THE LEATHER FACTORY, INC.
3847 East Loop 820 South
Fort Worth, Texas 76119
--------------------------------
PROXY STATEMENT
--------------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 22, 1997
The accompanying proxy, mailed together with this Proxy Statement, is
solicited by The Leather Factory, Inc. (the "Company") in connection with the
Annual Meeting of Stockholders to be held on May 22, 1997 (the "Annual
Meeting"), at 10:00 a.m., Central Daylight Time, in the Scott and Van Zandt
Rooms at the Radisson Hotel, Fort Worth, Texas, and any adjournments thereof.
This Proxy Statement and the accompanying Notice of Annual Meeting of
Stockholders and form of Proxy were first mailed to stockholders of the Company
(the "Stockholders") on or about April 22, 1997.
As stated in the Notice to which this Proxy Statement is attached, matters
to be acted upon at the Meeting include (1) the election to the Board of
Directors of seven directors to serve as directors until the Company's 1998
Annual Meeting of Stockholders or until their successors are duly elected and
qualified; (2) the ratification of Ernst & Young LLP as independent auditors for
the Company for the fiscal year ending December 31, 1997; (3) the transacting of
any other proper business brought before the meeting or any adjournments or
postponements thereof.
All holders of record of shares of the Company's Common Stock at the close
of business on April 22, 1997 (the "Record Date"), are entitled to notice of and
to vote at the Annual Meeting. On the Record Date, the Company had outstanding
9,853,161 shares of Common Stock. Each share of Common Stock is entitled to one
vote for each director to be elected and upon all other matters to be brought to
vote by the Stockholders at the Annual Meeting. The presence, in person or by
proxy, of holders of a majority of the outstanding shares of Common Stock
entitled to vote as of the Record Date, exclusive of treasury shares, is
necessary to constitute a quorum at the Annual Meeting. Provided a quorum is
present, the persons receiving a plurality of the votes of the shares
represented in person or by proxy and entitled to vote on the election of
directors, shall be elected directors. The affirmative vote of holders of a
majority of the shares of Common Stock represented at the Annual Meeting is
required on all other actions proposed.
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect. Abstentions and broker non-votes have no effect on
determining plurality, except to the extent that they affect the total votes
that any particular nominee receives. Abstentions may be specified on all other
proposals and will be counted as present for purpose of the item on which the
abstention is noted. Under the rules of the American Stock Exchange, brokers who
hold shares in street name for customers have the authority to vote on certain
items when they have not received instructions from beneficial owners. Brokers
that do not receive instructions are entitled to vote on the election of
directors only.
Any Stockholder has the unconditional right to revoke his proxy at any time
before it is voted. Any proxy given may be revoked either by a written notice
duly signed and delivered to the Secretary of the Company prior to the exercise
of the proxy, by execution of a subsequent proxy or by voting in person at the
Annual Meeting (although attending the Annual Meeting without executing a ballot
or executing a subsequent proxy will not constitute revocation of a proxy).
Where a Stockholder's duly executed proxy specifies a choice with respect to a
voting matter, the shares will be voted accordingly. If no such specification is
made, the shares will be voted FOR the nominees for director identified below.
Certain officers and directors of the Company own in excess of two-thirds
of the outstanding shares of Common Stock that will be entitled to vote at the
meeting, and it is anticipated that these shares will be voted in favor of the
nominees for director as identified below. Thus, approval of the nominees for
director identified below is assured.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1997, by (i) each
director and nominee for director, (ii) the executive officers of the Company
named in the table under "Executive Compensation - Summary of Cash and Certain
Other Compensation", (iii) all executive officers and directors of the Company
as a group, and (iv) all persons who are known by the Company to be beneficial
owners of 5% or more of the Company's outstanding Common Stock. Unless otherwise
noted, the persons listed below have sole voting and investment power with
respect to such shares.
<TABLE>
<S> <C> <C>
Names of Directors, Officers and Number of
5% Shareholders(1) Shares Owned Percent
--------------- ------------ -------
Wray Thompson 2,840,647 28.83
Ronald C. Morgan 1,930,897 (2) 19.60
Robin L. Morgan 1,178,403 (3) 11.96
The Leather Factory, Inc. Employees'
Stock Ownership Plan & Trust 746,178 (4) 7.57
Fred N. Howell 20,100 *
William M. Warren 20,025 (5) *
H.W. "Hub" Markwardt 12,300 *
Luther A. Henderson 10,000 *
All Executive Officers and Directors
as a group (11 persons) 6,335,522 (6) 63.9
</TABLE>
- ---------
* Less than 1% of the class.
