<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1996
REGISTRATION NO. 333-13967
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
WILSONS THE LEATHER EXPERTS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
MINNESOTA 5651 41-1839933
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
7401 BOONE AVENUE NORTH
BROOKLYN PARK, MINNESOTA 55428
(612) 391-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DAVID L. ROGERS
PRESIDENT
WILSONS THE LEATHER EXPERTS INC.
7401 BOONE AVENUE NORTH
BROOKLYN PARK, MINNESOTA 55428
(612) 391-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
KRIS SHARPE, ESQ. HOWARD L. SHECTER, ESQ.
FAEGRE & BENSON LLP MORGAN, LEWIS & BOCKIUS LLP
2200 NORWEST CENTER 101 PARK AVENUE
90 SOUTH SEVENTH STREET NEW YORK, NEW YORK 10178
MINNEAPOLIS, MINNESOTA 55402
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1996
3,000,000 SHARES
[LOGO OF WILSON LEATHER APPEARS HERE]
COMMON STOCK
-----------
All of the shares of Common Stock offered hereby (the "Shares") are being
sold by Wilsons The Leather Experts Inc. (the "Company" or "Wilsons"). It is
anticipated that the initial public offering price will be between $12.00 and
$14.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial offering price.
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the Company. The Company has applied to have the Common
Stock approved for quotation on the Nasdaq National Market under the trading
symbol "WLSN."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total (3)................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering payable by the Company estimated
at $670,000.
(3) The Underwriters have been granted an option by the Company, exercisable
within 30 days of the date hereof, to purchase up to 450,000 additional
shares of Common Stock at the Price to Public per share, less the
Underwriting Discount, for the purpose of covering over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
-----------
The Shares are offered severally by the Underwriters, when, as and if
delivered to and accepted by them, subject to their right to withdraw, cancel
or reject orders in whole or in part and subject to certain other conditions.
It is expected that delivery of certificates representing the Shares will be
made against payment on or about , 1996 at the offices of Oppenheimer &
Co., Inc., Oppenheimer Tower, World Financial Center, New York, New York 10281.
-----------
OPPENHEIMER & CO., INC.
LADENBURG THALMANN & CO. INC.
PIPER JAFFRAY INC.
The date of this Prospectus is , 1997.
<PAGE>
1.MEN'S LEATHER JACKETS AND COATS (TOP ROW, LEFT TO RIGHT)
1.Lambskin Bomber, Shirt Collar with zip-out Thinsulate lining
2."Retro" Button Front Hipster, heavy-weight Cowhide with Thinsulate lining
3.Zip Front, Cow Hide Hipster, straight bottom with Thinsulate lining
2.WOMEN'S LEATHER JACKETS AND COATS (TOP ROW, FAR RIGHT)
1."Urban" belted City Wrap in smooth Lambskin
3.WOMEN'S LEATHER JACKETS AND COATS (BOTTOM ROW, LEFT TO RIGHT)
1. 3/4 length Sueded "Faux" Shearling, reversible to acrylic Leopard Print
with Hood and toggle closures
2.Printed Cowhide Hipster "Retro" with zip front
3."Retro" jacket in black Cow Dove with straight bottom
4.Fitted smooth Cowhide "Retro" jacket with side tab buckles and silver
hardware
4.WILSONS THE LEATHER EXPERTS STORE AT RIDGEDALE MALL, MINNEAPOLIS, MINNESOTA
(BOTTOM PHOTOGRAPH).
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and consolidated financial
statements (including the notes thereto) and pro forma financial information
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
references to the "Company" or "Wilsons" mean Wilsons The Leather Experts Inc.
and its subsidiaries, including the Predecessor Companies, and all references
to the "Predecessor Companies" mean Wilsons Center, Inc., Rosedale Wilsons,
Inc. and their subsidiaries prior to the acquisition of such companies by the
Company from CVS New York, Inc., a New York corporation (formerly Melville
Corporation) ("Melville") on May 25, 1996 (the "Acquisition").
THE COMPANY
Wilsons is the leading specialty retailer of men's and women's leather
outerwear, apparel and accessories in the United States. In 1995, the Company
had net sales of $462.4 million, representing a management-estimated 18.0%
share of the $2.0 billion U.S. retail leather apparel market and a management-
estimated 2.8% share of the $3.9 billion U.S. retail leather accessories
market. As of November 2, 1996, the Company operated 476 stores. In addition,
the Company operates a significant number of holiday stores and seasonal kiosks
during its peak selling season, which for 1996 will total approximately 375
locations.
Wilsons operates in 45 states, the District of Columbia and England under
several formats including "Wilsons The Leather Experts," the Company's
traditional mall-based concept which offers moderately priced merchandise, and
"Tannery West" and "Georgetown Leather Design," mall-based concepts which offer
more upscale merchandise. In addition to the traditional mall-based stores, as
of November 2, 1996 Wilsons also operated nine airport stores that focus on
selling accessories, such as gloves, handbags, wallets, briefcases, planners
and computer cases, to business travelers and tourists, and eight outlet stores
located primarily in outlet malls that focus on the off-price sale of clearance
merchandise.
Unlike many retailers, Wilsons designs, purchases leather for, and contracts
for the manufacturing of most of the apparel and accessories sold in its
stores. This vertical integration enables the Company to reduce its order lead
times, respond more quickly to changing consumer preferences and fashion
trends, and offer its customers a better value through consistently high
quality products at competitive prices.
In May 1996, an investor group, including management, formed the Company to
acquire the Predecessor Companies from Melville. As part of a program to
enhance the Company's profitability, between January 1, 1995 and May 25, 1996,
management closed 156 stores that had not achieved cash flow targets, wrote off
an amount of goodwill and certain other non-productive assets and recorded
certain related lease obligations. Such store closings and charges are referred
to herein as the "Restructuring." As a part of the Restructuring, in 1995 the
Company recorded a restructuring charge of $134.3 million related to store
closings and the write-off of goodwill and other intangibles, and an asset
impairment charge of $47.9 million related to the write-off of certain assets
upon the adoption of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("SFAS No. 121").
Upon completion of the Offering and its transition to an independent public
company, Wilsons believes that it will have the capital resources and
management information systems to implement its long-term growth strategy,
which emphasizes the types of stores and products that offer greater growth
opportunities and higher profit margins in both existing and new distribution
channels. Specifically, this long-term growth strategy calls for annual
openings of approximately six to 15 traditional stores, two larger-sized mall
stores and 12 to 15 airport stores commencing in 1997. In addition, the Company
plans to increase the number of its holiday stores and seasonal kiosks by
approximately 50 locations each per year, to commence operation of accessory-
only stores, to increase the number of stores in military base post exchanges
("PXs") and leased department store units, and to open additional stores
outside of the United States.
The Company was incorporated as a Minnesota corporation in 1996. The
Company's principal executive offices are located at 7401 Boone Avenue North,
Brooklyn Park, Minnesota 55428 and its telephone number is (612) 391-4000.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered...................... 3,000,000 shares
Common Stock outstanding after the
Offering................................. 12,000,000 shares(1)(2)
Use of proceeds........................... The net proceeds will be used to
reduce outstanding indebtedness
under the Company's revolving credit
facility, which will enable the
Company to use future cash flow from
operations and other financial
resources for working capital and
anticipated capital expenditures,
including expenditures for new
stores. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.... WLSN
</TABLE>
- --------
(1) Includes 1,350,000 shares of Common Stock issuable upon exercise of a
warrant issued to Melville, with an exercise price of $.60 per share (the
"Melville Warrant"); excludes (i) 199,980 shares of Common Stock issuable
upon the exercise of outstanding stock options, with an exercise price of
$4.44 per share, and 800,020 shares of Common Stock reserved for issuance
pursuant to the Company's 1996 Stock Option Plan (the "1996 Option Plan"),
and (ii) 300,000 shares of Common Stock issuable upon exercise of certain
warrants issuable upon consummation of the Offering. See "Management,"
"Certain Transactions," "Description of Capital Stock" and "Underwriting."
(2) Includes 1,080,000 shares of Common Stock purchased by management as part
of the Acquisition that are subject to vesting upon the occurrence of
certain events (the "Restricted Stock"). To the extent that any such shares
of Restricted Stock do not vest by April 30, 2001, such shares will be
repurchased by the Company at a price of $.60 per share (the original
purchase price paid by management for such shares), and will no longer be
outstanding. Melville holds a second warrant (the "Manager Warrant") that
will become exercisable commencing April 30, 2001, at $.60 per share, for
the same number of shares of Common Stock that do not vest. See
"Management," "Certain Transactions" and "Description of Capital Stock."
----------------
Except as set forth in the consolidated financial statements or as otherwise
indicated herein, the information contained in this Prospectus (i) reflects the
conversion, upon completion of the Offering, of all of the Company's issued and
outstanding Class A Common Stock, Class B Common Stock and Class C Common Stock
(together, the "Class Stock") and all of the Class Stock to be issued and
outstanding upon exercise of the Melville Warrant and the Manager Warrant and
options under the 1996 Option Plan into a single class of common stock of the
Company, par value $.01 per share (the "Common Stock"), (ii) reflects a 0.9-
for-one reverse split of the Company's Common Stock effected October 11, 1996,
and (iii) assumes the Underwriters do not exercise their over-allotment option.
When information herein is said to be on a "pro forma" basis, such
information gives effect to the Restructuring and the Acquisition accounted for
under the purchase method of accounting, as if such events had occurred on
January 1, 1995. See "Pro Forma Unaudited Consolidated Statements of
Operations." The fiscal year of the Predecessor Companies prior to the
Acquisition was the year ended on December 31. In July 1996, the Company
changed the end of its fiscal year to the Saturday which is twenty-six weeks
after the Saturday closest to January 31, which for 1996 was August 3, 1996. In
conformity with the general practice in the retail industry, the Company
intends to change the end of its fiscal year to the Saturday which is closest
to January 31, which will be February 1, 1997. As a result of the Acquisition,
certain financial information for the five months ended May 27, 1995 and May
25, 1996 and for the period from inception (May 26, 1996) to August 3, 1996 is
presented in this Prospectus.
Reports. The Company intends to furnish to its shareholders annual reports
containing audited financial statements and quarterly reports containing
unaudited interim financial information for each of the first three quarters of
each fiscal year of the Company.
4
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS AND STORE DATA)
<TABLE>
<CAPTION>
PRO PREDECESSOR PREDECESSOR
PREDECESSOR COMPANIES FORMA(1) COMPANIES COMPANY COMPANIES COMPANY
------------------------------------ ------------ ---------------- ----------- ----------- -----------
PERIOD FROM
FIVE MONTHS INCEPTION THREE THREE
YEARS ENDED DECEMBER 31, ENDED (MAY 26, MONTHS MONTHS
------------------------------------ YEAR ENDED ---------------- 1996) TO ENDED ENDED
DECEMBER 31, MAY 27, MAY 25, AUGUST 3, OCTOBER 28, NOVEMBER 2,
1991 1992 1993 1994 1995 1995 1995 1996 1996 1995 1996
------ ------ ------ ------ ------- ------------ ------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Net sales....... $456.7 $509.2 $478.5 $474.6 $ 462.4 $409.7 $124.7 $109.6 $28.5 $ 82.5 $86.4
Gross profit.... 222.0 243.0 227.2 221.0 220.6 195.2 55.6 49.7 12.8 38.2 41.6
Selling, general
and
administrative
expenses....... 160.0 178.2 189.3 206.0 190.1 163.7 76.7 61.1 24.3 41.5 40.6
Depreciation and
amortization... 14.8 17.4 20.7 22.3 21.4 0.1 9.0 4.7 -- 5.2 0.1
Restructuring
and asset
impairment
charges........ -- -- -- -- 182.2 0.3 -- -- -- 182.2 --
------ ------ ------ ------ ------- ---------- ------ ------ --------- ------- ---------
Income (loss)
from
operations..... 47.2 47.4 17.2 (7.3) (173.1) 31.1 (30.1) (16.1) (11.5) (190.7) 0.9
Interest
expense, net... 9.4 6.9 5.1 8.4 10.4 8.0 3.4 1.6 1.2 3.3 2.4
------ ------ ------ ------ ------- ---------- ------ ------ --------- ------- ---------
Income (loss)
before income
taxes.......... 37.8 40.5 12.1 (15.7) (183.5) 23.1 (33.5) (17.7) (12.7) (194.0) (1.5)
Income tax
provision
(benefit)...... 16.5 17.0 7.0 (3.1) (10.1) 9.2 (5.5) (6.6) (4.6) (12.3) (0.5)
------ ------ ------ ------ ------- ---------- ------ ------ --------- ------- ---------
Net income
(loss)......... $ 21.3 $ 23.5 $ 5.1 $(12.6) $(173.4) 13.9 $(28.0) $(11.1) (8.1) $(181.7) (1.0)
====== ====== ====== ====== ======= ====== ====== =======
Less preferred stock dividends...................... 0.6 -- --
---------- --------- ---------
Net income (loss) attributable to common
shareholders....................................... $13.3 $(8.1) $(1.0)
========== ========= =========
Net income (loss) per common share.................. $1.10 $(0.89) $(0.11)
========== ========= =========
Weighted average common shares outstanding.......... 12,069,371 9,066,410 9,069,371
========== ========= =========
Other Data:
Income (loss)
from
operations
before
depreciation,
amortization
and
restructuring
charges(2).... $62.0 $64.8 $37.9 $15.0 $30.5 $31.5 $(21.1) $(11.4) $(11.5) $(3.3) $1.0
====== ====== ====== ====== ======= ========== ====== ====== ========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES PRO FORMA(1) PREDECESSOR COMPANIES COMPANY
-------------------------------- ------------ ---------------------------- ------------
FIVE MONTHS
YEARS ENDED DECEMBER 31, ENDED THREE MONTHS THREE MONTHS
-------------------------------- YEAR ENDED --------------- ENDED ENDED
DECEMBER 31, MAY 27, MAY 25, OCTOBER 28, NOVEMBER 2,
1991 1992 1993 1994 1995 1995 1995 1996 1995 1996
---- ---- ----- ---- ---- ------------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STORE DATA:
Traditional stores:
Open at end of period.. 552 583 631 628 548 477 567 480 567 476
Net sales per square
foot for stores open
entire year........... $407 $416 $356 $341 $374 $391 -- -- -- --
Change in comparable
store sales(3)........ (3.1)% 2.1% (13.8)% (5.1)% (1.5)% (1.2)% 4.4% 3.9% (16.3)% 8.8%
Seasonal stores at end
of period.............. 0 32 80 135 227 227 0 0 112 226
</TABLE>
<TABLE>
<CAPTION>
COMPANY
-------------------------------
NOVEMBER 2, 1996
-------------------------------
AS ADJUSTED AS FURTHER
FOR WARRANT ADJUSTED FOR
ACTUAL EXERCISE(4) OFFERING(5)
------ ----------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $ 50.1 $ 50.9 $ 86.5
Total assets.................................... 149.6 150.4 186.0
Total long-term debt............................ 55.8 55.8 55.8
Total liabilities............................... 146.8 146.8 146.8
Shareholders' equity............................ 2.9 3.7 39.3
</TABLE>
- -------
(1) The unaudited pro forma data give effect to the Restructuring and the
Acquisition accounted for under the purchase method of accounting, as if
such events had occurred on January 1, 1995. See "Pro Forma Unaudited
Consolidated Statements of Operations."
(2) See Note (2) under "Selected Historical and Pro Forma Consolidated
Financial Data" for a description of this data.
(3) Comparable store sales means sales generated by stores open at least one
full year.
(4) As adjusted to give effect to the exercise of the Melville Warrant for
1,350,000 shares of Common Stock, at its exercise price of $.60 per share.
(5) As further adjusted to give effect to the sale by the Company of 3,000,000
shares of Common Stock assuming an initial public offering price of $13.00
per share and the application of the net proceeds therefrom as described in
"Use of Proceeds."
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock being offered by this Prospectus
involves a high degree of risk. In addition, this Prospectus contains forward-
looking statements that involve risks and uncertainties. Discussions
containing such forward-looking statements may be found in the material set
forth under "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Overview," "--Business Strategy," "--Growth Strategy," "--Vertically
Integrated Operations," "--Store Formats," "--Marketing and Advertising," "--
Distribution" and "--Management Information Systems," as well as in the
Prospectus generally. The Company's actual results could differ materially
from those anticipated in such forward-looking statements as a result of
certain factors, including those set forth in the following risk factors and
elsewhere in this Prospectus. Accordingly, prospective investors should
consider carefully the following risk factors, in addition to the other
information contained in this Prospectus concerning the Company and its
business, before purchasing the shares of Common Stock offered hereby.
