SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
THE LEATHER FACTORY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
THE LEATHER FACTORY, INC.
3847 E. Loop 820 South
Fort Worth, Texas 76119
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held May 21, 1998
To the Holders of Common Stock of THE LEATHER FACTORY, INC.:
Notice is hereby given that the 1998 Annual Meeting of Stockholders of
The Leather Factory, Inc., a Delaware corporation (the "Company"), will be held
in the El Dorado Room at the Arlington Hilton Hotel, Arlington, Texas, Thursday,
May 21, 1998 at 10:00 a.m., Central Daylight Time, for the following purposes:
1. To elect eight (8) persons to serve as directors until the
Company's 1999 Annual Meeting of Stockholders or until their
successors are duly elected and qualified; and
2. To transact any other proper business brought before the
meeting or any adjournments or postponements thereof.
The Board of Directors has fixed April 21, 1998 at the close of
business, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the meeting and any adjournment or postponement
thereof. Only holders of record of the Company's Common Stock, $0.0024 par value
("Common Stock"), on that date are entitled to vote on matters coming before the
meeting and any adjournment or postponement thereof. A complete list of
stockholders entitled to vote at the meeting will be maintained and available
for inspection in the Company's offices at 3847 East Loop 820 South, Fort Worth,
Texas 76119, for ten (10) days prior to the meeting. The list will also be
available for examination at the meeting.
Please advise the Company's transfer agent, Securities Transfer
Corporation, 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248, of any change
in your address.
Your vote is important. Whether or not you plan to attend the annual
meeting, please sign and date the enclosed proxy and return it in the envelope
provided, which requires no postage if mailed within the united states. IF YOU
RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE REGISTERED IN DIFFERENT
NAMES OR AT DIFFERENT ADDRESSES, EACH PROXY CARD SHOULD BE SIGNED AND RETURNED
TO ENSURE THAT ALL OF YOUR SHARES WILL BE VOTED. The proxy card should be signed
by all registered holders exactly as the shares are registered. Any person
giving a proxy has the power to revoke it at any time prior to its exercise and,
if present at the meeting, may withdraw it and vote in person. Attendance at the
annual meeting is limited to stockholders, their proxies and invited guests of
the company.
By Order of the Board of Directors,
/s/ William M. Warren
William M. Warren
General Counsel and Secretary
Fort Worth, Texas
April 21, 1998
<PAGE>
THE LEATHER FACTORY, INC.
3847 East Loop 820 South
Fort Worth, Texas 76119
--------------------------------
PROXY STATEMENT
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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 21, 1998
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 21, 1998 (the "Annual
Meeting"), at 10:00 a.m., Central Daylight Time, in the El Dorado Room of the
Arlington Hilton Hotel, Arlington, 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 21, 1998.
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 eight (8) directors to serve as directors until the Company's 1999
Annual Meeting of Stockholders or until their successors are duly elected and
qualified; and (2) 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 21, 1998 (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, 1998, 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.
Names of Directors, Officers and Number of Percent
-------------------------------- --------- -------
5% Stockholders(1) Shares Owned(2) of Class
--------------- ------------ --------
Wray Thompson 2,840,647 (3) 28.83
Ronald C. Morgan 3,109,300 (4)(5) 31.56
Robin L. Morgan 3,109,300 (4)(5) 31.56
The Leather Factory, Inc. Employees'
Stock Ownership Plan & Trust 706,871 (6) 7.17
The Schlinger Foundation 690,608 (7) 6.55
Anthony C. Morton 27,250 (8) *
William M. Warren 26,025 (9)(10) *
H.W. "Hub" Markwardt 16,300 (11) *
John Tittle, Jr. 18,050 *
Joseph R. Mannes 0 *
All Executive Officers and Directors
as a group (12 persons) 6,519,272 (12) 65.2
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* 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. The address of The Schlinger Foundation is 1944 Edison Street, Santa
Ynez, California 93460.
(2) The amounts shown for Executive Officers do not include the beneficial
interests in shares allocated to their individual ESOP accounts.
(3) Mr. Thompson entered into a Pledge and Security Agreement with The
Schlinger Foundation, whereby he pledged 2,666,666 shares of the Common
Stock to partially secure the obligation of the Company to the subordinated
debenture holder. In the event of a default under this agreement, there
could be a change in the control of these shares.
(4) The shares beneficially owned by Mr. Morgan and Ms. Morgan are held as
community property.
(5) Mr. Morgan and Ms. Morgan entered into a Pledge and Security Agreement with
FINOVA Capital Corporation, whereby they pledged 3,000,000 shares of the
Common Stock to partially secure the obligation of the Company to the
senior lender. In the event of a default under this agreement, there could
be a change in the control of these shares.