(1) The address of Wray Thompson, Ronald C. Morgan, Robin L. Morgan and the
ESOP(as defined below)is 3847 East Loop 820 South, Fort Worth, Texas 76119.
(2) Total shares beneficially owned by Mr. Morgan does not include 1,178,403
shares held by Robin L. Morgan, Mr. Morgan's wife, in which Mr. Morgan
disclaims beneficial ownership.
(3) Total shares beneficially owned by Ms. Morgan does not include 1,930,897
shares held by Ronald C. Morgan, Ms. Morgan's husband, in which Ms. Morgan
disclaims beneficial ownership.
(4) The Trustee of the Employees' Stock Ownership Plan & Trust ("ESOP") votes
the shares held by the ESOP which are allocated to participant accounts, as
directed by the participants or beneficiaries of the ESOP and, except in
certain limited circumstances, may acquire and dispose of the assets of the
ESOP only as the ESOP Committee of the ESOP directs. The trustee of the
ESOP has sole voting and dispositive power with regard to unallocated
shares. As of the date indicated above, there were 64,631 unallocated
shares held by the ESOP. The ESOP Committee presently consists of Ronald C.
Morgan, Robin L. Morgan, Fred N. Howell, Anthony C. Morton and Coy
Kindsfather. As members of this Committee, such persons may be deemed to
share investment power with respect to the allocated shares held by the
ESOP. Each of the members of the ESOP Committee disclaims any beneficial
ownership of the securities held by the ESOP except for those that have
been allocated to such member as a participant in the ESOP. The total
number of shares held by the ESOP is not included in the number of shares
reflected in the table as being owned by such persons.
(5) Includes 9,800 shares held by Mr. Warren as the representative for Loe,
Warren, Rosenfield, Kaitcer & Hibbs, P.C. Mr. Warren claims sole voting and
investment power with respect to such shares.
(6) Does not include the beneficial interests of such persons in shares
allocated to their accounts with the ESOP.
2
<PAGE>
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall from
time to time be fixed and determined only by resolution of the Board of
Directors. By action of the Board of Directors, the number of directors
comprising the Board of Directors has been set at seven (7).
Directors of the Company may be elected by the affirmative vote of the
holders of a plurality of the outstanding Common Stock who are represented at
the Annual Meeting of Stockholders in person or by proxy, as long as a quorum is
present. The nominees listed below will stand for election at this Annual
Meeting for a one-year term of office expiring at the 1998 Annual Meeting of
Stockholders or until their successors are duly elected and qualified. Proxies
cannot be voted for the election of more than seven persons to the Board.
Unless otherwise directed on any duly executed and dated proxy, it is the
intentions of the persons named in such proxy to nominate and to vote the shares
represented by such proxy for the election of the nominees listed in the table
below for the office of director of the Company to hold office until their
respective successors have been duly elected and qualified:
NAME AGE POSITION
Wray Thompson (1)(2) 65 Chairman of the Board, Chief
Executive Officer, President,
and Director
Ronald C. Morgan (1)(2) 49 Executive Vice President, Chief
Operating Officer and Director
Robin L. Morgan (1)(2) 46 Vice President - Administration,
Asst. Secretary and Director
William M. Warren 52 Secretary, General Counsel,
and Director
Fred N. Howell (3) 56 Treasurer, Chief Financial Officer
and Director
Luther A. Henderson (1)(3)(4) 76 Director
H. W. Markwardt (1)(3)(4) 61 Director
- ---------------------
(1) Member of 1995 Stock Option Plan Committee
(2) Member of 1995 Director Non-Qualified Stock Option Plan Committee
(3) Member of Audit Committee
(4) Member of Compensation Committee
The Company is informed that the nominees listed above are willing to serve
as directors. However, if any of these individuals should decline or become
unable to serve as a director for any reason, then votes will be cast instead
for a substitute nominee designated by the Board of Directors or, if none is so
designated, will be cast according to the judgment of the person or persons
voting the proxy.