FASHION TRENDS AND CHANGING CONSUMER PREFERENCES
The Company's sales and profitability depend upon the continued demand by
its customers for leather apparel and accessories. The Company believes that
its success depends in large part upon its ability to anticipate, gauge and
respond in a timely manner to changing consumer demands and fashion trends and
upon the appeal of leather to the Company's customers. When leather apparel is
not generally in fashion (as was the case in the early 1990s), the Company's
results of operations are adversely affected. There can be no assurance that
the demand for leather apparel or accessories will not decline or that the
Company will be able to anticipate, gauge and respond to changes in fashion
trends. If demand for leather apparel and accessories were to decline or if
the Company were to misjudge fashion trends, the Company's business, financial
condition and results of operations could be materially adversely affected.
ECONOMIC CONDITIONS
Wilsons' financial performance is also sensitive to changes in overall
economic conditions, which have an impact on consumer spending trends.
Wilsons' stores are located primarily in enclosed regional malls.
Consequently, the ability of Wilsons to sustain its level of sales is
dependent in part on a high volume of mall traffic. Mall traffic may be
adversely affected by, among other things, economic downturns, the closing of
anchor department stores or changes in consumer preferences, all of which are
beyond the Company's control. Shifts in consumer discretionary spending to
other products or a general reduction in the level of such spending could also
adversely affect the Company. There can be no assurance that the foregoing
factors will not adversely affect the Company's business, financial condition
and results of operations in the future.
SEASONALITY
A significant portion of the Company's sales (56.1% for the year ended
December 31, 1995) is generated in the period from October through December,
which includes the Christmas selling season. For 1995, 37.3% of the Company's
sales were generated during the period from the day after Thanksgiving through
December 31. Net sales are generally lower during the period from April
through July. The Company typically does not become profitable, if at all,
until the fourth calendar quarter of a given year. As a result, the Company's
annual results of operations have been, and will continue to be, heavily
dependent on the results of operations during October through December. Due to
the seasonality of the business, misjudgments in fashion trends or
unseasonably warm or severe weather during the Company's peak selling season
in a given year could have an adverse impact on the Company's sales for the
year. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including the net
sales contributed by seasonal stores, merchandise mix and the timing and level
of markdowns and promotions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality and Inflation."
LEVERAGE; CAPITAL REQUIREMENTS; RESTRICTIONS IMPOSED BY LENDERS
As of November 2, 1996, the Company's total debt was $98.3 million,
consisting of $40.1 million of borrowings under the Company's $150 million
revolving credit facility (the "Revolving Credit Facility") with
6
<PAGE>
General Electric Capital Corporation ("GE Capital") and a syndicate of banks
(together with GE Capital, the "Banks"), the $55.8 million Note to Melville,
described below, and $2.4 million of accrued interest. At November 2, 1996 the
Company also had $43.1 million of outstanding letters of credit.
The Company typically finances its operations through internally generated
cash flow and seasonal borrowings. Due to the seasonality of the Company's
business, the Company has substantially greater needs for borrowings and
letters of credit from July through November. The Company currently plans to
fund a substantial portion of its working capital and letter of credit needs
during future periods through the Revolving Credit Facility, and, as a result,
the Company is highly dependent on the Revolving Credit Facility. In addition,
the ability of the Company to meet its debt service obligations and borrow
under the Revolving Credit Facility will be dependent upon the future
performance of the Company, which is subject to general economic conditions,
and to financial, competitive, business and other factors, including factors
beyond the Company's control. The level of the Company's indebtedness could
restrict its ability to grow and respond to changing business and economic
conditions. If the Company at any time is unable to satisfy its working
capital needs or generate sufficient cash flow from operations to service its
debt, it may be required to seek refinancing for all or a portion of that debt
or to obtain additional financing. There can be no assurance that the Company
will be able to effect such a refinancing or obtain such additional financing,
or obtain such financing on terms acceptable to the Company. The inability of
the Company to obtain sufficient funds for working capital or letter of credit
needs would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Certain Transactions--Subordinated Note."
The Revolving Credit Facility and a 10% Senior Secured Subordinated Note of
the Company issued to Melville in the principal amount of $55.8 million, with
principal and accrued interest, compounded annually, payable on December 31,
2000 (the "Note"), impose restrictions and limitations on the Company. In
addition, the Revolving Credit Facility requires the Company to meet certain
financial tests. Such restrictions and limitations affect, and in many
respects limit or prohibit, among other things, the ability of the Company to
incur additional indebtedness, make capital expenditures (including
expenditures for new stores) above specified levels ($13 million for the
twelve months ending February 1, 1997), pay dividends or make other
distributions to shareholders, repay indebtedness, create liens, sell assets
or enter into mergers and certain other transactions above specified levels.
Obligations under the Revolving Credit Facility and the Note are secured by
liens on substantially all of the Company's assets other than real estate,
equipment and fixtures. If the Company is unable to comply with the terms and
covenants under the Revolving Credit Facility or the Note, such indebtedness
could be declared immediately due and payable, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
DECLINE IN COMPARABLE STORE SALES; PRIOR LOSSES
The Company's comparable store sales declines were 1.5%, 5.1% and 13.8%
during 1995, 1994 and 1993, respectively. The Company believes that the
declines from 1993 through 1995 were primarily attributable to an industry-
wide decline in sales of retail leather apparel, and outerwear in general, and
due in part to a shift in consumer discretionary spending away from apparel.
An inability to generate comparable store sales increases in the future would
adversely affect the Company's business, financial condition and results of
operations.
As part of the Restructuring, the Company incurred non-recurring
restructuring and asset impairment charges aggregating $182.2 million in
October 1995, which resulted in a net loss of $173.4 million for the year. Due
in large part to decreases in comparable store sales and gross profit margins
and an increase in operating expenses associated with opening 40 new stores
and acquiring 31 Georgetown Leather stores in 1993, the Company incurred a net
loss of $12.6 million in 1994. There can be no assurance that the Company will
not incur losses in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
7
<PAGE>
LIMITED OPERATING HISTORY AS A STAND-ALONE COMPANY
The Predecessor Companies were owned and controlled by Melville through May
25, 1996. Certain administrative functions, including treasury, tax, external
financial reporting, real estate, legal, risk management and employee benefits
administration, were performed by Melville prior to the Acquisition. In
addition, as a subsidiary of Melville, the Company borrowed and obtained
letters of credit under credit facilities obtained by Melville at better rates
than the Company could have obtained on its own. Accordingly, operation of
Wilsons as an independent company may involve certain additional risks,
including risks associated with managing such functions independently for the
first time, the risk of increased general, administrative and borrowing costs
and the risk of increased costs and difficulties in securing store locations
and negotiating store leases without guarantees by Melville or an affiliate of
Melville. There can be no assurance that such costs will not materially exceed
historical levels or that other unforeseen costs or difficulties in entering
into leases will not arise following the Acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS OF FOREIGN CONTRACT MANUFACTURING AND IMPORTING
The Company imports most of its products from independent foreign contract
manufacturers located primarily in the Far East. Many of the Company's
domestic vendors import a substantial portion of their merchandise from
abroad. Risks inherent in foreign sourcing include economic and political
instability, transportation delays and interruptions, restrictive actions by
foreign governments, the laws and policies of the United States affecting the
importation of goods, including duties, quotas and taxes, trade and foreign
tax laws, fluctuations in currency exchange rates, and the possibility of
boycotts or other actions prompted by domestic concerns regarding foreign
labor practices or other conditions beyond the Company's control. In 1995,
Wilsons sourced more than 60% of its leather apparel from contract
manufacturers located in The People's Republic of China, which currently has
Most Favored Nation ("MFN") trading status with the United States. Loss of MFN
status by China or by any other country from which Wilsons sources goods, or
any imposition of new or additional duties, quotas or taxes, could result in
significantly higher leather purchase and production costs for Wilsons and, as
a result, could negatively impact profitability, sale prices or demand for
leather merchandise. The Company's future performance will be subject to such
factors, which are beyond its control, and there can be no assurance that such
factors would not have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION
The retail leather apparel and accessories industry is highly competitive.
Wilsons competes with a broad range of other retailers, including other
specialty leather apparel and accessories stores, department stores, mass
merchandisers and discounters, some of which have greater financial and other
resources than Wilsons. Increased competition may reduce sales and gross
margins, increase operating expenses and decrease profit margins. Management
believes that the principal bases upon which Wilsons competes are selection,
price, style, quality, store location and service. There can be no assurance
that the Company will be able to compete successfully in the future. The
inability of Wilsons to compete effectively could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Competition."
RISKS ASSOCIATED WITH FUTURE GROWTH
The Company's growth prospects are dependent upon a number of factors,
including, among other things, economic conditions, establishment and growth
of new selling channels, competition, growth in the leather apparel and
accessories market, the retail environment in general, financing and working
capital needs, the ability of the Company to negotiate store leases on
favorable terms, the availability of suitable new store locations, the ability
to develop new merchandise and the ability to hire and train qualified sales
associates. There can be no assurance that the Company will be able to
effectively realize its plans for future growth. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
8
<PAGE>
PRICE AND AVAILABILITY OF RAW MATERIAL
Leather comprises approximately two-thirds of the garment cost of leather
apparel. As a result, the Company's gross margin levels are influenced by the
price of leather. The supply of leather is influenced by worldwide meat
consumption, and the demand for leather is influenced by the leather shoe,
furniture and auto upholstery markets. The availability and price of leather
may fluctuate significantly. There can be no assurance that fluctuations in
the availability and price of leather or other raw materials used by the
Company will not have a material adverse effect on the Company's profitability
or its ability to meet the demand of the Company's customers for its
merchandise.
CHARGES RELATING TO VESTING OF RESTRICTED STOCK
In connection with the Acquisition, management purchased 1,080,000 shares of
Restricted Stock. Such shares vest over five years if the Company achieves
specified earnings targets or as the Company repays the Note. See "Certain
Transactions -- Restricted Stock Agreement." As the Restricted Stock vests,
the Company will be required to record compensation charges equal to the
difference between the fair market value of the Restricted Stock on the date
the shares vest and the original purchase price of the Restricted Stock, which
was $.60 per share. By way of example, if all of the Restricted Stock were to
vest at a time when the fair market value of the Common Stock equaled $13.00
per share (the mid-point of the range of initial public offering prices set
forth on the cover page of this Prospectus), the Company would be required to
record a non-cash, after-tax charge of approximately $13.4 million, which
would not impact the Company's total shareholders' equity. The market price of
the Company's Common Stock, however, could be adversely affected when the
Company reports such charges, if any.
DEPENDENCE ON KEY PERSONNEL
The success of the Company will be highly dependent upon the efforts of Joel
Waller, Chairman and Chief Executive Officer of Wilsons, David Rogers,
President and Chief Operating Officer of Wilsons, and other members of
Wilsons' senior management. The loss of the services of any of these
individuals could have a material adverse effect on the Company's business,
financial condition and results of operations.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the Offering, or that the price for
the Common Stock will not decrease. The initial public offering price will be
determined solely by negotiations among the Company and the Underwriters based
on several factors and may not necessarily reflect the market price of the
Common Stock after the Offering or the price at which the Common Stock may be
sold in the public market after the Offering. The market price of the Common
Stock could be subject to significant fluctuations in response to the
Company's financial performance, competitive position and other factors
relating to the Company and its business, such as variations in quarterly
operating results, government regulations, litigation and other factors. In
addition, the stock market has from time to time experienced extreme price and
volume volatility. These fluctuations may be unrelated to the operating
performance of particular companies whose shares are traded and may adversely
affect the market price of the Common Stock. Therefore, no assurance can be
given that the market price of the Common Stock will not decline substantially
below the initial public offering price. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock in the public
market following the Offering could adversely affect the market price of the
Common Stock. The Company will have 10,650,000 shares of Common Stock
outstanding immediately following the Offering (an additional 1,350,000 shares
of Common Stock will be immediately issuable upon exercise of the Melville
Warrant at $.60 per share), of which the
9
<PAGE>
3,000,000 shares offered hereby will be eligible for sale in the public market
immediately following the Offering. The remaining 7,650,000 currently
outstanding shares are held by the current shareholders of the Company,
including the Company's executive officers and directors. The holders of all
7,650,000 shares of Common Stock that are currently outstanding (including the
Company's executive officers and directors and the partners of Limited
Partnership I (as hereinafter defined)) and Melville as the holder of the
Melville Warrant and the Manager Warrant have agreed not to sell, contract to
sell or otherwise dispose of any shares of Common Stock or warrants to
purchase shares of Common Stock without the consent of Oppenheimer & Co., Inc.
for a period of 180 days after the date of this Prospectus. The Company has
also agreed not to offer, sell, contract to sell, or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or any rights to acquire Common Stock (other
than shares issuable upon exercise of outstanding warrants, and options issued
under the 1996 Option Plan and shares issued upon exercise thereof) for a
period of 180 days after the date of this Prospectus, without the prior
written consent of Oppenheimer & Co., Inc. Oppenheimer & Co., Inc., in its
sole discretion and at any time without notice, may release all or any portion
of the securities subject to such agreements not to sell. Additional shares
may also become available for sale in the public market from time to time in
the future. In addition, holders of all 7,650,000 shares of Common Stock that
are currently outstanding, Melville as the holder of the Melville Warrant and
the Manager Warrant and holders of certain warrants to purchase up to 300,000
additional shares of Common Stock, which warrants are issuable upon
consummation of the Offering, have certain registration rights under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
their Common Stock or warrants. See "Certain Transactions--Restricted Stock
Agreement," "--Registration Rights Agreement," "Shares Eligible for Future
Sale" and "Underwriting."
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the net book value per share of their investment of
$10.49 per share, assuming exercise of the Melville Warrant and an initial
public offering price of $13.00 per share (the mid-point of the range of the
initial public offering price on the cover page of this Prospectus).
Additional dilution is likely to occur upon exercise of other outstanding
warrants and stock options. See "Dilution."
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock and does not
intend to pay dividends in the foreseeable future. The payment of dividends by
the Company is subject to certain restrictions and prohibitions contained in
the Revolving Credit Facility, the Note and the Company's Series A Preferred
Stock (the "Series A Preferred"). Any determination to pay cash dividends in
the future will be at the discretion of the Company's Board of Directors (the
"Board" or the "Board of Directors") and will be dependent upon the Company's
business, results of operations, financial condition, contractual
restrictions, restrictions in the Amended and Restated Articles of
Incorporation (the "Amended Articles of Incorporation") and other factors
deemed relevant at the time by the Company's Board of Directors. See
"Dividends."
ANTI-TAKEOVER CONSIDERATIONS; CONTROL BY CURRENT SHAREHOLDERS
The Board of Directors has the authority, without further shareholder
action, to fix the rights and preferences of any shares of the Company's
preferred stock to be issued from time to time. In addition, as a Minnesota
corporation, the Company is subject to certain anti-takeover provisions of the
Minnesota Business Corporation Act. Both the authority of the Board with
regard to the preferred stock and the provisions of the Minnesota statutes
could have the effect of delaying, deferring or preventing a change in control
of the Company, may discourage bids for the Company's Common Stock and may
adversely affect the market price of, and the voting and other rights of the
holders of, Common Stock. See "Description of Capital Stock--Preferred Stock"
and "--Anti-Takeover Provisions of the Minnesota Business Corporation Act."
Upon completion of the Offering, the Company's directors and executive
officers will beneficially own, in the aggregate, 35.9% of the Company's
outstanding shares of Common Stock. If these shareholders vote together
10
<PAGE>
as a group, they will be able to control the business and affairs of the
Company, including the election of individuals to the Company's Board of
Directors, and to determine the outcome of certain actions that require
shareholder approval, including the adoption of amendments to the Company's
Amended Articles of Incorporation, and certain mergers, sales of assets and
other business acquisitions or dispositions.
