SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
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]
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[
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[
] Definitive Additional Materials
[
] Soliciting Material Pursuant to Rule 14a-11(c) or Rule
14a-12
THE
LEATHER FACTORY, INC.
-------------------------------------------------------------------------------------
(Name of
Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------------
(Name of
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THE
LEATHER FACTORY, INC.
3847
East Loop 820 South
Fort
Worth, Texas 76119
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
|
Time
and Date |
10:00
a.m. local time on Monday, May 23, 2005 |
|
Place |
Wyndham
Hotel, Hall of Fame Room
1500
Convention Center Drive, Arlington, Texas |
|
Items
of Business |
(1)
To elect directors
(2)
To approve an amendment to our Certificate of Incorporation to change our
name to Tandy Leather Factory, Inc.
(3)
To consider such other business as may properly come before the
meeting |
|
Adjournments
and
Postponements |
Any
action on the items of business described above may be considered at the
time and on the date specified above or at any time and date to which the
annual meeting may be properly adjourned or postponed. |
|
Record
Date |
You
are entitled to vote only if you were a shareholder of our common stock at
the close of business on April 20, 2005. |
|
Voting |
Your
vote is very important. Whether or not you plan to attend the annual
meeting, we encourage you to read this proxy statement and submit your
proxy or voting instructions as soon as possible. You may submit your
proxy or voting instructions for the annual meeting by completing,
signing, dating and returning your proxy or voting instruction card in the
pre-addressed envelope provided. For specific instructions on how to vote
your shares, please refer to the section titled "Questions and Answers" in
this proxy statement and the instructions on the proxy or voting
instruction card. |
Please
advise our transfer agent, Securities Transfer Corporation, 2591 Dallas Parkway,
Suite 102, Frisco, Texas 75034, of any change in your address.
|
By
Order of the Board of Directors, | |
|
/s/
William M. Warren | |
|
William
M. Warren | |
|
General
Counsel and Secretary |
This
notice of annual meeting and proxy statement and proxy card are being
distributed on or about April 22, 2005.
[THIS
PAGE LEFT BLANK INTENTIONALLY]
April 22,
2005
To our
Stockholders:
On behalf
of the board of directors, it is my pleasure to invite you to attend the Annual
Meeting of Stockholders of The Leather Factory, Inc. on Monday, May 23, 2005 in
Arlington, Texas.
At the
meeting, in addition to the formal items of business to be brought before the
meeting, members of management will report on the company’s operations and
respond to stockholder questions.
Your vote
is very important. We encourage you to read this proxy statement and vote your
shares as soon as possible regardless of whether or not you plan to attend the
annual meeting. A return envelope for your proxy card is enclosed for your
convenience. Voting now by written proxy will ensure your representation at the
annual meeting regardless of whether you attend in person.
Thank you
for your continued support of The Leather Factory. We look forward to seeing you
at the meeting on May 23.
|
Sincerely, | |
|
/s/
Wray Thompson | |
|
Wray
Thompson | |
|
Chairman
and Chief Executive Officer |
QUESTIONS
AND ANSWERS
Why
did I receive this proxy statement?
Because
you are a stockholder of The Leather Factory, Inc. as of the record date and
entitle to vote at the 2005 Annual Meeting of Stockholders, our board of
directors is soliciting your proxy to vote at the meeting.
This
Proxy Statement summarizes the information you need to know to vote at the
Annual Meeting. This Proxy Statement and form of proxy were first mailed to
stockholders on or about April 22, 2005.
What
am I voting on?
You are
voting on two items:
| 1. |
Election
of eight directors for a term of one year |
| 2. |
Approval
of an amendment to our Certificate of Incorporation to change our name to
Tandy Leather Factory, Inc. |
What
are the voting recommendations of the board of directors?
The board
recommends the following votes:
| 1. |
FOR
each of the director nominees |
| 2. |
FOR
approval of the amendment to our Certificate of Incorporation to change
our name to Tandy Leather Factory, Inc. |
Will
any other matters be voted on?
We do not
know of any other matters that will be brought before the stockholders for a
vote at the Annual Meeting. If any other matter is properly brought before the
meeting, your signed proxy card gives authority to William Warren, our
Secretary, and Robin Morgan, our Vice-President of Administration, our Proxy
Committee, to vote on such matters at their discretion.
Who
is entitled to vote?
Stockholders
of record as of the close of business on April 20, 2005 (the record date) are
entitled to vote at the Annual Meeting. Each share of common stock is entitled
to one vote.
What
is the difference between holding shares as a stockholder of record and as a
beneficial owner?
Many
stockholders hold their shares through a stockbroker, bank, or other nominee
rather than directly in their own name. As summarized below, there are some
distinctions between shares held of record and those owned
beneficially.
Stockholder
of Record
If your
shares are registered directly in your name with our transfer agent, Securities
Transfer Corporation, you are considered, with respect to those shares, the
stockholder of record, and these proxy materials are being sent directly to you
by us.
Beneficial
Owner
If your
shares are held in a stock brokerage account or by a bank or other nominee, you
are considered the beneficial
owner of
shares held in street name, and these proxy materials are being forwarded to you
by your broker or nominee which is considered, with respect to those shares, the
stockholder of record. As the beneficial owner, you have the right to direct
your broker how to vote and are also invited to attend the Annual Meeting.
However, since you are not the stockholder of record, you may not vote these
shares in person at the meeting unless you bring with you a legal proxy from the
stockholder of record. Your broker or nominee has enclosed a voting instruction
card for you to use in directing the broker or nominee how to vote your
shares.
How
do I vote?
