 30, 1997, 1996 and 1995 Sales and cost of goods sold and selling, general and administrative expenses for fiscal 1997 compared to the previous two fiscal years were as follows:
YEAR ENDED JUNE 30, 1997 1996 1995 ---------------------------------- (Dollars in thousands) Net sales................................................... $102,507 $86,694 $83,721 Net sales percentage increase over comparable prior period.............................. 18.2% 3.6% 24.5% Cost of goods sold.......................................... $ 64,249 $53,974 $50,892 Cost of goods sold as a percentage of sales................. 62.7% 62.3% 60.8% Selling, general and administrative expenses................ $ 28,123 $25,279 $23,618 Selling, general and administrative expenses as a percentage of sales ................................. 27.4% 29.2% 28.2%
Net sales increased $15,813,000, or 18.2% in fiscal 1997. The net sales increase during fiscal 1997 was attributable to additional product sales through existing channels of distribution by the Company's women's and men's accessory businesses, which had percentage increases of 13.8% and 4.4%, respectively. Net sales increased $2,973,000, or 3.6% in fiscal 1996. Virtually all of this increase was due to sales generated by Canterbury, which was acquired in May 1995, and increased mass merchant sales by the Company's Accessory Design Group (ADG) division. These increases were offset, to some degree, by a 26% decrease in PG's net sales in fiscal 1996. Gross margins decreased 0.4% in fiscal 1997, compared to fiscal 1996. This decrease was the result of an increasing women's mass merchant accessory sales mix as a percentage of net sales. Although these women's mass merchant sales were at lower gross margins than the Company's historical gross margins, they also carry a lower selling, general and administrative expense as a percentage of sales as compared to the Company's historical rates. During fiscal 1996, gross margins declined 1.5% primarily due to merchandise sold at lower prices in an effort to reduce slow moving inventory. Selling, general and administrative expenses as a percentage of net sales decreased 1.8%. A portion of this decrease resulted from a larger mix of women's sales which, on a percentage of sales basis, incur lower variable selling expenses than men's sales. Other contributing factors include decreased selling costs due to the consolidation of divisional sales personnel and volume efficiencies generated by greater than planned sales. Selling, general and administrative expenses as a percentage of net sales increased 1% in fiscal 1996. The increase was due more to lower than anticipated revenues than to the actual amount of selling, general and administrative expenses which, for the most part were very close to planned amounts. 21 17 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- (continued) Tandy Brands Accessories, Inc. and Subsidiaries Depreciation and amortization expenses were $1,750,000 in 1997, compared to $2,103,000 in 1996. The decrease in 1997 of $353,000 was largely the result of lower amortization expense due to the write-off of impaired goodwill in the fourth quarter of 1996. See Note 2. The effective tax rates for 1997, 1996 and 1995 were 37.3%, 58.9% and 36.5%, respectively. The effective tax rate in 1997 returned to historical trends increasing 0.8% compared to 1995 due to additional state and local taxes. The increase in the effective tax rate in 1996 was due, for the most part, to the non-tax deductibility in certain states of the losses associated with PG's operations and impaired asset write-offs. Income from continuing operations for fiscal 1997 was $4,564,000 or $0.83 a share, compared to $101,000 or $0.02 a share for 1996 and $4,195,000 or $0.80 a share for 1995. The increase in the 1997 income from continuing operations was attributable to significant sales increases, a decrease in depreciation and amortization expenses and a decrease in selling, general and administrative expenses on a percent of sales basis. The decrease in income from continuing operations for 1996 was due to the PG write-off, a lower gross profit margin percentage and higher selling, general and administrative costs. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity have been cash flows from operations and borrowings under bank credit arrangements. The Company has two unsecured bank credit lines aggregating $50,000,000 which can be used for seasonal debt or letters of credit (See Note 5). The Company also has a Canadian line of credit for approximately $1,000,000 secured by a letter of credit from a U.S. bank. The Company had approximately $35,150,000 available under such lines of credit at June 30, 1997. During fiscal 1997, the Company provided (used) cash flows from operating activities of ($271,000) compared to $7,156,000 and ($3,716,000) for 1996 and 1995, respectively. The decrease in cash flow in 1997 was attributable to increased net income, offset by increased inventory, accounts receivable and decreased accounts payable, partially offset by an increase in accrued expenses. These changes in cash flows were caused primarily by increased net sales of the Company in 1997, which resulted in increased accounts receivable and inventory levels to support continuing higher levels of sales activity. In fiscal 1997, the Company provided net cash from financing activities of $2,052,000 due to seasonal borrowings required by increases in inventory and receivables. 