Business Experience of Directors
Wray Thompson, has served as the Chairman of the Board, President, and
Chief Executive Officer of the Company since June 1993. Mr. Thompson was a
co-founder of The Leather Factory, Inc., a Texas corporation ("TLF-Texas"), the
Company's predecessor. Mr. Thompson has served as the Chairman of the Board,
Chief Executive Officer and a Director for TLF-Texas since its inception in
1980. Prior to 1980, Mr. Thompson spent twenty two years with the Tandy Leather
Company. Tandy Leather Company, now a division of Tandycrafts, Inc.,
manufactures and retails leathercraft materials, kits, and equipment. Having
risen from a manager-trainee position, Mr. Thompson was President of Tandy
Leather Company from 1977 to 1979. Before becoming President, he was an
Executive Vice President for one year and Vice President of the Western Division
for one year. From 1970 to 1975, Mr. Thompson was a regional manager, during
which time he was presented the Sales and Marketing Executives (SME) Award as
Tandy Leather Company's outstanding salesman. He progressed through various
levels of management involving from one to several retail locations from 1958 to
1970. Mr. Thompson attended the University of Texas and Texas Wesleyan
University.
Ronald C. Morgan, has served since June 1993 as Chief Operating Officer,
Executive Vice President, and Director of the Company. As a co-founder of
TLF-Texas, Mr. Morgan has served as Chief Operating Officer, Executive Vice
President, and as a Director of TLF-Texas since its formation in 1980. Mr.
Morgan was employed by the Tandy Leather Company ten years prior to 1980. During
this ten year period he was promoted through various levels of management in
such a manner that he progressed from manager-trainee to Vice President -
Eastern Division by 1977. Mr. Morgan was a Vice President of Tandy Leather
Company from 1977 to 1980, directing operations for 350 retail stores. From 1970
through 1976, Mr. Morgan served in several positions of management of Tandy
Leather Company in New York, Pennsylvania, California, Arizona and Texas. Mr.
Morgan presently serves on the Board of Directors of Karts International Inc. of
Covington, Louisiana and is a member of the RM
3
<PAGE>
Acquisition Group in Dallas, Texas. Mr. Morgan attended college at Southern
Colorado State College and holds a Bachelor of Science degree from West Texas
State University.
Robin L. Morgan has served as Vice President of Administration, Assistant
Secretary and Director of the Company and TLF-Texas since June 1993. In this
position, Ms. Morgan is responsible for international banking such as the
processing and coordination of Letters of Credit issued in relation to the
Company's importation of merchandise, and for special projects, employee
benefits, and insurance. Ms. Morgan has also served as Assistant Secretary since
August 12, 1993. Ms. Morgan, formerly Robin L. Myers, served as a Director and
Secretary/Treasurer from 1981 to 1993 of TLF-Texas, during which time she
managed all accounting functions of TLF-Texas in addition to the
responsibilities noted above. As Ms. Myers, she purchased an interest in
TLF-Texas in 1981. She served from 1980 to 1981 as the Assistant Advertising
Manager for TLF-Texas. This position included the coordination and development
of a direct mail advertising program. From 1979 to 1980, Ms. Morgan was
Manager/Accounting Coordinator for Cast Consulting Corporation in Middletown,
New York. Ms. Morgan served as the Office Manager of several Tandy Leather
Company locations from 1972 to 1980. She attended Albright College in Reading,
Pennsylvania. In addition, Ms. Morgan graduated with an Associate of Arts degree
in Psychology from Harrisburg Area Community College.
William M. Warren has served as Secretary, General Counsel, and Director of
the Company since June 1993. Mr. Warren has been since 1980 General Counsel of
TLF-Texas. Since 1979, Mr. Warren has been President of the law firm now known
as Loe, Warren, Rosenfield, Kaitcer & Hibbs, P.C. This law firm is involved in a
general civil and trial practice encompassing such areas of practice as probate,
tort, corporation, bankruptcy, family law, personal injury and workers'
compensation law, real estate and commercial litigation. Mr. Warren practices
primarily in the areas of corporate and bankruptcy law. Prior to formation of
the professional corporation noted above, Mr. Warren practiced law with the late
H. Joe Loe from 1970 to 1979. Having received the highest score on the Arkansas
Bar Examination, Mr. Warren was licensed to practice in Arkansas and Texas in
1970. In addition to being a member of the State Bar of Texas, he is also a
member of the American Bar Association, Business Law Section. He is admitted to
practice in all Texas State Courts, all Arkansas State Courts, the U.S. District
Courts for the Northern and Western Districts of Texas, and the U.S. Court of
Appeals for the 5th and 6th Circuits. Other directorships held by Mr. Warren
include Loe, Warren, Rosenfield, Kaitcer & Hibbs, P.C., Wichita, Tillman and
Jackson Railroad Company, and Idaho Northern & Pacific Railroad Company. Mr.
Warren holds a Doctor of Jurisprudence from Southern Methodist University Law
School as well as a Bachelor of Arts in History and Government from Texas
Christian University.