If you
are a stockholder of record, there are three ways to vote:
| · |
By
Internet at ; |
| · |
By
completing and mailing your proxy card; and |
| · |
By
written ballot at the meeting. |
If you
vote by Internet, your vote must be received by 11:59 PM Eastern Time on May
20th, the
business day before the meeting. Your shares will be voted as you indicate. If
you return your proxy card but you do not indicate your voting preferences, the
Proxy Committee will vote your shares FOR items 1 and 2.
If your
shares are held in a brokerage account in your broker’s name (this is called
street name), you should follow the voting directions provided by your broker or
nominee. You may complete and mail a voting instruction card to your broker or
nominee or, in most cases, submit voting instructions via the Internet to your
broker or nominee. If you provide specific voting instructions by mail or the
Internet, your shares should be voted by your broker or nominee as you have
directed.
We will
distribute written ballots to anyone who wants to vote at the meeting. If you
hold your shares in street name, you must request a legal proxy from your broker
to vote at the meeting.
Is
my vote confidential?
Yes. It
is our policy that all proxies, ballots, and vote tabulations that identify the
vote of a stockholder will be kept confidential from us and our directors,
officers, and employees until after the final vote is tabulated and announced,
except in limited circumstances including any contested solicitation of proxies,
when required to meet a legal requirement, to defend a claim against us or to
assert a claim by us, and when written comments by a stockholder appear on a
proxy card or other voting material.
Who
counts the votes?
We will
appoint two persons as inspectors of election for the meeting who will count the
votes cast.
What
is the quorum requirement of the meeting?
A
majority of the outstanding shares determined on April 20, 2005, represented in
person or by proxy at the meeting constitutes a quorum for voting on items at
the Annual Meeting. If you vote, your shares will be part of the quorum.
Abstentions and broker non-votes will be counted in determining the quorum, but
neither will be counted as votes cast. On April 20, 2005, there were 10,595,802
shares outstanding.
What
are broker non-votes?
Broker
non-votes occur when nominees, such as banks and brokers holding shares on
behalf of beneficial owners, do not receive voting instructions from the
beneficial holders at least ten days before the meeting. In general, the broker
or nominee would have the discretion to vote these shares. Should there be any
“broker non-votes,” they will be counted as shares that are present determining
the presence of a quorum. At present, we are not aware of anything that will
come before the meeting involving matters where American Stock Exchange rules
bar brokers and nominees from voting if the beneficial owner fails to execute
and return a proxy.
What
vote is required to approve each proposal?
In the
election of directors, each nominee must receive a majority of “FOR” votes cast
to be elected. The other proposal requires the approving vote of holders of at
least a majority of the outstanding shares.
You
should note that certain of our officers and directors own approximately
three-fifths of the outstanding shares of common stock that will be entitled to
vote at the meeting (see “Security Ownership of Certain Beneficial Owners and
Management”). We anticipate that these shares will be voted “FOR” the director
nominees and “FOR” the approval to amend our Certificate of Incorporation to
change our name. Thus, both proposals are expected to pass.
What
does it mean if I get more than one proxy card?
It means
your shares are in more than one account. You should vote the shares on all of
your proxy cards.
How
can I consolidate multiple accounts registered in variations of the same
name?
If you
have multiple accounts, we encourage you to consolidate your accounts by having
all your shares registered in exactly the same name and address. You may do this
by contacting our transfer agent, Securities Transfer Corporation, by phone
(469/633-0101) or by mail to 2591 Dallas Parkway, Suite 102, Frisco, Texas
75034.
What
if I want to change my vote?
You can
change your vote on a proposal at any time before the meeting for any reason by
revoking your proxy. Proxies may be revoked by:
| · |
Filing
a written notice of revocation, which includes a later date than the proxy
date, with our secretary at or before the
meeting; |
| · |
Properly
executing a later proxy relating to the same shares;
or |
| · |
Attending
the meeting and voting in person; however, attendance at the meeting will
not in and of itself constitute a revocation of a
proxy. |
Any
written notice revoking a proxy should be sent to: Secretary, The Leather
Factory, Inc., P.O. Box 50429, Fort Worth, Texas 76105-0429.
Where
can I find the voting results of the Annual Meeting?
We plan
to announce preliminary voting results at the meeting and publish final results
in our quarterly report on SEC Form 10-Q for the second quarter of
2005.
How
can I receive a copy of the annual report?
We
provide a free copy of our Annual Report on Form 10-K that includes the
financial statements and schedules, but does not include the exhibits. If you
would also like the report’s exhibits, we will provide copies of the exhibits.
We may charge a reasonable fee for providing these exhibits.
In order
to receive this report, you must request a report in writing and mail the
request to The Leather Factory, Inc., P.O. Box 50429, Fort Worth, Texas
76105-0429, Attention: Shannon L. Greene, Chief Financial Officer. In addition,
information concerning obtaining our complete Form 10-K with exhibits and other
securities filings from the Securities and Exchange Commission and our website
is contained in Item 1 of the enclosed Form 10-K.
PROPOSAL
ONE: ELECTION OF DIRECTORS
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL NOMINEES
All eight
directors are to be elected at the Annual Meeting to hold office until the next
annual meeting of stockholders and until their successors have been duly elected
and qualified. Currently there are eight directors. It is the intention of the
persons named in the accompany form of proxy card to vote for the election of
all eight nominees listed below for election as our directors unless authority
to so vote is withheld. All nominees have indicated their willingness to serve
for the ensuing term. If any nominee is unable or declines to serve as a
director at the date of the Annual Meeting, the persons named in the proxy card
have the right to use their discretion to vote for a substitute.
Wray
Thompson,
73, has
served as our Chairman of the Board and Chief Executive Officer since June 1993.
He also served as President from June 1993 to January 2001. Mr. Thompson
was a co-founder of the company.
