SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 2000
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ______________ to ________________
Commission File Number 1-7258
TANDYCRAFTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1475224
(State of incorporation) (I.R.S. Employer Identification Number)
1400 Everman Parkway, Fort Worth, Texas 76140
(Address of principal executive offices) (Zip Code)
(817) 551-9600
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares outstanding as of April 30, 2000
Common Stock, $1.00 par value 12,138,835
TANDYCRAFTS, INC.
Form 10-Q
Quarter Ended March 31, 2000
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
Item Page No.
1. Condensed Consolidated Financial Statements 3-10
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-18
PART II - OTHER INFORMATION
6. Exhibits and Reports on Form 8-K 19
Signatures 20
PART I
Item 1. Financial Statements
TANDYCRAFTS, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<S><C>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net Sales $ 34,457 $ 45,868 $119,115 $140,006
-------- -------- -------- --------
Operating costs and expenses:
Cost of products sold 24,350 33,117 81,713 101,008
Selling, general and
administrative 10,715 13,457 32,743 43,588
Restructuring charges - - - 8,145
Depreciation and amortization 1,087 997 3,362 2,918
-------- -------- -------- --------
Total operating costs and
expenses 36,152 47,571 117,818 155,659
-------- -------- -------- --------
Operating income (loss) (1,695) (1,703) 1,297 (15,653)
Interest expense, net 1,152 517 2,701 1,600
-------- -------- -------- --------
Loss before provision for
income taxes (2,847) (2,220) (1,404) (17,253)
Benefit for income taxes (934) (559) (463) (4,471)
-------- -------- ------- --------
Net loss from continuing
operations (1,913) (1,661) (941) (12,782)
-------- -------- ------- --------
Discontinued operations
Net loss from discontinued
operations net of
income taxes (585) (212) (1,625) (306)
Net loss on disposal of
discontinued operations,
net of income taxes (4,142) - (4,142) -
-------- -------- ------- --------
Net loss on discontinued
operations (4,727) (212) (5,767) (306)
-------- -------- ------- --------
Net loss $ (6,640) $ (1,873) $(6,708) $(13,088)
======== ======== ======= ========
Basic and diluted net loss per share
Continuing operations $ (0.16) $ (0.14) $ (0.08) $ (1.04)
Discontinued operations (0.39) (0.02) (0.48) (0.03)
-------- -------- ------- --------
Net loss per share (0.55) (0.16) (0.56) (1.07)
======== ======== ======= ========
Weighted average common shares
outstanding 12,093 12,052 12,049 12,236
</TABLE>
TANDYCRAFTS, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
March 31, June 30,
2000 1999
----------- ----------
ASSETS
Current assets:
Cash, including short-term investments $ 913 $ 744
Trade accounts receivable, net of allowance for
doubtful accounts of $1,226 and $2,460,
respectively 21,668 20,783
Inventories 36,349 35,026
Other current assets 5,346 6,988
----------- ----------
Total current assets 64,276 63,541
----------- ----------
Property and equipment, at cost 55,200 56,250
Less-accumulated depreciation (26,006) (26,690)
----------- ----------
Property and equipment, net 29,194 29,560
----------- ----------
Other assets 586 924
Deferred tax assets 7,634 4,332
Investment in discontinued operations 5,371 -
Goodwill, net 20,145 24,694
----------- ----------
$ 127,206 $ 123,051
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,369 $ 11,988
Accrued liabilities and other 15,182 16,467
Current portion of long-term debt 1,800 -
----------- ----------
Total current liabilities 29,351 28,455
----------- ----------
Long-term debt, net of current maturities 40,000 30,000
Long-term capital lease obligation 1,292 1,671
----------- ----------
Total liabilities 70,643 60,126
----------- ----------
Stockholders' equity:
Common stock, $1 par value, 50,000,000 shares
authorized, 18,527,988 shares issued 18,528 18,528
Additional paid-in capital 20,493 20,559
Retained earnings 41,533 48,241
Cost of stock in treasury, 6,407,319 shares
and 6,517,015 shares, respectively (23,991) (24,403)
----------- ----------
Total stockholders' equity 56,563 62,925
----------- ----------
$ 127,206 $ 123,051
=========== ==========
TANDYCRAFTS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
March 31, March 31,
2000 1999
---------- ---------
Net cash flows from operating activities $ (7,123) $ 7,162
---------- ---------
Cash flows from investing activities:
Additions to property and equipment, net (4,475) (6,478)
Collection of note receivable - 8,312
---------- ---------
Net cash provided (used) for
investing activities (4,475) 1,834
---------- ---------
Cash flows from financing activities:
Treasury stock transactions, net 344 (2,117)
Borrowings (payments) under bank
credit facilities 11,423 (6,730)
----------- ---------
Net cash provided (used) for
financing activities 11,767 (8,847)
----------- ---------
Increase in cash, including short-term investment 169 149
Balance, beginning of period 744 1,216
----------- ---------
Balance, end of period $ 913 $ 1,365
=========== =========
Supplemental data:
Acquisition of business
Fair value of assets acquired $ - $ 3,856
Liabilities assumed $ - $ 3,856
TANDYCRAFTS, INC.
Condensed Consolidated Statement of Stockholders' Equity
(Dollars in thousands)
(Unaudited)
<TABLE>
<S><C>
Additional
Common paid-in Retained Treasury
Stock Capital earnings Stock Total
-------- -------- -------- -------- --------
Balance, June 30, 1999 $ 18,528 $ 20,559 $ 48,241 $(24,403) $ 62,925
Sale of 109,698 shares of
treasury stock - (66) - 412 346
Net loss for nine months
ended March 31, 2000 - - (6,708) - (6,708)
-------- -------- -------- -------- --------
Balance, March 31, 2000 $ 18,528 $ 20,493 $ 41,533 $(23,991) $ 56,563
======== ======== ======== ======== ========
</TABLE>
TANDYCRAFTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
accompanying condensed consolidated financial statements contain all adjustments
(consisting of normal recurring accruals) necessary for a fair statement of the
Company's financial position as of March 31, 2000 and June 30, 1999, and the
results of operations and cash flows for the nine-month periods ended March 31,
2000 and March 31, 1999. The results of operations for the three and nine-month
periods ended March 31, 2000 and 1999 are not necessarily indicative of the
results to be expected for the full fiscal year. The condensed consolidated
financial statements should be read in conjunction with the financial statement
disclosures contained in the Company's 1999 Annual Report to Stockholders.
NOTE 2 - INVENTORIES
The components of inventories consisted of the following (in thousands):
March 31, June 30,
2000 1999
--------- ---------
Merchandise held for sale $ 26,607 $ 24,282
Raw materials and work-in-process 9,742 10,744
--------- ---------
$ 36,349 $ 35,026
========= =========
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing income (loss) available to
common shareholders by the weighted-average common shares outstanding. Diluted
earnings per share is computed by dividing the income (loss) available to
shareholders by the weighted-average common shares and potential common shares
outstanding during the period. Potential common shares primarily consist of
employee and director stock options. However, the Company's 1,265,700 stock
options outstanding as of March 31, 2000 were anti-dilutive or neutral and were
excluded from the diluted earnings (loss) per share calculation.
NOTE 4 - DISCONTINUED OPERATIONS
On April 27, 2000, the Board of Directors approved management's plans to dispose
of, by way of sale, its Gift Division, consisting of: Tag Express, which sells
and distributes licensed sports products; J-Mar, which creates and sells
inspirational Christian paper gifts and related products; and Rivertown Button,
which manufactures campaign style buttons and other promotional products on a
contract basis. The Company has reported the results of operations of the Gifts
division and the estimated loss on its disposal as discontinued operations.
The Company has agreed to basic terms with potential buyers and has executed
letters of intent on each of the units. The pending transactions are all
tentatively scheduled to close by the end of the fourth quarter of fiscal year
2000. Based on current agreements, which are subject to due diligence, expected
net proceeds range from $5-6 million. Such proceeds will be used to reduce the
Company's outstanding debt balance. The following is summary financial
information for the Company's discontinued operations (in thousands):
Three Months Ended Nine Months Ended
March 31 March 31
2000 1999 2000 1999
------- ------- ------- -------
Net Sales $ 3,325 $ 4,385 $11,067 $14,165
======= ======= ======= =======
Loss from discontinued operations:
Operating loss before
income taxes (872) (316) (2,424) (459)
Income tax benefit (287) (104) (799) (153)
------- ------- ------- -------
Net loss from discontinued
operations (585) (212) (1,625) (306)
------- ------- ------- -------
Loss on disposal of discontinued operations:
Estimated operating
losses until time of sale (822) - (822) -
Estimated loss on sale (5,360) - (5,360) -
Income tax benefit (2,040) - (2,040) -
------- ------- ------- -------
Net loss on disposal (4,142) - (4,142) -
------- ------- ------- -------
Net loss on discontinued
operations $(4,727) $ (212) $(5,767) $ (306)
======= ======= ======= =======
The net assets of these discontinued operations primarily include accounts
receivable, inventory, equipment, and related liabilities. Such amounts have
been reclassified and recorded in the accompanying consolidated balance sheet as
of March 31, 2000 as "Investment in discontinued operations".