Fred N. Howell has served as Chief Financial Officer, Treasurer, and
Director of The Leather Factory since November 1996. From August 1996 through
October 1996, he served as Vice President of Planning. From 1992 to 1996, Mr.
Howell was a private investor. From 1985 to 1992, he and his wife operated a
travel agency in Arlington, Texas. From 1967 until his retirement in 1985, Mr.
Howell was employed by Atlantic Richfield Company ("ARCO"). Some of his relevant
experience during his employment include: Financial Director of International
Coal Operations with CFO responsibilities for international coal operations in
Australia, Indonesia, and South America; Senior Corporate Financial Analyst on
the Corporate CFO staff in Los Angeles, California with responsibility for
domestic coal, oil, and gas operations, excluding Alaska; Manager of Performance
Reporting and Analysis, Budgets, and Capital Expenditure Control of the
Synthetic Crude and Minerals Division; and Planning Coordinator responsible for
strategic planning activities for operations in Canada, New Mexico, and on shore
Texas in ARCO Oil and Gas Company. Mr. Howell has a Bachelor of Business
Administration in Accounting from Texas Tech University and a Master of Business
Administration from The University of Dallas.
Luther A. Henderson, a Director of the Company since March 1994, is
currently the President of Pirvest, Inc., a privately-held investment company,
and Chairman of the Board of Medical Ventures, Inc., a San Diego, California
based organization specializing in the development and ownership of medical
imaging and treatment centers. He also serves on the Board of Directors of
Ridgewood Properties, Inc., Atlanta, Georgia and Beeba's Creations, Inc., San
Diego, California. From 1985 to 1993, Mr. Henderson served as Founder-Chairman
for Pier 1 Imports, Inc., Fort Worth, Texas ("Pier 1"), a retailer of imported
decorative home furnishings. Prior to 1985, he held at Pier 1 the positions of
Chairman from 1983 to 1985 and President from 1966 until 1983. From 1953 until
1966, Mr. Henderson served as Vice President, Treasurer and Director of Tandy
Corporation and was in charge of its Pier 1 Imports Division from its formation
in 1962 until 1966, when Pier 1 became an independent company. Following service
in the U.S. Navy during World War II, Mr. Henderson joined the family business,
Chickasaw Lumber Company, where he was employed until joining Tandy Corporation
in 1953. Mr. Henderson holds a Bachelor of Science degree from Texas Christian
University and a Master of Business Administration from Northwestern University.
Mr. Henderson is also a Certified Public Accountant.
4
<PAGE>
H.W. "Hub" Markwardt, founder of Encon Industries, L.P. ("Encon"), served
as Encon's Chief Operating Officer from 1977 until 1995. The first company to
import ceiling fans into the United States, Encon has developed into one of the
world's largest ceiling fan suppliers, now reaching markets throughout North and
South America, Europe, and the Pacific Rim, currently selling 2.5 million
ceiling fans annually. In 1954, Mr. Markwardt joined Mid-Continent Supply
Company, advancing to the company's top sales post during his 21-year tenure
there. While at Mid-Continent, Markwardt opened Antique Village, an antique
importing business. Mr. Markwardt left Mid-Continent in 1974 to pursue the
thriving antiques business, and soon founded a second company, the East / West
Trading Company to source oil-field equipment manufactured in the Far East. In
1977, Mr. Markwardt began inporting ceiling fans for sale in the Southern United
States. The ceiling fan business expanded rapidly, and in 1980 Mr. Markwardt
sold both of his other companies in order to focus on his flagship company,
Encon Industries. Mr. Markwardt's professional affiliations include: Board of
Directors, American Fan Association 1981-82, for which Mr. Markwardt was a
co-founder, Charter Member of the Home Center Industry President's Council.
Professional Honors include: Fort Worth Star Telegram Tarrant County Top 40
Export Company, 1990, 1991, 1992, 1993; Mayor's Award for Employment of the
Mentally and Physically Handicapped, 1989; Entrepreneur of the Year finalist,
1994.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
For the fiscal year ending December 31, 1996, the Board of Directors held
four meetings. No director attended fewer than 75% of the meetings of the Board
of Directors.
The Board of Directors established an Audit Committee in March 1994. The
members of this committee are Chairman, Luther Henderson, Secretary, Fred N.