Shannon
L. Greene, 39, has
served as our Chief Financial Officer and Treasurer since May 2000 and as a
director since January 2001. From September 1997 to May 2000, Ms. Greene served
as our controller and assistant controller. Ms. Greene, a certified public
accountant, is a member of the company’s Employees’ Stock Ownership Plan (ESOP)
Committee. Her professional affiliations include the American Institute of
Certified Public Accountants, the Texas Society of Certified Public Accountants,
the Fort Worth Association of Financial Professionals, and the National Investor
Relations Institute.
T.
Field Lange, 37, has
served as a director of the company since May 2003. Mr. Lange, a certified
public accountant, is the president of Lange & Associates, P.C., a public
accounting firm in Fort Worth, Texas. His professional affiliations include the
American Institute of Certified Public Accountants and the Texas Society of
Certified Public Accountants. Mr. Lange holds a Bachelor of Science degree with
a major in accounting from Texas Christian University.
Joseph
R. Mannes, 46, has
served as a director of the company since May 1998. Currently, Mr. Mannes serves
as the managing director in the corporate finance department of SAMCO Capital
Markets, a Dallas, Texas broker-dealer. He also serves on the advisory board of
Conchemco, Inc. and is chairman of HiTech Creations, Inc. Mr. Mannes has an MBA
in Accounting and Finance from the Wharton School, Graduate Division, of the
University of Pennsylvania and also holds a Chartered Financial Analyst
designation. He has over ten years of experience in various chief financial
officer positions.
H.W.
Markwardt,
69, has
served as a director of the company since May 1996. Retired since 1995, he
currently manages his personal investments. He is the father of Michael A.
Markwardt, another of the company’s directors.
Michael
A. Markwardt,
46, has
served as a director of the company since January 2001. He currently serves as
majority owner and managing partner of Legare, L.P., an importer of furniture in
the U.S. and Europe. Mr. Markwardt also services and vice president of Markwardt
Investments, Inc. and SBM Properties, Inc., family corporations dealing in
securities, fixed income and real estate investments. He is the son of H.W.
Markwardt, another of the company’s directors.
Ronald
C. Morgan, 57, has
served as our President since January 2001 and has served as Chief Operating
Officer and director since June 1993. Mr. Morgan was also a co-founder of
the company.
Michael
A. Nery, 32, has
served as a director of the company since December 2003. Since September 1999,
his investment advisory firm has directed the investments of Nery Capital
Partners, L.P., an investment fund based in Ashville, NC. From January 1997 to
May 1999, he served as Vice President and Senior Analyst with Denver Energy
Partners, LP.
The
information relating to the occupations and security holdings of our directors
is based upon information received from them.
STOCK
OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The
following table sets forth information, as of March 31, 2005, concerning:
| · |
Beneficial
ownership by our current directors and the named executive officers set
forth in the Summary Compensation table below;
and |
| · |
Beneficial
ownership by all our current directors and executive officers as a
group. |
The
information provided in the table is based on our records, information filed
with the Securities and Exchange Commission and information provided to us,
except where otherwise noted.
The
number of shares beneficially owned by each entity, person, director or
executive officer is determined under the rules of the Securities and Exchange
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under these rules, beneficial ownership
includes any shares as to which the individual has the sole or shared voting
power or investment power and also any shares that the individual has the right
to acquire now or within 60 days after the record date of April 20, 2005 through
the exercise of any stock option or other right. Unless otherwise indicated,
each person has sole voting and investment power (or shares such powers with his
or her spouse) with respect to the shares set forth in the following
table.
|
Name |
Direct |
Indirect |
ESOP |
Vested
Options |
Total |
Percent
of
Class |
|
Wray
Thompson |
1,639,387 |
- |
79,128 |
- |
1,718,515 |
16.12% |
|
Ronald
C. and Robin L. Morgan (1) |
3,117,808 |
- |
176,937 |
- |
3,294,745 |
30.91% |
|
Shannon
L. Greene |
17,350 |
- |
10,288 |
103,000 |
130,638 |
1.23% |
|
T.
Field Lange |
1,000 |
- |
- |
4,000 |
5,000 |
* |
|
Joseph
R. Mannes |
7,000 |
- |
- |
14,000 |
21,000 |
* |
|
H.W.
Markwardt |
62,600 |
- |
- |
4,000 |
66,600 |
* |
|
Michael
A. Markwardt |
27,000 |
- |
- |
4,000 |
31,000 |
* |
|
Michael
A. Nery (2) |
- |
1,000,000 |
- |
- |
1,000,000 |
9.38% |
|
All
current directors and executive officers as a group (9
persons) |
6,267,498 |
58.81% |
___________
*
Represents holdings of less than one percent.
| (1) |
Ronald
C. Morgan, a director and the Company's President, and Robin L. Morgan,
the company's Vice President of Administration and Assistant Secretary,
are married. Shares beneficially owned by Mr. and Mrs. Morgan are held as
community property. |
| (2) |
Mr.
Nery is the owner of an investment advisory firm that directs the
investments of Nery Capital Partners, L.P., which is the record holder of
the shares indicated. |
PRINCIPAL
HOLDERS OF STOCK
The
following table sets forth information regarding beneficial owners of more than
5 percent of the outstanding shares of our stock, other than our officers and
directors identified above.
|
Name
and Address |
Number
of Shares
Beneficially
Owned |
Percent
of Class |
|
The
Leather Factory, Inc.
Employees'
Stock Ownership Plan & Trust
P.O.