The estimated proceeds and loss on discontinued operations are based on
management's judgements on information currently available. Adjustments to
these amounts may be necessary in the future.
NOTE 5 - DIVESTITURE
In the quarter ended December 31, 1998, the Board of Directors of the Company
approved a plan to close the Company's 121 leather and crafts retail stores and
related manufacturing operations to allow the Company to continue to narrow its
focus to its more profitable business segments. The divestiture plan was
substantially complete and all retail stores were closed as of June 30, 1999.
The Company has retained a portion of this business through Tandy Leather Direct
that sells products through the Internet and traditional catalogue processes.
As a result of this plan, the Company recorded charges totaling $11,106,000 in
the second quarter of fiscal year 1999. Approximately $2,961,000 of these
charges related to the write-down of inventory to its estimated liquidation
value and is included in cost of goods sold in the accompanying condensed
consolidated statement of operations. In the fourth quarter of fiscal 1999, as
a result of better than expected inventory liquidations sales, $503,000 of the
inventory write-down was reversed and credited to cost of goods sold.
Approximately $8,145,000 related to the write-down of non-inventory assets and
anticipated future cash outlays.
Included in the $8,145,000 restructuring charge is approximately $5,441,000
related to non-cash write-downs of non-inventory assets to their estimated net
realizable value, including $3,923,000 related to the write-off of goodwill,
$1,313,000 related to the write-down of fixed assets (primarily comprised of
store fixtures and leasehold improvements and manufacturing equipment
substantially all of which have been abandoned), and $205,000 related to the
write-down of various other assets. The remaining restructuring charge of
$2,704,000 represented an accrual for anticipated future cash outlays for lease
obligations and other related exit costs. As of March 31, 2000, the lease
agreements for 116 stores had been terminated through settlement, sub-let or
assignment.
The following table sets forth the activity in the restructuring reserve, which
is included in accrued liabilities in the March 31, 2000 balance sheet (in
thousands):
June 30, Cash March 31,
1999 Payments 2000
---------- ---------- ----------
Lease obligations $ 465 $ 290 $ 175
Other 131 14 117
---------- ---------- ----------
$ 596 $ 304 $ 292
========== ========== ==========
The above provisions and related restructuring reserves are estimates based on
the Company's judgment at this time. Adjustments to the restructuring pro-
visions may be necessary in the future based on further development of
restructuring related costs.
Net sales and operating losses (before restructuring charges of $8,145,000) from
the Tandy Leather retail and manufacturing operations for the three and nine-
month periods ended March 31, 1999 were as follows (in thousands):
Three months ended Nine months ended
March 31, 1999 March 31, 1999
------------------ -----------------
Sales $ 10,788 $ 30,971
Operating income (loss) (3,095) (8,570)
NOTE 6 - ACCOUNTS RECEIVABLE SECURITIZATION
The Company utilizes a revolving trade accounts receivable securitization
program to sell without recourse, through a wholly-owned subsidiary, certain
trade accounts receivable. Under the program, the amount of outstanding
receivables allowed to be sold is seasonally adjusted, but is limited to a
maximum of $12,000,000 at any given time. At March 31, 2000, the amount of trade
accounts receivable outstanding which had been sold approximated $3,000,000.
The proceeds from the sales were used to reduce borrowings under the Company's
revolving credit facility. Costs of the program, which primarily consist of the
purchaser's financing cost of issuing commercial paper backed by the
receivables, totaled $71,000 and $262,000 for the three and nine-month periods
ended March 31, 2000, respectively, and $86,000 and $270,000 for the three and
nine-month periods ending March 31, 1999, respectively. The Company, as agent
for the purchaser of the receivables, retains collection and administrative
responsibilities for the purchased receivables.
NOTE 7 - DEBT
Effective March 31, 1999, the Company entered into a revolving credit facility
with a group of banks. The facility, as amended, is a $45,000,000 revolving
line of credit with a maturity date of June 30, 2001 and is renewable annually.
The amount of credit available under the facility declines to $40 million on
September 30, 2000. The agreement was amended in October 1999 to change certain
covenant requirements and to grant the Banks a security interest in the
Company's assets.
At March 31, 2000, the Company was not in compliance with certain covenants of
the credit facility; however, the agreement has been amended to reset such
covenants to levels with which the Company complies and expects to comply in the
future.
NOTE 8 - CONTINGENCIES
A former subsidiary of the Company, which was spun-off in 1978, filed for
Chapter 11 protection under the federal bankruptcy code in January 1996. As
part of the bankruptcy proceedings, the former subsidiary has rejected certain
store leases which were originated prior to the spin-off and for which the
Company was allegedly a guarantor. The Company has previously recognized an
accrual for claims associated with the alleged guarantees on leases. Based on
the information presently available, management believes the amount of the
accrual at March 31, 2000 is adequate to cover the liability the Company may
incur under the alleged guarantees.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
Tandycrafts, Inc. ("Tandycrafts" or the "Company") is a leading maker and
marketer of consumer products, including frames and wall decor, office supplies,
home furnishings and leather crafts. The Company's products are sold nationwide
through wholesale distribution channels, including mass merchandisers and
specialty retailers, and direct-to-consumer channels through the Company's
retail stores, mail order and the Internet.
The Company is organized into four product related operating divisions: Frames
and Wall Decor, Office Supplies, Leather Crafts, and Home Furnishings. On April
27, 2000, the Company's Board of Directors approved management's plans to sell
the Company's Gift division, consisting of Tag Express, J-Mar, and Rivertown
Button. See discontinued operations below. The Company also announced that it
is seeking potential buyers for its Office Supply division; however, no
definitive decisions have been reached as of the date of this report on Form 10-
Q. The Tandy Leather retail stores and manufacturing operations were closed
during fiscal year 1999.
Certain statements in this discussion, other filings with the Securities and
Exchange Commission and other Company statements are not historical facts but
are forward looking statements. The words "believes," "expects," "estimates,"
"projects," "plans," "could," "may," "anticipates," or the negative thereof or
other variations or similar terminology, or discussions of strategies or plans
identify forward-looking statements. These forward-looking statements reflect
the Company's reasonable judgments with respect to future events and are subject
to risks and uncertainties that could cause actual results to differ materially
from such forward-looking statements. These risks and uncertainties include,
but are not limited to, the Company's ability to reduce costs through the
consolidation of certain operations, customers' willingness, need, demand and
financial ability to purchase the Company's products, new business
opportunities, the successful development and introduction of new products, the
successful transition of the Company's framed art manufacturing from Van Nuys,
California to Durango, Mexico, the successful transition of framed art
distribution and administration from Van Nuys, California to Fort Worth, Texas,
the successful implementation of new information systems, the continued
development of direct import programs, the successful conversion of the Cargo
Furniture mall stores to the Collection store format, relationships with key
customers, relationships with professional sports leagues and other licensors,
the possibilities of work stoppages in professional sports leagues, the timing
and ultimate proceeds from the sale of the Company's Gift division, price
fluctuations of lumber, paper and other raw materials, seasonality of the
Company's operations, effectiveness of promotional activities, changing business
strategies and intense competition in retail operations. Additional factors
include economic conditions such as interest rate fluctuations, consumer debt
levels, inflation levels, changing consumer demand and tastes, competitive
products and pricing, availability of products, inventory risks due to shifts in
market demand, and regulatory and trade environmental conditions.