(6) 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, which is an independent corporate trustee, has sole voting and
dispositive power with regard to unallocated shares. As of the date
indicated above, there were 54,262 unallocated shares held by the ESOP. The
ESOP Committee is made up of officers and other employee participants of
the Company and presently consists of Ronald C. Morgan, Robin L. Morgan,
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.
(7) The Schlinger Foundation has the right to acquire beneficial ownership of
690,608 shares by converting up to 50% of the $1,000,000 subordinated
debenture they hold into common stock at $0.724 per share.
(8) Includes 20,000 shares Mr. Morton has the right to acquire pursuant to
exercise of options granted under the 1995 Employee Stock Option Plan.
(9) 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.
(10) Includes 6,000 shares Mr. Warren has the right to acquire pursuant to
exercise of options granted under the 1995 Director Stock Option Plan.
(11) Includes 4,000 shares Mr. Markwardt has the right to acquire pursuant to
exercise of options granted under the 1995 Director Stock Option Plan.
(12) Includes 150,000 shares that All Executive Officers and Directors as a
group have the right to acquire pursuant to exercise of options granted
under the 1995 Employee or Director Stock Option Plans.
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 eight (8).
The nominees listed below will stand for election at this Annual Meeting
for a one-year term of office expiring at the 1999 Annual Meeting of
Stockholders or until their successors are duly elected and qualified. Proxies
cannot be voted for the election of more than eight (8) 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:
<TABLE>
<S> <C>
NAME AGE POSITION
Wray Thompson (1) (2) 66 Chairman of the Board, Chief Executive Officer, President and Director
Ronald C. Morgan (1) (2) 50 Executive Vice President, Chief Operating Officer and Director
Robin L. Morgan (1) (2) 47 Vice President - Administration, Asst. Secretary and Director
William M. Warren 53 Secretary, General Counsel and Director
Anthony C Morton 38 Treasurer, Chief Financial Officer and Director
H. W. Markwardt (1) (3) (4) 62 Director
Joseph R. Mannes (5) 39 Director
John Tittle, Jr. 40 Director
</TABLE>
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(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
(5) Nominated to be a member of 1995 Stock Option Plan, Audit and Compensation
Committees upon election to Board of Directors
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.
3
<PAGE>
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 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., Fort Worth, Texas. 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 also serves as Trustee of the James D.
Burton Estate. 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.
Anthony C. Morton has served as Chief Financial Officer, Treasurer, and
Director of the Company since January 1998. Prior to this date, Mr. Morton was
the Company's Controller since August 1993. From 1989 to 1993, Mr. Morton was a
Partner in the Fort Worth accounting and consulting firm, Tittle & Associates,
Inc., where he also provided consulting services to the Company. Mr. Morton
earned his Bachelor of Business Administration from Texas Tech University in
1982 and was licensed as a Certified Public Accountant (CPA) in 1983. His
professional affiliations include the American Institute of Certified Public
Accountants, and the Texas Society of Certified Public Accountants and its Fort
Worth Chapter.
4
<PAGE>
H.W. "Hub" Markwardt was the founder of Encon Industries, L.P. ("Encon"),
Fort Worth, Texas, and served as Encon's Chief Operating Officer from 1977 until
1995. Since 1995, Mr. Markwardt has served as a consultant to Encon and managed
his personal investments. 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 importing
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.
Joseph R. Mannes will serve as a Director of the Company upon his election
to the Board of Directors at the Company's 1998 Annual Meeting of Stockholders.
Since February 1996, Mr. Mannes has served as the Chief Financial Officer,
Secretary and Treasurer of Interactive Creations Incorporated (ICI), a
corporation offering real-time internet gaming services. From 1987 until joining
ICI, Mr. Mannes was First Vice President in the Corporate Finance Department of
Rauscher Pierce Refsnes, Inc., a Dallas, Texas investment firm. From 1982 to
1987, Mr. Mannes was in the commercial lending division of the First National
Bank of Boston, where he attained the position of Assistant Vice President. Mr.
Mannes worked in both the Special Industry Group and the High Technology Group
at First National Bank of Boston. Mr. Mannes graduated with an MBA in Accounting
and Finance from the Wharton School, Graduate Division, of the University of
Pennsylvania in 1982 and an A.B. from Dartmouth College in 1980. Mr. Mannes is a
Chartered Financial Analyst. Mr. Mannes serves on the Board of Directors of
Karts International, Inc.
John Tittle, Jr. will serve as a Director of the Company upon his election
to the Board of Directors at the Company's 1998 Annual Meeting of Stockholders.