THE ACQUISITION
The Company was organized to acquire all of the issued and outstanding
capital stock of Wilsons Center, Inc., the holding company of the Predecessor
Companies (the "Wilsons Shares"). In May 1996, the Company, which was owned by
management and an investor group, acquired the Wilsons Shares for $67.8
million plus the Melville Warrant and the Manager Warrant described below in
the following two-step transaction. First, Melville received (i) $2.0 million
in cash, (ii) the $55.8 million Note, (iii) the Melville Warrant to purchase
1,350,000 shares of Common Stock of the Company, having an exercise price of
$.60 per share, and the Manager Warrant described below, (iv) 4,320,000 shares
of Common Stock, and (v) 7,405 shares of Series A Preferred in consideration
for the transfer to the Company of the Wilsons Shares. The shares of Series A
Preferred are entitled to receive, when and as declared by the Company's Board
of Directors after repayment in full of the Note, cumulative annual cash
dividends of $80 per share from the date of issuance and have a liquidation
preference of $1,000 per share plus accumulated dividends and may be redeemed
by the Company for an aggregate of $7,405,000 plus accumulated dividends after
repayment of the Note in full. Thereafter, Leather Investors Limited
Partnership I, a Minnesota limited partnership ("Limited Partnership I"), and
Leather Investors Limited Partnership II, a Minnesota limited partnership
("Limited Partnership II" and together with Limited Partnership I, the
"Limited Partnerships"), for each of which Lyle Berman and Morris Goldfarb are
the general partners, respectively purchased from Melville the 4,320,000
shares of Common Stock and the 7,405 shares of Series A Preferred for an
aggregate consideration of $10.0 million. Upon completion of the Offering, the
Limited Partnerships will automatically dissolve, and the shares of Common
Stock and Series A Preferred held by them will be distributed to their
partners based on their respective interests in the Limited Partnerships. See
"Certain Transactions" and "Description of Capital Stock."
As part of the Acquisition, management purchased 1,080,000 shares of
Restricted Stock. To the extent that any such shares of Restricted Stock do
not vest by April 30, 2001, such shares will be repurchased by the Company at
a price of $.60 per share and will no longer be outstanding. Melville holds
the Manager Warrant that will become exercisable commencing April 30, 2001, at
$.60 per share, for the same number of shares of Common Stock that do not
vest. See "Management," "Certain Transactions" and "Description of Capital
Stock."
11
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
The following pro forma unaudited consolidated financial information consists
of Pro Forma Unaudited Consolidated Statements of Operations for the year ended
December 31, 1995 and for the nine months ended October 28, 1995 and November
2, 1996. The Pro Forma Unaudited Consolidated Statements of Operations give
effect to the Restructuring and the Acquisition accounted for under the
purchase method. The Pro Forma Unaudited Consolidated Statements of Operations
give effect to such transactions and events as if they had occurred on January
1, 1995.
As part of the Restructuring, the Company closed 156 stores and wrote off
goodwill and certain other non-productive assets, recorded certain lease
obligations and adopted the provisions of SFAS No. 121. The Pro Forma Unaudited
Consolidated Statements of Operations give effect to certain adjustments
related to the Restructuring, including: (i) elimination of the results of
operations for the 156 closed stores which included only direct costs
associated with the stores; (ii) elimination of the restructuring and asset
impairment charges; and (iii) reflection of the associated tax effects of the
above transactions.
The Pro Forma Unaudited Consolidated Statements of Operations also give
effect to certain adjustments related to the Acquisition, including: (i)
elimination of depreciation expense through the effect of purchase accounting
adjustments; (ii) reduction in interest expense attributable to the elimination
of all prior indebtedness owed to Melville and increase in interest expense
attributable to the Acquisition financing; and (iii) reflection of the
associated tax effects of the above transactions.
The Pro Forma Unaudited Consolidated Statements of Operations and
accompanying notes should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
The Pro Forma Unaudited Consolidated Statements of Operations do not purport to
represent what the results of operations of Wilsons would actually have been if
the aforementioned transactions or events had occurred on January 1, 1995 or at
any future date.
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PURCHASE
PREDECESSOR RESTRUCTURING AFTER ACCOUNTING
COMPANIES ADJUSTMENTS (1) RESTRUCTURING ADJUSTMENTS PRO FORMA
----------- --------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 462.4 $ (52.7) $409.7 $ -- $409.7
Cost of goods sold,
buying and warehousing
costs.................. 241.8 (27.3) 214.5 -- 214.5
------- ------- ------ ------ ----------
Gross profit............ 220.6 (25.4) 195.2 -- 195.2
Selling, general and
administrative
expenses............... 190.1 (26.4) 163.7 -- 163.7
Depreciation and
amortization........... 21.4 (6.8)(2) 14.6 (14.5)(5) 0.1
Restructuring and asset
impairment charges..... 182.2 (181.9)(3) 0.3 -- 0.3
------- ------- ------ ------ ----------
Income (loss) from
operations.......... (173.1) (189.7) 16.6 14.5 31.1
Interest expense,
net................. 10.4 -- 10.4 (2.8)(6) 8.0
0.4 (10)
------- ------- ------ ------ ----------
Income (loss) before
income taxes........ (183.5) 189.7 6.2 16.9 23.1
Income tax provision
(benefit).............. (10.1) 12.5 (4) 2.4 6.8 (7) 9.2
------- ------- ------ ------ ----------
Net income (loss).... $(173.4) $ 177.2 $ 3.8 $ 10.1 13.9
======= ======= ====== ======
Less preferred stock dividends................................................ 0.6(8)
----------
Net income attributable to common shareholders................................ $13.3
==========
Net income per common share................................................... $1.10
==========
Weighted average common shares outstanding.................................... 12,069,371
==========
</TABLE>
12
<PAGE>
FOR THE NINE MONTHS ENDED OCTOBER 28, 1995
(IN MILLIONS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PURCHASE
PREDECESSOR RESTRUCTURING FOR THE ACCOUNTING
COMPANIES ADJUSTMENTS (1) RESTRUCTURING ADJUSTMENTS PRO FORMA
------------- --------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 201.2 $(25.9) $175.3 $ -- $175.3
Cost of goods sold,
buying and warehousing
costs.................. 111.3 (14.5) 96.8 -- 96.8
------- ------ ------ ----- ----------
Gross profit............ 89.9 (11.4) 78.5 -- 78.5
Selling, general and
administrative
expenses............... 127.5 (18.1) 109.4 -- 109.4
Depreciation and
amortization........... 16.2 (4.7)(2) 11.5 (11.2)(5) 0.3
Restructuring and asset
impairment charges..... 182.2 (181.9)(3) 0.3 -- 0.3
------- ------ ------ ----- ----------
Income (loss) from
operations.......... (236.0) 193.3 (42.7) 11.2 (31.5)
Interest expense, net... 7.8 -- 7.8 (2.3)(6) 5.4
(0.1)(10)
------- ------ ------ ----- ----------
Income (loss) before
income taxes........ (243.8) 193.3 (50.5) 13.6 (36.9)
Income tax provision
(benefit).............. (11.1) (8.9)(4) (20.0) 5.4 (7) (14.6)
------- ------ ------ ----- ----------
Net income (loss).... $(232.7) $202.2 $(30.5) $ 8.2 (22.3)
======= ====== ====== =====
Less preferred stock dividends.................................................. 0.5(8)
----------
Net loss attributable to common shareholders.................................... $(22.8)
==========
Net loss per common share....................................................... $(1.89)
==========
Weighted average common shares outstanding...................................... 12,069,371 (10)
==========
FOR THE NINE MONTHS ENDED NOVEMBER 2, 1996
(IN MILLIONS EXCEPT SHARE AND PER SHARE DATA)
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PURCHASE
COMBINED RESTRUCTURING FOR THE ACCOUNTING
COMPANIES (9) ADJUSTMENTS (1) RESTRUCTURING ADJUSTMENTS PRO FORMA
------------- --------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 194.5 $ (2.2) $192.3 $ -- $192.3
Cost of goods sold,
buying and warehousing
costs.................. 104.9 (1.2) 103.7 -- 103.7
------- ------ ------ ----- ----------
Gross profit............ 89.6 (1.0) 88.6 -- 88.6
Selling, general and
administrative
expenses............... 112.6 (0.9) 111.7 -- 111.7
Depreciation and
amortization........... 3.9 -- (2) 3.9 (3.8)(5) (0.1)
------- ------ ------ ----- ----------
Income (loss) from
operations......... (26.9) (0.1) (27.0) 3.8 (23.2)
Interest expense, net... 4.8 -- 4.8 1.3 (6) 5.2
(0.9)(10)
------- ------ ------ ----- ----------
Income (loss) before
income taxes....... (31.7) (0.1) (31.8) 3.4 (28.4)
Income tax provision
(benefit).............. (11.6) (1.1)(4) (12.7) 1.3 (7) (11.4)
------- ------ ------ ----- ----------
Net income (loss)... $ (20.1) $ 1.0 $(19.1) $ 2.1 (17.0)
======= ====== ====== =====
Less preferred stock dividends.................................................. 0.5(8)
----------
Net loss attributable to common shareholders.................................... $(17.5)
==========
Net loss per common share....................................................... $(1.45)
==========
Weighted average common shares outstanding...................................... 12,069,371 (10)
==========
</TABLE>
- --------
(1) Reflects the elimination of the results of operations for the 156 closed
stores including all direct costs associated with the stores. No
corporate overhead or allocated selling expenses were eliminated.
(2) Reflects the elimination of the amortization of goodwill and other
intangibles of $4.0 million and $3.6 million for the year ended December
31, 1995 and for the nine months ended October 28, 1995, respectively,
which were charged to operations prior to the asset impairment charge
discussed at Note (3).
13
<PAGE>
(3) Reflects the elimination of the pre-tax restructuring charge of $134.0
million related to the anticipated costs associated with the closing of
the Predecessor Companies' stores and the write-off of goodwill and other
intangibles for the year ended December 31, 1995 and the nine months ended
October 28, 1995 (excludes reserves established for stores which remain
open as of May 25, 1996). Also reflects the elimination of the pre-tax
asset impairment charge of $47.9 million related to the write-off of
certain assets upon the adoption of SFAS No. 121 for the year ended
December 31, 1995 and the nine months ended October 28, 1995.
(4) Reflects the income tax effect on the pro forma restructuring adjustments
at a rate to equate the pro forma after restructuring income tax provision
to a 40% tax rate.
(5) Reflects the elimination of depreciation expense due to the write-down of
all depreciable property to $0 through the application of purchase
accounting.
(6) Reflects the reduction in interest expense attributable to the elimination
of all prior indebtedness owed by the Predecessor Companies to Melville
and certain capital contributions by Melville which resulted in Wilsons
having $85 million in working capital upon the closing of the Acquisition
(less Acquisition-related expenses). Also reflects an increase in interest
expense arising from the $55.8 million Note from the Acquisition
financing, the interest rate on the Revolving Credit Facility, and the
associated amortization for the related deferred financing costs.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED -----------------------
DECEMBER 31, OCTOBER 28, NOVEMBER 2,
1995 1995 1996
------------ ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Elimination of interest expense
related to the repayment of
intercompany indebtedness and
additional capital contribution,
net of the higher interest rate on
the Revolving Credit Facility at an
average rate of 9.5%............... $(9.0) $(6.9) $(3.7)
Additional interest expense related
to the Note........................ 5.5 4.1 4.5
Amortization of deferred financing
costs.............................. .7 .5 .5
----- ----- -----
$(2.8) $(2.3) $ 1.3
===== ===== =====
</TABLE>
(7) Reflects the income tax effect on the pro forma purchase accounting
adjustments at a 40% tax rate.
(8) Reflects the accrued dividends on the Series A Preferred at an annual rate
of $80 per share.
(9) Reflects the combination of the pro forma results of operations for the
period from February 1, 1996 to May 25, 1996 and the actual results of
operations for the period from inception (May 26, 1996) to November 2,
1996.
(10) Reflects the elimination of the interest expense on the portion of the
Revolving Credit Facility which is to be paid off with the proceeds of the
Offering. Included in weighted average common shares outstanding are the
shares of Common Stock to be sold to repay the Revolving Credit Facility
as if such shares had been outstanding as of the beginning of the
respective periods presented.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby by the Company are estimated to be approximately
$35.6 million (approximately $41.0 million if the Underwriters' over-allotment
option is exercised in full), assuming a public offering price of $13.00 per
share (the mid-point of the range of initial public offering prices set forth
on the cover page of this Prospectus) and after deducting the underwriting
discounts and commissions and the estimated offering expenses payable by the
Company.
The Company intends to use such net proceeds to repay outstanding
indebtedness under the Revolving Credit Facility, which was $40.1 million on
November 2, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" for
information regarding interest payable on and the maturity date of borrowings
under the Revolving Credit Facility. Substantially all indebtedness incurred
under the Company's Revolving Credit Facility has been used to fund the
Company's working capital needs. Repayment of such outstanding indebtedness
will enable the Company to apply future cash flow from operations and other
financial resources, including reborrowings under the Revolving Credit
Facility, to working capital and anticipated capital expenditures, including
development and implementation of new information systems, financing of
inventory, development and implementation of new selling channels, building of
new stores and remodeling of existing stores, and for other general corporate
purposes.
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its stock since its
inception in May 1996. The Company anticipates that all of its earnings in the
foreseeable future, if any, will be retained to fund working capital, to
reduce reliance on the Revolving Credit Facility and to repay the Note and,
therefore, has no plans to pay cash dividends in the foreseeable future. In
addition, the terms of the Revolving Credit Facility, the Note and the Series
A Preferred restrict and, in some cases, prohibit the Company from declaring
and paying dividends. Any determination to pay cash dividends in the future
will be at the discretion of the Company's Board of Directors and will be
dependent upon the Company's results of operations, financial condition and
capital requirements (including its cash needs), market conditions,
restrictions in financing agreements and the Amended Articles of Incorporation
and other factors deemed relevant at that time by the Company's Board of
Directors. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources," "Certain
Transactions--Subordinated Note" and "Description of Capital Stock--Preferred
Stock."
15
<PAGE>
DILUTION
The net tangible book value (deficit) of the Company's Common Stock as of
November 2, 1996 was approximately $(6.2) million or $(.82) per share of
Common Stock. "Net tangible book value (deficit)" represents the total amount
of the Company's total tangible assets less the total amount of the Company's
liabilities and preferred stock; "net tangible book value (deficit) per share"
means such amount divided by the number of shares of Common Stock outstanding.
After giving effect (i) to the exercise of the Melville Warrant for 1,350,000
shares of Common Stock, with an exercise price of $.60 per share, and (ii) to
the sale by the Company of the Shares in the Offering assuming an initial
public offering price of $13.00 per share (the mid-point of the range of
initial public offering prices set forth on the cover page of this
Prospectus), and the application of the net proceeds therefrom, the net
tangible book value (deficit) as adjusted of the Common Stock as of November
2, 1996 would have been $30.2 million, or $2.51 per share. This represents an
immediate increase in net tangible book value (deficit) of $3.15 per share to
existing shareholders and an immediate dilution of $10.49 per share to new
investors purchasing Shares in the Offering.
The following table illustrates the dilution per share described above:
<TABLE>
<S> <C> <C>
Assumed initial public offering price..................... $13.00
Net tangible book value (deficit) ...................... $ (.82)
Increase in net tangible book value (deficit)
attributable to exercise of Melville Warrant........... .18
------
Net adjusted tangible book value (deficit) before the
Offering............................................... (.64)
Increase in net tangible book value (deficit)
attributable to purchase of Shares by new investors.... 3.15
------
Net tangible book value (deficit) as adjusted after the
Offering................................................. 2.51
------
Dilution to new investors................................. $10.49
======
</TABLE>
The following table sets forth, on an as adjusted basis as of November 2,
1996, the number of shares of Common Stock purchased from the Company, the
total cash consideration paid to the Company and the average price per share
paid by the existing shareholders and by the new investors purchasing Shares
in the Offering, assuming an initial public offering price of $13.00 per
share.
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED(1) CONSIDERATION AVERAGE
--------------------- ---------------------- COST
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 9,000,000 75.0% $ 5,406,000 12.2% $ .60
New investors........... 3,000,000 25.0 39,000,000 87.8 13.00
---------- ----- ----------- -----
Total............... 12,000,000 100.0% $44,406,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) The above table includes 1,350,000 shares of Common Stock issuable upon
exercise of the Melville Warrant, with an exercise price of $.60 per
share; such table does not include (i) 199,980 shares of Common Stock
issuable upon the exercise of outstanding stock options, with an exercise
price of $4.44 per share, and 800,020 shares of Common Stock reserved for
issuance pursuant to the 1996 Option Plan, and (ii) 300,000 shares of
Common Stock issuable upon exercise of certain warrants issuable upon
consummation of the Offering. See "Management," "Certain Transactions,"
"Description of Capital Stock" and "Underwriting."