The following table presents selected financial data for each of the Company's
continuing operations for the three and nine-month periods ended March 31, 2000
and 1999 (in thousands):
Three Months Ended March 31,
---------------------------------------------
2000 1999
-------------------- --------------------
Operating Operating
Income Income
Sales (loss) Sales (loss)
------- --------- ------- ---------
Frames and Wall Decor $19,414 $ (308) $22,172 $ 2,645
Office Supplies 10,005 439 10,388 618
Leather Crafts 1,793 144 a a
Home Furnishings 3,245 (976) 2,520 (101)
Divested operations - - 10,788 (3,173)
------- --------- ------- ---------
Total continuing operations,
excluding corporate $34,457 (701) $45,868 (11)
======= --------- ======= ---------
Corporate cost, including
Amortization and interest (2,146) (2,209)
Benefit for income taxes (934) (559)
--------- --------
Loss from continuing
operations $ (1,913) $ (1,661)
========= ========
Nine Months Ended March 31,
---------------------------------------------
2000 1999
-------------------- --------------------
Operating Operating
Income Income
Sales (loss) Sales (loss)
-------- --------- -------- ---------
Frames and Wall Decor $ 73,224 $ 4,909 $ 75,283 $ 9,912
Office Supplies 29,931 1,245 31,232 1,548
Leather Crafts 5,198 277 a a
Home Furnishings 10,762 (1,492) 2,520 (102)
Divested operations - - 30,971 (8,777)
Restructuring charge - - - (8,145)
-------- --------- -------- ---------
Total continuing operations,
excluding corporate $119,115 4,939 $140,006 (5,564)
======== ========
Corporate cost, including
amortization and interest (6,343) (11,689)
Benefit for income taxes (463) (4,471)
--------- ---------
Loss from continuing
operations $ (941) $ (12,782)
========= =========
a - In fiscal year 1999, Leather Crafts products were sold through a chain of
retail stores, which were closed as of June 30, 1999 and included in
"divested operations".
RESULTS OF OPERATIONS
Consolidated net sales from continuing operations (referred to as consolidated
net sales) for the three and nine months ended decreased by 24.9% and 14.9%,
respectively, primarily due to the closure of the leather and craft retail
stores during fiscal year 1999 and to a lesser extent, a reduction in sales at
the company's Frames and Wall Decor Division. These factors were offset by the
addition of the Home Furnishings division in the second half of fiscal year 1999
and the direct to consumer Leather Craft division.
Operating income improved for the nine-month period ending March 31, 2000 as
compared to the corresponding prior year periods primarily due to losses
incurred by the divested operations and the restructuring charge incurred in the
prior year. Discussions relative to each of the Company's four product divisions
are set forth below.
Frames and Wall Decor
Net sales for the Frames and Wall Decor division decreased $2,758,000 or 12.4%
for the three months ending March 31, 2000. The Company believes that a portion
of this change is a matter of timing in ordering from a significant customer.
For the nine-month period ended March 31, 2000, net sales of the Frames and Wall
Decor division decreased $2,059,000 or 2.7%.
Operating income for the Frames and Wall Decor division decreased $2,953,000,
and $5,003,000 for the three and nine-month periods ended March 31, 2000. For
the nine-month period ended March 31, 2000, gross margin as a percent of sales
declined to 24.8% from 26.4% in the prior year primarily as a result of costs
incurred due to a delay in transition of manufacturing from California to
Mexico. Selling, General and Administrative ("SG&A") expenses for the nine-
month period ended March 31, 2000 increased $2,660,000 and increased as a
percent of sales from 12.0% to 16.0%, reflecting start-up costs associated with
the Mexico facility, increased information systems costs and increased
investment in marketing and product development.
The Company expects to continue to incur certain duplicative expenses due to the
operation of both the Van Nuys, California and Durango, Mexico facilities.
These duplicative expenses will impact results until the Van Nuys facility is
closed, which is currently expected to occur at the end of the fourth quarter
of fiscal 2000. The Company will also incur certain expenses in completing the
transition to Mexico, including but not limited to the transfer of inventory and
equipment from Van Nuys to Durango.
Office Supplies
Sales at Sav-On Office Supplies decreased $383,000, or 3.7%, and $1,301,000, or
4.2%, for the three and nine-month periods ending March 31, 2000 compared with
the same periods last year. Same-store sales declined 4.1% and 4.9% for the
three and nine-month periods ended March 31, 2000, respectively. Sav-On's sales
performance continues to reflect the effect of large competitors opening stores
in its markets, with only four stores without large competitors this year as
opposed to ten last year. However, as stated in previous filings, historically
Sav-On stores are significantly impacted the first twelve to fifteen months
after a large competitor enters a market but, after the second year, store sales
typically began producing modest sale gains. However, actual results may differ
from this historical trend. Please see risk factor discussions contained herein
and in other filings with the SEC.
Sav-On's operating income decreased by $179,000 and $303,000 for the three and
nine-month periods ended March 31, 2000, respectively, compared to the same
periods last year. The decline is due to the decrease in sales. Gross profit
as a percent of sales remained relatively constant. As a percent of sales SG&A
expenses increased to 30.4% from 29.3% as a result of the lower sales volume.
During the three months ended March 31, 2000, Sav-On Office Supplies introduced
a commercial contract sales program focusing on larger commercial customers.
The contract program is expected to generate incremental sales at lower than
average gross margins but also at lower selling and administrative support cost
than its core retail business. The company is testing the program in the Fort
Worth market and, if successful, will consider rolling out the program in other
areas.
Home Furnishings
Net sales and operating losses for the Home Furnishings division, comprised of
Cargo Furniture, were $10,762,000 and $1,492,000, respectively, for the nine-
month period ended March 31, 2000. Because the Company started consolidating
the results of Cargo Furniture on February 1, 1999, there were only two months
of the operating results reported for the nine-month period ended March 31,
1999. Cargo Furniture has converted all but 7 stores from its mall-based format
to the Cargo Collection format, a larger and more customer friendly setting.
Cargo is also in the process of broadening its supplier base, including sourcing
products from more competitive manufacturers. Management expects to see
improvement in operating results of this division by the end of fiscal 2000 as
the Company continues to execute its plans to reduce operating expenses, improve
gross margins, complete the conversion of stores to the Cargo Collection store
format and build the Cargo brand and dealer channels. However, actual results
may differ from management's expectations. Please see risk factor discussions
contained herein and in other filings with the SEC.
Leather Crafts
While the Company closed its Tandy Leather retail operations during fiscal year
1999, it has retained a portion of the overall customer base by selling its
leather craft products through the Internet and traditional catalogue processes.
For the nine months ended March 31, 2000, net sales and operating income from
its Leather Craft division, comprised of Tandy Leather Direct, were $5,198,000
and $277,000, respectively. There are no comparable amounts for the prior year
as leather craft products were previously sold through a chain of retail stores.
During the three months ended March 31, 2000, Tandy Leather Direct launched its
fully e-commerce capable Internet site, www.tandyleather.com. The site has been
well received by the unit's customers based on the spike in activity on the
Company's web site.
Discontinued operations
On April 27, 2000, the Board of Directors approved management's plans to dispose
of, by way of sale, its Gift Division, consisting of: Tag Express, which sells
and distributes licensed sports products; J-Mar, which creates and sells
inspirational Christian paper gifts and related products; and Rivertown Button,
which manufactures campaign style buttons and other promotional products on a
contract basis. The Company has reported the results of operations of the Gifts
division and the estimated loss on its disposal as discontinued operations.
The Company has agreed to basic terms with potential buyers and has executed
letters of intent on each of the units. The pending transactions are all
tentatively scheduled to close by the end of the fourth quarter of fiscal year
2000. Based on current agreements, which are subject to due diligence, expected
net proceeds range from $5-6 million. Such proceeds will be used to reduce the
Company's outstanding debt balance. The following is summary financial
information for the Company's discontinued operations (in thousands):
Three Months Ended Nine Months Ended
March 31 March 31
------------------ -----------------
2000 1999 2000 1999
------- ------- ------- -------
Net Sales $ 3,325 $ 4,385 $11,067 $14,165
======= ======= ======= =======
Loss from discontinued
operations:
Operating loss before
income taxes (872) (316) (2,424) (459)
Income tax benefit (287) (104) (799) (153)
------- ------- ------ -------
Net loss from discontinued
operations (585) (212) (1,625) (306)
------- ------- ------ -------
Loss on disposal of
discontinued operations:
Estimated operating
losses until time of sale (822) - (822) -
Estimated loss on sale (5,360) - (5,360) -
Income tax benefit (2,040) - (2,040) -
------- ------- ------ -------
Net loss on disposal (4,142) - (4,142) -
------- ------- ------ -------
Net loss on discontinued
operations $(4,727) $ (212) $(5,767) $ (306)
======= ======= ====== =======
The net assets of these discontinued operations primarily include accounts
receivable, inventory, equipment, and related liabilities. Such amounts have
been reclassified and recorded on the accompanying consolidated balance sheet as
of March 31, 2000 as "Investment in discontinued operations".
The estimated proceeds and loss on discontinued operations are based on
management's judgements on information currently available. Adjustments to
these amounts may be necessary in the future.
During the third quarter of fiscal year 2000, the Company announced its plans to
seek buyers for the Company's Office Supplies division consisting of Sav-On
Office Supplies. While the Company continues to investigate its options with
respect to Sav-On, no definitive decisions have been reached regarding the
disposal of this division.