Since April 1998, Mr. Tittle has served as President of John Tittle, Jr., CPA,
PC and Cascade International Capital Corporation (Cascade). Cascade provides
corporate finance advisory services. From November 1996 to March 1998, Mr.
Tittle was employed by Price Waterhouse LLP as a Senior Manager, then Director,
in the firm's Financial Advisory Services practice. Mr. Tittle served as Chief
Financial Officer, Treasurer and Director of the Company from April 1993 to
October 1996. Prior to joining the Company, Mr. Tittle was a partner or owner in
accounting and consulting practices in various forms since 1982. Mr. Tittle
became a CPA in Texas in 1980. Mr. Tittle graduated Magna Cum Laude with a
Bachelor in Business Administration in Accounting from Texas Christian
University. Mr. Tittle serves on the Board of Directors of Cascade International
Capital Corporation and John Tittle, Jr., CPA, PC.
5
<PAGE>
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During the fiscal year ending December 31, 1997, the Board of Directors
held four (4) 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
present member of this committee is H. W. "Hub" Markwardt. Mr. Mannes has been
nominated to serve on the Audit Committee upon his election to serve as a
Director. 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 two (2) times during
1997.
The Board of Directors established a Compensation Committee in September
1994. The present member of this committee is H. W. "Hub" Markwardt. Mr. Mannes
has been nominated to serve on the Compensation Committee upon his election to
serve as a Director. The Compensation Committee met one (1) time during 1997.
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, H.
W. "Hub" Markwardt, Robin L. Morgan and Wray Thompson. Joseph R. Mannes has been
nominated to serve on this committee upon his election to serve as a Director.
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 two (2) times during 1997.
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 1997.
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, 1997, 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.
During 1997, pursuant to the provisions of the Company's 1995 Director
Plan, three (3) non-employee directors were granted options to purchase 2,000
shares each for a total of 6,000 shares.
6
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE COMPANY
Certain information is set forth below concerning the executive officers of
the Company.
<S> <C>
NAME AGE POSITION
Wray Thompson 66 Chairman of the Board, Chief Executive Officer, President, and Director
Ronald C. Morgan 50 Executive Vice President, Chief Operating Officer and Director
Jon W. Thompson 36 Senior Vice President
Robin L. Morgan 47 Vice President - Administration, Asst. Secretary and Director
David L. Ferrill 58 Vice President
Mark J. Angus 37 Vice President
Gregory J. Sartor 40 Vice President
William M. Warren 53 Secretary, General Counsel, and Director
Anthony C. Morton 38 Treasurer, Chief Financial Officer and Director
</TABLE>
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 Anthony C. Morton.
Jon W. Thompson has served as Senior Vice President for the Company and
TLF-Texas since June 1993. Mr. Thompson manages the Company's sales/distribution
unit and central warehouse in Fort Worth, Texas. He is also managing the
installation and implementation of the Company's new computer system. From his
promotion to Vice President of TLF-Texas in 1990 until January 1998, his duties
remained the same. He oversaw the sales/distribution units and the warehouse
operations as well as managed the functions directed by the three operational
vice presidents. 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 served as a Vice President of the Company and
TLF-Texas in various capacities since June 1993. Mr. Ferrill is presently
responsible for the oversight of seven (7) sales/distribution units located in
the eastern United States. Mr. Ferrill formerly assisted in the management of
the operations of all selling locations from January 1995 to January 1998. 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 until 1991,
he served as National Sales Manager. 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. He attended Phillips University,
Enid, Oklahoma.
7
<PAGE>
Mark J. Angus has served as a Vice President of the Company with varying
responsibilities since June 1993. Since January 1995, Mr. Angus has served 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. In January
1998, in addition to his duties relative to Roberts, Cushman & Co., Mr. Angus
became responsible for the management of the Company's sales to major
manufacturers and distributors. Before January 1995, Mr. Angus served as Vice
President - Sales and Design for the Company and TLF-Texas. He was responsible
for the Company's sales to major manufacturers and distributors from 1990 to
1995. 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. 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.
Gregory J. Sartor currently serves as a Vice President of the Company. Mr.
Sartor presently manages the Company's factory operation in Fort Worth, Texas.
He is also responsible for certain institutional sales and for identifying
reliable sources for some of the quality leathers that are purchased by the
Company. From January 1995 to January 1998, as Vice President - Sales, Mr.
Sartor directed a department established to create new selling markets,
primarily involving sales to retailers. Mr. Sartor held the position of Vice
President - Crafts from June 1993 to January 1995 for the Company and TLF-Texas.
