UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-12368
THE LEATHER FACTORY, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2543540
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
3847 East Loop 820 South, Ft. Worth, Texas 76119
(Address of principal executive offices) (Zip code)
(817) 496-4414
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to by 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class Shares outstanding as of November 14, 1997
- ---------------------------------------- ------------------------------------------
Common Stock, par value $.0024 per share 9,853,161
</TABLE>
<PAGE>
THE LEATHER FACTORY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996............................... 3
Consolidated Statements of Income
Three and nine months ended
September 30, 1997 and 1996........................................... 4
Consolidated Statements of Cash Flow
Nine months ended September 30, 1997 and 1996......................... 5
Consolidated Statement of Stockholders' Equity
Nine months ended September 30, 1997.................................. 6
Notes to Consolidated Financial Statements.............................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................8-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................. 12
SIGNATURES.................................................................. 13
EXHIBIT INDEX..............................................................14-18
<PAGE>
<TABLE>
<CAPTION>
THE LEATHER FACTORY, INC.
CONSOLIDATED BALANCE SHEETS
<S> <C> <C>
September 30, December 31,
1997 1996
-------------- --------------
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash $ 486,114 $ 488,192
Accounts receivable-trade, net of allowance for
doubtful accounts of $83,000 and $54,000
in 1997 and 1996, respectively 2,292,154 1,947,698
Inventory 7,468,535 7,737,320
Prepaid income taxes 283,663 538,458
Deferred income taxes 131,196 126,955
Other current assets 485,174 542,809
------------ ------------
Total current assets 11,146,836 11,381,432
------------ ------------
PROPERTY AND EQUIPMENT, at cost 2,846,288 2,672,253
Less-accumulated depreciation and amortization (1,483,016) (1,273,609)
------------ ------------
Property and equipment, net 1,363,272 1,398,644
GOODWILL and other, net of accumulated amortization of
$825,000 and $660,000 in 1997 and 1996, respectively 5,349,815 5,484,471
------------ ------------
$ 17,859,923 $ 18,264,547
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,242,987 $ 940,549
Accrued expenses and other liabilities 577,865 597,007
Notes payable and current maturities of
long-term debt 7,671,740 8,549,366
------------ ------------
Total current liabilities 9,492,592 10,086,922
------------ ------------
DEFERRED INCOME TAXES 122,775 137,310
NOTES PAYABLE AND LONG-TERM DEBT,
net of current maturities 79,821 17,378
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.10 par value; 20,000,000
shares authorized, none issued or outstanding - -
Common stock, $0.0024 par value; 25,000,000 shares
authorized, 9,853,161 shares issued in 1997 and 1996 23,648 23,648
Paid-in capital 4,130,796 4,130,796
Retained earnings 4,608,389 4,464,277
Less: Notes receivable - secured by common stock (269,305) (269,305)
Cumulative translation adjustments (2,609) (295)
Less: Unearned shares held by ESOP, 64,631
shares in 1997 and 1996 (326,184) (326,184)
------------ ------------
Total stockholders' equity
8,164,735 8,022,937
------------ ------------
$ 17,859,923 $ 18,264,547
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<S> <C> <C> <C>
THREE MONTHS NINE MONTHS
1997 1996 1997 1996
------------ ------------ -------------- -------------
NET SALES $ 6,353,582 $ 7,015,834 $ 19,340,466 $ 21,527,857
COST OF SALES 3,659,591 4,238,206 11,343,380 13,517,603
------------ ------------ -------------- -------------
Gross Profit 2,693,991 2,777,628 7,997,086 8,010,254
OPERATING EXPENSES 2,293,706 2,522,552 6,995,461 8,283,642
------------ ------------ -------------- -------------
INCOME FROM OPERATIONS 400,285 255,076 1,001,625 (273,388)
OTHER (INCOME) EXPENSE:
Interest expense 214,871 238,163 633,638 787,517
Other, net (17,649) 1,363 (14,361) (5,781)
------------ ------------ -------------- -------------
Total other (income) expense 197,222 239,526 619,277 781,736
------------ ------------ -------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 203,063 15,550 382,348 (1,055,124)
PROVISION (BENEFIT) FOR INCOME TAXES 110,624 1,159 238,236 (236,558)
------------ ------------ -------------- -------------
NET INCOME (LOSS) $ 92,439 $ 14,391 $ 144,112 $ (818,566)
============ ============ ============== ============
NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ 0.01 $ - $ 0.01 $ (0.08)
============ ============ ============== =============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 9,788,530 9,788,530 9,788,530 9,788,530
============ ============ ============== ============
DIVIDENDS PAID PER SHARE $ - $ - $ - $ -
============ ============ ============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<S> <C> <C>
1997 1996
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 144,112 $ (818,566)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities-
Depreciation & amortization 390,659 498,371
(Gain) loss on sales of assets (16,071) (7,541)
Deferred financing costs - 117,937
Deferred income taxes (18,776) 21,270
Other (678) 2,457
Net changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable-trade, net (344,456) 68,159
Inventory 268,785 (812,562)
Income taxes 254,795 (313,252)
Other current assets 57,635 137,946
Accounts payable 302,438 (335,822)
Accrued expenses and other liabilities (19,142) (66,333)
------------- --------------
Total adjust 875,189 (689,370)
------------- --------------
Net cash provided by (used in) operating activities 1,019,301 (1,507,936)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (200,976) (173,591)
Proceeds from sales of assets 26,841 7,444
Cash paid for acquisitions, net of cash acquired - (300,000)
Other intangible costs (32,061) -
------------- --------------
Net cash used in investing activities (466,147)
(206,196)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt
302,957 3,300,000
Payments on notes payable and long-term debt (1,118,140) (1,584,704)
------------- --------------
Net cash provided by (used in)financing activities (815,183) 1,715,296
------------- --------------
NET INCREASE (DECREASE) IN CASH (2,078) (258,787)
CASH, beginning of period 488,192 477,159
------------- --------------
CASH, end of period $ 486,114 $ 218,372
============= ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 562,325 $ 539,829
Income taxes paid during the period, net of refunds 2,217 57,685
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
<S> <C> <C> <C> <C>
Common Stock Notes Cumulative
receivable
---------------------
Number Paid-in Retained - secured by Translation Unearned
of Shares Par Value Capital Earnings common stock Adjustments ESOP Total
Shares
---------- ---------- -------------- ------------- -------------- ---------- --------- ------------
BALANCE, December 9,853,161 $ 23,648 $ 4,130,796 $ 4,464,277 $ (269,305) $ (295) $(326,184) $ 8,022,937
31, 1996
Translation
adjustment - - - - - (2,314) (2,314)
Net Income - - - 144,112 - - - 144,112
---------- ---------- -------------- ------------- ------------- ---------- --------- ------------
BALANCE,
September 30, 1997 9,853,161 $ 23,648 $ 4,130,796 $ 4,608,389 $ (269,305) $ (2,609) $(326,184) $ 8,164,735
========== ========== ============== ============= ============= ========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
THE LEATHER FACTORY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly its financial position as of September
30, 1997 and December 31, 1996, and the results of operations and cash flows for
the three and nine month periods ended September 30, 1997 and 1996. The results
of operations for the three and nine month periods are not necessarily
indicative of the results to be expected for the full fiscal year. The
consolidated financial statements should be read in conjunction with the
financial statement disclosures contained in the Company's 1996 Annual Report to
Stockholders.