Restructuring Charges
In the quarter ended December 31, 1998, the Board of Directors of the Company
approved a plan to close the Company's 121 leather and crafts retail stores and
related manufacturing operations to allow the Company to continue to narrow its
focus to its more profitable business segments. The divestiture plan was
substantially complete and all retail stores were closed as of June 30, 1999.
The Company has retained a portion of this business through Tandy Leather Direct
that sells products through the Internet and traditional catalogue processes.
As a result of this plan, the Company recorded charges totaling $11,106,000 in
the second quarter of fiscal year 1999. Approximately $2,961,000 of these
charges related to the write-down of inventory to its estimated liquidation
value and is included in cost of goods sold in the accompanying condensed
consolidated statement of operations. In the fourth quarter of fiscal 1999, as
a result of better than expected inventory liquidations sales, $503,000 of the
inventory write-down was reversed and credited to cost of goods sold.
Approximately $8,145,000 related to the write-down of non-inventory assets and
anticipated future cash outlays.
Included in the $8,145,000 restructuring charge is approximately $5,441,000
related to non-cash write-downs of non-inventory assets to their estimated net
realizable value, including $3,923,000 related to the write-off of goodwill,
$1,313,000 related to the write-down of fixed assets (primarily comprised of
store fixtures and leasehold improvements and manufacturing equipment
substantially all of which have been abandoned), and $205,000 related to the
write-down of various other assets. The remaining restructuring charge of
$2,704,000 represented an accrual for anticipated future cash outlays for lease
obligations and other related exit costs. As of March 31, 2000, the lease
agreements for 116 stores had been terminated through settlement, sub-let or
assignment.
The following table sets forth the activity in the restructuring reserve, which
is included in current accrued liabilities in the March 31, 2000 balance sheet
(in thousands):
June 30, Cash March 31,
1999 Payments 2000
---------- --------- ----------
Lease obligations $ 465 $ 290 $ 175
Other 131 14 117
---------- --------- ----------
$ 596 $ 304 $ 292
========== ========= ==========
The above provisions and related restructuring reserves are estimates based
on the Company's judgment at this time. Adjustments to the restructuring
provisions may be necessary in the future based on further development of
restructuring related costs.
Net sales and operating losses (before restructuring charges of $8,145,000) from
the Tandy Leather retail and manufacturing operations for the three and nine-
month periods ended March 31, 1999 were as follows (in thousands):
Three months ended Nine months ended
March 31, 1999 March 31, 1999
------------------ -----------------
Sales $ 10,788 $ 30,971
Operating income (loss) (3,095) (8,570)
Selling, general and administrative expenses
Consolidated selling, general and administrative expenses were 31.1% and 27.5%
as a percent of sales for the three and nine-month periods ended March 31, 2000,
respectively, compared to 29.3% and 31.1% for the same periods last year. SG&A
for the nine-month periods ended March 31, 2000 decreased $10,845,000, or 24.9%,
compared to the same period last year. The decrease primarily relates to the
closure of the Tandy Leather retail and manufacturing operations in fiscal year
1999 and to certain unusual Corporate charges incurred in fiscal 1999 primarily
consisting of the loss of $3,465,000 recognized in connection with the Company's
performance under the Cargo loan guarantee. These decreases were partially
offset by the addition of the Cargo Furniture and Tandy Leather Direct
divisions, and the factors affecting the Frames and Wall Decor division as
previously discussed.
Depreciation and amortization
The increase in depreciation and amortization is primarily due to the addition
of the Company's new manufacturing facility in Durango, Mexico, and new
information systems that have been brought on line since June 30, 1999.
Interest expense, net
Net interest expense increased $635,000, or 123%, and $1,101,000, or 69%, for
the three and nine-month periods ended March 31, 2000 compared to the same
periods last year. The increase in net interest expense is largely due to
$70,000 and $410,000 of interest income recognized during the three and nine
month periods ended March 31, 1999, respectively, related to a note received in
the sale of Joshua's Christian Book Stores. This note was paid in full during
fiscal 1999. The remainder of the increase in interest expense is due to higher
average borrowings and higher interest rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have come from borrowings under the
Company's revolving credit facility. These funds have been used primarily for
funding operations and capital expenditures.
During the nine-months ended March 31, 2000, cash increased $169,000. Cash of
$7,123,000 was used by operating activities during the nine months primarily due
to increases in inventory and accounts receivable levels as compared to June 30,
1999. Cash used for investing activities of $4,475,000 resulted from capital
expenditures for property and equipment at the Company's manufacturing facility
in Durango, Mexico and other routine equipment and facility replacements and
upgrades. Cash of approximately $11,767,000 was provided primarily by increased
borrowings under the Company's revolving credit facility and was used to finance
the Company's working capital needs and capital expenditures discussed above.
Effective March 31, 1999, the Company entered into a revolving credit facility
with a group of banks. The facility, as amended, is a $45,000,000 revolving
line of credit with a maturity date of June 30, 2001, and is renewable annually.
The amount of credit available under the facility declines to $40 million on
September 30, 2000. The agreement was amended in October 1999 to change certain
covenant requirements and to grant the Banks a security interest in the
Company's assets. Proceeds from the sale of discontinued operations will be
used to reduce outstanding debt balances.
At March 31, 2000, the Company was not in compliance with certain covenants of
the credit facility; however, the agreement has been amended to reset such
covenants to levels with which the Company complies and expects to comply in the
future.
Effective November 3, 1997, the Company entered into an Interest Rate Swap
Agreement with its primary bank in which a $20,000,000 notional amount of
floating rate debt at LIBOR was swapped for a fixed rate of 6.01%. The Swap
Agreement has a three-year term expiring in November of 2000 and is being
accounted for as a hedge. The transaction was executed to hedge a portion of
the Company's interest rate risk by changing the nature of the interest
obligation on its credit facility from a floating LIBOR rate to a fixed interest
rate. At March 31, 2000, the Company would have received approximately $67,487
to terminate the interest rate swap. This amount was obtained from the
counterparties and represents the fair market value of the Swap Agreement.
The Company utilizes a revolving trade accounts receivable securitization
program to sell without recourse, through a wholly owned subsidiary, certain
trade accounts receivable. Under the program, the amount of outstanding
receivables allowed to be sold is seasonally adjusted, but is limited to a
maximum of $12,000,000 at any given time. At March 31, 2000, the amount of trade
accounts receivable outstanding which had been sold approximated $3,000,000.
The proceeds from the sales were used to reduce borrowings under the Company's
revolving credit facility. Costs of the program, which primarily consist of the
purchaser's financing cost of issuing commercial paper backed by the
receivables, totaled $71,000 and $262,000 for the three and nine-month periods
ended March 31, 2000, respectively, and $86,000 and $270,000 for the three and
nine-month periods ending March 31, 1999, respectively. The Company, as agent
for the purchaser of the receivables, retains collection and administrative
responsibilities for the purchased receivables.
Planned capital expenditures for the remainder of fiscal 2000 are not expected
to exceed $ 600,000 and are primarily targeted for investments in the Frames and
Wall Decor division, in information systems, and to a lesser extent store
conversions and upgrades in Home Furnishing divisions. Management believes that
the Company's current cash position, its cash flows from operations and
available borrowing capacity will be sufficient to fund its current operations,
interest obligations, and planned capital expenditures. Actual results may
differ from this forward-looking projection; see risk factors discussed herein.
CONTINGENCIES
A former subsidiary of the Company, which was spun-off in 1978, filed for
Chapter 11 protection under the federal bankruptcy code in January 1996. As
part of the bankruptcy proceedings, the former subsidiary has rejected certain
store leases which were originated prior to the spin-off and for which the
Company was allegedly a guarantor. The Company has previously recognized an
accrual for claims associated with the alleged guarantees on leases. Based on
the information presently available, management believes the amount of the
accrual at March 31, 2000 is adequate to cover the liability the Company may
incur under the alleged guarantees.
TANDYCRAFTS, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits:
Exhibit 10.26 Amendment to Rights Agreement dated Feb 29, 2000
Exhibit 10.27 Indemnification Agreement dated March 7, 2000
Exhibit 10.28 Second Amendment to Amended and Restated
Revolving Credit Agreement dated March 30, 2000
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K, dated February 22,
2000, which included the contents of a press release announcing a
strategic plan aimed at focusing the Company on its frames and wall
decor, home furnishings and consumer direct operations. The plan
involves selling Tandycrafts' non-core Gifts and Office Supply
divisions and completing certain significant operating improvements
in the Company's core businesses in 2000.
The Company filed a Current Report on Form 8-K, dated May 1, 2000,
which included the contents of a press release announcing the
unaudited results of operations for the three and nine-month periods
ended March 31, 20008.