Box 50429
Fort
Worth, Texas 76105-0429 |
948,147 |
9.00% |
The
Trustee of the Employees' Stock Ownership Plan & Trust ("ESOP") votes the
shares held by the ESOP that are allocated to participant accounts as directed
by the participants or beneficiaries of the ESOP. Except in certain limited
circumstances, the Trustee may acquire and dispose of the assets of the ESOP
only as the ESOP Committee directs. The ESOP Committee is made up of officers
and other employee participants of the Company and presently consists of Robin
L. Morgan, Shannon L. Greene, and three other employees. As members of this
Committee, these persons may be deemed to share investment power with respect to
the allocated shares held by the ESOP. Each member of the ESOP Committee
disclaims beneficial ownership of the securities held by the ESOP except for
those that have been allocated to the member as a participant in the ESOP. The
total number of shares held by the ESOP includes 266,353 shares that are
beneficially owned by the Executive Officers and are also included in the
directors and executive officers ownership table above as being owned by those
persons.
ADDITIONAL
INFORMATION CONCERNING
OUR
BOARD OF DIRECTORS
| · |
Meeting
Attendance |
During
fiscal 2004, the board of directors held four meetings. All current directors
who served during 2004 attended 75% or more of the aggregate of the total number
of meetings of the board of directors and of committees of the board of which he
or she was a member, with the exception of Michael A. Markwardt. Although we do
not have a formal policy regarding director attendance at our Annual Meeting,
all directors are expected to attend the meeting and in 2004, all directors were
in attendance.
| · |
Director
Independence |
The board
of directors has considered the listing requirements of the American Stock
Exchange for "independence" of directors, and it has determined that all of its
non-employee directors are independent. Our independent directors hold executive
sessions at least once a year.
| · |
Director
Compensation |
Non-employee
directors receive $1,000 for each board meeting attended and $500 for each
committee meeting attended, with the exception of the committee chairman who
receives $750 for each committee meeting attended. In addition, we are currently
authorized to grant nonqualified stock options to purchase 2,000 shares of our
common stock per year to each of our non-employee directors under our 1995
Director Non-Qualified Stock Option Plan and therefore, granted 2,000 shares
each to four of our five non-employee directors. One director has elected to
forego his annual grant. The goal of this stock option plan is to provide a
means of attracting and retaining competent non-employee personnel to serve on
our board of directors by offering individuals long-term equity incentives tied
to our performance. Each of our non-employee directors is eligible to
participate in this option plan.
Our
directors who are also employees receive no additional compensation for serving
as directors.
| · |
Committees |
As of the
date of this proxy statement, our board has five committees: (1) Audit, (2)
Compensation, (3) Nominating, (4) 1995 Director Non-Qualified Stock Option Plan
Committee, and (5) 1995 Stock Option Plan Committee. The membership during the
last fiscal year and the function of each committee are described
below.
|
Name |
Audit |
Compensation |
Nominating |
Director
Non-Qualified Stock Option
Plan |
Stock
Option
Plan |
|
Non-employee
directors: |
|||||
|
T.
Field Lange |
X |
X |
X* |
X | |
|
Joseph
R. Mannes |
X* |
X |
X |
X | |
|
H.W.
Markwardt |
X |
X |
X |
X | |
|
Michael
A. Markwardt |
X |
X* |
X |
||
|
Michael
A. Nery |
X |
X |
X |
||
|
Employee
directors: |
|||||
|
Wray
Thompson |
X* |
X | |||
|
Shannon
L. Greene |
X |
||||
|
Ronald
C. Morgan |
X |
X* | |||
|
Number
of meetings in Fiscal 2004 |
5 |
1 |
0 |
1 |
1 |
_______________________
X =
Committee member; * = Committee Chairman
Audit
Committee
The Audit
Committee’s basic role is to assist the board in fulfilling its fiduciary
responsibility pertaining to our accounting policies and reporting practices.
Among other duties, the Audit Committee is to be the board's principal agent in
assuring the independence of our outside auditor, the integrity of management,
and the adequacy of disclosures to stockholders. The board has determined that
all members of the Audit Committee are "independent" under the applicable rules
of the American Stock Exchange and that Joseph R. Mannes, chairman of the Audit
Committee in 2004 and 2005, and T. Field Lange, committee member, both qualify
as an "audit committee financial expert" as defined by the SEC. The board of
directors has adopted a written charter for the Audit Committee, which is
available on our website at www.leatherfactory.com. The committee met five times
during 2004. The Audit Committee has not made a recommendation to the board
regarding the retention or non-retention of Weaver & Tidwell, LLP as
independent outside auditor for 2005. The committee historically meets in the
fall to discuss the selection of auditors for the current year. The Report of
the Audit Committee for the fiscal year ended December 31, 2004 appears
below.
Compensation
Committee
The
Compensation Committee is responsible for recommending to the board of directors
the compensation program of the executive officers. The basic philosophy of the
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. None
of the members were a party to any material transaction with us during the past
year. In addition, none of our executive officers served as a member of the
compensation or similar committee or board of directors of any other entity of
which an executive officer served on our Compensation Committee or our board of
directors. The committee met one time during 2004. The Report of the
Compensation Committee for 2004 appears below.
Nominating
Committee
The
Company has a nominating committee consisting of five directors, all of whom are
"independent" under the American Stock Exchange rules. The committee did not
meet during 2004.
The board
of directors has adopted a written charter for the Nominating Committee, which
is available on our website at www.leatherfactory.com. This charter provides
that the Nominating Committee is responsible for identifying individuals
qualified to become directors consistent with criteria established by the board
of directors. Although the board of directors has not yet established these
criteria, the charter also provides that the Nominating Committee shall take
into account such additional factors as it deems appropriate in evaluating
candidates. These factors may include strength of character, mature judgment,
career specialization, relevant technical skills, diversity and the extent to
which a candidate would fill a present need on the committee. In addition, the
charter states that the committee will consider stockholder recommendations of
director nominees, as well as nominations by senior officers of the Company. The
committee plans to evaluate all director nominees in a like manner without
regard as to who recommended the nomination. Traditionally, we have not engaged
third parties to identify or evaluate potential directors or to assist in that
process. In addition, the Nominating Committee makes a review and evaluation at
least annually of the board of directors and the committee's own performance.