2. Inventories
The components of inventory consist of the following:
<TABLE>
<S> <C> <C>
September 30, December 31,
1997 1996
------------------ -----------------
Finished goods held for sale $ 6,053,121 $ 6,516,517
Raw materials and work in process 1,415,414 1,220,803
================== =================
$ 7,468,535 $ 7,737,320
================== =================
</TABLE>
3. Notes Payable and Long-Term Debt
As previously reported in the Company's 1996 Annual Report on Form 10-K,
and Quarterly Reports on Form 10-Q for the periods ended March 31, 1997, and
June 30, 1997, the Company has certain financing arrangements with NationsBank
of Texas, N.A. ("NationsBank") which matured on August 31, 1997. On that date,
the Company was in the due diligence process with new lenders and has since
obtained commitments that will allow the Company to pay off the NationsBank
loans. The Company is not in default of any provision of the NationsBank
agreements other than payment of the matured note balances.
In order to complete the documentation process with the new lenders, the
Company and NationsBank, effective August 31, 1997, entered into a Forbearance
Agreement whereby NationsBank agreed to forbear the exercising of their legal
rights due to the aforementioned default until November 30, 1997 ("the
"Forbearance Period"). Subsequent to September 30, 1997, the Company made a
principal payment in the amount of $300,000 on the term note in accordance with
the original amortization schedule and the Company's agreement to apply certain
tax refund proceeds to that note. The Company continues to pay all interest
timely.
During the Forbearance Period, NationsBank has allowed the Company to
continue to use the letter of credit feature of its working capital line of
credit. Management believes that the closing on the Company's new credit
facilities will occur prior to the expiration of the Forbearance Period. In the
event the new financing does not close, the Company would enter negotiations
with NationsBank to restructure the existing loans. If neither of these
strategies were successful, the Company could experience a material adverse
impact.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Leather Factory, Inc. ("the Company") is a leading one stop source
for leather, traditional leathercraft materials involving such products as
do-it-yourself kits, stamping sets, and leatherworking tools, craft-related
items including various types of leather lace, beads, and wearable art
accessories, hardware, metal garment accessories such as belt buckles, belt
buckle designs and conchos, shoe repairing supplies and leather finishes.
Moreover, the Company is a manufacturer and distributor of hat trims, cigar
cases and cigar accessories. These products are distributed primarily on a
wholesale level.
Results of Operations
Analysis of Third Quarter 1997 Compared to Third Quarter 1996
Income Statement Comparison
The following table sets forth, for the interim periods indicated,
certain items from the Company's Consolidated Statements of Income expressed as
a percentage of net sales:
Quarterly Period Ended
September 30,
1997 1996
---- ----
Net sales 100.0% 100.0%
Cost of sales 57.6 60.4
------ ------
Gross profit 42.4 39.6
Operating expenses 36.1 36.0
------ ------
Income (loss) from operations 6.3 3.6
Interest expense, net 3.1 3.4
------ -------
Income (loss) before income taxes 3.2 .2
Provision for income taxes 1.7 .0
------ ------
Net income (loss) 1.5% .2%
====== ======
Revenues
The Company's net sales decreased by 9.4% to $6,353,582 during the
third fiscal quarter ended September 30, 1997 from $7,015,834 generated in the
third quarter of 1996. The 9.4% decrease in revenues resulted from decreases in
six sales categories that were partially offset by increases in five categories.
Sales to the craft and western markets appear to have stabilized.
The Company is continuing efforts to develop new products and sell to
new markets and expects these efforts to gradually replace some of the declines
that have been experienced in current markets.
Costs, Gross Profit, and Expenses
The Company's cost of sales decreased by 13.7% to $3,659,591 during the
third fiscal quarter ended September 30, 1997 from $4,238,206 in the third
quarter of 1996. This 13.7% reduction resulted primarily from efforts by Company
management to increase manufacturing productivity, obtain better product
sourcing and sell into higher margin markets.
Operating expenses decreased $228,846 or 9.1% to $2,293,706 during the
third fiscal quarter of 1997 from $2,522,552 during the quarter ended September
30, 1996. This 9.1% decrease resulted primarily from a determined effort by
Company management to reduce expenses and improve efficiency so that cost levels
are more in line with current sales levels.
Other (Income) Expense
Other expenses decreased $42,304 or 17.7% to $197,222 for the third
fiscal quarter of 1997 from $239,526 during the same quarter in 1996. This
decrease resulted primarily from lower interest expense due to the reduction in
bank debt of over $800,000.
Net Income
Net income increased to $92,439 during the third fiscal quarter of 1997
from $14,391 during the quarter ended September 30, 1996. The increased net
income resulted from the factors noted above regarding revenues, costs and
expenses.
Analysis of Nine Months Ended September 30, 1997
to Nine Months Ended September 30, 1996
Income Statement Comparison
The following table sets forth, for the interim periods indicated,
certain items from the Company's Consolidated Statements of Income expressed as
a percentage of net sales:
Nine Months Ended
September 30,
1997 1996
---- ----
Net sales 100.0% 100.0%
Cost of sales 58.6 62.8
----- -----
Gross profit 41.4 37.2
Operating expenses 36.2 38.5
----- -----
Income (loss) from operations 5.2 -1.3
Interest expense, net 3.2 3.6
----- -----
Income (loss) before income taxes 2.0 -4.9
Provision for income taxes 1.2 -1.1
----- -----
Net income (loss) 0.8% -3.8%
===== =====
Revenues
The Company's net sales decreased by 10.2% to $19,340,466 during the
nine months ended September 30, 1997 from $21,527,857 generated in the same
period of 1996. The decrease in revenues was primarily due to reduced sales of
western hatbands and to the retail craft industry. Sales to the craft and
western markets appear to have stabilized. The Company is continuing efforts to
develop new products and sell to new markets and expects these efforts to
continue to replace some of the declines that have been experienced in current
markets.
<PAGE>
Costs, Gross Profit, and Expenses
The Company's cost of sales decreased by 16.1% to $11,343,380 for the
nine months of 1997 as compared to $13,517,603 for the same nine months in 1996.
This decrease resulted primarily from efforts by Company management to increase
manufacturing productivity, obtain better product sourcing and sell into higher
margin markets.
Operating expenses decreased $1,288,181 or 15.6% to $6,995,461 during
the first nine months of 1997 from $8,283,642 during the same nine months of
1996. This decrease resulted primarily from a determined effort by Company
management to reduce expenses and improve efficiency so that cost levels are
more in line with current sales levels.