TANDYCRAFTS, INC.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TANDYCRAFTS, INC.
(Registrant)
Date: May 15, 2000 By: /s/Michael J. Walsh
------------------------------
Michael J. Walsh
Chairman, Chief Executive
Officer and Director
Date: May 15, 2000 By: /s/Leo Taylor
------------------------------
Leo Taylor
Senior Vice President of
Finance
(Principal Financial Officer)
Date: May 15, 2000 By: /s/Nathan New
------------------------------
Nathan New
Corporate Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Tandycrafts,
Inc.'s form 10-Q for the quarter ended March 31, 2000 and is qualified in its
entirety by reference to such 10-Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 913
<SECURITIES> 0
<RECEIVABLES> 22,894
<ALLOWANCES> 1,226
<INVENTORY> 36,349
<CURRENT-ASSETS> 5,346
<PP&E> 55,200
<DEPRECIATION> 26,006
<TOTAL-ASSETS> 127,206
<CURRENT-LIABILITIES> 29,351
<BONDS> 0
0
0
<COMMON> 18,528
<OTHER-SE> 38,035
<TOTAL-LIABILITY-AND-EQUITY> 127,206
<SALES> 119,115
<TOTAL-REVENUES> 119,115
<CGS> 81,713
<TOTAL-COSTS> 117,818
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,701
<INCOME-PRETAX> (1,404)
<INCOME-TAX> (463)
<INCOME-CONTINUING> (941)
<DISCONTINUED> (5,767)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,708)
<EPS-BASIC> (.56)
<EPS-DILUTED> (.56)
</TABLE>
AMENDMENT TO RIGHTS AGREEMENT
THIS AMENDMENT TO RIGHTS AGREEMENT (this "Amendment"), dated as of February
29, 2000, is between TANDYCRAFTS, INC., a Delaware corporation (the "Company"),
and FIRST CHICAGO TRUST COMPANY OF NEW YORK (the "Rights Agent"), at the
direction of the Company.
WHEREAS, the Company and CHASEMELLON SHAREHOLDER SERVICES, L.L.C., a New
Jersey limited liability company, a predecessor to the Rights Agent, entered
into a Rights Agreement dated as of May 19, 1997 (the "Rights Agreement");
WHEREAS, the Rights Agent has accepted assignment of the Rights Agreement
and has agreed to assume each and every right, duty, obligation and interest of
ChaseMellon Shareholder Services, L.L.C. under the Rights Agreement;
WHEREAS, Section 27 of the Rights Agreement permits the amendment of the
Rights Agreement by the Board of Directors of the Company;
WHEREAS, pursuant to a resolution duly adopted on February 29, 2000, the
Board of Directors of the Company has adopted and authorized the amendment of
the Rights Agreement so that the Rights Agreement will, among other things, no
longer require certain action to be taken by "continuing directors";
WHEREAS, the Board of Directors of the Company has resolved and determined
that such amendment is desirable and consistent with, and for the purpose of
fulfilling, the objectives of the Board of Directors in connection with the
original adoption of the Rights Agreement;
NOW, THEREFORE, the Rights Agreement is hereby amended as follows:
1. AMENDMENT OF SECTION 1.
----------------------
Section 1(h) of the Rights Agreement is hereby amended in its entirety to
read as follows:
" (h) [intentionally left blank]."
All references in the Rights Agreement to "Continuing Directors" are deleted
mutatis mutandis.
Section 1(o) of the Rights Agreement is hereby amended in its entirety to
read as follows:
" (o) "Requisite Majority" means, at any time, the
affirmative vote of a majority of the directors then in office."
2. AMENDMENT OF SECTION 29.
-----------------------
Section 29 of the Rights Agreement is amended by deleting (i) each
occurrence of the phrase "(with, where specifically provided for in this
Agreement, the concurrence of the Continuing Directors)" in the second and third
sentences of said section and (ii) the phrase "or the Continuing Directors" in
the third sentence of said section.
3. AMENDMENT TO EXHIBIT B.
----------------------
Exhibit B to the Rights Agreement is amended by (i) deleting the last
sentence of the second paragraph and replacing such sentence with the following:
"A majority of the directors may in their discretion vote to extend
the Distribution Date."
and (ii) deleting the portion of the seventh paragraph that states "(including a
majority of the Continuing Directors)."
4. EFFECTIVENESS.
-------------
This Amendment to the Rights Agreement shall be effective as of the date of
this Amendment, and all references to the Rights Agreement shall, from and after
such time, be deemed to be references to the Rights Agreement as amended hereby.
5. CERTIFICATION.
-------------
The undersigned officer of the Company certifies by execution hereof that
this Amendment is in compliance with the terms of Section 27 of the Rights
Agreement.
6. MISCELLANEOUS.
-------------
This Amendment may be executed in any number of counterparts, each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument. If any
term, provision, covenant or restriction of this Amendment is held by a court of
competent jurisdiction or other authority to be invalid, illegal, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Amendment shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date and year first above written.
TANDYCRAFTS, INC.
By: /s/ James D. Allen
---------------------------------
Name: James D. Allen
Title: President and Chief Operating
Officer
FIRST CHICAGO TRUST COMPANY OF NEW YORK, as
Rights Agent
By:
---------------------------------
Name: _________________________________
Title: _________________________________
ASSIGNMENT AND ASSUMPTION OF RIGHTS AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION OF RIGHTS AGREEMENT (this "Assumption"), is
between TANDYCRAFTS, INC., a Delaware corporation (the "Company"), and FIRST
CHICAGO TRUST COMPANY OF NEW YORK (the "Rights Agent").
WHEREAS, the Company and CHASEMELLON SHAREHOLDER SERVICES, L.L.C., a New
Jersey limited liability company, a predecessor to the Rights Agent, entered
into a Rights Agreement dated as of May 19, 1997 (the "Rights Agreement");
WHEREAS, subsequently, the Rights Agent succeeded ChaseMellon Shareholder
Services, L.L.C. as the Company's transfer agent;
WHEREAS, the Rights Agent wishes to document its acceptance, assumption and
assignment of the Rights Agreement and wishes to assume each and every right,
duty, obligation and interest of ChaseMellon Shareholder Services, L.L.C. under
the Rights Agreement;
NOW, THEREFORE, the parties agree as follows:
1. ASSUMPTION.
----------
The Rights Agent hereby agrees to perform and assumes each and every right,
duty, obligation and interest of ChaseMellon Shareholder Services, L.L.C. under
the Rights Agreement. The Rights Agent hereby accepts the assignment of the
Rights Agreement from ChaseMellon Shareholder Services, L.L.C.
2. EFFECTIVENESS.
-------------
This Assumption shall be effective as of the date that Rights Agent
officially became the Company's transfer agent.
3. MISCELLANEOUS.
-------------
This Assumption may be executed in any number of counterparts, each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument. If any
term, provision, covenant or restriction of this Assumption is held by a court
of competent jurisdiction or other authority to be invalid, illegal, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Assumption shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, the parties hereto have caused this Assumption to be
duly executed as of the date and year first above written.
TANDYCRAFTS, INC.
By: James D. Allen
---------------------------------
Name: James D. Allen
Title: President and Chief Operating
Officer
FIRST CHICAGO TRUST COMPANY OF NEW YORK, as
Rights Agent
By:
---------------------------------
Name: _________________________________
Title: _________________________________
INDEMNIFICATION AGREEMENT
AGREEMENT, effective as of March 7, 2000 (the "Effective Date") between
Tandycrafts, Inc., a Delaware corporation (the "Company"), and Michael J. Walsh
(the "Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors and officers of
public companies in today's environment;
WHEREAS, the By-laws (the "By-laws") of the Company require the Company to
indemnify and advance expenses to its directors and officers to the fullest
extent permitted by law, and the Indemnitee has agreed or continued to serve as
a director and/or an officer of the Company in part in reliance on such
provisions in the By-laws;
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability, in order to enhance Indemnitee's continued service
to the Company in an effective manner and Indemnitee's reliance on the foregoing
provisions in the By-laws, and in part to provide Indemnitee with specific
contractual assurance that the protection promised by such provisions in the By-
laws will be available to Indemnitee (regardless of, among other things, any
amendment to or revocation of such provisions in the By-laws or any change in
the composition of the Company's Board of Directors (the "Board") or acquisition
transaction relating to the Company), the Company wishes to provide in this
Agreement for the indemnification of and the advancing of expenses to Indemnitee
to the fullest extent permitted by law and as set forth in this Agreement, and,
to the extent insurance is maintained, for the continued coverage of Indemnitee
under Company directors' and officers' liability insurance policies;
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, with another
enterprise, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. Certain Definitions.