Howell, and H. W. "Hub" Markwardt. Certain representative duties of the Audit
Committee, pursuant to the Audit Committee Charter, are: (i) to review with the
Company's management and independent accountants, the Company's general policies
and procedures to reasonably assure the adequacy of internal accounting and
financial reporting controls, (ii) to review prior to the annual audit, the
scope and general extent of the independent accountants' audit examination,
(iii) to review with management and the independent accountants, upon completion
of the independent audit, financial results for the year, prior to the release
of annual financial results to the public, (iv) to discuss with Company
management the scope and quality of internal accounting and financial reporting
controls in effect, and (v) to recommend to the Board of Directors as to the
retention or nonretention of the independent accountants. The Audit Committee
met three times during 1996.
The Board of Directors established a Compensation Committee in September
1994. The members of this committee are Chairman, Luther Henderson and H. W.
"Hub" Markwardt. The Compensation Committee met twice during 1996. The Board of
Directors has no standing nominating committee as the entire board nominates
those individuals to serve as directors.
The Board of Directors established the 1995 Stock Option Plan Committee in
September 1995. The members of this Committee are Chairman, Ronald C. Morgan,
Luther A. Henderson, H. W. "Hub" Markwardt, Robin L. Morgan and Wray Thompson.
The 1995 Stock Option Plan Committee has the general duty to review and approve
the granting of stock options pursuant to the 1995 Stock Option Plan. The 1995
Stock Option Plan Committee met once during 1996.
The Board of Directors established the 1995 Director Non-Qualified Stock
Option Plan Committee (the "Director Plan Committee") in September 1995. The
Director Plan Committee was composed of Chairman, Ronald C. Morgan, Robin Morgan
and Wray Thompson. The Director Plan Committee reviews and approves granting of
stock options for the Board of Directors pursuant to the terms of the 1995
Director Plan. The 1995 Director Plan Committee met once during 1996.
Directors' Compensation
A director who is an officer of the Company is not compensated for service
as a member of the Board of Directors or any committee of the Board. For the
fiscal year ended December 31, 1996, directors who were not officers received
$1,000 per meeting, with the non-employee members of the Audit Committee and the
Compensation Committee receiving $250 per meeting.
Pursuant to the provisions of the Company's 1995 Director Plan, three
individuals were granted options to purchase 2,000 shares each for a total of
6,000 shares.
5
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
Certain information is set forth below concerning the executive officers of
the Company.
NAME AGE POSITION
Wray Thompson 65 Chairman of the Board, Chief
Executive Officer, President,
and Director
Ronald C. Morgan 49 Executive Vice President, Chief
Operating Officer and Director
Jon W. Thompson 35 Senior Vice President - Operations
Robin L. Morgan 46 Vice President - Administration,
Asst. Secretary and Director
David L. Ferrill 57 Vice President - Sales/Distribution
Units
Mark J. Angus 36 Vice President - Sales
Gregory J. Sartor 39 Vice President - Sales
William M. Warren 52 Secretary, General Counsel,
and Director
Fred N. Howell 56 Treasurer, Chief Financial Officer
and Director
Business Experience of Executive Officers
See "Election of Directors - Business Experience of Directors" for certain
information with respect to Wray Thompson, Ronald C. Morgan, Robin L. Morgan,
William M. Warren and Fred N. Howell.
Jon W. Thompson has served as Senior Vice President in charge of operations
for the Company and TLF-Texas since June 1993. Mr. Thompson earned the change in
title due to the promotion of three former product line managers to the level of
vice president. Since having been promoted to Vice President of TLF-Texas in
1990, his duties have remained the same. Since 1990, he has overseen the
distribution units and the warehouse operations as well as managed the functions
directed by the three operational vice presidents (former product line
managers). In addition, Mr. Thompson is responsible for the sourcing of new
products from both the domestic and import markets. From 1982 to 1990, Mr.
Thompson managed the Fort Worth unit of TLF-Texas as well as assisted in the
formation of the craft and metals product lines. He was selected to fill the
post of Manager of the Fort Worth unit upon its opening in 1982. In 1981, he
became Assistant Manager of the Denver unit of TLF-Texas. Mr Thompson has been
with TLF-Texas since 1980.
David L. Ferrill has been the Company's Vice President - Sales/Distribution
Units since January 1995. In his current position, Mr Ferrill assists in the
management of the operations of all selling locations. Prior thereto, Mr.
Ferrill served as Vice President - American Leather for the Company and
TLF-Texas from June 1993 to January 1995. From 1991, when TLF-Texas acquired the
assets and company name of American Leather Company in Tampa, Florida, until
June 1993, Mr. Ferrill held the position of General Manager - American Leather.