Other (Income) Expense
Other expenses decreased $162,459 or 20.8% to $619,277 for the first
nine months ended September 30, 1997 from $781,736 during the same period in
1996. This decrease resulted primarily from the write-off in 1996 of the
commitment and facility fees attributable to the acquisition financing
commitments which expired in July 1996 and lower interest expense due to a
reduction in bank debt.
Net Income
Net income increased to $144,112 during the first nine months of 1997
from a net loss of $818,566 during the nine months ended September 30, 1996. The
increased net income resulted from the factors noted above regarding revenues,
costs and expenses.
Capital Resources and Liquidity
The Company continues to generate sufficient cash flow from operations
to reduce bank debt and fund normal operations, including interest payments.
As previously reported in the Company's 1996 Annual Report on Form 10-K,
and Quarterly Reports on Form 10-Q for the periods ended March 31, 1997, and
June 30, 1997, the Company has certain financing arrangements with NationsBank
of Texas, N.A. ("NationsBank") and had been in default under certain financial
covenants contained in their loan agreement from June 30, 1996 through December
31, 1996. Effective December 31, 1996 the Company entered into an agreement with
NationsBank that cured said defaults and shortened the maturity date to April
30, 1997. In addition the Company agreed to obtain alternative financing to
replace the obligations to NationsBank.
Effective April 30, 1997, to provide additional time to obtain
alternative financing, the Company and NationsBank entered into the Sixth
Amendment to the Second Restated Loan Agreement whereby the maturity dates of
the working capital line of credit and the term loan were extended until August
31, 1997. On August 31, 1997, when the loans became due, the Company was in the
due diligence process with new lenders and has since obtained commitments that
will allow the Company to pay off the NationsBank loans.
In order to complete the documentation process with the new lenders, the
Company and NationsBank, effective August 31, 1997, entered into a Forbearance
Agreement whereby NationsBank agreed to forbear the exercising of their legal
rights due to the aforementioned default until November 30, 1997 ("the
"Forbearance Period"). Subsequent to September 30, 1997, the Company made a
principal payment in the amount of $300,000 on the term note in accordance with
the original amortization schedule and the Company's agreement to apply certain
tax refund proceeds to that note. The Company continues to pay all interest
timely.
<PAGE>
During the Forbearance Period, NationsBank has allowed the Company to
continue to use the letter of credit feature of its working capital line of
credit. Management believes that the closing on the Company's new credit
facilities will occur prior to the expiration of the Forbearance Period. In the
event the new financing does not close, the Company would enter negotiations
with NationsBank to restructure the existing loans. If neither of these
strategies were successful, the Company could experience a material adverse
impact.
While subject to the issues surrounding the Company's financing
arrangements, the Company's management believes that current sources of
liquidity and capital resources will be sufficient to fund current operations
and internal growth.
Cautionary Statement
The disclosures under "-Results of Operations" and "-Capital Resources
and Liquidity" and in the Notes to Consolidated Financial Statements as provided
elsewhere herein contain forward-looking statements. There are certain important
factors which could cause results to differ materially than those anticipated by
some of the forward-looking statements. Some of the important factors which
could cause actual results to differ materially from those in the
forward-looking statements include, among other things, changes from anticipated
levels of sales, whether due to future national or regional economic and
competitive conditions, including, but not limited to, retail craft buying
patterns, and possible negative trends in the craft and western retail markets,
customer acceptance of existing and new products, or otherwise, pricing
pressures due to competitive industry conditions, increases in prices for
leather, which is a world-wide commodity, which for some reason, may not be
passed on to the customers of the Company's products, change in tax rates,
change in interest rates, problems with the importation of the products which
the Company buys in 14 countries around the world, including, but not limited
to, transportation problems or changes in the political climate of the countries
involved, including the maintenance by said countries of Most Favored Nation
status with the United States of America, and other uncertainties, all of which
are difficult to predict and many of which are beyond the control of the
Company.
<PAGE>
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
As previously reported in the Company's 1996 Annual Report on Form 10-K,
and Quarterly Reports on Form 10-Q for the periods ended March 31, 1997, and
June 30, 1997, the Company has certain financing arrangements with NationsBank
of Texas, N.A. ("NationsBank") which matured on August 31, 1997. On that date,
the Company was in the due diligence process with new lenders and has since
obtained commitments that will allow the Company to pay off the NationsBank
loans. The Company is not in default of any provision of the NationsBank
agreements other than payment of the matured note balances in the amount of
$7,625,000 as of August 31, 1997.
In order to complete the documentation process with the new lenders, the
Company and NationsBank, effective August 31, 1997, entered into a Forbearance
Agreement whereby NationsBank agreed to forbear the exercising of their legal
rights due to the aforementioned default until November 30, 1997 ("the
"Forbearance Period"). Subsequent to September 30, 1997, the Company made a
principal payment in the amount of $300,000 on the term note in accordance with
the original amortization schedule and the Company's agreement to apply certain
tax refund proceeds to that note. Therefore, the total arrearage as of November
14, 1997 was reduced to $7,325,000. The Company continues to pay all interest
timely.
During the Forbearance Period, NationsBank has allowed the Company to
continue to use the letter of credit feature of its working capital line of
credit. Management believes that the closing on the Company's new credit
facilities will occur prior to the expiration of the Forbearance Period. In the
event the new financing does not close, the Company would enter negotiations
with NationsBank to restructure the existing loans. If neither of these
strategies were successful, the Company could experience a material adverse
impact.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
A list of exhibits required to be filed as part of this report is set
forth in the Exhibit Index which immediately precedes such exhibits, and is
incorporated herein by reference.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LEATHER FACTORY, INC.
(Registrant)
Date: November 14, 1997 By /s/ Wray Thompson
-----------------
Wray Thompson
Chairman of the Board,
President and
Chief Executive Officer
Date: November 14, 1997 By /s/ Fred N. Howell
------------------
Fred N. Howell
Chief Financial Officer,
Treasurer and Director
(Chief Financial and
Accounting Officer)
<PAGE>
THE LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
3.1 Certificate of Incorporation of The Leather Factory, Inc., filed
as Exhibit 3.1 to the Registration Statement on Form SB-2 of The
Leather Factory, Inc. (Commission File No. 33-81132) filed with
the Securities and Exchange Commission on July 5, 1994, and
incorporated by reference herein.
3.2 Bylaws of The Leather Factory, Inc., filed as Exhibit 3.2 to the
Registration Statement on Form SB-2 of The Leather Factory, Inc.
(Commission File No. 33-81132) filed with the Securities and
Exchange Commission on July 5, 1994, and incorporated by
reference herein.
3.3 Amendment to Certificate of Incorporation of The Leather Factory,
Inc. -- Certificate of Designation, Preferences and Rights of the
Senior Cumulative Convertible Preferred Stock Dated July 24,
1995, filed as Exhibit 3.3 to the Quarterly Report on Form 10-QSB
of The Leather Factory, Inc. (Commission File No. 1-12368) filed
with the Securities and Exchange Commission on August 10, 1995,
and incorporated by reference herein.