22 18 - ------------------------------------------------------------------------------- The Company plans to use future cash flows from operations to develop and expand current operations. The Company believes that its cash flows from operations and borrowings available under existing bank lines of credit will be sufficient to fund its operations; however, the Company's financial policy is to maintain a debt-to-total capital ratio below 30%. On June 30, 1997, the debt-to-total capital ratio was 27%, compared to 28% in 1996. The Company continues to reduce this ratio below the maximum target of 30% by increasing total capital through increased profits and, as demonstrated in 1996, the use of cash flows generated by operations to reduce outstanding indebtedness. The Company believes it has adequate financial resources and sufficient credit facilities to satisfy its future working capital needs. 23 19 SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- Tandy Brands Accessories, Inc. and Subsidiaries (in thousands, except per share amounts)
YEAR ENDED JUNE 30, 1997 1996 1995 1994 1993 ------------------------------------------------------------ Net sales................................................ $102,507 $ 86,694 $ 83,721 $ 67,254 $ 50,204 Income from continuing operations (1).................... 4,564 101 4,195 5,363 4,082 Loss from discontinued operation (2)..................... - - (3,242) (301) - Net income............................................... 4,564 101 953 5,062 4,082 Income from continuing operations per share (3).......... .83 .02 .80 1.03 .80 Net income per share (3)................................. .83 .02 .18 .97 .80 Total assets............................................. 65,364 58,411 67,315 49,318 32,231 Long-term debt........................................... 15,850 12,400 16,650 8,000 - Cash dividends per common share.......................... - - - - -
(1) See Note 2 for discussion of the Prince Gardner impairment write-off. (2) See Note 4 for discussion of the discontinued operation. (3) Net income per share has been adjusted to reflect a 3-for-2 stock split payable to stockholders of record on April 9, 1993. PRICE RANGE OF COMMON - -------------------------------------------------------------------------------- Quoted by quarter for the two fiscal years ended June 30, 1997
FISCAL 1997 HIGH LOW FISCAL 1996 HIGH LOW September....................... $ 7.50 $6.50 September...................... $9.00 $6.75 December........................ $ 7.50 $6.00 December....................... $8.50 $6.25 March........................... $ 9.00 $6.00 March.......................... $8.00 $5.25 June............................ $10.13 $8.00 June........................... $9.50 $7.25
As of August 21,1997, there were approximately 1,221 stockholders of record. 24 EX-21.1 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES EXHIBIT (21): SUBSIDIARIES OF THE REGISTRANT 21.1 List of subsidiaries
Subsidiaries of State or Other Jurisdiction of Names Under Which Such the Registrant Incorporation or Organization Subsidiaries Do Business - --------------- ----------------------------- ------------------------ Accessory Design Group, Inc. A Delaware Corporation Accessory Design Group, Inc. Accessory Design Group TBAC-Prince Gardner, Inc. A Delaware Corporation TBAC-Prince Gardner, Inc. Prince Gardner TBAC-AIS, Inc. A Delaware Corporation TBAC-AIS, Inc. H.A. Sheldon Canada Ltd. A Canadian Corporation 1088258 Ontario, Inc. H.A. Sheldon Canada Ltd. TBAC-Canterbury, Inc. A Delaware Corporation TBAC-Canterbury, Inc.
17 EX-23.1 8 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23 TANDY BRANDS ACCESSORIES, INC. AND SUBSIDIARIES EXHIBIT (23): CONSENTS OF EXPERTS AND COUNSEL 23.1 Consent of Ernst & Young LLP CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of Tandy Brands Accessories, Inc. of our report dated August 7, 1997, included in the 1997 Annual Report to Stockholders of Tandy Brands Accessories, Inc. We also consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-41262, 33-46814, 33-91996, 33-75114 and 333-8579) and in the related Prospectuses of (i) our report dated August 7, 1997, with respect to the consolidated financial statements of Tandy Brands Accessories, Inc. included in the 1997 Annual Report to Stockholders of Tandy Brands Accessories, Inc. and (ii) our report dated August 7, 1997, with respect to the financial statement schedule included in this Annual Report on Form 10-K for the year ended June 30, 1997. /s/ ERNST & YOUNG LLP Fort Worth, Texas September 23, 1997 18 EX-27.1 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TANDY BRANDS ACCESSORIES, INC.'S JUNE 30, 1997, ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FILINGS. DOLLARS ARE IN THOUSANDS. YEAR JUN-30-1997 JUN-30-1997 554 0 16,286 1,076 32,260 50,513 9,652 4,797 65,364 7,159 15,850 0 0 5,490 36,639 65,364 102,507 102,507 64,249 64,249 1,750 0 1,242 7,284 2,720 4,564 0 0 0 4,564 .83 .83
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