Since joining TLF-Texas in 1984, he has served as Vice President of Marketing
from 1990 to 1991, National Sales Manager from 1986 to 1990, and General
Manager, Midas Metals Product Line from 1984 to 1986. Prior to employment with
TLF-Texas, Mr. Ferrill spent a brief period of time outside the industry as
President of Loading Dock Furniture, a retail furniture operation, from 1979 to
1984. From 1962 to 1979 he progressed from manager-trainee to Vice President -
Western Division of Tandy Leather Company. Mr. Ferrill held the position of Vice
President - Western Division from 1978 to 1979. During his tenure at this post
he managed approximately 150 retail stores. In 1976, he was promoted to National
Sales Manager, where he handled all national contracts and worked to develop
training and incentive programs for the store managers and employees. From 1974
to 1976, Mr. Ferrill served Tandy Leather Company as Regional Manager for
California, Oregon, Washington, Idaho, Utah, and Nevada. He worked in Kansas
City, Missouri from 1970 to 1974, first as store manager and then as a District
Manager for Tandy Leather Company. From 1962 to 1970, Mr. Ferrill served in
various positions involving store management as well as one as an Area Manager.
He attended Phillips University, Enid, Oklahoma.
Mark J. Angus has served as the Company's Vice President - Sales since
January 1995. In this capacity, Mr. Angus works with major manufacturing
customers and serves as liaison with Roberts, Cushman & Co., a wholly-owned TLF
subsidiary, relative to sales, product development and marketing. Mr. Angus is
also involved in new product development with certain portions of TLF's product
line. Before January 1995, Mr. Angus served as Vice President - Sales and Design
for the Company and TLF-Texas. He held this position from June 1993 to January
1995. As an employee of TLF-Texas and the Company, Mr. Angus has been involved
in buckle and metal design work as well as sales to major manufacturers since
1990. Mr. Angus' designs comprise a substantial number of the Company's
copyrights. He is also responsible for the design of the Company's patented belt
buckle. From 1985 to 1990, Mr. Angus managed TLF-Texas' location in Des Moines,
Iowa. Prior to joining TLF-Texas in 1985, Mr. Angus was involved in several
businesses owned by his family in which he was exposed to all areas of the
operations. These entities included All Crafts Corporation, for which he served
as Secretary/Treasurer from 1977 to 1985. In addition to his duties as
Secretary/Treasurer, Mr. Angus managed one of All Crafts Corporation's stores
located in Sunbury, Pennsylvania, from 1980 to 1985. This store, one of
TLF-Texas' original dealers, sold crafts, leathercrafts, leather, finishes, and
dyes as well as a line of western wear clothing. Having worked with leathercraft
all his life, Mr. Angus also started writing and publishing leathercraft books
and designing patterns for leathercraft work in 1982. From 1977 to 1985, he
worked contemporaneously with Columbia Feed & Supply in Columbia, New Jersey,
another of the family's business interests. All of the family's business
interests were sold or dissolved prior to Mr. Angus' employment with the
Company. Mr. Angus entered the family businesses at age 16, upon his graduation
from high school. His high school education was such that he received four years
of intensive training in art.
6
<PAGE>
Gregory J. Sartor was named the Company's Vice President - Sales in January
1995. In this position Mr. Sartor directs a department established to create new
selling markets, primarily involving sales to retailers. Formerly Mr. Sartor
served the Company and TLF-Texas as Vice President - Crafts from June 1993 to
January 1995. Mr. Sartor served TLF-Texas as Sales Manager to craft stores from
1991 to June 1993. In his former positions, Mr. Sartor was responsible for
product selection and development of all craft merchandise sold through
independent stores, distributors, and chain stores. Prior to joining TLF-Texas
in 1991, he had been employed by S-T Leather Company, St. Louis, Missouri, since
1983. Mr. Sartor served as President of S-T Leather Company from 1984 to 1991
after one year as General Manager. His duties as President included
responsibility for all business operations including sales, purchasing,
personnel, accounting, and operations. From 1979 to 1983, he progressed from a
manager-trainee to store manager for various units in the Tandy Leather Company.
Mr. Sartor holds a Bachelor of Science in Business Administration from Michigan
Technological University, Houghton, Michigan.
Family Relationships
Except for Ronald C. Morgan and Robin L. Morgan, who are husband and wife,
and Wray Thompson and Jon W. Thompson who are father and son, there are no
family relationships between any director, executive officer, or person
nominated or chosen by the Company to become a director or executive officer.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth compensation paid to or for the benefit of
the executive officers (3) named below in 1996, 1995 and 1994. No other person
serving as an executive officer as of December 31, 1996 received salary and
bonus compensation in excess of $100,000 during fiscal 1996.