Further, the committee recommends persons to serve on the committee as members,
as well as the possible removal of any incumbent committee members.
Stockholders
may nominate director nominees for consideration by writing to our corporate
secretary at 3847 East Loop 820 South, Fort Worth, Texas 76119. Any such
nomination must include:
| · |
As
to each person whom the stockholder proposes to nominate for election or
re-election as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors, or as otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended, or any
successor regulation thereto (including such person’s written consent to
being named in the proxy statement as a nominee and to serving as a
director if elected); and |
| · |
The
nominating stockholder’s name and address, as they appear on our books,
and the class and number of our shares beneficially owned by
him. |
In order
to be considered by the Nominating Committee with respect to nominees for the
2006 Annual Meeting of Stockholders, prospective nominee recommendations must be
received by the corporate secretary no later than 30 days and no earlier than 60
days before such meeting.
1995
Stock Option Plan Committee
The 1995
Stock Option Plan Committee reviews and approves the granting of incentive stock
options to key personnel under the 1995 Stock Option Plan. The committee met one
time during 2004 to approve stock options grants totaling 10,000
shares.
1995
Director Stock Option Plan Committee
The 1995
Director Stock Option Plan Committee reviews and approves granting of stock
options to the non-employee directors pursuant to the 1995 Director
Non-Qualified Stock Option Plan. The committee met one time during 2004 to
approve stock option grants totaling 8,000 shares.
PROPOSAL
TWO: APPROVAL OF AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
TO
CHANGE OUR NAME TO TANDY
LEATHER FACTORY, INC.
THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE PROPOSAL TO AMEND OUR
CERTIFICATE OF INCORPORATION TO CHANGE OUR NAME TO TANDY LEATHER FACTORY, INC.
PROXIES SOLICATED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS
OTHERWISE SPECIFY IN THEIR PROXIES.
Our board
of directors has approved an amendment to Article First of our Certificate of
Incorporation to change our name from The Leather Factory, Inc. to Tandy Leather
Factory, Inc. The complete text of the proposed amendment is attached to this
Proxy Statement as Exhibit A.
Tandy
Leather Company, founded by Charles Tandy and his father, was the first U.S.
company dedictated to leathercaft. As such, we believe that Tandy’s name
recognition is the best in the industry. In recent
years, we have concentrated our efforts on establishing a retail presence by
establishing and expanding the Tandy Leather retail leathercraft store chain as
we believe that this strategy provides the best opportunity for significant
growth. In addition, our wholesale operation, The Leather Factory, has provided
more than twenty years of stability and predictability that enabled us to
purchase Tandy Leather Company. In order to accurately reflect the long-term
stability of The Leather Factory while at the same time promote the name
recognition of Tandy Leather Company, the board of directors believes it is in
the best interest of the company and our stockholders to change our name to
Tandy Leather Factory, Inc.
This
change will enable us to capitalize on the proven and measurable name and brand
identity of Tandy at the corporate level as well as in its financial and
corporate communications. This utilization, in addition to the universal
recognition of the Tandy name, will also eliminate any confusion between the
Leather Factory corporate name and Tandy Leather.
The
affirmative vote of holders of a majority of the shares of common stock entitled
to vote at the Annual Meeting is required for approval of the proposed name
change. If approved by the stockholders, the proposed name change will become
effective upon the filing of a Certificate of Amendment with the Delaware
Secretary of State amending our Certificate of Incorporation, which will occur
as soon as reasonably practicable.
Report
of the Audit Committee
As
members of the Audit Committee, we oversee the company's financial reporting
process on behalf of our board of directors. Management is responsible for the
preparation, presentation, and integrity of our financial statements, accounting
and financial reporting principles, internal controls, and procedures designed
to ensure compliance with accounting standards, applicable laws, and
regulations.
During
2004, we analyzed the service provided by and associated costs of our external
auditing firm. As a result, we recommended and the board approved the
appointment of Weaver & Tidwell, LLP as independent auditors for the year
ended December 31, 2004. Our auditors are responsible for performing an
independent audit of the consolidated financial statements and expressing an
opinion on the conformity of those audited financial statements with accounting
principles generally accepted in the United States.
The Audit
Committee has reviewed and discussed our audited financial statements for the
year ended December 31, 2004 with our management and has discussed with Weaver
& Tidwell, LLP the matters required to be discussed by Statement on Auditing
Standards Board Standard No. 61, as amended, “Communication
with Audit Committees.” In
addition, Weaver & Tidwell, LLP has provided the audit committee with the
written disclosures and the letter required by Independence Standards Board
Standards No. 1, “Independence
Discussions with Audit Committees,” and the
audit committee has discussed with Weaver & Tidwell, LLP their independence
from The Leather Factory, Inc. and our management.
Based on
these reviews and discussions, the audit committee recommended to the board of
directors that the audited financial statements be included in our Annual Report
on Form 10-K for the year ended December 31, 2004, for filing with the
Securities and Exchange Commission.
|
AUDIT
COMMITTEE: | |
|
JOSEPH
R. MANNES, Chairman | |
|
T.
FIELD LANGE | |
|
H.W.