(a) Change in Control: shall be deemed to have occurred upon any of the
following events:
(i) The acquisition in or more transactions by any "Person" (as the
term person is used for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), of
"Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of twenty-five percent (25%) or
more of the combined voting power of the Company's then
outstanding voting securities (the "Voting Securities"),
provided, however, that for purposes of this Section 1(a)(i), the
Voting Securities acquired directly from the Company by any
Person shall be excluded from the determination of such Person's
Beneficial Ownership of Voting Securities (but such Voting
Securities shall be included in any subsequent calculation of the
total number of Voting Securities then outstanding or owned by
such Person); or
(ii) The individuals who, as of the Effective Date, are members of the
Board (the "Incumbent Board"), cease for any reason to constitute
at least two-thirds of the Board; provided, however, that if the
election, or nomination for election by the Company's
stockholders, of any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new director shall,
for purposes of this Agreement, be considered as a member of the
Incumbent Board; or
(iii)Approval by stockholders of the Company of (A) a merger or
consolidation involving the Company if the stockholders of the
Company immediately before such merger or consolidation do not
own, directly or indirectly immediately following such merger or
consolidation, more than fifty-one percent (51%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation in
substantially the same proportion as their ownership of the
Voting Securities immediately before such merger or consolidation
or (B) a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or
substantially all of the assets of the Company.
(iv) Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because twenty-five percent (25%) or more
of the then outstanding Voting Securities is acquired by (i) a
trustee or other fiduciary holding securities under one or more
employee benefit plans maintained by the Company or any of its
subsidiaries or (ii) any corporation that, immediately prior to
such acquisition, is owned directly or indirectly by the
stockholders of the Company in the same proportion as their
ownership of stock in the Company immediately prior to such
acquisition;
(v) Moreover, notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than the
permitted amount of the outstanding Voting Securities as a result
of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases
the proportional number of shares Beneficially Owned by the
Subject Person, provided that if a Change in Control would occur
(but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting
Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
(b) Claim: any threatened, pending or completed action, suit or
proceedings, whether civil, criminal, administrative or investigative
or other, including, without limitation, an action by or in the right
of any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or other
enterprise, whether predicated on foreign, federal, state or local law
and whether formal or informal.
(c) Expenses: include attorneys' fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending,
being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Claim
relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence related to the fact that
Indemnitee is or was or has agreed to become a director, officer,
employee, agent or fiduciary of the Company, or is or was serving or
has agreed to serve in any capacity, at the request of the Company, in
any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, or by reason of anything done or not
done by Indemnitee in any such capacity.
(e) Voting Securities: any securities of the Company that vote generally
in the election of directors.
2. Basic Indemnification Arrangement.
(a) In the event Indemnitee was, is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or
witness or other participant in, a Claim by reason of (or arising in
part out of) an Indemnifiable Event, the Company shall indemnify, hold
harmless and defend Indemnitee (without regard to the negligence or
other fault of the Indemnitee) to the fullest extent permitted by
applicable law, as soon as practicable but in no event later than
thirty days after written demand is presented to the Company, against
any and all Expenses, judgments, fines, penalties, excise taxes and
amounts paid or to be paid in settlement (including all interest,
assessments and other charges paid or payable in connection with or in
respect of such Expenses, judgments, fines, penalties, excise taxes or
amounts paid or to be paid in settlement) of such Claim. If
Indemnitee makes a request to be indemnified under this Agreement, the
Board of Directors (acting by a quorum consisting of directors who are
not parties to the Claim with respect to an Indemnifiable Event or, if
such a quorum is not obtainable, acting upon an opinion in writing of
independent legal counsel ("Board Action")) shall, as soon as
practicable but in no event later than thirty days after such request,
authorize such indemnification. Notwithstanding anything in the
Certificate of Incorporation (the "Certificate") of the Company, the
By-laws or this Agreement to the contrary, following a Change in
Control, Indemnitee shall be entitled to indemnification pursuant to
this Agreement in connection with any Claim initiated by Indemnitee.
(b) Notwithstanding anything in the Certificate, the By-laws or this
Agreement to the contrary, if so requested by Indemnitee, the Company
shall advance (within two business days of such request) any and all
Expenses relating to a Claim to Indemnitee (an "Expense Advance"),
upon the receipt of a written undertaking by or on behalf of
Indemnitee to repay such Expense Advance if a judgment or other final
adjudication or determination adverse to Indemnitee establishes that
Indemnitee, with respect to such Claim, is not eligible for
indemnification.
(c) If there has been no Board Action or Arbitration (as defined in
Section 3), or if Board Action determines that Indemnitee would not be
permitted to be indemnified, in any respect, in whole or in part, in
accordance with Section 2(a) of this Agreement, Indemnitee shall have
the right to commence litigation in the court that is hearing the
action or proceeding relating to the Claim for which indemnification
is sought or in any court in the State of Texas having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any Board Action or any
aspect thereof, and the Company hereby consents to service of process
and to appear in any such proceeding. Notwithstanding anything in the
Certificate, the By-laws or this Agreement to the contrary, if
Indemnitee has commenced legal proceedings in a court of competent
jurisdiction or Arbitration to secure a determination that Indemnitee
should be indemnified under this Agreement, the By-laws of the Company
or applicable law, any Board Action under which Indemnitee would not
be permitted to be indemnified in accordance with Section 2(a) of this
Agreement shall not be binding. Any Board Action not followed by such
litigation or Arbitration shall be conclusive and binding on the
Company and Indemnitee.
3. Change in Control. The Company agrees that if there is a Change in
Control, Indemnitee, by giving written notice to the Company and the American
Arbitration Association (the "Notice"), may require that any controversy or
Claim arising out of or relating to this Agreement, or the breach thereof, shall
be settled by arbitration (the "Arbitration") in Fort Worth, Texas in accordance
with the Rules of the American Arbitration Association (the "Rules"). The
Arbitration shall be conducted by a panel of three arbitrators selected in
accordance with the Rules within thirty days of delivery of the Notice. The
decision of the panel shall be made as soon as practicable after the panel has
been selected, and the parties agree to use their reasonable efforts to cause
the panel to deliver its decision within ninety days of its selection. The
Company shall pay all fees and expenses of the Arbitration. The Arbitration
shall be conclusive and binding on the Company and Indemnitee, and the Company
or Indemnitee may cause judgment upon the award rendered by the arbitrators to
be entered in any court having jurisdiction thereof.
4. Indemnification For Additional Expenses. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within two business days of such request)
advance such expenses to Indemnitee, which are incurred by Indemnitee in
connection with any Claim asserted by or action brought by Indemnitee for (i)
indemnification or advance payment of Expenses by the Company under law, this
Agreement, or any other agreement or By-law of the Company now or hereafter in
effect relating to Claims for Indemnifiable Events and/or (ii) recovery under
any directors' and officers' liability insurance policies maintained by the
Company, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance recovery,
as the case may be.
5. Partial Indemnity, Etc. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties, excise taxes and amounts paid or to be
paid in settlement of a Claim but not, however, for all of the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion
thereof to which Indemnitee is entitled. Moreover, notwithstanding any other
provision of this Agreement, to the extent that Indemnitee has been successful
on the merits or otherwise in defense of any or all Claims relating in whole or
in part to an Indemnifiable Event or in defense of any issue or matter therein,
including, without limitation, dismissal without prejudice, Indemnitee shall be
indemnified against any and all Expenses, judgments, fines, penalties, excise
taxes and amounts paid or to be paid in settlement of such Claim. In connection
with any determination by Board Action, Arbitration or a court of competent
jurisdiction that Indemnitee is not entitled to be indemnified hereunder, the
burden of proof shall be on the Company to establish that Indemnitee is not so
entitled.
6. No Presumption. For purposes of this Agreement, the termination of
any Claim, action, suit or proceeding, by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo contendere
or its equivalent, shall not create a presumption that Indemnitee did not meet
any particular standard of conduct or have any particular belief or that a court
has determined that indemnification is not permitted by applicable law or this
Agreement.
7. Contribution. In the event that the indemnification provided for in
this Agreement is unavailable to Indemnitee for any reason whatsoever, the
Company, in lieu of indemnifying Indemnitee, shall contribute to the amount
incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes,
amounts paid or to be paid in settlement and/or for Expenses, in connection with
any Claim deemed fair and reasonable in light of all of the circumstances of
such action by Board Action or Arbitration or by the court before which such
action was brought in order to reflect (i) the relative benefits received by the
Company and Indemnitee as a result of the event(s) and/or transaction(s) giving
cause to such action; and/or (ii) the relative fault of the Company (and its
other directors, officers, employees and agents) and Indemnitee in connection
with such event(s) and/or transaction(s). Indemnitee's right to contribution
under this Paragraph 7 shall be determined in accordance with, pursuant to and
in the same manner as, the provisions in Paragraphs 2 and 3 hereof relating to
Indemnitee's right to indemnification under this Agreement.