4.1 Second Restated Loan Agreement dated July 24, 1995, by and
between The Leather Factory, Inc., a Delaware corporation, and
NationsBank of Texas, N.A., filed as Exhibit 4.1 to the Quarterly
Report on Form 10-QSB of The Leather Factory, Inc. (Commission
File No. 1-12368) filed with the Securities and Exchange
Commission on August 10, 1995, and incorporated by reference
herein.
4.2 Promissory Note (Working Capital Line of Credit) dated September
30, 1996, in the principal amount of $7,500,000, payable to the
order of NationsBank of Texas, N.A., which matures March 31,
1997.
4.3 Promissory Note (Acquisition Line) dated July 24, 1995, in the
principal amount of $10,000,000, payable to the order of
NationsBank of Texas, N.A., which matures August 1, 2000, filed
as Exhibit 4.3 to the Quarterly Report on Form 10-QSB of The
Leather Factory, Inc. (Commission File No. 1-12368) filed with
the Securities and Exchange Commission on August 10, 1995, and
incorporated by reference herein.
4.4 Promissory Note dated December 28, 1994 in the principal amount
of $5,000,000, payable to the order of NationsBank of Texas,
N.A., which matures December 28, 1999, filed as Exhibit No. 4.5
to the 1994 Annual Report on Form 10-KSB of The Leather Factory,
Inc. (Commission File No. 1-12368) filed with the Securities and
Exchange Commission on March 27, 1995, and incorporated herein by
reference.
4.5 Stock Purchase Agreement dated as of July 28, 1995, by and
between Center Street Capital Partners, L.P., a Delaware Limited
Partnership, Stratford Capital Partners, L.P., a Texas Limited
Partnership, and The Leather Factory, Inc., a Delaware
Corporation, filed as Exhibit 4.5 to the Quarterly Report on Form
10-QSB of The Leather Factory, Inc. (Commission File No. 1-12368)
filed with the Securities and Exchange Commission on August 10,
1995, and incorporated by reference herein.
<PAGE>
THE LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
(Continued)
Exhibit
Number Description
4.6 Commitment Agreement dated July 28, 1995, by and among The
Leather Factory, Inc., a Delaware Corporation, Center Street
Capital Partners, L.P., a Delaware Limited Partnership, and
Stratford Capital Partners, L.P., a Texas Limited Partnership,
filed as Exhibit 4.6 to the Quarterly Report on Form 10-QSB of
The Leather Factory, Inc. (Commission File No. 1-12368) filed
with the Securities and Exchange Commission on August 10, 1995,
and incorporated by reference herein.
4.7 Registration Rights Agreement dated July 28, 1995, by and between
Center Street Capital Partners, L.P., a Delaware Limited
Partnership, Stratford Capital Partners, L.P., a Texas Limited
Partnership, and The Leather Factory, Inc., a Delaware
Corporation, filed as Exhibit 4.7 to the Quarterly Report on Form
10-QSB of The Leather Factory, Inc. (Commission File No. 1-12368)
filed with the Securities and Exchange Commission on August 10,
1995, and incorporated by reference herein.
4.8 Shareholders Agreement dated July 28, 1995, by and between Wray
Thompson, an individual and resident of the State of Texas, Sally
A. Thompson, an individual and resident of the State of Texas,
Ronald C. Morgan, an individual and resident of the State of
Texas, Robin L. Morgan, an individual and resident of the State
of Texas, Center Street Capital Partners, L.P., a Delaware
Limited Partnership, Stratford Capital Partners, L.P., a Texas
Limited Partnership, and The Leather Factory, Inc., a Delaware
Corporation, filed as Exhibit 4.8 to the Quarterly Report on Form
10-QSB of The Leather Factory, Inc. (Commission File No. 1-12368)
filed with the Securities and Exchange Commission on August 10,
1995, and incorporated by reference herein.
4.9 First Amendment to Second Restated Loan Agreement effective as of
December 31, 1995, by and between The Leather Factory, Inc., a
Delaware Corporation, and NationsBank of Texas, N.A., filed as
Exhibit No. 4.9 to the 1995 Annual Report on Form 10-KSB of The
Leather Factory, Inc. (Commission File No. 1-12368), filed with
the Securities and Exchange Commission on March 28, 1996, and
incorporated herein by reference.
4.10 Second Amendment to Second Restated Loan Agreement effective as
of March 31, 1996, by and between The Leather Factory, Inc., a
Delaware Corporation, and NationsBank of Texas, N.A., filed as
Exhibit No. 4.10 to the Quarterly Report on Form 10-Q of The
Leather Factory, Inc. (Commission File No. 1-12368) filed with
the Securities and Exchange Commission on May 20, 1996, and
incorporated by reference herein.
4.11 Forbearance Agreement and Third Amendment to the Second Restated
Loan Agreement effective as of June 30, 1996, by and between The
Leather Factory, Inc., a Delaware Corporation, and NationsBank of
Texas, N.A., filed as Exhibit No. 4.11 to the Quarterly Report on
Form 10-Q of The Leather Factory, Inc. (Commission File No.
1-12368) filed with the Securities and Exchange Commission on
August 19, 1996, and incorporated by reference herein.
<PAGE>
THE LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
(Continued)
Exhibit
Number Description
4.12 Forbearance Agreement and Fourth Amendment to Second Restated
Loan Agreement effective as of September 30, 1996, by and between
The Leather Factory, Inc., a Delaware Corporation, and
NationsBank of Texas, N.A.
4.13 Fifth Amendment to Second Restated Loan Agreement effective as of
December 31, 1996, by and between The Leather Factory, Inc., a
Delaware Corporation, and NationsBank of Texas, N.A.
4.14 Sixth Amendment to Second Restated Loan Agreement effective as of
April 30, 1997, by and between The Leather Factory, Inc., a
Delaware Corporation, and NationsBank of Texas, N.A.
*4.15 Forbearance Agreement effective as of August 31, 1997 by and
between The Leather Factory, Inc., a Delaware Corporation, and
NationsBank of Texas, N.A. filed as Exhibit No. 4.15 to the
Quarterly Report on Form 10-Q of The Leather Factory, Inc.
(Commission File No. 1-12368) filed with the Securities and
Exchange Commission on November 14, 1997, and incorporated by
reference herein.
10.1 Stock Exchange Agreement dated July 9, 1993, by and among The
Leather Factory, Inc., a Texas corporation, National Transfer &
Register Corp., a Colorado corporation, J. Wray Thompson, Sr.,
Ronald C. Morgan, Robin L. Morgan and The Leather Factory, Inc.
Employees' Stock Ownership Plan & Trust, filed as Exhibit No.
10.1 to the Registration Statement on Form 10-SB of The Leather
Factory, Inc. (Commission File No. 0-22128), including any
amendments thereto, filed with the Securities and Exchange
Commission on July 22, 1993, and incorporated herein by
reference.