MARKWARDT | |
|
MICHAEL
A. MARKWARDT | |
|
MICHAEL
A. NERY |
***********************
Our Audit
Committee selected Weaver & Tidwell, LLP to serve as our independent public
accountant for the year ended December 31, 2004. A representative of Weaver
& Tidwell is expected to attend our annual meeting. The representative will
have the opportunity to make a statement at the meeting and respond to
appropriate questions from you, our stockholders. Our Audit Committee has not
named the independent public accounting firm that will serve as outside auditor
for 2005.
Audit
Fees. Weaver
& Tidwell performed the audits of our 2003 and 2004 financial statements, as
well as the reviews of our Forms 10-Q for 2004 and the third quarter 2003. Hein
+ Associates LLP, who performed the audit of our 2002 financial statements,
performed reviews of our Forms 10-Q for the first two quarters of 2003. The
amounts shown below are the aggregate amounts paid to these firms during 2003
and 2004 for services in the categories indicated.
|
Hein
& Associates, LLP |
Weaver
& Tidwell, LLC | |||
|
Types
of Fees |
2003 |
2004 |
2003 |
2004 |
|
Audit
fees |
$17,190 |
- |
$46,250 |
$53,790 |
|
Audit-related
fees |
- |
$1,765 |
- |
2,425 |
|
Tax
fees |
- |
- |
- |
- |
|
All
other fees |
- |
- |
- |
- |
|
Total |
$17,190 |
$1,765 |
$46,250 |
$56,215 |
The
audit-related fees related to a Form S-3 that we filed in July 2004. In
accordance with the charter of our Audit Committee as in effect at the relevant
times and the rules of the SEC, the Audit Committee approved all of the fees
indicated above before the services were provided.
Effective
August 18, 2003, the Audit Committee unanimously recommended and directed (a)
the dismissal of Hein + Associates as our independent accountants and (b) the
engagement of Weaver & Tidwell as our independent accountants to audit our
consolidated financial statements for the fiscal year ending December 31, 2003.
The
reports of Hein + Associates on our consolidated financial statements for either
of the past two fiscal years did not contain an adverse opinion or a disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope, or
accounting principles. In connection with the audits of our financial statements
for each of the two fiscal years ended December 31, 2002, and in the subsequent
interim periods, there were no disagreements between Hein + Associates and us on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures that, if not resolved to the
satisfaction of Hein + Associates, would have caused Hein + Associates to make
reference to the subject matter of the disagreement(s) in its reports. During
the two fiscal years ended December 31, 2002 and through August 18, 2003, there
have been no reportable events (as defined in Securities and Exchange Commission
Regulation S-K Item 304(a)(1)(v)).
No
consultations occurred between Weaver & Tidwell and us during the two fiscal
years and any interim period preceding the appointment of Weaver & Tidwell
regarding the application of accounting principles to a specific transaction
(either completed or proposed), the type of audit opinion that might be rendered
on our consolidated financial statements or any other accounting, auditing or
financial reporting matter required to be disclosed here pursuant to Regulation
S-K Item 304(a)(2).
Report
of the Compensation Committee
In 2004,
our Compensation Committee consisted of non-employee directors. None of these
directors participate in the compensation programs described in this report. The
Compensation Committee is responsible for reviewing and making recommendations
to our board of directors regarding the compensation of our executive officers.
Our board of directors has final approval of executive officer compensation. We
review the performance of each executive officer on at least an annual basis.
Compensation
for our executive officers consists of the following components:
| · |
Annual
base salary; |
| · |
Annual
incentive bonus; |
| · |
Long-term
compensation in the form of stock option
grants; |
| · |
Company
contributions to our ESOP. |
Annual
corporate performance is a key factor in determining the amount of annual
discretionary bonuses awarded. Other forms of compensation are not directly tied
to our annual performance.
Base
salary. During
2004, we sought to establish base salaries of our executive officers at levels
that, in the judgment of the committee members and the board of directors, were
sufficiently competitive to retain qualified executive officers. These salary
levels were determined based on prior experience and compared to salaries for
comparable positions in other companies. Base salaries are generally increased
annually assuming our financial performance is satisfactory.
Bonuses.
Historically, we award discretionary bonuses to our executive officers as well
as certain other employees. We determine these bonuses on a subjective basis,
considering prior bonus amounts awarded, business prospects for the upcoming
year, and the improvement in our net income for the year in question. The
Compensation Committee determines the bonuses awarded to the executive officers,
while the executive officers determine bonuses awarded to non-officer employees.
For the fiscal year ended December 31, 2004, bonuses were awarded to the
executive officers based on our overall growth and the improvement in our
operating results in fiscal 2004 compared to fiscal 2003.
Stock
options. Ms.
Greene is the only executive officer who is eligible for stock option grants as
our stock option plan specifically prohibits grants of stock options to Mr.
Thompson, Mr. Morgan and Ms. Morgan. No options were granted to Ms. Greene
during 2004.
Employees’
Stock Ownership Plan. Our
ESOP was established to provide long-term incentive compensation for our
employees. The executive officers participate in the ESOP in the same manner as
all other plan participants. We make annual cash contributions to a trust for
the benefit of eligible employees and the trust in turn invests in shares of our
common stock. An unaffiliated bank is trustee of the trust.
During
2004, our chief executive officer’s base salary rate was $168,000, the same as
for 2003. This base salary was, in the opinion of the committee and the board of
directors, consistent with salaries for comparable positions within our
industry. In addition, the Compensation Committee awarded an incentive bonus of
$35,000 to our chief executive officer for 2004.
|
COMPENSATION
COMMITTEE: | |
|
MICHAEL
A. MARKWARDT, Chairman | |
|
T.
FIELD LANGE | |
|
H.W.