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
November 2, 1996; (ii) to reflect the exercise of the Melville Warrant for
1,350,000 shares of Common Stock, with an exercise price of $.60 per share;
and (iii) as further adjusted to reflect the sale by the Company of the
3,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $13.00 per share (the mid-point of the range of initial
public offering prices set forth on the cover page of this Prospectus) and the
application of the net proceeds therefrom. See "Use of Proceeds." The
information presented below should be read in conjunction with the
consolidated financial statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 2, 1996
----------------------------------
AS ADJUSTED AS FURTHER
FOR WARRANT ADJUSTED FOR
ACTUAL(1) EXERCISE OFFERING
--------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash..................................... $ 6,102 $ 6,913 $ 6,913
======= ======= =======
Borrowings under Revolving Credit
Facility (2)............................ $40,110 $40,110 $ 4,510
======= ======= =======
Long-term debt........................... $55,811 $55,811 $55,811
------- ------- -------
Shareholders' equity:
Preferred Stock, $.01 par value;
10,000,000 shares authorized; 7,405
shares, $1,000 stated value, issued
and outstanding....................... 7,405 7,405 7,405
Common Stock, $.01 par value;
100,000,000 shares authorized;
7,650,000 shares issued and
outstanding; 9,000,000 shares issued
and outstanding, as adjusted for
warrant exercise; 12,000,000 shares
issued and outstanding, as further
adjusted for Offering (3)............. 77 90 120
Additional paid-in capital............. 4,518 5,316 40,886
Accumulated deficit.................... (9,117) (9,117) (9,117)
------- ------- -------
Total shareholders' equity........... 2,883 3,694 39,294
------- ------- -------
Total capitalization................. $58,694 $59,505 $95,105
======= ======= =======
</TABLE>
- --------
(1) Reflects the conversion of all shares of Class Stock into an equal number
of shares of Common Stock of a single class concurrent with the Offering.
(2) Does not include $43.1 million of outstanding letters of credit as of
November 2, 1996.
(3) The above table does not include (i) 199,980 shares of Common Stock
issuable upon the exercise of outstanding stock options, with an exercise
price of $4.44 per share, and 800,020 shares of Common Stock reserved for
issuance pursuant to the 1996 Option Plan, and (ii) 300,000 shares of
Common Stock issuable upon exercise of certain warrants issuable upon
consummation of the Offering. See "Management," "Certain Transactions,"
"Description of Capital Stock" and "Underwriting."
17
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables present selected historical and pro forma consolidated
financial data of the Company, which should be read in conjunction with the
consolidated historical and pro forma financial statements and notes thereto
included elsewhere in this Prospectus and in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected consolidated financial data as of August 3, 1996 and for the period
from inception (May 26, 1996) to August 3, 1996 have been derived from the
consolidated financial statements of the Company audited by Arthur Andersen
LLP. The selected consolidated financial data as of December 31, 1994 and 1995,
for the years ended December 31, 1993, 1994 and 1995 and for the five-month
period ended May 25, 1996 have been derived from the consolidated financial
statements of the Predecessor Companies audited by KPMG Peat Marwick LLP. The
consolidated financial data as of December 31, 1991, 1992 and 1993, for the
years ended December 31, 1991 and 1992, for the five-month period ended May 27,
1995 and for the three-month period ended October 28, 1995 have been derived
from unaudited consolidated financial statements of the Predecessor Companies.
The consolidated financial data for the three-month period ended November 2,
1996 have been derived from unaudited consolidated financial statements of the
Company. The pro forma statement of operations data and the store operations
data for the periods set forth below are unaudited. In the opinion of
management, the unaudited information contains all adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for the periods presented. The
results of operations for the five-month period ended May 25, 1996, for the
period from inception (May 26, 1996) to August 3, 1996 and for the three-month
period ended November 2, 1996 are not necessarily indicative of the results of
operations for the entire year. The Company completed the Acquisition on May
25, 1996. Accordingly, due to the effect of purchase accounting adjustments,
and the fact that the Company is operating as a stand-alone entity and is no
longer supported by Melville's finance and administrative functions, a
comparison between the actual financial data for the three months ended August
3, 1996 and the comparable quarter of the prior year has not been included as
it is not meaningful.
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS AND STORE DATA)
<TABLE>
<CAPTION>
PRO PREDECESSOR PREDECESSOR
PREDECESSOR COMPANIES FORMA(1) COMPANIES COMPANY COMPANIES COMPANY
------------------------------------ ------------ ---------------- ----------- ----------- -----------
PERIOD FROM
FIVE MONTHS INCEPTION THREE THREE
YEARS ENDED DECEMBER 31, ENDED (MAY 26, MONTHS MONTHS
------------------------------------ YEAR ENDED ---------------- 1996) TO ENDED ENDED
DECEMBER 31, MAY 27, MAY 25, AUGUST 3, OCTOBER 28, NOVEMBER 2,
1991 1992 1993 1994 1995 1995 1995 1996 1996 1995 1996
------ ------ ------ ------ ------- ------------ ------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Net sales....... $456.7 $509.2 $478.5 $474.6 $ 462.4 $409.7 $124.7 $109.6 $28.5 $ 82.5 $86.4
Gross profit.... 222.0 243.0 227.2 221.0 220.6 195.2 55.6 49.7 12.8 38.2 41.6
Selling, general
and
administrative
expenses....... 160.0 178.2 189.3 206.0 190.1 163.7 76.7 61.1 24.3 41.5 40.6
Depreciation and
amortization... 14.8 17.4 20.7 22.3 21.4 0.1 9.0 4.7 -- 5.2 0.1
Restructuring
and asset
impairment
charges........ -- -- -- -- 182.2 0.3 -- -- -- 182.2 --
------ ------ ------ ------ ------- ---------- ------ ------ --------- ------- ---------
Income (loss)
from
operations..... 47.2 47.4 17.2 (7.3) (173.1) 31.1 (30.1) (16.1) (11.5) (190.7) 0.9
Interest
expense, net... 9.4 6.9 5.1 8.4 10.4 8.0 3.4 1.6 1.2 3.3 2.4
------ ------ ------ ------ ------- ---------- ------ ------ --------- ------- ---------
Income (loss)
before income
taxes.......... 37.8 40.5 12.1 (15.7) (183.5) 23.1 (33.5) (17.7) (12.7) (194.0) (1.5)
Income tax
provision
(benefit)...... 16.5 17.0 7.0 (3.1) (10.1) 9.2 (5.5) (6.6) (4.6) (12.3) (0.5)
------ ------ ------ ------ ------- ---------- ------ ------ --------- ------- ---------
Net income
(loss)......... $ 21.3 $ 23.5 $ 5.1 $(12.6) $(173.4) 13.9 $(28.0) $(11.1) (8.1) $(181.7) (1.0)
====== ====== ====== ====== ======= ====== ====== =======
Less preferred stock dividends...................... (0.6) -- --
---------- --------- ---------
Net income (loss) attributable to common
shareholders....................................... $13.3 $(8.1) $(1.0)
========== ========= =========
Net income (loss) per common share.................. $1.10 $(0.89) $(0.11)
========== ========= =========
Weighted average common shares outstanding.......... 12,069,371 9,066,410 9,069,371
========== ========= =========
Other Data:
Income (loss)
from
operations
before
depreciation,
amortization
and
restructuring
charges(2).... $62.0 $64.8 $37.9 $15.0 $30.5 $31.5 $(21.1) $(11.4) $(11.5) $(3.3) $1.0
====== ====== ====== ====== ======= ========== ====== ====== ========= ======= =========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES PRO FORMA(1) PREDECESSOR COMPANIES COMPANY
-------------------------------- ------------ ---------------------------- ------------
FIVE MONTHS
YEARS ENDED DECEMBER 31, ENDED THREE MONTHS THREE MONTHS
-------------------------------- YEAR ENDED --------------- ENDED ENDED
DECEMBER 31, MAY 27, MAY 25, OCTOBER 28, NOVEMBER 2,
1991 1992 1993 1994 1995 1995 1995 1996 1995 1996
---- ---- ----- ---- ---- ------------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STORE DATA:
Traditional stores:
Open at end of period.. 552 583 631 628 548 477 567 480 567 476
Net sales per square
foot for stores open
entire year........... $407 $416 $356 $341 $374 $391 -- -- -- --
Change in comparable
store sales(3)........ (3.1)% 2.1% (13.8)% (5.1)% (1.5)% (1.2)% 4.4% 3.9% (16.3)% 8.8%
Seasonal stores at end
of period.............. 0 32 80 135 227 227 0 0 112 226
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES COMPANY
---------------------------------- ---------------------
DECEMBER 31,
---------------------------------- AUGUST 3, NOVEMBER 2,
1991 1992 1993 1994 1995 1996 1996
------ ------ ------ ------ ------ --------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(4).... $ 34.4 $ 36.7 $ 57.4 $ 77.1 $ 44.6 $ 51.7 $50.1
Total assets.......... 340.4 376.6 401.0 392.7 182.4 103.7 149.6
Total long-term debt.. -- -- -- -- -- 55.8 55.8
Total liabilities..... 155.5 154.1 183.8 191.7 154.8 99.8 146.8
Shareholders' equity.. 184.9 222.5 217.2 201.0 27.6 3.9 2.9
</TABLE>
- -------
(1) The unaudited pro forma data give effect to the Restructuring and the
Acquisition accounted for under the purchase method of accounting, as if
such events had occurred on January 1, 1995. See "Pro Forma Unaudited
Consolidated Statements of Operations."
(2) Income (loss) from operations before depreciation, amortization and
restructuring charges is not intended to be a performance measure that
should be regarded as an alternative for other performance measures and
should not be considered in isolation. This measure of income (loss) is
provided because it is a measure commonly used in the retail industry.
This measure of income (loss) is not a measurement of financial
performance under generally accepted accounting principles and does not
reflect all expenses of doing business (e.g., interest expense,
depreciation) and is not meant to represent discretionary funds available
to management. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation."
(3) Comparable store sales means sales generated by stores open at least one
full year.
(4) The working capital calculation excludes amounts due to Melville as of
December 31, 1991, 1992, 1993, 1994 and 1995.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of Wilsons should be read in conjunction with the selected
historical and pro forma consolidated financial data and consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
OVERVIEW
One of the Predecessor Companies was founded in the late 1940's. Melville
acquired such company in 1982. The Company was organized in May 1996 to
acquire the Predecessor Companies from Melville. See "Business--Company
History." In May 1996, management and an investor group, as the owners of the
Company, acquired the Wilsons Shares for $67.8 million plus the Melville
Warrant and the Manager Warrant described below in the following two-step
transaction. First, Melville received (i) $2.0 million in cash, (ii) the $55.8
million Note, (iii) the Melville Warrant to purchase 1,350,000 shares of
Common Stock of the Company, having an exercise price of $.60 per share, and
the Manager Warrant described below, (iv) 4,320,000 shares of Common Stock,
and (v) 7,405 shares of Series A Preferred (which are entitled to receive,
when and as declared by the Company's Board of Directors after repayment in
full of the Note, cumulative annual cash dividends of $80 per share from the
date of issuance and which have a liquidation preference of $1,000 per share
plus accumulated dividends) in consideration for the transfer to the Company
of the Wilsons Shares. Thereafter, the 4,320,000 shares of Common Stock and
7,405 shares of Series A Preferred were purchased from Melville by the Limited
Partnerships for an aggregate consideration of $10.0 million. The Manager
Warrant will become exercisable commencing April 30, 2001, at $.60 per share,
but only to the extent shares of Restricted Stock are repurchased by the
Company. See "The Acquisition" and "Certain Transactions--Sale Agreement." The
transaction was accounted for under the purchase method of accounting. The
carrying value of the net assets acquired exceeded the purchase price by
approximately $63.3 million. As a result, the book value of property and
equipment in the Company's consolidated financial statements was reduced from
$64.6 million to $1.3 million at May 26, 1996, and initially will result in
lower depreciation charges than would have been experienced by the Predecessor
Companies.
Prior to the Acquisition, the Predecessor Companies were operated as part of
Melville. The historical consolidated financial statements presented herein
reflect periods during which the Company did not operate as an independent
company. Such statements, therefore, may not necessarily reflect the results
of operations or the financial condition of the Company which would have
resulted had the Company operated as an independent company during the
reporting periods, and are not necessarily indicative of the Company's future
results or financial condition. Furthermore, the Company's net loss for the
year ended December 31, 1995, as reflected in the consolidated financial
statements included elsewhere in this Prospectus, was negatively impacted by
the recording of pre-tax charges aggregating $182.2 million in the fourth
quarter of 1995 in connection with the Restructuring.
Throughout the late 1980s and early 1990s, as part of the growth strategy of
Melville, the Company pursued a rapid store expansion program through
acquisitions and store openings, growing from 227 stores at the end of 1987 to
a peak of 631 stores at the end of 1993. Beginning in 1993, the Company's
business was negatively affected by the difficult retail apparel market for
mall-based chains, competition and changes in consumer fashion preferences.
These conditions have led a large number of retailers, including a number of
specialty retailers, to close stores or cease operations. In 1995, the Company
initiated a store-closing program, which has resulted in a reduction of the
number of stores to 476 by November 2, 1996. The stores closed by the Company
had not met financial targets established by management.
In connection with the Acquisition, Melville eliminated all prior
indebtedness owed by the Predecessor Companies to Melville, assumed closed
store lease obligations and provided that Wilsons would have $85 million in
working capital upon closing of the Acquisition (before paying certain
expenses associated with the Acquisition). The Predecessor Companies'
operations were funded primarily by Melville. In order for the Company to fund
its working capital and letter of credit needs, the Company entered into the
Revolving Credit Facility with the Banks simultaneously with the closing of
the Acquisition. The Revolving Credit Facility provides the Company with a
$150 million line of credit, which includes a $90 million letter of credit
subfacility.
20
<PAGE>
As of November 2, 1996, the Company had $40.1 million in borrowings under the
Revolving Credit Facility and had outstanding letters of credit in the amount
of $43.1 million. See "Liquidity and Capital Resources" below.
In connection with the Acquisition, the Company sold 3,330,000 shares of
Common Stock, including 1,080,000 shares of Restricted Stock, to certain
managers of the Company. The shares of Restricted Stock vest over five years
if the Company achieves specified earnings targets or as the Company repays
the Note. See "Certain Transactions--Restricted Stock Agreement." As the
Restricted Stock vests, the Company will be required to record compensation
charges equal to the difference between the fair market value of the
Restricted Stock on the date the shares vest and the original purchase price
of the Restricted Stock, which was $.60 per share. By way of example, if all
of the Restricted Stock were to vest at a time when the fair market value of
the Common Stock equaled $13.00 per share (the mid-point of the range of
initial public offering prices set forth on the cover page of this
Prospectus), the Company would be required to record a non-cash, after-tax
charge of approximately $13.4 million, which would not impact the Company's
total shareholders' equity.
RESULTS OF OPERATIONS
The following table sets forth information from the Company's historical and
pro forma consolidated statements of operations, expressed as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
COMPANY
-----------
PREDECESSOR PREDECESSOR PREDECESSOR
COMPANIES COMPANIES COMPANIES COMPANY
-------------------- -------------------- ------------ ------------
YEARS ENDED
DECEMBER 31, FIVE MONTHS ENDED PERIOD FROM
-------------------- -------------------- INCEPTION
YEAR ENDED (MAY 26, THREE MONTHS THREE MONTHS
DECEMBER 31, 1996) TO ENDED ENDED
1995 MAY 27, MAY 25, AUGUST 3, OCTOBER 28, NOVEMBER 2,
1993 1994 1995 (PRO FORMA) 1995 1996 1996 1995 1996
----- ----- ----- ------------ -------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 47.5 46.6 47.7 47.7 44.6 45.3 44.9 46.3 48.1
Selling, general and
administrative
expenses............... 39.6 43.4 41.1 40.0 61.5 55.7 85.3 50.3 47.0
Income (loss) from
operations............. 3.6 (1.5) (37.4) 7.7 (24.1) (14.7) (40.4) (231.1) 1.0
Interest expense, net... 1.1 1.8 2.3 1.9 2.8 1.4 4.2 4.0 2.8
Income tax provision
(benefit).............. 1.4 (0.6) (2.2) 2.3 (4.4) (6.0) (16.2) (14.9) (0.6)
Net income (loss)....... 1.1% (2.7)% (37.5)% 3.5% (22.5)% (10.1)% (28.4)% (220.2)% (1.2)%
</TABLE>
QUARTER ENDED NOVEMBER 2, 1996 COMPARED TO QUARTER ENDED OCTOBER 28, 1995
Wilsons opened one traditional store, closed two traditional stores, and
opened 226 seasonal stores in the quarter ended November 2, 1996 compared to
two traditional store openings, two traditional store closings, and 112
seasonal store openings in the quarter ended October 28, 1995. As of November
2, 1996, Wilsons operated 476 traditional stores and 226 seasonal stores
compared to 567 traditional stores and 112 seasonal stores at the end of the
same period in 1995. The 91 fewer traditional stores were a result of the
Restructuring. The 114 additional seasonal stores were a result of the
Company's plan to increase the number of holiday stores and seasonal kiosks
each year. Wilsons currently plans to close an additional six stores by the
end of January 1997, and up to 24 more stores during calendar 1997 whose
leases are due to expire during the year.