10.2 Stock Exchange Agreement dated July 10, 1993, by and between
National Transfer & Register Corp., a Colorado corporation and
Vicki Byrd, filed as Exhibit No. 10.2 to the Registration
Statement on Form 10-SB of The Leather Factory, Inc. (Commission
File No. 0-22128), including any amendments thereto, filed with
the Securities and Exchange Commission on July 22, 1993, and
incorporated herein by reference.
10.3 Stock Purchase Agreement dated as of June 30, 1993, by and
between The Leather Factory, Inc., a Texas corporation and Steve
Lindley, filed as Exhibit No. 10.3 to the Registration Statement
on Form 10-SB of The Leather Factory, Inc. (Commission File No.
0-22128), including any amendments thereto, filed with the
Securities and Exchange Commission on July 22, 1993, and
incorporated herein by reference.
10.4 Amendment to Stock Purchase Agreement executed September 20,
1993, to be effective June 30, 1993, by and between The Leather
Factory, Inc., a Texas corporation and Steve Lindley, filed as
Exhibit No. 19.1 to the 1993 Annual Report on Form 10-KSB of The
Leather Factory, Inc. (Commission File No. 1-12368), filed with
the Securities and Exchange Commission on March 30, 1994, and
incorporated herein by reference.
<PAGE>
THE LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
(Continued)
Exhibit
Number Description
10.5 Stock Purchase Agreement dated as of June 30, 1993, by and
between The Leather Factory, Inc., a Texas corporation and Kevin
F. White and Durham Hefta, filed as Exhibit No. 10.4 to the
Registration Statement on Form 10-SB of The Leather Factory, Inc.
(Commission File No. 0-22128), including any amendments thereto,
filed with the Securities and Exchange Commission on July 22,
1993, and incorporated herein by reference.
10.6 Stock Purchase Agreement dated as of June 30, 1993, by and
between The Leather Factory, Inc., a Texas corporation and James
Durr, filed as Exhibit No. 10.5 to the Registration Statement on
Form 10-SB of The Leather Factory, Inc. (Commission File No.
0-22128), including any amendments thereto, filed with the
Securities and Exchange Commission on July 22, 1993, and
incorporated herein by reference.
10.7 The Leather Factory, Inc. 1993 Non-Qualified Incentive Stock
Option Plan, filed as Exhibit No. 10.6 to the 1993 Annual Report
on Form 10-KSB of The Leather Factory, Inc. (Commission File No.
1-12368) filed with the Securities and Exchange Commission on
March 30, 1994, and incorporated herein by reference.
10.8 Acquisition Agreement dated as of January 10, 1994, by and
between The Leather Factory, Inc., a Colorado corporation and
Hi-Line Leather & Manufacturing Company, filed as Exhibit No. 2.1
to the Current Report on Form 8-K of The Leather Factory, Inc.
(Commission File No. 1-12368) filed with the Securities and
Exchange Commission on January 10, 1994, and incorporated herein
by reference.
10.9 Asset Purchase Agreement dated as of April 15, 1994, by and among
The Leather Factory, Inc., a Colorado corporation, The Leather
Warehouse Company, a Michigan corporation, Daniel W. Holbert,
Linda S. McCleary, Richard J. Hill, and the Richard J. Hill
Trust, filed as Exhibit No. 2.1 to the Current Report on Form 8-K
of The Leather Factory, Inc. (Commission File No. 1-12368) filed
with the Securities and Exchange Commission on April 15, 1994,
and incorporated herein by reference.
10.10 Acquisition Agreement by and among The Leather Factory, Inc. and
David Lieberman, Individually and as the Shareholder of Roberts,
Cushman & Company, Inc., related to the acquisition of the issued
and outstanding capital stock of Roberts, Cushman & Company,
Inc., filed as Exhibit No. 2.1 to the Current Report on Form 8-K
of The Leather Factory, Inc. (Commission File No. 1-12368) filed
with the Securities and Exchange Commission on January 9, 1995,
and incorporated herein by reference.
10.11 The Leather Factory, Inc. Employees' Stock Ownership Plan and
Trust (Restated), dated February 22, 1994, effective as of
October 1, 1993, filed as Exhibit No. 4.1 to the Registration
Statement on Form S-8 of The Leather Factory, Inc. (Commission
File No. 33-81214), including any amendments thereto, filed with
the Securities and Exchange Commission on July 5, 1994, and
incorporated herein by reference.
<PAGE>
THE LEATHER FACTORY, INC. AND SUBSIDIARIES
EXHIBIT INDEX
(Continued)
Exhibit
Number Description
10.12 Amendment No. 1 to The Leather Factory, Inc. Employees' Stock
Ownership Plan and Trust (Restated as of October 1, 1993), dated
October 5, 1994 to be effective December 28, 1990, filed as
Exhibit No. 10.12 to the 1994 Annual Report on Form 10-KSB of The
Leather Factory, Inc. (Commission File No. 1-12368) filed with
the Securities and Exchange Commission on March 27, 1995, and
incorporated herein by reference.
10.13 Participation Agreement in The Leather Factory, Inc. Employees'
Stock Ownership Plan and Trust (Restated as of October 1, 1993),
dated February 28, 1995 to be effective January 2, 1995, filed as
Exhibit No. 10.13 to the 1994 Annual Report on Form 10-KSB
(Commission File No. 1-12368) filed with the Securities and
Exchange Commission on March 27, 1995, and incorporated herein by
reference.
10.14 Indemnification Agreement dated October 17, 1994, by and among
The Leather Factory, Inc., a Delaware corporation, Securities
Transfer Corporation, a Texas corporation, and Halter Capital
Corporation, a Texas corporation, filed as Exhibit No. 10.14 to
the 1994 Annual Report on Form 10-KSB of The Leather Factory,
Inc. (Commission File No. 1-12368) filed with the Securities and
Exchange Commission on March 27, 1995, and incorporated herein by
reference.
10.15 Guaranty, as amended, dated July 24, 1995, by and between
NationsBank of Texas, N. A., The Leather Factory, Inc., Wray
Thompson, Ronald Morgan, and Robin Morgan, filed as Exhibit No.
10.15 to the Quarterly Report on Form 10-QSB of The Leather
Factory, Inc. (Commission File No. 1-12368) filed with the
Securities and Exchange Commission on November 9, 1995, and
incorporated herein by reference.
10.16 The Leather Factory, Inc. 1995 Director Non-Qualified Stock
Option Plan and Stock Option Agreement, effective as of September
26, 1995, subject to approval by the Company's stockholders at
the 1996 Annual Meeting of Stockholders, filed as Exhibit No.
10.16 to the Quarterly Report on Form 10-QSB of The Leather
Factory, Inc. (Commission File No. 1-12368) filed with the
Securities and Exchange Commission on November 9, 1995, and
incorporated herein by reference.