MARKWARDT | |
|
JOSEPH
R. MANNES | |
|
MICHAEL
A. NERY |
*******************
The
Compensation Committee of our board of directors is responsible for oversight of
our executive compensation program. The committee submits all issues concerning
executive compensation to the full board of directors for approval. This
committee does not review or approve stock option grants.
The
following table includes certain information concerning annual and other
compensation for all executive services for the years ended December 31, 2004,
2003 and 2002 paid to our executive officers.
SUMMARY
COMPENSATION TABLE
|
Annual
Compensation |
Long-Term
Compensation
Awards |
||||
|
Name
and Principal Position |
Year |
Salary
($) |
Bonus
($) |
Securities
Underlying
Options
(#) |
All
Other Compensation
($)
(1) |
|
Wray
Thompson |
2004 |
$168,000 |
$35,000 |
- |
$6,017 |
|
Chairman
and Chief |
2003 |
168,000 |
- |
- |
6,395 |
|
Executive
Officer |
2002 |
160,000 |
50,000 |
- |
11,331 |
|
Ronald
C. Morgan |
2004 |
$155,000 |
$35,000 |
- |
$5,551 |
|
President
and Chief |
2003 |
155,000 |
- |
- |
6,395 |
|
Operating
Officer |
2002 |
145,000 |
50,000 |
- |
10,459 |
|
Shannon
L. Greene |
2004 |
$95,000 |
$35,000 |
- |
$3,468 |
|
Treasurer
and Chief |
2003 |
95,000 |
- |
25,000 |
3,991 |
|
Financial
Officer |
2002 |
85,000 |
30,000 |
- |
6,094 |
|
Robin
L. Morgan |
2004 |
$80,000 |
$10,000 |
- |
$2,865 |
|
Vice
President of Administration |
2003 |
80,000 |
- |
- |
2,878 |
|
And
Assistant Secretary |
2002 |
76,000 |
10,000 |
- |
4,852 |
(1)
The
amounts in this column represent the amounts accrued on behalf of the named
individuals for the annual contribution to our ESOP.
OPTION
EXERCISES IN 2004 AND 2004 YEAR-END OPTION VALUES
The
following table provides information on option exercises with respect to our
common stock in fiscal 2004 by the named executive officer and the values of the
officer's unexercised options at December 31, 2004. There were no stock
appreciation rights exercised or outstanding.
|
Name |
Number
of Shares Acquired on
Exercise |
Value
Realized |
Number
of Securities Underlying Unexercised Options
at
Fiscal
Year-End |
Value
of Unexercised In-the-Money Options at
Fiscal
Year-End (1) | ||
|
Exercisable |
Unexercisable |
Exercisable |
Unexercisable | |||
|
Shannon
L. Greene |
- |
- |
103,000 |
42,000 |
$238,725 |
$52,525 |
(1) The
value of unexercised options is based upon the difference between the exercise
price and the closing market price on December 31, 2004, which was
$3.55.
PERFORMANCE
GRAPH
The line
graph below compares the yearly percentage change in our cumulative five-year
total stockholder return on our common stock with the Standard & Poor’s
SmallCap 600 Index, the S&P Specialty Stores Index*, and the common stock of
a peer group of companies whose returns are weighted according to their
respective market capitalization. The graph assumes that $100 was invested on
December 31, 1999 in our common stock, the Standard & Poor’s SmallCap
600 Index, the S&P Specialty Stores Index, and our peer group, and that all
dividends were reinvested. Our peer group consists of companies with publicly
traded stock included in SIC 5190 - Miscellaneous Non-Durable Goods Wholesale.
The returns shown on the graph are not necessarily indicative of future
performance.
COMPARISON
OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
The
Leather Factory, Inc.
|
Company
Name / Index |
Dec
99 |
Dec
00 |
Dec
01 |
Dec
02 |
Dec
03 |
Dec
04 |
|
LEATHER
FACTORY INC |
100 |
123.00 |
255.84 |
415.74 |
595.33 |
436.65 |
|
S&P
SMALLCAP 600 INDEX |
100 |
111.80 |
119.11 |
101.69 |
141.13 |
173.09 |
|
S&P
SPECIALTY STORES |
100 |
83.43 |
134.67 |
119.70 |
161.18 |
169.57 |
|
PEER
GROUP |
100 |
83.12 |
103.07 |
115.17 |
160.53 |
166.35 |
Data
Source: Research Data Group, Inc., San Francisco, CA
* The
Peer Group will be replaced in subsequent years with the S&P Specialty
Stores Index because we feel it provides a more meaningful comparison
given the company’s recent shift in business strategy to that of a
specialty retailer.
(1) The
following companies comprise the Peer Group Index: Advanced Marketing Services,
Amcon Distributing Co., Amrep Corp., Boyds Collection Limited, Dimon Inc.,
Educational Development Corp, Enesco Group Inc., Finishmaster Inc., Knox Nursery
Inc., ODD Jobs Stores Inc, Oil-DRI Corp of America, Provide Commerce Inc.,
Tractor Supply Company and Zaldiva Inc.
OTHER
RELATIONSHIPS INVOLVING DIRECTORS,
EXECUTIVE
OFFICERS, OR THEIR ASSOCIATES
During
2004, the public accounting firm of Cole, Greene & Ruggeburg, P.C., of which
the spouse of Ms. Shannon L. Greene, Treasurer, Chief Financial Officer, and
director of the company, is a minority stockholder, was engaged to provide tax
preparation services to us. Fees paid to the accounting firm in 2004 totaled
$32,960 (less than 5% of the firm's annual revenues). Our Audit Committee
considered and approved the engagement of Cole, Greene & Ruggeburg,
P.C.