8. Notice to the Company by Indemnitee. Indemnitee agrees to notify the
Company promptly in writing upon being served with or having actual knowledge of
any citation, summons, complaint, indictment or any other similar document
relating to any action which may result in a claim of indemnification or
contribution hereunder, but the failure to give such notice shall not relieve
the Company of any liability hereunder except to the extent the Company has been
materially prejudiced thereby.
9. Non-exclusive, Etc. The rights of the Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Certificate or By-
laws or the Delaware General Corporation Law or otherwise, and nothing herein
shall be deemed to diminish or otherwise restrict Indemnitee's right to
indemnification under any such other provision. To the extent applicable law or
the Certificate or By-laws, as in effect on the date hereof or at any time in
the future, permit greater indemnification than as provided for in this
Agreement, the parties hereto agree that Indemnitee shall enjoy by this
Agreement the greater benefits so afforded by such law or provision of the
Certificate or By-laws and this Agreement shall be deemed amended without any
further action by the Company or Indemnitee to grant such greater benefits.
Indemnitee may elect to have Indemnitee's rights hereunder interpreted on the
basis of applicable law in effect at the time of execution of this Agreement, at
the time of the occurrence of the Indemnifiable Event giving rise to a Claim or
at the time indemnification is sought.
10. Liability Insurance.
(a) To the extent the Company maintains at any time an insurance policy or
policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage
available for any other Company director or officer under such
insurance policy. The purchase and maintenance of such insurance
shall not in any way limit or affect the rights and obligations of the
parties hereto, and the execution and delivery of this Agreement shall
not in any way be construed to limit or affect the rights and
obligations of the Company and/or of the other parties under any such
insurance policy.
(b) For seven years after the Indemnitee no longer serves as a director or
officer of the Company, the Company shall continue to provide
directors' and officers' liability coverage for liabilities of the
Indemnitee occurring during his service with the Company on terms no
less favorable in terms of coverage and amount than such insurance
maintained by the Company at the date of the Indemnitee's separation
from the Company. In the event such coverage is not available, the
maximum available coverage shall be maintained pursuant to this
covenant.
11. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or on behalf of the Company or any affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any Claim or cause of action of the
Company or its affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action such shorter period shall govern.
12. Amendments, Etc. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
13. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery with respect to such payment of Indemnitee, who shall execute all
papers required and shall do everything that may be necessary to secure such
rights, including the execution of such documents necessary to enable the
Company effectively to bring suit to enforce such rights.
14. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, By-law or otherwise) of the amounts otherwise
indemnifiable hereunder.
15. Binding Effect, Etc. This Agreement shall be binding upon and inure
to the benefit of and be enforceable against and by the parties hereto and their
respective successors, assigns (including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Company), spouses, heirs and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation, or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as a director and/or officer of the
Company or of any other enterprise at the Company's request.
16. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions thereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
17. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or when mailed by certified registered
mail, return receipt requested, with postage prepaid.
A. If to Indemnitee, to: Michael J. Walsh
2716 Shadow Wood Drive
Arlington, Texas 76006
or to such other person or address which Indemnitee shall furnish to the Company
in writing pursuant to the above.
B. If to the Company, to: Tandycrafts, Inc.
1400 Everman Parkway
Fort Worth, Texas 76140
Attention: General Counsel
or to such person or address as the Company shall furnish to Indemnitee in
writing pursuant to the above.
18. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such State without giving effect to the
principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the Effective Date.
TANDYCRAFTS, INC.
By:-------------------------
Name:-----------------------
Title:----------------------
INDEMNITEE:
/s/ Michael J. Walsh
--------------------
Michael J. Walsh
SECOND AMENDMENT TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
-----------------------------------------------
This Second Amendment to Amended and Restated Revolving Credit Agreement
(this "Amendment") is made and entered into to be effective for all purposes as
of March 30, 2000, by and among TANDYCRAFTS, INC., a Delaware corporation
("Company"), THE DEVELOPMENT ASSOCIATION, INC., a Texas corporation, SAV-ON,
INC., a Texas corporation, DAVID JAMES MANUFACTURING, INC., a Texas corporation,
PLC LEATHER COMPANY, a Nevada corporation, TANDYARTS, INC., a Nevada
corporation, LICENSED LIFESTYLES, INC., a Nevada corporation, TANDY LEATHER
DEALER, INC., a Texas corporation, TLC DIRECT, INC, a Texas corporation, CARGO
FURNITURE, INC., a Nevada corporation, TANDYCRAFTS DE MEXICO, S.A. DE C.V., a
Mexican corporation, TAC HOLDINGS, INC., a Delaware corporation, and CASUAL
CONCEPTS HOLDINGS, INC., a Delaware corporation (collectively the "Guarantors"),
and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION and BANK ONE, TEXAS, NATIONAL
ASSOCIATION (collectively, the "Banks") and WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION, as agent for the Banks ("Agent").
RECITALS:
--------
A. Company, Guarantors, Banks and Agent have previously executed that
certain Amended and Restated Revolving Credit Agreement dated October 29, 1999,
(the "Loan Agreement").
B. Company, Guarantors, Bank and Agent have previously executed that
certain First Amendment to Amended and Restated Revolving Credit Agreement dated
February 14, 2000.
C. Company and Guarantors have requested that Agent and Banks agree to
amend certain covenants in the Loan Agreement, and Agent and Banks are willing
to do so provided that, among other things, the Loan Agreement is amended as
herein provided.
D. The parties to this Amendment desire to modify and amend the Loan
Agreement as hereinafter set forth and to enter into this Amendment.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to all terms, conditions, and covenants herein set
forth, Company, Guarantors, Banks and Agent hereby covenant and agree as
follows:
1. Amendments. The Loan Agreement is hereby amended as follows:
A) Section 2.01(b) of the Loan Agreement is amended to read as follows:
(b) Optional and Mandatory Reduction of Commitment. Company shall have
the right, upon three (3) Business Days' prior written notice to Agent, to
terminate or permanently reduce the unborrowed portion of the Total Commitment,
in whole or in part (provided any partial reduction shall be in a minimum amount
of $1,000,000.00 or any integral multiple thereof), effective on the first day
of any calendar month hereafter. Effective September 30, 2000, the Total
Commitment automatically shall reduce to an amount not to exceed $40,000,000.00.
In addition, the application of net proceeds generated by the Company's sale of
Sav-On, Inc. (as described in Section 7.17(c)) shall permanently reduce the
Total Commitment by the amount of such net sales proceeds. Each partial
reduction of the Total Commitment shall ratably reduce each Bank's Commitment.
B) Section 5.01(r) of the Loan Agreement is hereby amended to read as
follows:
(r) Landlord's Lien Subordination Agreements. On or before April 30,
2000, Landlord's Lien Subordination Agreements, dated on or after the Closing
Date but no later than April 30, 2000, duly executed by the landlord under each
lease of real property where Collateral is located.
C) Section 8.12 of the Loan Agreement is hereby amended by deleting the
period following the word "business" at the end of the paragraph, inserting a
coma, and adding the following new letter (e) to read as follows:
(e) any Guaranty made for the benefit of Cargo Furniture, Inc., in an
amount not to exceed $200,000.00 in the aggregate, required to be provided to
ensure the timely delivery of merchandise manufactured by a U.S. supplier.
2. Conditions Precedent. The obligation of Agent and Banks to enter into this
Amendment is subject to the performance of each of the following conditions
precedent:
(a) Resolutions. Agent and Banks shall have received corporate
resolutions of the Board of Directors of Company, certified by the Secretary of
Company, which resolutions authorize the execution, delivery and performance by
Company of this Amendment and each other Loan Document. Included in such
resolutions or by separate document, Agent and Banks shall receive a certificate
of incumbency certified by the Secretary of Company certifying the names of each
officer authorized to execute this Amendment and any other Loan Document,
together with specimen signatures of such officers.
(b) Additional Papers. Company and Guarantors shall have delivered to
Agent and Banks such other documents, records, instruments, papers, opinions,
and reports, as shall have been requested by Agent and Banks, to evidence the
status or organization or authority of Company and of Guarantors or to evidence
the payment or the securing of the Obligation, all in form satisfactory to Agent
and Banks and their counsel.