Summary Compensation Table
<TABLE>
<S> <C> <C> <C>
Long Term
Annual Compensation Compensation
------------------- ------------
Name and Other Annual Stock Options All Other
Principal Position Year Salary ($) Bonus ($) Compensation ($) Awards (Shares) Compensation(1) ($)
------------------ ---- --------- -------- ---------------- --------------- -------------------
Wray Thompson 1996 175,000 0 0 0 1,157
Chairman, President 1995 175,000 0 0 0 1,140
and CEO 1994 150,000 35,000 0 0 4,500
Ronald C. Morgan, 1996 157,333 0 0 0 801
Executive VP, Chief 1995 155,500 0 0 0 775
Operating Officer, 1994 120,000 35,000 0 0 3,000
Jon W. Thompson 1996 100,000 0 0 0 771
Senior Vice President 1995 95,000 0 0 100,000 840
1994 65,000 15,000 0 0 3,000
</TABLE>
(1) The amounts in this column represent the amounts accrued on behalf of the
named individuals for the annual contribution to the Company's ESOP
7
<PAGE>
Compensation Committee Report
The Compensation Committee of the Company's Board of Directors consists
entirely of outside directors of the Company. For 1996 and prior years, the
Company utilized discretionary bonuses for its Executive Officers as well as
certain other officers of the Company. These bonuses were determined on a
subjective basis, using historical bonus amounts, the availability of cash, the
need to provide bonuses to other officers and employees, the business prospects
for the upcoming year, and the increase in net income for the year in question
as general guidelines. No other quantitative criteria were used in the
determination of the discretionary bonuses. Due to the loss reported for the
fiscal year ended December 31, 1996, no bonuses were awarded to the Executive
Officers or other officers of the Company.
Employees' Stock Ownership Plan and Trust
The Executive Officers participated in the ESOP in keeping with the terms
and provisions of the ESOP, in the same manner as all other participants of the
ESOP. Effective January 1, 1990, and as subsequently amended and restated on
July 15, 1993 and October 1, 1993, the Company established the ESOP for
employees with at least one year of service (as defined by the ESOP) and who
have reached their 21st birthday.
As of December 31, 1996, 165 employees and former employees were
participants in and beneficiaries of the ESOP. Under the ESOP, the Company makes
annual cash or stock contributions to a trust for the benefit of eligible
employees. The trust invests in shares of the Company's Common Stock. The amount
of the Company's annual contribution is discretionary. Amounts contributed to
the ESOP vest over a period of years (0% prior to three years of service and
100% for three or greater years of service) and shares of Common Stock vested in
participants will be distributed upon the participant's separation from service,
retirement, death or permanent disability.
For the fiscal years ended December 31, 1994, 1995, and 1996, the Company's
Board of Directors approved contributions of 3%, .8% and .8%, respectively, of
annual compensation for the eligible employees. The Company contributed $1,157,
$801 and $771, respectively, as contributions for Messrs. Wray Thompson, Morgan
and Jon Thompson for the fiscal year ended December 31, 1996.
COMPENSATION COMMITTEE 1995 STOCK OPTION PLAN COMMITTEE
Luther Henderson, Chairman Ronald Morgan, Chairman
H. W. "Hub" Markwardt Robin Morgan Luther Henderson
Wray Thompson H. W. "Hub" Markwardt
8
<PAGE>
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the Company's cumulative four-year total stockholder return with the Standard &
Poor's Smallcap 600 Index, and the common stock of a peer group of companies
("Peer Group") whose returns are weighted according to their respective market
capitalizations. The graph assumes that $100 was invested on August 2, 1993 (the
earliest trading data available) in the Common Stock, the Standard & Poor's
Smallcap 600 Index, and the Peer Group, and that all dividends were reinvested.
The Peer Group consists of companies included in SIC 5190 - Miscellaneous
Non-Durable Goods Wholesale. The following graph is not, nor is it intended to
be, indicative of future performance of the Common Stock.
[GRAPHIC OMITTED]
<TABLE>
<S> <C> <C> <C> <C> <C>
Company/Index 8/2/93 Dec 93 Dec 94 Dec 95 Dec 96
- ----------------------------------------------------------------------------------------------------------------
LEATHER FACTORY INC 100 245.00 170.00 97.48 32.48
S&P SMALLCAP 600 INDEX 100 110.50 105.23 136.75 165.91
PEER GROUP 100 117.89 133.84 163.67 132.91
</TABLE>
Data Source: S&P Compustat Services
CERTAIN TRANSACTIONS
During 1996 the law firm of Loe, Warren, Rosenfield, Kaitcer and Hibbs,
P.C., of which Mr. William M. Warren, Secretary, General Counsel, and Director
of the Company, is a shareholder, was compensated for rendering services to the
Company.