SECTION
16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Sections
16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors, executive officers and holders of more than 10% of our common stock
to file reports regarding their ownerships and changes in ownership of our
securities with the Securities and Exchange Commission. We believe that, during
fiscal 2004, our directors, executive officers and 10% stockholders complied
with all Section 16(a) filing requirements, with the following exceptions: Form
4's were not filed timely on five transactions during the year - one occurring
on February 11, 2004 (Director, H.W. Markwardt) and four on September 27, 2004
relating to an annual stock option grant (Directors, H.W. Markwardt, Michael
Markwardt, Joseph Mannes, and T. Field Lange). We believe that the lack of
timely filing was a result of an oversight by the parties involved. Late filings
on these transactions were made on February 17, 2004 and October 4, 2004,
respectively. Our disclosure on this topic is based solely on review of the
information provided to us by persons subject to these
requirements.
OTHER
MATTERS
Solicitation
of Proxies
We, the
company, will pay for the cost of soliciting proxies. Our directors, officers
and employees may solicit proxies. They will not be paid for soliciting the
proxies but may be reimbursed for out-of-pocket expenses related to the proxy
solicitation. Proxies may be solicited in person, by mail, by telephone, by
telegram or other means of communication. We will make arrangements with
custodians, nominees and fiduciaries in order to forward proxy solicitation
materials to beneficial owners of common stock.
Stockholder
Proposals for 2006
If you
wish to present a proposal for consideration at an annual meeting, you must send
written notice of the proposal to our corporate secretary not less than ten days
before such annual meeting. We have not received notice of any stockholder
proposals to be presented at this year’s meeting.
If you
would like your proposal to be included in next year’s proxy statement, you must
submit it to our corporate secretary by no later than December 23, 2005. We will
include your proposal in our next annual proxy statement if it is a proposal
that we would be required to include pursuant to the rules of the Securities and
Exchange Commission. You may write to our corporate secretary at 3847 East Loop
820 South, Fort Worth, Texas 76119 to present a proposal for
consideration.
If a
stockholder raises a matter at the meeting that requires a stockholder vote, the
person to whom you have given your proxy will use his or her discretion to vote
on the matter on your behalf. According to our by-laws, any proposal properly
raised at the meeting by a stockholder will require the affirmative vote of a
majority of the shares deemed present at the meeting, whether in person or by
proxy.
Stockholder
Communications with Board
Stockholders
who wish to communicate with the Chairman or with the independent directors as a
group may do so by writing to the corporate secretary at The Leather Factory,
Inc., PO Box 50429, Fort Worth, Texas 76105-0429. The corporate secretary will
forward your communication to the independent directors or Chairman as requested
by the stockholder. All appropriate communications addressed to directors will
be reviewed by the corporate secretary. Because other appropriate avenues of
communication exist for matters that are not of stockholder interest, such as
general business complaints or employee grievances, communications that do not
relate to matters of stockholder interest will not be forwarded to the board.
The corporate secretary has the option, but not the obligation, to forward these
other communications to appropriate channels within the company.
Code
of Business Conduct and Ethics
We have
adopted a Code of Business Conduct and Ethics for directors, officers and
employees, which is available on the Corporate Governance section of our website
(under “Investor Relations”) at www.leatherfactory.com. The
code is also available in print to any stockholder upon written request to:
Corporate Secretary, The Leather Factory, Inc. P.O. Box 50429, Fort Worth, Texas
76105-0429.
EXHIBIT
A
PROPOSED
AMENDMENT TO ARTICLE FIRST OF THE
CERTIFICATE
OF INCORPORATION OF THE LEATHER FACTORY, INC.
CHANGE OF
COMPANY NAME
Article
FIRST of the Certificate of Incorporation is proposed to be amended to read in
its entirety as follows:
“First: The
name of the Corporation is Tandy Leather Factory, Inc.”
PROXY
CARD
THE
LEATHER FACTORY, INC.
THIS
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR
THE ANNUAL MEETING ON MAY 23, 2005
The
undersigned hereby appoint(s) Robin L. Morgan and William M. Warren, and each of
them, proxies or proxy of the undersigned with full power of substitution and
revocation, to act and vote all of the undersigned's shares of The Leather
Factory, Inc. common stock, with all the powers that the undersigned would
possess if personally present, at the Annual Meeting of Stockholders of The
Leather Factory, Inc. at Arlington, Texas on May 23, 2005, or any resumption of
the Annual Meeting after any adjournment thereof, as indicated on this proxy,
and in their discretion on any other matters which may properly come before the
meeting. If no directions are given, this proxy will be voted “FOR” Items 1 and
2.
TO VOTE
IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMMENDATIONS,
JUST SIGN
ON THE REVERSE SIDE - NO BOXES NEED TO BE CHECKED.
CONTINUED
AND TO BE SIGNED ON REVERSE SIDE
- - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - -
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
|
1..
Election of eight directors. |
2.
To approve an amendment to our Certificate of Incorporation to change our
name to Tandy Leather Factory, Inc. |
|
NOMINEES:
Shannon L. Greene, T. Field Lange, Joseph R. Mannes, H.W. Markdwardt,
Michael A. Markwardt, Michael A. Nery, Ronald C. Morgan, Wray
Thompson |
|
|
[
] FOR all nominees
[
] WITHHELD FROM all nominees |
[
] FOR
[ ]
AGAINST
[ ] ABSTAIN |
________________________________________________________________________________________________
For all
nominees except those written on line above
|
Mark
here for | |
|
address
change [ ] | |
|
and
note at left | |
|
Please
sign exactly as your name appears in this Proxy. Date and promptly return
this Proxy in the enclosed envelope. | |
|
Signature:
__________________________________ |
Signature:
____________________________________ |
|
Date:
______________________ |
Date:
_______________________ |