Mr. Sartor served TLF-Texas as Sales Manager to craft stores from 1991 to June
1993. 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.
8
<PAGE>
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth the compensation awarded by the Company to its
Chairman of the Board, President and Chief Executive Officer (CEO) and its most
highly compensated executive officer other than its CEO for services rendered
during the fiscal years ended December 31, 1995, 1996 and 1997. No other person
serving as an executive officer as of December 31, 1997, received salary and
bonus compensation in excess of $100,000 during fiscal 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
<S> <C> <C>
Long Term
Annual Compensation Compensation
------------------- ------------
Name and Other Annual Stock Options All Other
Principal Position Year Salary ($) Bonus ($) Compensation ($) Awards (Shares) Compensation (1)($)
------------------ ---- ---------- --------- ---------------- --------------- -------------------
Wray Thompson 1997 157,504 0 0 0 1,890
Chairman, President 1996 175,000 0 0 0 1,157
and CEO 1995 175,000 0 0 0 1,140
Ronald C. Morgan 1997 141,601 0 0 0 1,285
Executive VP, Chief 1996 157,333 0 0 0 801
Operating Officer 1995 155,500 0 0 0 775
</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
Compensation Committee Report
The Compensation Committee of the Company's Board of Directors consists
entirely of outside directors of the Company. The Compensation Committee has
adopted the following statement of overall executive compensation policies:
The basic philosophy of the Company's executive compensation program is to
link the compensation of its executive officers to their contribution
toward increases in the size of the operations and income of the Company
and accordingly, increases in stockholder value. Consistent with that
philosophy, the executive compensation program is designed to meet the
following policy objectives:
1. Attracting and retaining qualified executives critical to the long-term
success of the Company;
2. tying executive compensation to the Company's general performance and
specific attainment of long-term strategic goals;
3. rewarding executives for contributions to strategic management designed
to enhance long-term stockholder value; and
4. Providing incentives that align the executive's interest with those of
the Company's stockholders.
Based upon the aforementioned goals, the Compensation Committee determined
the compensation of Wray Thompson (the "Chief Executive Officer") and Ronald C.
Morgan (the two officers collectively referred to hereinafter as the "Named
Executive Officers") for the fiscal year ended December 31, 1997. The elements
of compensation for Named Executive Officers consist of base salary, annual
incentive bonuses, stock option awards and participation in the Company's
Employee Stock Ownership Plan and Trust (the "ESOP").
9
<PAGE>
Base Salary
As to base salaries for 1997, the base salary of the Chief Executive
Officer was reduced by ten percent (10%) for 1997 to $157,504 per year from
$175,000 per year for the prior fiscal year. The decrease was attributable to
the 1996 operating loss and was part of the Company's effort to stabilize and
improve operating results for 1997. Mr. Morgan, as Executive Vice President and
Chief Operating Officer, received a similar ten percent (10%) decrease in base
salary from $157,333 in 1996 to $141,601 for the year ended December 31, 1997.
Annual Incentive Bonus
For 1997 and prior years, the Company utilized discretionary bonuses for
its Named 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
need to improve operating results for the fiscal year ended December 31, 1997,
no bonuses were awarded to the Named Executive Officers or other officers of the
Company.
Stock Options
No grants of options were made during the year to Named Executive Officers
pursuant to the 1995 Stock Option Plan.
Employees' Stock Ownership Plan and Trust
The Named 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, 1997, 169 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, 1997, 1996, and 1995, the Company's
Board of Directors approved contributions of 1.2%, .8% and .8%, respectively, of
annual compensation for the eligible employees. The Company contributed $1,890
and $1,285, respectively, as contributions for Messrs. Wray Thompson and Ron
Morgan for the fiscal year ended December 31, 1997.
COMPENSATION COMMITTEE 1995 STOCK OPTION PLAN COMMITTEE
H. W. "Hub" Markwardt Ronald Morgan, Chairman
Robin Morgan
Wray Thompson
H. W. "Hub" Markwardt
10
<PAGE>
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the Company's cumulative five-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 for the Company's common stock) 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.
[OBJECT OMITTED]
Company/Index 8/2/93 Dec 93 Dec 94 Dec 95 Dec 96 Dec 97
- --------------------------------------------------------------------------------
LEATHER FACTORY INC 100 245.00 170.00 97.48 32.48 20.00
S&P SMALLCAP 600 INDEX 100 110.50 105.23 136.75 165.91 208.36
PEER GROUP 100 117.89 133.84 163.67 132.90 119.93
Data Source: S&P Compustat Services
11
<PAGE>
CERTAIN TRANSACTIONS
During 1997 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 1995, the Company loaned John Tittle, Jr., a nominee for service on
the Company's Board of Directors, the sum of $40,000. The loan bore interest at
the rate of six percent (6%) per annum. This loan, which was made while Mr.