(c) Proceedings. All proceedings of Company and of Guarantors in
connection with the transactions contemplated by this Amendment and all
documents incident thereto shall be satisfactory in form and substance to Agent
and Banks and their counsel; and Agent and Banks shall have received copies of
all documents or other evidence which Agent and Banks or their counsel may
reasonably request in connection with said transactions and copies of records
and all proceedings in connection therewith, all in form and substance
satisfactory to Agent and Banks and their counsel.
(d) Payment of Expenses. Company shall have reimbursed Agent and Banks
for all attorneys' fees of Agent's and/or Banks' outside legal counsel incurred
to the date of this Amendment in connection with the negotiation, preparation,
execution, delivery, and interpretation of the Loan Agreement, the other Loan
Documents, this Amendment, and any and all amendments, modifications and
supplements thereof or thereto.
3. Definitions. All capitalized terms used in this Amendment which are not
otherwise defined in this Amendment shall have the same meaning as given to such
terms in the Loan Agreement.
4. Representations and Warranties. Company represents and warrants to Agent
and Banks that (a) all of the representations and warranties contained in the
Loan Agreement, the Collateral Documents, and all instruments and documents
executed pursuant thereto or contemplated thereby are true and correct in all
material respects on and as of the date of this Amendment, (b) the execution,
delivery and performance of this Amendment and any and all other documents
executed and/or delivered in connection herewith have been authorized by all
requisite action on the part of Company and Guarantors, (c) no Event of Default
exists under the Loan Agreement and there are no defenses, counterclaims or
offsets to any of the Notes or any of the Collateral Documents, and (d) no
change has occurred, either in any case or in the aggregate, in the condition,
financial or otherwise, of Company or any Guarantor or with respect to Company's
or any Guarantor's assets or properties from the facts represented in the Loan
Agreement or any Collateral Document which would have a material adverse effect
on the financial condition, business, or assets of Company or any Guarantor.
5. Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants made in this Amendment or in any other
document furnished in connection with this Amendment shall survive the execution
and delivery of this Amendment, and no investigation by Agent or any Bank or any
closing shall affect such representations, warranties and covenants or the right
of Agent and Banks to rely upon them.
6. References to Loan Agreement and Notes. The Loan Agreement and any and all
other agreements, documents, or instruments now or hereafter executed and
delivered pursuant to the terms hereof or pursuant to the terms of the Loan
Agreement, as amended hereby, are hereby amended so that any reference therein
to the Loan Agreement shall mean a reference to the Loan Agreement as amended
hereby.
7. Further Assurances. Company and Guarantors agree that at any time and from
time to time, upon the request of Agent and/or Banks, Company and Guarantors
will execute and deliver such further documents and do such further acts and
things as Agent and/or Banks may reasonably request in order to fully effect the
purposes of this Amendment and to provide for the payment of the Obligation.
8. Acknowledgment. Company and Guarantors ratify and confirm that the Loan
Agreement as amended hereby, the Notes, the Collateral Documents and the other
Loan Documents are and remain in full force and effect in accordance with their
respective terms, that the Collateral Documents secure the payment of the
Obligation, that the collateral described in the Collateral Documents is
unimpaired by this Amendment, and that the collateral described in the
Collateral Documents is security for the payment and performance in full of the
Obligation. By executing this Amendment, Company and Guarantors acknowledge and
agree that the Loan Agreement is and shall continue to be in full force and
effect and is and shall continue to be the legal, valid and binding obligation
of Company and Guarantors enforceable against Company and Guarantors in
accordance with its terms. The undersigned officers of Company and of
Guarantors executing this Amendment represent and warrant that they have full
power and authority to execute and deliver this Amendment on behalf of Company
and of Guarantors, that such execution and delivery has been duly authorized by
the Board of Directors of Company and each Guarantor, and that the resolutions
of Company and of Guarantors previously delivered to Agent and Banks in
connection with the execution and delivery of the Loan Agreement are and remain
in full force and effect and have not been altered, amended or repealed in any
manner.
9. Existing Loan Documents. Except as amended and modified by this Amendment,
the Loan Agreement, the Notes, the Collateral Documents and all other Loan
Documents shall remain in full force and effect in accordance with the terms and
provisions thereof. Any reference in any of the Loan Documents to the "Amended
and Restated Revolving Credit Agreement" shall be deemed to be references to the
Loan Agreement as amended hereby through the date hereof. In the event of any
conflict between this Amendment and the Loan Agreement, this Amendment shall
control and the Loan Agreement shall be construed accordingly.
10. Counterparts. This Amendment has been executed in a number of identical
counterparts, each of which constitutes an original and all of which constitute,
collectively, one agreement; but in making proof of this Amendment, it shall not
be necessary to produce or account for more than one such counterpart.
11. Severability. In the event any one or more of the provisions contained in
the Loan Agreement or this Amendment should be held to be invalid, illegal or
unenforceable in any respect, the validity, enforceability and legality of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby, and shall be enforceable in accordance with their
respective terms.
12. Expenses. Company shall pay all reasonable costs incurred (whether by
Agent, Banks, Company, any Guarantor or otherwise) in connection with the
preparation, execution, and consummation of this Amendment and the consummation
of all transactions contemplated by this Amendment.
13. Applicable Law. THIS AMENDMENT AND ALL OTHER DOCUMENTS EXECUTED PURSUANT
HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN FORT WORTH,
TARRANT COUNTY, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS.
14. Successors and Assigns. This Amendment is binding upon and shall inure to
the benefit of Agent, Banks, Company and Guarantors and their respective
successors and assigns, except neither Company nor any Guarantor may assign or
transfer any of its rights or obligations hereunder without the prior written
consent of Agent and Banks.
15. Headings. The headings, captions, and arrangements used in this Amendment
are for convenience only and shall not affect the interpretation of this
Amendment.
16. No Oral Agreements. Pursuant to Section 26.02 of the Texas Business and
Commerce Code the following notice is given:
THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Company, Guarantors, Agent, and Banks, by and through
their respective duly authorized officers or representatives, have caused this
Amendment to be executed and delivered as of the date first above written.
COMPANY: TANDYCRAFTS, INC., a Delaware corporation
By:/s/ Leo C. Taylor
---------------------------------------------
Name: Leo C. Taylor
Title: Senior Vice President of Finance
GUARANTORS: THE DEVELOPMENT ASSOCIATION, INC.,
a Texas corporation
By:/s/ Russell L. Price
---------------------------------------------
Name: Russell L. Price
Title: Secretary
SAV-ON, INC., a Texas corporation
By:/s/ Russell L. Price
---------------------------------------------
Name: Russell L. Price
Title: Secretary
DAVID JAMES MANUFACTURING, INC.,
a Texas corporation
By:/s/ Russell L. Price
---------------------------------------------
Name: Russell L. Price
Title: Secretary
PLC LEATHER COMPANY, a Nevada corporation
By:/s/ Russell L. Price
---------------------------------------------
Name: Russell L. Price
Title: Secretary
TANDYARTS, INC., a Nevada corporation
By:/s/ Russell L. Price
---------------------------------------------
Name: Russell L. Price
Title: Secretary
LICENSED LIFESTYLES, INC.,
a Nevada corporation
By:/s/ Russell L. Price
---------------------------------------------
Name: Russell L. Price
Title: Secretary
TANDY LEATHER DEALER, INC.,
a Texas corporation
By:/s/ Russell L. Price
---------------------------------------------
Name: Russell L. Price
Title: Secretary
TLC DIRECT, INC., a Texas corporation
By:/s/ Russell L. Price
---------------------------------------------
Name: Russell L. Price
Title: Secretary
CARGO FURNITURE, INC., a Nevada corporation
By:/s/ Russell L. Price
---------------------------------------------
Name: Russell L. Price
Title: Secretary
TANDYCRAFTS DE MEXICO, S.A. DE C.V.,
a Mexican corporation
By:/s/ Russell L. Price
---------------------------------------------
Name: Russell L. Price
Title: Secretary
TAC HOLDINGS, INC., a Delaware corporation
By:/s/ Brenda Barnes
---------------------------------------------
Name: Brenda Barnes
Title: President
CASUAL CONCEPTS HOLDINGS, INC.,
a Delaware corporation
By:/s/ Lisa Thornton
---------------------------------------------
Name: Lisa Thornton
Title: President
BANKS: WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:/s/ Roger Fruendt
---------------------------------------------
Name: Roger Fruendt
Title: Vice President
BANK ONE, TEXAS, NATIONAL ASSOCIATION
By:/s/ J. Michael Wilson
---------------------------------------------
Name: J. Michael Wilson
Title: Senior Vice President
AGENT: WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
By:/s/ Roger Fruendt
---------------------------------------------
Name: Roger Fruendt
Title: Vice President