Sales for the quarter ended November 2, 1996 increased 4.7% to $86.4 million
compared with sales of $82.5 million during the same period in the previous
year. Comparable store sales for the quarter increased 8.7%. The comparable
store sales increase was the result of strong sales in the ladies and
accessories departments and the shifting of the Company's layaway promotion
from July-August in 1995 to August-September in 1996. Wilsons also implemented
certain other plans to increase comparable store sales, including the use of
fashion forward and designer brand name merchandise, additional sales
associates training, sales promotions, pricing strategies
21
<PAGE>
and layaway programs. See "Business--Business Strategy" and "--Growth
Strategy." Partially offsetting the 8.7% comparable store sales increase was
the decrease in total number of stores operational during the period compared
to 1995.
Gross profit for the quarter ended November 2, 1996 was $41.6 million, or
48.1% of sales, compared to $38.2 million, or 46.3% of sales, for the same
period of 1995. The increase in gross profit as a percentage of sales was the
result of lower markdowns and increased distribution efficiencies compared to
the prior year.
Operating expenses for the quarter ended November 2, 1996 were $40.7
million, or 47.1% of sales, compared to $228.9 million, or 277.5% of sales,
for the same period in 1995. The Company incurred a pre-tax operating charge
of $182.2 million related to a pre-tax restructuring charge of $134.3 million
to reflect the anticipated costs associated with closing approximately 100 of
Wilsons' stores and the write-off of goodwill and other intangibles, and a
pre-tax asset impairment charge of $47.9 million related to the write-off of
certain assets upon adoption of SFAS No. 121 in the quarter ended October 28,
1995. The remaining $6.0 million of lower operating expenses was due primarily
to the reduction in the overall number of stores operational due to the
Restructuring. The impact of the Restructuring and purchase accounting
adjustments reduced the book value of the Company's property and equipment and
resulted in depreciation and amortization expenses decreasing by $5.1 million
for the quarter ended November 2, 1996 compared to the same period in the
previous year.
As a result of the Company's strategic and profit enhancement initiatives
discussed above, Wilsons had income from operations of $0.9 million for the
quarter ended November 2, 1996, compared to a loss from operations of $8.5
million (excluding the $182.2 million restructuring and asset impairment
charges) for the same period in 1995.
Net interest expense for the quarter ended November 2, 1996 was $2.4
million, or 2.8% of sales, compared to $3.3 million, or 4.0% of sales, for the
quarter ended October 28, 1995. The decrease is primarily due to a decrease in
the average amount of debt outstanding offset by higher interest rates and
amortization of deferred financing costs.
Income tax benefit for the quarter ended November 2, 1996 was $0.5 million,
or 0.6% of sales, compared to $12.3 million, or 14.9% of sales for the same
period in 1995. The effective tax rate increased to 33.3% from 6.3% in 1995.
The increased rate was primarily due to the effective rate impact of
nondeductible goodwill and state income taxes in 1995.
FIVE MONTHS ENDED MAY 25, 1996 COMPARED TO FIVE MONTHS ENDED MAY 27, 1995
Wilsons closed 71 stores and opened three new stores in the five months
ended May 25, 1996, compared to 63 store closings and two store openings in
the five months ended May 27, 1995. The store closings in the first five
months of 1996 and in 1995 were a result of the Restructuring. Wilsons
operated 480 stores as of May 25, 1996 compared to 567 stores at the end of
the same period in 1995.
Sales for the five-month period in 1996 decreased 12.1% to $109.6 million
compared with sales of $124.7 million during the same period of the prior
year. While total sales decreased as a result of operating an average of 90
fewer stores, comparable store sales increased 3.9% in the 1996 period
compared to the same period in the previous year. The 3.9% comparable store
sales increase in the 1996 period was the result of strong merchandise sales
in the ladies and accessories areas due to the clearance of merchandise
associated with store closings and the closings of holiday stores and seasonal
kiosks combined with unseasonably cool weather within Wilsons' areas of
operation during the first three months of 1996.
Gross profit for the five-month period in 1996 was $49.7 million, or 45.3%
of sales, as compared to $55.6 million, or 44.6% of sales, for the same period
of the prior year. The increase in gross profit as a percentage of sales was
due primarily to closing 22 Snyder Leather stores, an off-price strip center
concept, which carried lower margin merchandise in the 1995 period, and an
increase in the sale of accessories which produced a higher gross margin in
the 1996 period.
22
<PAGE>
Operating expenses in the five-month period in 1996 were $65.8 million, or
60.0% of sales, as compared to $85.7 million, or 68.7% of sales, for the same
period of the prior year. The expense decrease of $19.9 million, or 23.2%, was
a result of store closings and realizing the benefits of profit enhancement
measures initiated in 1995 that increased operational efficiencies in the
stores and the administrative departments. These included store sales
productivity gains as a result of revised store staffing patterns and levels
to achieve productivity increases, revising the layaway and check acceptance
policies, and reductions in headquarters rent expense. Operating expenses were
also lower than the same period in 1995 as a result of the Restructuring which
reduced Wilsons' 1996 depreciation and amortization expenses by $3.9 million.
As a result of the Company's strategic and profit enhancement initiatives
discussed above, loss from operations was $16.1 million for the five months
ended May 25, 1996 compared to a loss from operations of $30.1 million for the
same period in 1995.
Net interest expense for the five months ended May 25, 1996 was $1.6
million, or 1.4% of sales, compared to $3.4 million, or 2.8% of sales, for the
five months ended May 27, 1995. The average outstanding loan balance with
Melville was reduced by $56.0 million from $118.1 million to $62.1 million in
the 1996 five-month period. The decrease is primarily attributable to a $14.8
million decrease in average inventory in 1996 due to store closings and an
improved inventory turn rate.
Income tax benefit for the 1996 five-month period was $6.6 million, or 6.0%
of sales, compared to $5.5 million, or 4.4% of sales, in the 1995 five-month
period. The effective tax rate increased in the five-month period in 1996 to
37.2% from 16.4% in the 1995 five-month period. The increase was primarily due
to the elimination of goodwill and other amortization expenses in 1996 which
in 1995 created non-deductible expenses for tax purposes.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
During 1995, Wilsons opened five new stores and closed 85 stores, compared
to 23 store openings and 26 store closings in 1994. The large number of store
closings in 1995 was a result of the Restructuring. At the end of 1995,
Wilsons operated 548 traditional stores, comprised of 546 stores in 46 states
and the District of Columbia and two stores in England, compared to 626
traditional stores in 46 states and the District of Columbia and two stores in
England at the end of 1994. Wilsons also operated 98 holiday stores and 129
seasonal kiosks during the fourth quarter of 1995, compared to 59 holiday
stores and 76 seasonal kiosks during the fourth quarter of 1994.
Sales decreased 2.6% in 1995 to $462.4 million from $474.6 million in 1994.
The decrease reflected a 1.5%, or $6.2 million, decline in comparable store
sales due primarily to a decline in demand for leather apparel. Wilsons
operated an average of 49 fewer stores during 1995 compared to 1994, as
Wilsons closed 85 stores that did not meet cash flow targets. These declines
were partially offset by the expansion of holiday stores and seasonal kiosks,
which were open in 39 and 53 more locations, respectively, than in 1994,
accounting for an increase in sales of $8.0 million compared to 1994. The
Company plans to expand its holiday stores and seasonal kiosks to 225 and 150,
respectively, during the fourth quarter of calendar 1996. Non-comparable store
sales, other than holiday stores and seasonal kiosk sales, were down $14.0
million from 1994 as the Company opened 18 fewer traditional stores during
1995 compared to 1994. The Company's layaway program represented 15.1% and
20.3% of the Company's net sales in 1995 and 1994, respectively. An increase
in the nonrefundable layaway service fee and the minimum deposit requirement
during 1995 contributed to the decrease in layaway sales as a percent of net
sales.
Gross profit in 1995 was $220.6 million, or 47.7% of sales, as compared to
$221.0 million, or 46.6% of sales, in 1994. The increase as a percentage of
sales was due partially to closing 22 Snyder Leather stores during the first
quarter of 1995. In addition, in 1995 the Company also increased its accessory
sales, which have a higher gross profit margin, to 23.1% of total sales from
20.6% in 1994 as a result of increased emphasis on accessories in the
traditional stores and opening 53 additional seasonal kiosks, which primarily
sell accessories. The Company also achieved stronger sales in 1995 of styles
with higher fashion content and higher margins. Partially
23
<PAGE>
offsetting these gross profit margin improvements in 1995 were additional
markdowns required to liquidate merchandise in 73 stores that were closed
during December 1995 and January 1996 in conjunction with the Restructuring,
and to liquidate merchandise from the 98 holiday stores and 129 seasonal
kiosks.
Operating expenses in 1995, before restructuring and asset impairment
charges, were $211.5 million, or 45.7% of sales, compared to $228.3 million,
or 48.1% of sales, in 1994. Of the $16.8 million decrease in operating
expenses, $10.3 million was attributable to strategic initiatives to close 61
stores, including 22 Snyder Leather stores, during October 1995. The Company
implemented certain profit enhancement measures during the second quarter of
1995 that accounted for the majority of the remaining expense reductions.
These profit enhancement measures included store sales productivity gains as a
result of revising store staffing patterns and levels, revising the layaway
and check acceptance policies while simultaneously introducing debit/ATM cards
as an acceptable form of payment in a number of markets, and improved expense
control.
Operating expenses in 1995, after restructuring and asset impairment
charges, were $393.7 million, or 85.1% of sales, as compared to $228.3
million, or 48.1% of sales, in the previous year. As part of the
Restructuring, during the fourth quarter of 1995 the Company recorded a pre-
tax restructuring charge of $134.3 million to reflect the anticipated costs
associated with closing approximately 100 of Wilsons' stores and the write-off
of goodwill and other intangibles, and a pre-tax asset impairment charge of
$47.9 million related to the write-off of certain assets upon the adoption of
SFAS No. 121.
Income from operations before depreciation, amortization, restructuring and
asset impairment charges was $30.5 million, or 6.6% of sales, in 1995 compared
to $15.0 million, or 3.2% of sales, in 1994 due to the factors described
above. This measure of net income (loss) is provided because it is a measure
commonly used in the retail industry; however, it is not a measurement of
financial performance under generally accepted accounting principles and is
not meant to represent discretionary funds available to management. See Note
(2) under "Selected Historical and Pro Forma Consolidated Financial Data."
Income from operations in 1995, before restructuring and asset impairment
charges, was $9.1 million, or 2.0% of sales, compared to a loss of $7.3
million, or 1.5% of sales, in 1994. The $16.4 million improvement was
primarily due to discontinuing the Snyder Leather off-price concept during the
first quarter of 1995 and profit enhancement measures introduced during the
second quarter of 1995. Loss from operations in 1995, after restructuring and
asset impairment charges, was $173.1 million compared to a loss of $7.3
million in 1994.
Net interest expense in 1995 was $10.4 million, or 2.3% of sales, compared
to $8.4 million, or 1.8% of sales, during the prior year. The average
outstanding loan balance with Melville was reduced to $151.9 million in 1995
compared to $165.1 million in 1994 as a result of lower inventory levels due
to store closings and a higher inventory turn rate. The Company's average
annual interest rate paid on outstanding loan amounts to Melville in 1995 was
6.4% compared to 4.7% in 1994.
Income tax benefit in 1995 was $10.1 million, or 2.2% of sales, compared to
$3.1 million, or 0.6% of sales, in 1994. The effective tax rate declined in
1995 to 5.5% from 19.8% in 1994. The decline was primarily due to the
effective tax rate impact of nondeductible goodwill in 1995 compared to 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
During 1994, Wilsons opened 23 new stores and closed 26 existing stores,
compared to 40 new store openings, 31 store acquisitions and 23 store closings
in 1993. At the end of 1994, Wilsons operated 628 traditional stores comprised
of 626 stores in 46 states and the District of Columbia and two stores in
England, compared to 631 traditional stores in 44 states and the District of
Columbia at the end of 1993. Wilsons also operated 59 holiday stores and 76
seasonal kiosks during the fourth quarter of 1994 compared to 25 holiday
stores and 55 seasonal kiosks during the fourth quarter of 1993.
Sales decreased 0.8% in 1994 to $474.6 million from $478.5 million in 1993.
The decrease reflected a 5.1%, or $23.1 million, decline in comparable store
sales due primarily to a decline in demand for all outerwear and leather
apparel during the fall of 1994. This decline was partially offset by
operating an average of 22 more
24
<PAGE>
stores in 1994 compared to 1993, reflecting the full year impact of the 71
store openings and acquisitions in 1993, which had a positive effect on 1994
sales. In addition, the comparable store sales decline was partially offset by
the expansion of holiday stores and seasonal kiosks, which were open in 34 and
21 more locations, respectively, than in 1993, accounting for an increase in
sales of $6.3 million compared to 1993. Non-comparable store sales, other than
holiday stores and seasonal kiosk sales, were up $12.9 million from 1993 as
the Company realized the full year sales impact of the 1993 openings and
acquisitions.
Gross profit in 1994 was $221.0 million, or 46.6% of sales, as compared to
$227.2 million, or 47.5% of sales, in 1993. The decrease as a percentage of
sales was primarily attributable to increased markdowns resulting from high
year end inventory levels as a result of sluggish demand for leather apparel
during the fourth quarter of 1994. At the same time, however, the Company
increased its mix of accessory sales, which have a higher gross profit margin,
to 20.6% of sales in 1994 from 16.8% in 1993. The increase in accessory sales
was a result of increased emphasis in the traditional stores due to the
acquisition of Georgetown Leather Design during June 1993 and opening 21
additional seasonal kiosks in 1994.
Operating expenses in 1994 were $228.3 million, or 48.1% of sales, compared
to $210.0 million, or 43.9% of sales, in 1993. The $18.3 million increase in
operating expenses was primarily attributable to the full year impact of 63
traditional stores opened or acquired during the last seven months of 1993,
combined with store occupancy expense increases associated with existing
traditional stores or lease renewals.
Income from operations before depreciation, amortization, restructuring and
asset impairment charges was $15.0 million, or 3.2% of sales, in 1994 compared
to $37.9 million, or 7.9% of sales, in 1993 due to the factors described
above.
Loss from operations in 1994 was $7.3 million, or 1.5% of sales, compared to
income from operations of $17.2 million, or 3.6% of sales, in 1993. The $24.5
million decline was primarily due to a 5.1% comparable store sales decline
during 1994 and the full year impact of 71 new or acquired stores during 1993.
Historically, the Company has opened most of its stores during the last half
of the year. As a result, new stores opened just prior to the fourth quarter
produce profits in excess of their annualized profits since the stores
typically generate losses in the first six months of the year.
Net interest expense in 1994 was $8.4 million, or 1.8% of sales, compared to
$5.1 million, or 1.1% of sales, during the prior year. The average outstanding
loan balance with Melville increased to $165.1 million in 1994 compared to
$147.1 million in 1993 due to operating an average of 22 more stores during
1994. The Company's average annual interest rate paid on outstanding loan
amounts to Melville in 1994 was 4.7% compared to 3.3% in 1993.