10.17 The Leather Factory, Inc. 1995 Stock Option Plan and Stock
Option Agreements, effective as of September 26, 1995, subject to
approval by the Company's stockholders at the 1996 Annual Meeting
of Stockholders, filed as Exhibit No. 10.17 to the Quarterly
Report on Form 10-QSB of The Leather Factory, Inc. (Commission
File No. 1-12368) filed with the Securities and Exchange
Commission on November 9, 1995, and incorporated herein by
reference.
22.1 Subsidiaries of the Company, filed as Exhibit No. 22.1 to the
1995 Annual Report on Form 10-KSB (Commission File No. 1-12368),
filed with the Securities and Exchange Commission on March 28,
1996, and incorporated herein by reference.
* 27.1 Financial Data Schedule
- ------------
*Filed herewith.
<PAGE>
EXHIBIT 4.15
<PAGE>
FORBEARANCE AGREEMENT
This FORBEARANCE AGREEMENT ("Agreement") is made as of the 31st day of
August 1997, among THE LEATHER FACTORY, INC., a Delaware Corporation
("Borrower"), THE LEATHER FACTORY, INC., a Texas Corporation and ROBERTS,
CUSHMAN & CO., INC., a New York corporation (collectively "Guarantors") and
NATIONSBANK OF TEXAS, N.A., a national banking association ("Bank").
R E C I T A L S
A. Borrower is indebted to Bank as evidenced by (i) that certain
promissory note dated September 30, 1996, in the original principal amount of
$7,500,000.00 (the "Revolving Note") and (ii) that certain promissory note dated
December 28, 1994, in the original principal amount of $5,000,000.00 (the "R,C &
Co. Note" and together with the Revolving Note, the "Notes"). As of August 31,
1997, the outstanding principal balance of the R, C & Co. Note was $2,500,000.00
and the outstanding principal balance of the Revolving Note was $5,125,000.00.
The Notes are secured by certain security agreements ("Security Agreements"), a
Deed of Trust (the "Deed of Trust"), and two or more guaranties (the
"Guaranties"). The Notes, Deed of Trust, Security Agreements, Guaranties and all
other written documents executed in connection therewith, together with any
written renewals, modifications and/or extensions thereof are collectively
referred to as the "Loan Documents."
B. Borrower is in default in the performance of certain provisions of
the Notes and other Loan Documents. Borrower and Guarantors have requested that
Bank forebear from exercising its rights and remedies under the Loan Documents
for a period of time as specified herein in reliance upon the covenants,
representations, and warranties of Borrower and Guarantors herein and for other
good and valuable consideration.
A G R E E M E N T
For and in consideration of the mutual covenants contained herein, Ten
Dollars ($10.00), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower, Guarantors, and Bank
agree as follows:
1. Recitals. The foregoing recitals are confirmed by the
parties as true and correct and are incorporated herein by reference. The
recitals are a substantive, contractual part of this Agreement.
2. No Waiver. The execution, delivery and performance of this
Agreement by Bank and the acceptance by Bank of performance of Borrower and
Guarantors hereunder (a) shall not constitute a waiver or release by Bank of any
default that may now or hereafter exist under the Loan Documents, (b) shall not
constitute a novation of the Loan Documents as it is the intent of the parties
to modify the Loan Documents as expressly set out herein and (c) except as
expressly provided in this Agreement, shall be without prejudice to, and is not
a waiver or release of, Bank's rights at any time in the future to exercise any
and all rights conferred upon Bank by the Loan Documents or otherwise at law or
in equity, including but not limited to the right to accelerate the Notes, if
not already accelerated or matured, and to institute foreclosure proceedings
against the property secured by the Loan Documents (the "Property") and/or to
institute collection proceedings against Borrower and/or Guarantors and/or any
right against any other person or entity not a party to this Agreement.
Similarly, the execution, delivery, and performance of this Agreement by
Borrower and Guarantors and the acceptance by Borrower, and Guarantors of the
performance by Bank hereunder shall not, subject to the express provisions of
this Agreement, constitute a waiver or release of any of Borrower's or
Guarantors' rights under the Loan Documents; provided, however, that Borrower
and Guarantors, jointly and severally, waive any and all claims now or hereafter
arising from or related to any delay by Bank in exercising any rights or
remedies under the Loan Documents, including, without limitation, any delay in
foreclosing on the Property or any other collateral securing any of the Note.
3. Payment. Prior to the execution of this Agreement, Borrower
will have delivered to Bank a cash payment in the amount of $250,000.00, to be
applied by Bank to the R, C & Co. Note in the order and manner deemed
appropriate by Bank. Borrower agrees to pay to Bank beginning on October 1,
1997, and continuing on the 1st day of each month thereafter during the
Forbearance Period, all interest which has accrued on the Notes. Interest will
continue to accrue and be computed on the outstanding principal balance of the
Notes from time to time during the Forbearance Period in accordance with the
terms thereof .
4. Fees. Contemporaneously with the execution of this
Agreement, Borrower will pay to Bank a fee in the amount of $2,000.00 to be
applied by Bank for payment of legal and other costs associated with the
preparation, execution and delivery of this Agreement.
5. Stock Pledge. Contemporaneously with the execution of this
Agreement, Wray Thompson, Ron Morgan and Robin Morgan shall pledge all stock of
The Leather Factory, Inc. which is currently owned by them to secure the Notes.
The pledge shall be evidenced by such documents and instruments as may be
required by the Bank.
6. Letters of Credit/Banker's Acceptances. Notwithstanding the
fact that the Notes are in default, Bank will continue to issue letters of
credit and banker's acceptances subject to availability under the Revolving Note
as determined by the borrowing base, in an amount not to exceed an additional
$200,000.00. Such requests must be supported by monthly borrowing base reports
and financial statements as provided in the Loan Documents.
7. Amounts Due/Waiver of Notice. Bank and Borrower acknowledge
that (a) the outstanding balance of the Notes is as previously specified in this
Agreement; (b) the current maturity date for each of the Notes is August 31,
1997; and (c) default has occurred and is continuing in performance of certain
terms of the Notes. Borrower and Guarantors waive any and all rights to other
notice of payment default or any other default, protest and notice of protest,
dishonor, diligence in collecting and the bringing of suit against any party,
notice of intention to accelerate, notice of acceleration, demand for payment
and any other notices whatsoever regarding the Notes or the other Loan
Documents, and further waive any claims that any notices previously given are
insufficient for any reason.
8. Forbearance. So long as this Agreement is not terminated as
provided herein, Bank agrees not to foreclose or attempt to foreclose on the
Property or any other collateral securing the Notes, institute suit for
collection of the Notes against Borrower or Guarantors, or exercise any other
remedies available to it under the Loan Documents or under applicable law for a
period from the date hereof until November 30, 1997, or until the Notes are paid
in full ("Forbearance Period"). Upon termination of the Forbearance Period, or
otherwise under the provisions of this Agreement, or if all amounts due and
owing under the Notes are not paid in full on or before the expiration of the
Forbearance Period, then Bank may seek to foreclose upon the Property or any
other collateral for the Notes and to exercise any other remedies to which Bank
may be entitled under the Loan Documents or applicable law to collect amounts
due under the Notes, Guaranty, or other Loan Documents. Borrower and Guarantors
agree that neither Borrower nor Guarantors, jointly or severally, will, during
the Forbearance Period, initiate any action of any kind against Bank with
respect to the Notes, exercise any remedy available under the Loan Documents or
otherwise, or make any type of demand upon Bank with respect to the indebtedness
evidenced by the Note.