During 1996, the Company purchased certain notes from NationsBank that are
collateralized by the Company's common stock. These notes relate to shares
issued under the Company's 1993 Non-Qualified Incentive Stock Option Plan. The
following table sets forth the balance as of December 31, 1996 on notes that
mature on December 31, 1997 and are due from individuals that are officers of
the Company.
Name and Relationship Amount of
with the Company Stock Loan
Mark Angus (Executive Officer) $61,703.35
David L. Ferrill (Executive Officer) $7,506.70
Gregory J. Sartor (Executive Officer) $51,475.06
At December 31, 1996, the aggregate amount of all of the Loans, including
individuals that are not officers of the Company, totaled approximately
$269,305.
9
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file with the
United States Securities and Exchange Commission (the "SEC") and the American
Stock Exchange initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Such persons are
required by SEC regulations to furnish the Company with copies of all Section
16(a) reports they file.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations that no other
reports were required to be filed, all Section 16(a) filing requirements
applicable to its officers, directors and beneficial owners of more than ten
percent of the Company's outstanding stock were complied with during the fiscal
year ended December 31, 1996.
AUDITORS
Representatives of the Company's auditors for the fiscal year ended December
31, 1996, Ernst & Young LLP, are expected to be present at the meeting with the
opportunity to make a statement if they desire to do so and to be available to
respond to appropriate questions.
STOCKHOLDER PROPOSALS
In order for stockholder proposals to receive consideration for inclusion in
the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders, such
proposals must be received at the Company's offices at 3847 East Loop 820 South,
Fort Worth, Texas 76119, Attention: Secretary, by December 1, 1997.
SOLICITATION OF PROXIES
The solicitation of proxies in the enclosed form is made on behalf of the
Company's Board of Directors. The Company will pay the expenses of this proxy
solicitation. In addition to the solicitation by mail, some of the officers and
regular employees of the Company may solicit proxies personally or by telephone,
if deemed necessary. The Company will request brokers and other fiduciaries to
forward proxy soliciting material to the beneficial owners of shares which are
held of record by the brokers and fiduciaries, and the Company may reimburse
them for reasonable out-of-pocket expenses incurred by them in connection
therewith.
OTHER MATTERS
The Board of Directors is not aware of any matter, other than the matters
described above, to be presented for action at the meeting. However, if any
other proper items of business should come before the meeting, it is the
intention of the person or persons acting under the enclosed form of proxy to
vote in accordance with their best judgment on such matters.
The Annual Report to Stockholders for the fiscal year ended December 31,
1996, which includes the financial statements, is enclosed herewith. The Annual
Report does not form a part of this Proxy Statement or the materials for the
solicitation of proxies to be voted at the Annual Meeting.
10
<PAGE>
Information contained in the Proxy Statement relating to the occupations and
security holdings of directors and officers of the Company is based upon
information received from the individual directors and officers.
COPIES OF THE COMPANY'S 1996 ANNUAL REPORT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON FORM 10-K (WHICH IS THE COMPANY'S ANNUAL REPORT) ARE
AVAILABLE TO SHAREHOLDERS UPON RECEIPT OF A WRITTEN REQUEST OF SUCH PERSON
ADDRESSED TO FRED N. HOWELL, 3847 EAST LOOP 820 SOUTH, FORT WORTH, TEXAS, 76119,
817/496-4414. THE COMPANY WILL ALSO FURNISH SUCH ANNUAL REPORT ON FORM 10-K TO
ANY "BENEFICIAL OWNER" OF SUCH SECURITIES AT NO CHARGE UPON RECEIPT OF A WRITTEN
REQUEST, ADDRESSED TO FRED N. HOWELL, 3847 EAST LOOP 820 SOUTH, FORT WORTH,
TEXAS, 76119, 817/496-4414 CONTAINING A GOOD FAITH REPRESENTATION THAT, AT THE
RECORD DATE, SUCH PERSON WAS A BENEFICIAL OWNER OF SECURITIES OF THE COMPANY
ENTITLED TO VOTE AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 22, 1997.
COPIES OF ANY EXHIBIT TO THE FORM 10-K WILL BE FURNISHED UPON THE PAYMENT OF A
REASONABLE FEE.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES. A PROMPT RETURN OF YOUR PROXY CARD WILL BE APPRECIATED AS IT
WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors,
William M. Warren
General Counsel and Secretary
Fort Worth, Texas
April 22, 1997