Income tax benefit in 1994 was $3.1 million, or 0.6% of sales, compared to
an income tax provision of $7.0 million, or 1.4% of sales, in 1993. The
effective tax rate declined in 1994 to a 19.8% benefit from a 58.2% provision
in 1993. The decline was primarily due to the effective rate impact of
nondeductible goodwill and state income taxes in 1994 compared to 1993.
LIQUIDITY AND CAPITAL RESOURCES
Wilsons' primary capital requirements have been to support capital
investment to open new stores, to remodel existing stores, to update
information systems and to meet seasonal working capital needs. The Company's
peak working capital needs typically occur during the period from July through
November as inventory levels are increased in advance of the Company's peak
selling season of October through December. In 1997, the Company plans to open
approximately six to 15 new mall-based stores, two new larger-sized mall
stores, and 12 to 15 new airport stores. Such stores are part of the Company's
long-term strategy intended to provide greater growth opportunities and higher
profit margins. See "Business--Business Strategy" and "--Growth Strategy."
25
<PAGE>
Historically, the primary sources of the Company's cash for working capital
and capital expenditures have been net cash flows from operating activities
and borrowings from Melville. Prior to the Acquisition, the Company had
participated in Melville's centralized cash management system whereby cash
received from operations was transferred to Melville's centralized cash
accounts and cash disbursements were funded from the centralized cash accounts
on a daily basis. The receipt and disbursement of cash was tracked through an
intercompany cash management account. Accordingly, cash required for operating
and capital expenditures during the year was met from this source.
The Banks have provided the Company with a three-year Revolving Credit
Facility. The Revolving Credit Facility provides for borrowings of up to $150
million in aggregate principal amount, which amount includes a letter of
credit subfacility of up to $90 million. The maximum amount available under
the Revolving Credit Facility, however, is further subject to a borrowing base
limitation (less certain reserves) of 65% of eligible inventory, plus a
seasonal advance. The Company's borrowing availability is also reduced by
outstanding letters of credit. Interest is payable on borrowings at one or
more variable rates determined by reference to the "prime" rate plus 1.25%
(.875% for up to $10.0 million of borrowings effective October 1, 1996, down
from 1.00%), or LIBOR plus 2.75%. The spreads are subject to possible
reductions from and after February 1997 based upon the Company's success at
achieving certain financial targets. As of November 2, 1996, $10.0 million of
the Company's borrowings bore interest at a rate of 8.13%, $20.0 million bore
interest at a rate of 8.14%, and $10.1 million bore interest at a rate of
9.13%. The Company pays a monthly fee equal to .375% per annum on the unused
amount of the Revolving Credit Facility and on that portion of the first $10.0
million in borrowings that bears interest at prime plus .875%. For letters of
credit, the Company pays a monthly fee in an amount equal to 1.75% per annum
times the daily average of the amount of letters of credit outstanding during
each month, which percentage is subject to possible reduction from and after
February 1997 based on the Company's success at achieving certain financial
targets. The Revolving Credit Facility contains certain covenants limiting,
among other things, the Company's ability to make capital expenditures, pay
cash dividends or make other distributions. The Company plans to use the
Revolving Credit Facility for its immediate and future working capital needs,
including capital expenditures. As of October 5, 1996, the amounts outstanding
under the Revolving Credit Facility were $40.1 million of borrowings and $43.1
million in letters of credit. During 1995, the highest amounts borrowed by the
Company from Melville, net of the prior indebtedness eliminated as part of the
Acquisition, to fund working capital expenditures and covered by outstanding
letters of credit were $112.7 million and $97.4 million, respectively, and the
average amounts of such borrowings and amounts covered by outstanding letters
of credit for such year were $51.9 million and $58.9 million, respectively.
The Company is highly dependent on the Revolving Credit Facility to fund
working capital and letter of credit needs, and management believes that the
Revolving Credit Facility will be sufficient to meet the Company's working
capital and capital expenditure requirements for the foreseeable future. There
can be no assurance, however, that the Revolving Credit Facility will be
sufficient to fund such needs, or, if the Revolving Credit Facility is
insufficient to meet such needs, that the Company will be able to obtain any
additional financing or obtain such financing on terms acceptable to the
Company.
The Company also has outstanding the Note payable to Melville, which is a
subordinated secured note for $55.8 million. $55.0 million of the principal
amount of the Note bears interest at the rate of 10% per annum, compounded
annually, with all such principal and interest due and payable on December 31,
2000. The remaining principal balance of the Note ($0.8 million) does not bear
interest and is due and payable on December 31, 2000. See "Certain
Transactions--Subordinated Note."
CASH FLOW ANALYSIS
Operating activities for the quarter ended November 2, 1996 resulted in cash
used of $45.1 million compared to cash used of $37.2 million in the same
period of 1995. The $7.9 million increase in cash used by operating activities
in the quarter ended November 2, 1996 compared to the same period in 1995
resulted primarily from increased inventory purchases during the quarter
compared to the same period in 1995. The purchases of inventory consisted
mainly of imported goods that are financed primarily with letters of credit
precluding the benefit of increased accounts payable balances.
26
<PAGE>
Operating activities in the first five months of 1996 prior to the
Acquisition resulted in cash used of $16.0 million compared to cash used of
$11.5 million in the same period of 1995. The $4.5 million increase in cash
used by operating activities in the first five months of 1996 compared to the
same period in 1995 resulted primarily from negotiated settlements with
landlords for stores closed prior to their natural lease expiration dates
during the 1996 period. In addition, the net loss for the five-month period in
1996 declined by $16.9 million compared to the same period in 1995 as a result
of lower operating expenses associated with operating an average of 90 fewer
stores during the first five months of 1996, partially offset by $7.7 million
less cash generated by the reduction of inventory during that same period.
Operating activities in 1995 resulted in cash provided of $53.1 million
compared to cash provided of $12.2 million in 1994 and $12.0 million in 1993.
The increase in cash provided from operating activities in 1995 as compared to
1994 and 1993 was primarily generated by a $27.7 million decrease in inventory
resulting primarily from the liquidation of inventory from the closed stores
which exceeded the associated decrease in accounts payable.
Investing activity for the quarter ended November 2, 1996 was comprised of
capital expenditures totaling $2.5 million. The capital expenditures were
primarily for enhancements to the Company's management information systems,
one traditional store addition, and the renovation of and improvements to
existing stores. Capital expenditures for the same period in 1995 totaled $3.1
million. Commencing in 1997, the Company plans to open approximately six to 15
new mall-based stores, two new larger-sized mall stores, and 12 to 15 new
airport stores. In addition, the Company plans to open an additional 50
locations per year for both holiday stores and seasonal kiosks. The average
cost to open a store is currently estimated to range from $180,000 to
$200,000. Currently, the Company has no material commitments with respect to
any capital expenditures in calendar 1997.
Investing activity was comprised primarily of capital expenditures totaling
$3.6 million, $2.9 million, $10.1 million, $20.7 million and $26.6 million
during the five months ended May 25, 1996 and May 27, 1995, and the years
1995, 1994, and 1993, respectively. These expenditures were primarily for the
addition of new stores, which cost on average $182,000 and $173,000 to
construct in 1995 and 1994, respectively, renovations of and improvements to
existing stores and enhancements to the Company's management information
systems. The decrease in cash used in investing activities in 1995 as compared
to 1994 and 1993 was primarily due to five store openings in 1995 compared to
23 store openings in 1994 and 40 store openings in 1993. In addition, the
Company used approximately $6.4 million to purchase substantially all of the
assets of Georgetown Leather Design in June 1993. Capital expenditures for the
period from May 26, 1996 through December 31, 1996 and for calendar 1997 are
anticipated to be approximately $8.2 million and $15.1 million, respectively.
Cash provided from financing activities for the quarter ended November 2,
1996 was $44.2 million compared to cash provided of $42.9 million in the same
period in 1995. The cash provided from financing activities in 1996 resulted
from borrowings of $40.1 million from the Revolving Credit Facility and a
$4.1 million increase in book overdrafts. The $42.9 million provided from
financing activities in the quarter ended October 28, 1995 was a result of
increased intercompany borrowings of $43.1 million from Melville offset by a
$.2 million decrease in book overdrafts. As part of the Acquisition, Melville
eliminated all prior indebtedness owed to it by the Predecessor Companies.
Cash used for financing activities was $46.0 million in 1995 compared to
cash provided from financing activities of $20.4 million in 1994 and $20.9
million in 1993. The cash used for financing activities in 1995 resulted from
paying down outstanding intercompany debt to Melville. Wilsons' loan balance
to Melville was $78.8 million at the end of 1995 compared to $124.2 million at
the end of 1994 and $100.3 million at the end of 1993. As part of the
Acquisition, Melville eliminated all prior indebtedness owed by the
Predecessor Companies to Melville.
Management believes that Wilsons' financial resources, including the
Revolving Credit Facility, the net proceeds from the Offering and estimated
cash flow from operations will be adequate to fund the Company's operations
for the foreseeable future.
27
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), issued in October 1995 and
effective for fiscal years beginning after December 15, 1995, encourages, but
does not require, a fair value-based method of accounting for employee stock
options or similar equity instruments. It also allows an entity to elect to
continue to measure compensation cost under Accounting Principals Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), but
requires pro forma disclosures in the Notes to Consolidated Financial
Statements of net income and earnings per share as if the fair value-based
method of accounting had been applied. The Company expects to adopt SFAS No.
123 in calendar 1997. While the Company is still evaluating SFAS No. 123, it
currently expects to elect to continue to measure compensation cost under APB
No. 25 and comply with the pro forma disclosure requirements.
SEASONALITY AND INFLATION
A majority of the Company's net sales and operating profit is generated in
the peak selling period from October through December, which includes the
Christmas selling season. Wilsons recorded 56.1% of its total 1995 sales in
the fourth quarter of that year. For 1995, 37.3% of the Company's sales were
generated during the period from the day after Thanksgiving through December
31. As a result, the Company's annual operating results have been, and will
continue to be, heavily dependent on the results of its peak selling period.
Net sales are generally lowest during the period from April through July, and
the Company typically does not become profitable until the fourth calendar
quarter of a given year. Most of the Company's stores are unprofitable during
the first three calendar quarters. Conversely, nearly all of the Company's
stores are profitable during the calendar fourth quarter, even those that may
be unprofitable for the full year. Historically, the Company has opened most
of its stores during the last half of the year. As a result, new stores opened
just prior to the fourth calendar quarter produce profits in excess of their
annualized profits since the stores typically generate losses in the first six
months of the year.
28
<PAGE>
The following table sets forth certain unaudited financial information for
Wilsons for each calendar quarter of 1994 and 1995 (and pro forma for 1995),
and for the thirteen weeks ended April 27, 1996, the fourteen weeks ended
August 3, 1996 and the thirteen weeks ended November 2, 1996 (and pro forma
for such periods). In the opinion of management, this quarterly information
has been prepared on a basis consistent with the Company's audited financial
statements appearing elsewhere in this Prospectus and reflects adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of such unaudited quarterly results when read in conjunction with the audited
financial statements and notes thereto.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Calendar 1994
Net sales................................. $93.0 $41.9 $68.3 $271.4
Income (loss) from operations before
depreciation and amortization............ (7.3) (25.0) (18.8) 66.1
Income (loss) from operations............. (12.8) (30.6) (24.3) 60.4
Net income (loss)......................... (11.2) (25.8) (21.5) 45.9
Calendar 1995
Net sales................................. 93.4 47.3 62.4 259.3
Income (loss) from operations before
depreciation, amortization and
restructuring charges.................... (10.0) (17.6) (13.4) 71.5
Loss from operations...................... (16.1) (22.6) (18.9) (115.5)
Net loss.................................. (15.2) (20.8) (18.3) (119.1)
Calendar 1995 (Pro Forma) (1)
Net sales................................. 77.8 41.1 55.6 235.2
Income (loss) from operations before
depreciation, amortization and
restructuring charges.................... (4.6) (15.3) (11.5) 62.9
Income (loss) from operations............. (4.6) (15.4) (11.5) 62.9
Net income (loss)......................... (3.8) (10.3) (8.1) 36.5
Year Ending February 1, 1997 (2)
Net sales................................. 66.8 41.4 86.4
Income (loss) from operations before
depreciation and amortization............ (6.8) (17.2) 1.0
Income (loss) from operations............. (9.8) (18.0) .9
Net loss.................................. (7.2) (11.9) (1.1)
Year Ending February 1, 1997 (Pro Forma)
(1)(2)(3)
Net sales................................. 65.0 41.0 86.4
Income (loss) from operations before
depreciation and amortization............ (6.9) (17.2) 1.0
Income (loss) from operations............. (6.9) (17.2) .9
Net loss.................................. (5.3) (11.4) (1.1)
</TABLE>
- --------
(1) See "Pro Forma Unaudited Consolidated Statements of Operations."
(2) The fourteen weeks ended August 3, 1996 represent a period which combines
the results of operations of the Predecessor Companies prior to the
Acquisition from April 28, 1996 through May 25, 1996, and the Company
after the Acquisition from May 26, 1996 through August 3, 1996.
(3) The third quarter pro forma results are the same as the third quarter
actual results for the year ending February 1, 1997, because the period
represents only the results of operations of the Company and contain no
results of operations of the Predecessor Companies.
The Company does not believe that inflation has had a material adverse
effect on the results of operations during the past three years; however,
there can be no assurance that the Company's business will not be affected by
inflation in the future.
29
<PAGE>
BUSINESS
OVERVIEW
Wilsons is the leading specialty retailer of men's and women's leather
outerwear, apparel and accessories in the United States. In 1995, the Company
had net sales of $462.4 million, representing a management-estimated 18.0%
share of the $2.0 billion U.S. retail leather apparel market and a management-
estimated 2.8% share of the $3.9 billion U.S. retail leather accessories
market. As of November 2, 1996, the Company operated 476 stores. In addition,
the Company operates a significant number of holiday stores and seasonal
kiosks during its peak selling season, which for 1996 will total approximately
375 locations.
Wilsons operates in 45 states, the District of Columbia and England under
several formats including "Wilsons The Leather Experts," the Company's
traditional mall-based concept which offers moderately priced merchandise, and
"Tannery West" and "Georgetown Leather Design," mall-based concepts which
offer more upscale merchandise. In addition to the traditional mall-based
stores, as of November 2, 1996, Wilsons also operated nine airport stores that
focus on selling accessories, such as gloves, handbags, wallets, briefcases,
planners and computer cases, to business travelers and tourists, and eight
outlet stores located primarily in outlet malls that focus on the off-price
sale of clearance merchandise.
Unlike many retailers, Wilsons designs, purchases leather for, and contracts
for the manufacturing of most of the apparel and accessories sold in its
stores. This vertical integration enables the Company to reduce its order lead
times, respond more quickly to changing consumer preferences and fashion
trends, and offer its customers a better value through consistently high
quality products at competitive prices.
On May 25, 1996, an investor group, including management, acquired the
Predecessor Companies from Melville. As part of the Restructuring, management
closed 156 stores that had not achieved financial return targets, wrote off an
amount of goodwill and certain other non-productive assets and recorded
certain related lease obligations and, in 1995, the Company recorded a
restructuring charge of $134.3 million related to store closings and the
write-off of goodwill and other intangibles, and an asset impairment charge of
$47.9 million related to the write-off of certain assets upon the adoption of
SFAS No. 121.
Upon completion of the Offering and its transition to an independent public
company, Wilsons believes that it will have the capital resources and
management information systems to implement its long-term growth strategy,
which emphasizes the types of stores and products that offer greater growth
opportunities and higher profit margins in both existing and new distribution
channels. Specifically, this long-term growth strategy calls for annual
openings of approximately six to 15 traditional stores, two larger-sized mall
stores and 12 to 15 airport stores commencing in 1997. In addition, the
Company plans to increase the number of its holiday stores and seasonal kiosks
by approximately 50 locations each per year, to commence operation of
accessory-only stores, to increase the number of stores in military base PXs
and leased department store units, and to open additional stores outside of
the United States.
BUSINESS STRATEGY
Wilsons' objectives are to expand its leading position as the largest
specialty retailer of leather outerwear, apparel and accessories in the United
States and to increase the profitability of the Company. Key elements of the
Company's business strategy include:
Promote the Company's Leather Expertise. The Company has built its image as
"The Leather Experts" by offering its customers an extensive selection of
affordably priced quality leather products, demonstrated by the availability
of over 8,000 stock keeping units ("SKUs"). The Company believes that its
image as "The Leather Experts" is enhanced when a customer enters a Wilsons
store and experiences the fragrance, feel and fit of leather. The experience
is further enhanced by the detailed knowledge that the Wilsons sales
associates provide the customer regarding leather types, quality and care.