9. Limitation on Interest. No provision of this Agreement, the
Notes, any of the other Loan Documents, or any instrument evidencing or securing
the Notes, or otherwise relating to the indebtedness evidenced by the Notes,
shall require the payment or permit the collection, application or receipt of
interest in excess of the maximum rate permitted by applicable state or federal
law. If any excess of interest in such respect is herein or in any such other
instrument provided for, or shall be adjudicated to be so provided for herein or
in any such instrument, the provisions of this paragraph shall govern, and
neither Borrower nor any endorsers of the Notes nor their respective heirs,
personal representatives, successors or assigns shall be obligated to pay the
amount of such interest to the extent it is in excess of the amount permitted by
applicable law. It is expressly stipulated and agreed to be the intent of
Borrower and Bank at all times to comply with the usury and other laws relating
to the Notes and the other Loan Documents and any subsequent revisions, repeals
or judicial interpretations thereof, to the extent applicable to the Notes or
the other Loan Documents. In the event Bank ever receives, collects or applies
as interest any such excess, such amount which would be excessive interest shall
be applied to the reduction of the unpaid principal balance of the Notes, and,
if upon such application the principal balance of the Notes are paid in full,
any remaining excess shall be paid forthwith to Borrower and the provisions of
the Notes, the other Loan Documents and any demand or other charging document
shall immediately be deemed reformed and the amounts thereafter collectible
thereunder reduced, without the necessity of execution of any new document, so
as to comply with the then applicable law, but so as otherwise to permit the
recovery of the fullest amount called for thereunder. In determining whether or
not the interest paid or payable under any specific contingency exceeds the
maximum rate of interest allowed to be charged by applicable law, Borrower and
Bank shall, to the maximum extent permitted under applicable law, amortize,
prorate, allocate and spread the total amount of interest throughout the entire
term of the respective Notes so that the amount or rate of interest charged for
any and all periods of time during the term of the Notes is to the greatest
extent possible less than the maximum amount or rate of interest allowed to be
charged by law during the relevant period of time. Notwithstanding any of the
foregoing, if at any time applicable laws shall be changed so as to permit a
higher rate or amount of interest to be charged than that permitted prior to
such change, then unless prohibited by law, references in the Bank to
"applicable law" for purposes of determining the maximum interest or rate of
interest that can be charged shall be deemed to refer to such applicable law as
so amended to allow the greater amount or rate of interest.
10. Representations and Warranties. In order to induce Bank to
execute, deliver, and perform this Agreement, Borrower and Guarantors warrant
and represent to Bank that:
(a) this Agreement is not being made or entered into with
the actual intent to hinder, delay, or defraud any entity or
person, and the Borrower and Guarantors are solvent and are not
bankrupt;
(b) this Agreement is not intended by the parties to be a
novation of the Loan Documents and, except as expressly modified
herein, all terms, conditions, rights and obligations as set out
in the Loan Documents are hereby reaffirmed and shall otherwise
remain in full force and effect as originally written and agreed;
(c) no action or proceeding, including, without limitation,
a voluntary or involuntary petition for bankruptcy under any
chapter of the Federal Bankruptcy Code, has been instituted or
threatened by or against Borrower or Guarantors;
(d) the execution of this Agreement by Borrower and
Guarantors and the performance by Borrower and Guarantors of
their obligations hereunder will not violate or result in a
breach or constitute a default under any agreements to which any
of them is a party; and
(e) all information provided by Borrower and Guarantors to
Bank prior to the date hereof, including, without limitation, all
financial statements, balance sheets, and cash flow statements,
was, at the date of delivery, and is, as of the date hereof, true
and correct in all respects. Borrower and Guarantors recognize
and acknowledge that Bank is entering into this Agreement based
in part on the financial information provided to Bank by each of
them and that the truth and correctness of that financial
information is a material inducement to Bank in entering into
this Agreement. During the term of this Agreement, Borrower and
Guarantors agree to advise Bank promptly in writing of any and
all new information, facts, or occurrences which would in any way
materially supplement, contradict, or affect any financial
statements, balance sheets, cash flow statements, or similar
items furnished to Bank.
(f) This Agreement and the Loan Documents constitute the
entire agreement among Bank, Guarantors and Borrower with respect
to this matter.
11. Termination of this Agreement. This Agreement will
terminate upon the expiration of the Forbearance Period unless terminated
earlier by Bank, at Bank's sole option, upon written notice to Borrower and
Guarantors of the occurrence of any of the following:
(a) Borrower and/or Guarantors file a petition for
bankruptcy under any chapter of the Federal Bankruptcy Code or
takes advantage of any other debtor relief law, or an involuntary
petition for bankruptcy under any chapter of the Federal
Bankruptcy Code is filed against Borrower and/or Guarantors, or
any other judicial action is taken with respect to Borrower
and/or Guarantors by any creditor;
(b) Bank discovers that any representation or warranty made
herein by Borrower or Guarantors was or is untrue, incorrect or
misleading in any material respect;
(c) any lien, claim or charge, including, without
limitation, any mechanic's or materialman's lien, or any
judgment, is filed against or with respect to the Property,
whether or not naming Borrower as a defendant;
(d) an event of default occurs under the Loan Documents,
other than the defaults known by Bank to exist as of this date;
or
(e) Borrower or Guarantors breach or default in performance
of any covenant or agreement contained in this Agreement.
12. Waiver of Claims. Borrower and Guarantors warrant and
represent to Bank that the Notes are not subject to any credits, charges,
claims, or rights of offset or deduction of any kind or character whatsoever;
and Borrower and Guarantors release and discharge Bank from any and all claims
and causes of action, whether known or unknown and whether now existing or
hereafter arising, including without limitation, any usury claims, that have at
any time been owned, or that are hereafter owned, in tort or in contract by
Borrower or Guarantors and that arise out of any one or more circumstances or
events that occurred prior to the date of this Agreement.
13. ARBITRATION. EXCEPT AS SET OUT BELOW, ANY CONTROVERSY OR
CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE
ARISING OUT OF OR RELATING TO THIS DOCUMENT OR ANY RELATED DOCUMENTS, INCLUDING
ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT (COLLECTIVELY, "CLAIM"),
SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF
PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL
RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES
SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY PARTY TO THIS DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CLAIM IN ANY COURT
HAVING JURISDICTION OVER SUCH ACTION. THE INSTITUTION AND MAINTENANCE OF AN
ACTION FOR ANY JUDICIAL RELIEF SHALL NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CLAIM TO ARBITRATION IF ANY OTHER
PARTY CONTESTS SUCH ACTION FOR JUDICIAL RELIEF.