Tittle served as the Company's Chief Financial Officer and Treasurer, was to
mature on December 31, 1996. The maturity date of this loan was extended to
December 31, 1997. At December 31, 1997, this loan and Mr. Tittle's Stock Loan
(as noted below) was placed on a three (3) year payment schedule, including
interest at six percent (6%) per year, with a all remaining principal and
interest due December 31, 2000.
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
(hereinafter collectively referred to as "Stock Loans"). The notes were
scheduled to mature December 31, 1997. At the December 31, 1997 maturity date,
the Stock Loans were placed on a three (3) year payment schedule, including
interest at six percent (6%) per annum, with all remaining principal and
interest due December 31, 2000. The following table sets forth the balances of
the Stock Loans as of December 31, 1997:
Name and Relationship Amount of
with the Company Stock Loan
Mark Angus (Executive Officer) $61,703
David L. Ferrill (Executive Officer) $7,507
Anthony C. Morton (Executive Officer) $10,263
Gregory J. Sartor (Executive Officer) $51,475
John Tittle, Jr. (Director) $61,834
At December 31, 1997, the aggregate amount of all of the Stock Loans,
including individuals that are not officers of the Company, totaled
approximately $257,617.
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
(10%) 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 (10%) of the Company's outstanding stock were complied with during the
fiscal year ended December 31, 1997.
12
<PAGE>
AUDITORS
Representatives of the Company's auditors for the fiscal year ended December
31, 1997, 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 1999 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, 1998.
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,
1997, 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.
13
<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 1997 ANNUAL REPORT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON FORM 10-K (WHICH IS INCLUDED IN THE COMPANY'S ANNUAL
REPORT) ARE AVAILABLE TO STOCKHOLDERS UPON RECEIPT OF A WRITTEN REQUEST OF SUCH
PERSON ADDRESSED TO ANTHONY C. MORTON, 3847 EAST LOOP 820 SOUTH, FORT WORTH,
TEXAS, 76119, 817/496-4414. THE COMPANY WILL ALSO FURNISH AN ANNUAL REPORT TO
ANY "BENEFICIAL OWNER" OF SUCH SECURITIES AT NO CHARGE UPON RECEIPT AT THIS
ADDRESS OF A WRITTEN REQUEST, 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 21, 1998.
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,
/s/ William M. Warren
William M. Warren
General Counsel and Secretary
Fort Worth, Texas
April 21, 1998
14
<PAGE>
REVOCABLE PROXY
THE LEATHER FACTORY, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Anthony C. Morton and William M.
Warren, or either of them, with full power of substitution, proxies of the
undersigned, with all the powers that the undersigned would possess if
personally present to cast all votes that the undersigned would be entitled to
vote at the Annual Meeting of Stockholders of The Leather Factory, Inc. (the
"Company") to be held on Thursday, May 21, 1998, in the El Dorado Room,
Arlington Hilton Hotel, Arlington, Texas at 10:00 a.m., Central Daylight Time,
and any and all adjournments or postponements thereof (the "Annual Meeting"),
including (without limiting the generality of the foregoing) to vote and act as
follows:
<TABLE>
<S> <C> <C>
1. Election of eight directors.
[] FOR the nominees listed below [] WITHHOLD AUTHORITY
(except as indicated to the contrary below). to vote for the nominees listed below.
Wray Thompson William M. Warren Joseph R. Mannes
Ronald C. Morgan Anthony C. Morton John Tittle, Jr.
Robin L. Morgan H. W. "Hub" Markwardt
Instructions: To withhold authority to vote for any individual nominee or nominees, write their name(s) here.
- ------------------------------------------------------------------------------------------------------------------------
Your Board of Directors unanimously recommends a vote FOR the directors set forth above
(Continued and to be signed on the reverse side)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued from other side)
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting. This Proxy will be
voted at the Annual Meeting or any adjournment or postponement thereof as
specified. If no specifications are made, this Proxy will be voted FOR the
election of directors. This Proxy hereby revokes all prior proxies given with
request to the shares of the undersigned.
Please complete, date, sign and mail this Proxy promptly in the enclosed
envelope. No postage is required for mailing in the United States.
Dated: , 1998
----------------------------
------------------------------------------
Signature(s)
------------------------------------------
Signature(s)
IMPORTANT: Please date this Proxy and sign
exactly as your name appears to the left.
If shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give title as such. If a
corporation, please sign in full corporate
name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