30
<PAGE>
Maximize Merchandising Opportunities Through Vertical Integration. Unlike
many retailers, Wilsons designs, purchases leather for and contracts for the
overseas manufacturing of most of the apparel and accessories sold in its
stores. Wilsons' operations integrate the design of leather merchandise, the
development and sourcing of new leather textures, colors and finishes, and the
contract manufacturing and importation of goods to efficiently deliver
merchandise to its stores. The Company believes that this vertical integration
gives it several competitive advantages, including the enhanced ability to:
. Better manage order lead times and delivery schedules
. Change its merchandise mix and respond more rapidly to fashion trends and
consumer demand
. Purchase leather and contract for manufacturing at favorable prices
. Schedule promotions to coincide with merchandise availability
. Reorder faster selling merchandise within the same selling season
Create Brand Recognition. Over 80% of Wilsons' products are sold under its
proprietary brand names, including Wilsons The Leather Experts(TM), Tannery
West(R), Georgetown Leather Design(R), Berman Buckskin(TM), Adventure
Bound(R), Maxima(R), Open Road(TM) and M. Julian(R), which are trademarks of
the Company. This branding permits the Company to provide merchandise not sold
by other retailers. In addition to its own brands, Wilsons also selectively
offers designer brands such as Guess?(R), Jones New York(R), Kenneth Cole(R),
Andrew Marc(R) and Bosca(R), which brand names and trademarks are the property
of their respective holders. The combination of the Wilsons brands with these
designer brands highlights to the customer the value of the Company's brands
and the breadth and depth of the Wilsons selection.
Maximize Usage of Distribution and Integrated Information Systems. The
Company supports its stores with highly automated, sophisticated and
integrated information systems in areas such as distribution, merchandising,
marketing, human resources and finance. Management in all of these areas works
closely together to make decisions on overall merchandise mix, order quantity
and marketing efforts. The Company's information systems allow it to integrate
its leather design and development, contract manufacturing management,
merchandising, marketing and retail sales functions. The Company spent $12.6
million between 1992 and 1994 to design a highly automated distribution center
which relies on high-speed sorting equipment, bar code scanning and radio
frequency technologies to maintain detailed current inventory records and
quickly ship products to the Company's stores. Since January 1995, the Company
has spent $2.5 million to transfer its information systems from the Company's
current mainframe platform to a client/server platform. The Company expects to
spend approximately $2.5 million to complete the upgrade of its information
systems by the end of 1997. Through utilization of the Company's information
systems, the Company expects to improve the product manufacturing cycle to
reduce the amount of time necessary to deliver products to the Company's
customers and to be able to allocate merchandise more effectively among the
Company's stores.
GROWTH STRATEGY
Wilsons seeks to improve its operating results by enhancing customer loyalty
and by gaining market share from its competitors, thereby increasing
comparable store sales. The Company also intends to increase the number of its
stores, improve its profitability by emphasizing higher margin products, and
utilize its information systems to identify opportunities to reduce costs and
more efficiently manage its merchandising, marketing and contract
manufacturing programs. Key elements of this growth strategy include:
Increase Comparable Store Sales. Wilsons has implemented programs to
increase its comparable store sales. These programs include (i) utilizing
fashion forward merchandise to draw customers to its stores while maintaining
a very broad assortment of basic products; (ii) training the Company's sales
associates as leather experts, in order to provide customers with a high level
of service and knowledge and improve sales associate productivity; (iii)
developing ongoing sales promotion and pricing strategies to provide customers
with the opportunity to buy quality products at value prices; (iv) utilizing
layaway programs to encourage customers to purchase merchandise earlier in the
season, allowing the Company to determine early what merchandise will be
popular, and to offer alternative financing for customers; (v) remerchandising
the stores during non-peak selling
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<PAGE>
seasons to emphasize less seasonal items such as sportswear and accessories;
and (vi) selectively offering designer brand name merchandise such as Guess?,
Jones New York, Kenneth Cole, Andrew Marc and Bosca, to highlight the value of
Wilsons' proprietary brands.
Enhance Profit Margins. Wilsons strives to increase its operating margins by
(i) shifting its product mix towards higher margin products such as
accessories; (ii) utilizing the Company's information systems to improve
merchandising and marketing, reduce order lead times and minimize markdowns,
while offering a broad product selection; (iii) selectively utilizing more
fashion forward, higher margin products to increase store traffic;
(iv) reducing operating costs through the closing of underperforming stores
and the creation of greater purchasing and operating efficiencies; and (v)
utilizing a small group of outlet stores to efficiently sell slower moving
products.
Increase Store Base. The Company plans to increase the number of its stores.
A substantial part of this increase is expected to come from the opening of
new stores utilizing the following formats:
. Mall-Based Stores. Wilsons plans to open six to 15 new mall-based stores
per year. In addition, Wilsons plans to open larger stores (approximately
twice the size of a traditional store) at the rate of approximately two
per year.
. Airport Stores. High traffic business traveler and tourist locations
offer significant growth opportunities for the Company. These locations
generally offer more accessories and are less seasonal than traditional
mall-based stores. Wilsons has opened nine airport locations since 1994
and plans to open at least 12 new airport stores per year.
. Seasonal Concepts. Wilsons has developed the expertise required to
successfully open holiday stores and seasonal kiosks that operate in
malls for three to four months each year. Holiday stores temporarily
occupy vacant store space in malls where the Company has no traditional
store. Seasonal kiosks are generally designed to complement and enhance
the operation of the traditional Wilsons store in the same mall. In 1996,
Wilsons plans to open approximately 225 holiday stores and 150 seasonal
kiosks. The Company believes that it can increase each of these concepts
by approximately 50 locations per year.
. New Retail Channels and Concepts. Wilsons is currently testing stores in
military PXs and has tested leased locations within department stores. In
addition, Wilsons plans to open accessories-only stores in the United
States and additional stores of various formats outside of the United
States, primarily in Western Europe and the Pacific Rim.
. Non-Retail Channels. Wilsons is also exploring non-retail channels such
as direct mail, catalog sales, wholesale sales to other retailers and
direct sales to corporations.
INDUSTRY BACKGROUND
The retail leather apparel and accessories markets are well established in
the United States. Management believes that retail sales of leather apparel
and accessories in the United States have experienced significant growth in
the past twenty years and were a management-estimated $5.9 billion in 1995.
Management believes that a significant factor in the growth of the leather
apparel and accessories industry is the increase in foreign manufacturing,
particularly in the Far East. The increase in foreign sourcing, along with
technical advances in hide tanning in the early 1980s, have allowed the
Company to offer high-quality merchandise at lower prices to more consumers.
Due in part to the popularity of the leather "bomber" jacket, retail leather
apparel sales reached a peak in 1989. Mass merchandisers began selling leather
during the early 1990s on a broader basis.
However, during the early 1990s, due to adverse conditions in the retail
apparel industry and changes in fashion trends, there was a downtrend in
industry sales of leather apparel and outerwear in general and a consolidation
of retailers selling leather apparel. The Company has emerged as the leader in
the U.S. specialty retail leather apparel and accessories industry following
such consolidation.
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COMPANY HISTORY
Wilsons House of Suede, Inc. ("House of Suede"), one of the Predecessor
Companies, was founded in the late 1940s as a family business which
established a reputation for quality leather, innovative fashion and a
commitment to customer service. In the mid-1960s, House of Suede developed a
strategy to make leather products an affordable purchase for the mass market.
In implementing this strategy, House of Suede grew successfully through the
1970's. By 1982, when House of Suede was acquired by Melville, it had grown to
a 42-store chain.
Through the 1980s, Melville pursued an aggressive expansion strategy for the
Predecessor Companies in order to achieve market penetration in the highly
fragmented leather apparel industry. Under Melville's ownership, the
Predecessor Companies opened or acquired between 30 and 60 stores per year and
made strategic acquisitions of small regional chains, including Leather Loft
and Tannery West. Through its acquisition of Bermans The Leather Experts, Inc.
("Bermans") in 1988, the Predecessor Companies became the leading specialty
retailers of leather apparel and accessories operating nationwide. Founded in
1899, Bermans originally specialized in purchasing and selling hides and furs,
and subsequently diversified into retailing. Lyle Berman, a director of the
Company and a general partner of Limited Partnership I and Limited Partnership
II, had an ownership interest in Bermans at various times until it was sold to
Melville. When Melville acquired Bermans, the result was a company with
expertise in all areas of the leather apparel business, from design and
contract manufacturing to the retail sale of quality leather apparel. By 1989,
the Predecessor Companies had established a national presence as the leading
specialty retailer of leather apparel, with over 500 traditional stores,
covering substantially all of the major regional malls in the United States.
This position was further reinforced by the acquisition of two additional
regional chains: Snyder Leather in 1992 and Georgetown Leather Design in 1993.
The Company was organized in May 1996 to acquire the Predecessor Companies
from Melville. See "The Acquisition," "Certain Transactions" and "Description
of Capital Stock."
VERTICALLY INTEGRATED OPERATIONS
The Company believes that a key competitive advantage is its ability to
integrate the functions of its leather design and development, contract
manufacturing management, merchandising, marketing and retail sales
departments. These departments work closely together to make decisions on
overall merchandise mix, order quantity and marketing efforts. The Company is
testing information systems, which it believes will be fully operational by
the end of 1997, to further integrate its key management functions. The
Company believes that its integrated management and information systems give
it the ability to bring leather from raw material to finished product quickly
and efficiently.
An example of the Company's integrated functions is the anticipated
utilization of the Company's data on customer lifestyles and merchandise
preferences. The Company currently collects point-of-sale information on its
customers' names, addresses and purchase histories, which has resulted in the
compilation of information on more than 4 million customers. The Company
intends to use its new information systems to analyze this data for the
purpose of grouping such customers into one or more customer segments. These
segments are defined by demographic and socioeconomic guidelines and lifestyle
characteristics, which also relate to merchandise preference. The Company's
merchants will be able to use customer segment information to help design
merchandise and plan orders, and make distribution and reorder decisions for
each store. Wilsons' manufacturing managers located in the Far East will also
be integrated into this process to ensure that new styles are tested and
brought to market quickly and that strong selling merchandise is given
priority within the production pipeline and sent promptly to the stores. The
Company's marketing department will be able to use the customer segment
information to design more tightly targeted customer promotions.
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STORE FORMATS
Wilsons is the leading specialty retailer of leather apparel and accessories
in the United States. As of November 2, 1996, the Company had 476 store
locations in 45 states, the District of Columbia and England, covering
substantially all of the major regional malls in the United States. These
stores are operated under four formats: "Wilsons The Leather Experts" (421
locations); "Tannery West" and "Georgetown Leather Design" (38 locations);
airport stores (nine locations); and Wilsons Leather Outlets (eight
locations).
STORE COUNT AS OF NOVEMBER 2, 1996
<TABLE>
<CAPTION>
WILSONS THE TANNERY WEST/ WILSONS LEATHER
LEATHER EXPERTS GEORGETOWN LEATHER AIRPORT OUTLET TOTAL
--------------- ------------------ ------- --------------- -----
<S> <C> <C> <C> <C> <C>
Alabama 2 - - - 2
Arkansas 1 - - - 1
Arizona 3 1 - - 4
California 60 4 - 2 66
Colorado 9 1 - - 10
Connecticut 6 2 - - 8
Washington,
D.C. - 1 - - 1
Delaware 3 - - - 3
Florida 3 1 - 1 5
Georgia 8 - 3 - 11
Idaho 1 - - - 1
Illinois 34 2 - 1 37
Indiana 12 - 1 - 13
Iowa 8 - - - 8
Kansas 2 - - - 2
Kentucky 4 - - - 4
Louisiana 3 - - - 3
Maine 3 - - - 3
Maryland 10 6 - - 16
Massachusetts 15 3 - - 18
Michigan 20 1 - - 21
Minnesota 12 1 1 - 14
Missouri 4 1 - - 5
Nebraska 4 - - - 4
Nevada 3 - - - 3
New Hampshire 5 - - - 5
New Jersey 18 3 - - 21
New Mexico 1 - - - 1
New York 33 3 - - 36
North
Carolina 8 - - - 8
North Dakota 4 - - - 4
Ohio 23 1 - - 24
Oklahoma 1 - - - 1
Oregon 3 - - - 3
Pennsylvania 22 2 2 1 27
Rhode Island 2 - - 1 3
South
Carolina 1 - - - 1
South Dakota 2 - - - 2
Tennessee 7 - - - 7
Texas 14 - - - 14
Utah 6 - - - 6
Virginia 8 4 - 1 13
Vermont 1 - - - 1
Washington 15 1 - 1 17
West Virginia 2 - - - 2
Wisconsin 15 - - - 15
England - - 2 - 2
--- --- --- --- ---
Total 421 38 9 8 476
=== === === === ===
</TABLE>
34
<PAGE>
- -------------------------------------------------------------------------------
476 Store Locations
- -------------------------------------------------------------------------------
LOGO
[MAP WITH STORE LOCATIONS]
^ Corporate Headquarters and
The above map depicts the locations Distribution Center
of the Company's Wilsons The Leather
Experts stores (traditional and
airport), Tannery West/Georgetown
Leather Design stores, and Wilsons
Leather Outlet stores as of November
2, 1996.
Wilsons also operates two seasonal formats which are generally open during
the Company's peak selling season of October through December: holiday stores
(225 locations estimated for 1996) and seasonal kiosks (150 locations
estimated for 1996).
Wilsons The Leather Experts Stores.
As of November 2, 1996, Wilsons operated 421 stores in 45 states under the
"Wilsons The Leather Experts" format. These stores average approximately 2,000
square feet in size and are located nationwide, primarily in regional shopping
malls. These traditional stores, which are designed to target a broad base of
consumers, showcase the full range of Wilsons products, from men's and women's
leather apparel (including coats, jackets and sportswear) to leather
accessories (including gloves, handbags, wallets, briefcases, planners and
computer cases). In 1995, Wilsons The Leather Experts stores had sales of
$380.0 million, representing 82.1% of the Company's total sales; such stores
averaged sales per store of $758.0 thousand and sales per square foot of $383;
and apparel and accessories represented 79.4% and 20.6% of sales,
respectively.
Tannery West and Georgetown Leather Design Stores.
As of November 2, 1996, Wilsons operated 38 "Tannery West" and "Georgetown
Leather Design" stores in 17 states and the District of Columbia. These stores
average approximately 1,600 square feet in size, target a
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<PAGE>
slightly more upscale market than traditional Wilsons The Leather Experts
stores, and are located primarily in higher-end malls. The stores are visually
distinct from Wilsons The Leather Experts stores, and some malls may contain
both a Wilsons The Leather Experts and a Tannery West/Georgetown Leather
location. The Tannery West/Georgetown Leather stores focus more on leather
accessories than Wilsons The Leather Experts stores, averaging 50% more in
annual accessory sales. Management plans to broaden the exposure of its
proprietary Tannery West/Georgetown Leather merchandise by selectively
offering this merchandise in Wilsons The Leather Experts stores as brand-named
merchandise collections. In 1995, Tannery West/Georgetown Leather stores had
sales of $45.3 million, representing 9.8% of the Company's total sales; such
stores averaged sales per store of $716.3 thousand and averaged sales per
square foot of $437; and apparel and accessories represented 66.6% and 33.4%
of sales, respectively.
Airport Stores.
As of November 2, 1996, Wilsons operated nine airport stores under the
"Wilsons The Leather Experts" name, with seven locations in the United States
and two locations in England. These stores average approximately 900 square
feet in size and are designed to target business travelers and tourists.
Airport stores emphasize a wide assortment of leather accessories and carry a
limited assortment of leather apparel. Airport stores tend to be less
seasonal, due in part to a more even flow of customer traffic during the year
as compared to malls, and to an emphasis on accessories. In 1995, the airport
stores had sales of $3.0 million, representing 0.7% of the Company's total
sales; such stores averaged sales per store of $753.4 thousand and averaged
sales per square foot of $820; and accessories and apparel represented 87.6%
and 12.4% of sales, respectively. The Company currently plans to open two new
airport stores during the balance of 1996, and 12 to 15 new airport stores
during 1997.
Wilsons Leather Outlet Stores.