(a) SPECIAL RULES. ANY ARBITRATION SHALL BE CONDUCTED IN THE
COUNTY OF THE BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF
THIS DOCUMENT, OR IF THERE IS REAL OR PERSONAL PROPERTY
COLLATERAL, IN THE COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS
LOCATED, AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER,
THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED
TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN
ADDITIONAL 60 DAYS. ANY DISPUTE CONCERNING THIS ARBITRATION
PROVISION OR WHETHER A CLAIM IS ARBITRABLE SHALL BE DETERMINED BY
THE ARBITRATOR. THE ARBITRATOR SHALL HAVE THE POWER TO AWARD
LEGAL FEES PURSUANT TO THE TERMS OF THIS DOCUMENT.
(b) RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY
WAIVERS CONTAINED IN THIS DOCUMENT; OR (II) BE A WAIVER BY BANK
OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF
ANY PARTY HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT
NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST OR SELL ANY
REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A
COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED
TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A
RECEIVER. ANY PARTY MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE
OR SELL COLLATERAL OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS DOCUMENT. NONE OF THESE
ACTIONS SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE
MERITS OF THE CLAIM OCCASIONING RESORT TO SUCH REMEDIES OR
PROCEDURES.
(c) WAIVER OF CERTAIN DAMAGES. THE PARTIES HERETO WAIVE ANY
RIGHT OR REMEDY EITHER MAY HAVE AGAINST THE OTHER TO RECOVER
<PAGE>
PUNITIVE OR EXEMPLARY DAMAGES ARISING OUT OF ANY CLAIM WHETHER
THE CLAIM IS RESOLVED BY ARBITRATION OR BY JUDICIAL ACTION.
(d) WAIVER OF JURY TRIAL. BY AGREEING TO BINDING
ARBITRATION, THE PARTIES HERETO KNOWINGLY, IRREVOCABLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY CLAIM BETWEEN OR AMONG THE
PARTIES HERETO. FURTHERMORE, WITHOUT INTENDING IN ANY WAY TO
LIMIT THIS AGREEMENT TO ARBITRATE, TO THE EXTENT ANY SUCH CLAIM
BETWEEN OR AMONG THE PARTIES HERETO IS NOT ARBITRATED, THE
PARTIES HERETO KNOWINGLY, IRREVOCABLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF SUCH CLAIM. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE PARTIES ENTERING INTO THIS DOCUMENT.
14. Miscellaneous.
(a) This Agreement may be executed in multiple counterparts,
each of which shall constitute an original instrument, but all of
which shall constitute one and the same agreement.
(b) Any future waiver, alteration, amendment or modification
of any of the provisions of the Loan Documents or this Agreement
shall not be valid or enforceable unless in writing and signed by
all parties, it being expressly agreed that neither the Loan
Documents, or this Agreement can be modified orally, by course of
dealing or by implied agreement. Moreover, any delay by Bank in
enforcing its rights after an event of default shall not be a
release or waiver of the event of default and shall not be relied
upon by the Borrower or Guarantors as a release or waiver of the
default.
(c) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto, their heirs, executors,
administrators, successors, legal representatives, and assigns.
(d) The headings of paragraphs in this Agreement are for
convenience of reference only and shall not in any way affect the
interpretation or construction of this Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF TEXAS AND FEDERAL LAW, AS APPLICABLE.
(f) The warranties and representations of the parties in
this Agreement shall survive the termination of this Agreement.
(g) The terms and conditions set forth in this Agreement are
the product of joint draftsmanship by all parties, each being
represented by counsel, and any ambiguities in this Agreement or
any documentation prepared pursuant to or in connection with this
Agreement shall not be construed against any of the parties
because of draftsmanship.
(h) For purposes of this Agreement and the Loan Documents,
the addresses for notice to Borrower, Guarantors, and Bank are as
follows:
BORROWER:
The Leather Factory, Inc.
3847 East Loop 820 South
Fort Worth, Texas 76119
ATTN: Fred N. Howell
<PAGE>
GUARANTORS:
The Leather Factory, Inc.
3847 East Loop 820 South
Fort Worth, Texas 76119
ATTN: Fred N. Howell
Roberts, Cushman & Co., Inc.
119 West 24th Street, 10th Floor
New York, New York 10011
ATTN: Fred N. Howell
BANK:
NationsBank of Texas, N.A.
901 Main Street -- 11th Floor
Dallas, Texas 75202
ATTENTION: Mark Henze
Notice shall be in writing, and shall be deemed to have been given (i) 72 hours
after being sent by certified or registered mail, return receipt requested,
postage prepaid and addressed as set forth above; or (ii) when personally
delivered to a party or any other officer, partner, agent or employee of such
party at the address set forth above. Rejection or other refusal to accept or
inability to deliver because of a changed address of which no notice has been
received shall also constitute service of notice. Borrower, Guarantors and Bank
may change such address by sending written notice to the other in accordance
with the foregoing; however, no written notice of change of address shall be
effective until the date of receipt thereof. The parties hereto agree that any
notice sent to the Borrower or Guarantors shall be deemed notice to all general
partners in the event that the Borrower or Guarantors are general partnerships.
THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES WITH RESPECT TO
THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR ORAL
OR WRITTEN, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS AMONG THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
<PAGE>
Executed on the date first set forth above.
Borrower:
The Leather Factory, Inc.
a Delaware Corporation
By: /s/ Fred N. Howell
Printed Name: Fred N. Howell
Title: Chief Financial Officer
Guarantors:
The Leather Factory, Inc.,
a Texas Corporation
By: /s/ Fred N. Howell
Printed Name: Fred N. Howell
Title: Chief Financial Officer
Roberts, Cushman & Co., Inc.
a New York Corporation
By: /s/ Fred N. Howell
Printed Name: Fred N. Howell
Title: Chief Financial Officer
Bank:
NationsBank of Texas, N.A.
By: /s/ Mark L. Henze
Printed Name: Mark L. Henze
Title: Vice president
<PAGE>
EXHIBIT 27.1
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000909724
<NAME> THE LEATHER FACTORY, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 486,114
<SECURITIES> 0
<RECEIVABLES> 2,375,154
<ALLOWANCES> 83,000
<INVENTORY> 7,468,535
<CURRENT-ASSETS> 11,146,836
<PP&E> 2,846,288
<DEPRECIATION> 1,483,016
<TOTAL-ASSETS> 17,859,923
<CURRENT-LIABILITIES> 9,492,592
<BONDS> 0
0
0
<COMMON> 23,648
<OTHER-SE> 8,141,087
<TOTAL-LIABILITY-AND-EQUITY> 17,859,923
<SALES> 19,340,466
<TOTAL-REVENUES> 19,340,466
<CGS> 11,343,380
<TOTAL-COSTS> 11,343,380
<OTHER-EXPENSES> 6,995,461
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 633,638
<INCOME-PRETAX> 382,348
<INCOME-TAX> 238,236
<INCOME-CONTINUING> 144,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144,112
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