The Company operates eight "Wilsons Leather Outlet" stores which are located
in outlet malls in the United States. These stores average approximately 4,100
selling square feet in size. The Company generally uses these stores to
liquidate excess merchandise from its holiday stores and seasonal kiosks and
slow selling inventory from its traditional stores, allowing the Company to
more quickly introduce new merchandise into its traditional stores. In 1995,
Wilsons Leather Outlet stores had sales of $12.0 million, representing 2.6% of
the Company's total sales; such stores averaged sales per store of $1.6
million and averaged sales per square foot of $392; and apparel and
accessories represented 84.4% and 15.6% of sales, respectively.
Holiday Stores.
Holiday stores were first tested in 1992. In 1995, Wilsons operated 98
holiday stores in 31 states. A holiday store is a temporary, full-size Wilsons
store which is located in a vacant mall space and is operated only during
October through December, the Company's peak selling season. Wilsons typically
locates these stores in malls where there is not already an existing Wilsons
store. These stores offer a merchandise selection similar to the traditional
Wilsons The Leather Experts stores in a facility closely resembling the
traditional store. Lower occupancy costs as a percent of sales result in
higher operating margins for the holiday stores as compared to the full year
margins of the Company's traditional stores. An additional benefit of holiday
stores is the ability to test new malls where the Company is considering
opening a traditional store. Merchandise purchased at holiday stores may be
returned to any of the Company's stores. In 1995, holiday stores had sales of
$13.8 million, representing 3.0% of the Company's total sales; such stores
averaged sales per store of $141.1 thousand; and apparel and accessories
represented 84.2% and 15.8% of sales, respectively. Management estimates that
there will be 225 holiday stores in 42 states during the Company's peak
selling season in 1996.
Seasonal Kiosks.
In 1992, Wilsons began to use a seasonal "kiosk" concept in order to take
further advantage of the seasonality of the Company's business and provide a
new distribution channel for future growth. In 1995, Wilsons operated 129
seasonal kiosks, 124 of which were in malls where Wilsons already had a
traditional store. A seasonal kiosk is generally a 100 square-foot temporary
unit located in the common area of a mall. Open
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<PAGE>
primarily during October through December, the Company's peak holiday selling
season, these locations generally offer a selected assortment of leather
accessory gift items and are designed to compliment and enhance the
traditional Wilsons store in the same mall. Merchandise purchased at seasonal
kiosks may be returned to any of the Company's stores. In 1995, seasonal
kiosks had sales of $8.3 million, representing 1.8% of the Company's total
sales; such kiosks averaged sales per store of $64.6 thousand; and accessories
and apparel represented 89.7% and 10.3% of sales, respectively. Management
estimates that there will be 150 seasonal kiosks in 37 states during the
Company's peak selling season in 1996.
MERCHANDISING
The Company's merchandising strategy is based on an understanding of its
customer base. Wilsons' merchandising strategy focuses on increasing its
market share by offering a broad assortment of quality leather apparel and
accessories at affordable prices. Wilsons offers more than 8,000 SKUs of men's
and women's leather apparel and leather accessories such as gloves, handbags,
wallets, briefcases, planners and computer cases. The Company emphasizes
proprietary brands, which generally carry higher margins than other
merchandise sold by the Company, including Wilsons The Leather Experts,
Tannery West, Berman Buckskin, Georgetown Leather Design, Adventure Bound,
Open Road, Maxima and M. Julian. Wilsons also complements its product mix by
selling, on a non-exclusive basis, fashion forward designer merchandise, such
as Guess?, Jones New York, Kenneth Cole, Andrew Marc and Bosca. The Company
anticipates that its merchants will be able to use customer segment
information (see "Vertically Integrated Operations" above) to help design
merchandise and plan orders, and make distribution and reorder decisions for
each store.
Key elements of the Company's merchandising strategy include:
. Selection--Wilsons offers its customers an extremely broad and deep
selection of leather apparel and accessories. Management believes that
the Company's traditional stores offer significantly more SKUs than do
those of its competition (e.g., department stores, specialty stores, mass
merchandisers).
. Style--The Company's use of proprietary brands is designed to translate
identified market trends into highly-focused leather apparel and
accessory assortments. The Company tests new designs on a limited basis
and reorders fast-selling goods in time for the peak weeks of its selling
season.
. Value--The Company strives to deliver its fashion-oriented, high-quality
merchandise at affordable prices, creating a strong sense of value. The
Company believes that its fully integrated product sourcing capability
enables it to offer lower prices than its competitors for merchandise of
comparable quality.
Wilsons has increased its emphasis on accessories including gloves,
handbags, wallets, briefcases, planners and computer cases, due in part to
their higher margins as compared to leather apparel, and has increased both
the number of SKUs and the amount of floor space allocated to accessory
presentation in the stores. As a result, accessories sales have grown as a
percentage of the Company's sales from 11.9% in 1991 to 23.1% in 1995. Over
the same period, men's apparel sales have decreased as a percentage of the
Company's sales from 46.8% to 42.5%, and women's apparel sales have decreased
from 41.3% to 34.4%.
PRODUCT DESIGN, DEVELOPMENT AND SOURCING
Wilsons' product offerings are highly dependent on the Company's ability to
identify fashion trends for Wilsons' customers, develop new leather finishes
and closely monitor the sourcing of its merchandise. Wilsons' buyers and
designers are trained to anticipate fashion trends and to translate such
trends into leather products appealing to the Wilsons customer. Such designers
and buyers also work closely with tanneries in identifying and developing
leather colors and finishes. Technical advancements in leather tanning have
allowed the Company to use a variety of leathers to achieve the look and feel
of more expensive leathers.
In addition to its leather development expertise, the Company believes that
a significant competitive advantage is its expertise and ability in managing
the sourcing of its leather apparel and accessories. In 1995, Wilsons
contracted for the manufacture of approximately 2.2 million leather garments,
making it the largest leather apparel purchaser in the world. The high volume
of leather purchased by the Company and its contract
37
<PAGE>
manufacturers, and the volume of merchandise acquired by the Company from its
contract manufacturers, allow the Company to benefit from better pricing and
faster delivery. Management believes that the volume of finished goods
purchased from the contract manufacturers enables the Company to secure
sufficient manufacturing capacity without having the added cost of
establishing its own manufacturing facilities.
The Company has developed an infrastructure in the Far East that allows the
Company to control merchandise production without owning manufacturing
facilities or extensively utilizing third-party wholesalers. The Company's
contract manufacturing managers located in China, Indonesia, Hong Kong and
South Korea, and contract agents in India, are primarily responsible for
managing the production and quality control process in overseas factories and
the shipping of the merchandise to the United States. Such management includes
inspecting leather at the tanneries, coordinating the production capacity,
matching of product samples to Wilsons' technical specifications and providing
technical assistance and quality control through inspection in the factories.
The Company's merchandising department works closely with the Company's
contract manufacturing managers to make order and reorder decisions on
merchandise. Since 1992, the Company has reduced its sourcing time from
approximately 120 days to approximately 90 days. The reduced time allows the
Company to analyze sales of certain merchandise and reorder better selling
merchandise in time for the weeks of its peak selling season. Management
believes that this strategy results in more efficient inventory management and
reduced need for markdowns on merchandise at the end of the Company's peak
selling season.
Due in large part to its overseas infrastructure, the Company has developed
the technology and capability to shift its contract manufacturing to various
countries of the Pacific Rim, depending on labor availability and costs and
the availability of leather and other raw materials. In 1989, Wilsons received
approximately 90% of its leather apparel sourced overseas from South Korean
vendors. Since that time, the Company implemented its strategy of shifting
production to lower cost countries, such as China, from which the Company
sourced over 60% of its leather apparel in 1995, and Indonesia and India, from
which the Company purchased approximately 16% and 7%, respectively, of its
leather apparel in 1995. As a result, South Korean sourcing was reduced to
below 5% in 1995. However, South Korean tanneries continue to provide a
substantial portion of the Company's tanned leather which is used in the
manufacturing process.
MARKETING AND ADVERTISING
Wilsons targets promotions to its customers through a combination of in-
store graphics displays, direct mail pieces and newspaper, radio and
television advertising. These event-driven promotional activities are designed
to emphasize Wilsons' broad assortment of quality, fashionable merchandise and
to build consumer awareness of Wilsons as "The Leather Experts." In 1995,
Wilsons spent approximately $6.6 million on national cable television, local
television and local radio advertising and other media in an attempt to reach
a majority of its target audience at least three times during its key selling
season, and the Company anticipates spending $5.8 million on advertising in
1996.
The Company's layaway program is a key marketing strategy designed to build
sales. The layaway program represented 15.1% and 20.3% of the Company's net
sales in 1995 and 1994, respectively. The layaway program is designed to: (i)
commit the Company's customers to buy coats early in the season, frequently
before such coats are needed; (ii) allow the Company to receive an early read
on fast-selling styles and important sales trends, enabling the Company to
reorder these styles and capitalize on the trends during its key holiday
selling season; (iii) make purchases of the Company's leather apparel
affordable to a wider range of customers; and (iv) bring the customer back to
the store several times before the layaway merchandise is picked up, offering
the Company multiple selling opportunities.
In addition, the marketing department uses the Company's in-house database
which includes data on over 4 million customers. The marketing department
regularly analyzes this data, communicating customer information to each area
of the business, and attempts to identify key activities in the business which
should incorporate customer segmentation information (e.g., marketing,
merchandising and store locations). In addition, Wilsons conducts marketing
research of Wilsons' and non-Wilsons' leather purchasing consumers to gain
38
<PAGE>
additional knowledge of consumer behavior. It is anticipated that the
Company's marketing department will be able to use the customer segment
information (see "Vertically Integrated Operations" above) to employ more
tightly targeted customer promotions.
DISTRIBUTION
All of the Company's merchandise is shipped directly from the Company's
contract manufacturers located in the Far East to the Company's state-of-the-
art 289,000 square foot distribution center located at the Company's
headquarters in Brooklyn Park, Minnesota. Between 1992 and 1994, the Company
spent approximately $12.6 million to redesign and automate its distribution
center. The distribution center is equipped with high speed sorting equipment
and radio frequency hand-held computer scanners for bar code scanning and
merchandise control. The distribution center is owned by the Company.
The distribution center is designed to receive 200,000 garments and one
million units of accessories and ship in excess of 500,000 combined units of
garments and accessories per week in a single shift operation. Approximately
41% of the merchandise that is received in the distribution center is directly
sent out to the Company's stores through cross-docking, which allows for
minimal handling, storage and reduced expense. Additional merchandise is
stored in the distribution center to replenish merchandise, to build inventory
for the Company's peak selling season and stock key styles. On average, each
store is shipped merchandise one to three times a week, depending on the
season and sales volume in each store. Airport stores are shipped merchandise
daily. Each store receives a shipment approximately two to three days after
the merchandise is shipped from the distribution center. The Company believes
that the distribution center will enable it to service its stores and needs
for the foreseeable future. The Company occasionally leases temporary
distribution locations on a short-term basis to facilitate stocking of its
seasonal kiosks.
CUSTOMER SERVICE
In addition to advertising and promotions which are designed in part to
reinforce Wilsons image with its customers as "The Leather Experts", the
Company emphasizes sales associate training and customer service. Wilsons'
associates are trained on an ongoing basis through the use of merchandise
videos and information packets, customer service tip cards and on-the-job
sales evaluations. The training is designed to develop each sales associate's
knowledge of Wilsons' service standards, the different kinds of leather and
leather finishes, how to best care for the different types of leather, and how
to perform many minor repairs in the store for the customer, free of charge.
Wilsons monitors customer service through a customer comment card program,
direct survey of customers who return merchandise and a system that tracks all
calls and letters sent to the corporate office. Wilsons periodically holds
customer focus group sessions with customers nationwide. All issues relating
to policy, procedure or merchandise are frequently reviewed to improve service
and quality.
Wilsons offers many services that are important to its customers. Key
services include a 14-day price guarantee, alterations service for major
alterations and repairs, a layaway program and a return policy on unworn
merchandise. Merchandise purchased at holiday stores and seasonal kiosks may
be returned to any of the Company's stores.
MANAGEMENT INFORMATION SYSTEMS
As part of the Company's strategic plan, Wilsons made a significant
commitment to upgrade its information systems and computer hardware and to
improve the computer skills of its associates. The major components of the
plan include converting from the Company's existing mainframe platform to a
client/server platform, and implementing new merchandising, financial and
human resources information systems. By the end of 1997, Wilsons believes it
will have completed its systems conversion to the client/server platform. Once
fully operational, management believes that these systems will allow greater
flexibility in anticipating future business needs, broader and quicker access
to information at all relevant levels of the organization, stronger analytical
39
<PAGE>
tools for understanding sales and operating trends, and increased customer
information and availability to such information (see "Vertically Integrated
Operations" above with regard to the anticipated use of customer segment
information that the new information systems will facilitate). Management
believes that system integrity will be enhanced and, as a result, inventory
accuracy and management will improve, providing Wilsons with the opportunity
to better control its merchandise flow from the factories to the stores. In
conjunction with the foregoing, Wilsons has spent $2.8 million since January
1995 on such upgrades and improvements and expects to spend an additional $2.2
million to complete the upgrades by the end of 1997.
The Company's automated point-of-sale registers in all stores capture
customer transactions by SKUs that are transmitted electronically to the
headquarters' computer, updating other systems with critical sales and
customer information to replenish stores and determine reorder quantities, to
modify merchandise allocation plans tailored to regional sales patterns and to
establish marketing promotions targeted to particular customer segments. To
assist in the operation of each store, the Company utilizes a PC-based
paperless communication system that permits daily communications of advanced
shipment notices, and electronic tracking of inventory transfers between
locations and supplies ordering. Each store uses computer-based interview
systems for new hiring.
Pending full implementation of the new information systems, Wilsons'
financial and human resource information systems are based on a mainframe
computer platform. Merchandise information systems receive information daily
from the point-of-sale registers and are updated with order information from
the production department on the progress and timing of orders and merchandise
received in the Company's distribution center. Wilsons recently implemented a
new merchandise planning application that enhances analytical capabilities and
increases flexibility in planning sales, inventory and gross margin. Wilsons'
merchandising department utilizes an international computer network to
communicate purchase order information from the Company's merchandising system
to its overseas personnel, in order to provide continual information updates
to allow for managing leather inventories and contract manufacturing capacity
planning. Garment design and specifications are controlled through a computer-
aided design system that distributes pattern and specification information to
the Company's contract manufacturing managers and designers to ensure
production consistency among the Company's contract manufacturers. Wilsons'
financial control systems provide daily information on store point-of-sale
transactions, inventory transfers and cash deposits and disbursements.
COMPETITION
The retail leather apparel and accessory industry is highly competitive.
Management believes that the principal bases upon which the Company competes
are selection, price, style, quality, store location and service. With a
management-estimated 18.0% share of leather apparel sales in the United States
in 1995 and 2.8% share of the U.S. leather accessories market in 1995, Wilsons
is a national leader in the specialty retail leather apparel and accessories
market. Wilsons' most significant competitor is J.C. Penney in addition to
other specialty retailers (e.g., The Limited and The Gap), department stores
(e.g., Macy's, Dayton's and Nordstroms), mass merchandisers (e.g., Sears and
J.C. Penney) and discounters (e.g., Wal-Mart and Kmart).
Wilsons believes that its broad merchandise selection, value and customer
service enable it to compete effectively. Many of the Company's competitors
are, however, larger and have greater financial resources than Wilsons, and
there can be no assurance that the Company will be able to compete
successfully in the future. Furthermore, while Wilsons believes it competes
effectively for favorable site locations and lease terms, competition for
prime locations within successful malls is intense.
PROPERTY
As of November 2, 1996, Wilsons operated 475 leased store locations and one
owned store location. Substantially all of Wilsons' stores were located in
regional shopping malls. Store leases with third parties are typically seven
to ten years in duration. In most cases, each store pays an annual base rent
plus a contingent rent based on the store's annual sales in excess of a
specified threshold. Substantially all leases which Wilsons has previously
entered into have been guaranteed by an affiliate of Melville. New store
leases which Wilsons is
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currently entering into or will enter into in the future will not be
guaranteed by Melville or an affiliate of Melville, and, with respect to
existing store leases, Wilsons is obligated, pursuant to the Sale Agreement
(as hereinafter defined), to use commercially reasonable efforts to remove the
affiliate of Melville as a guarantor.
The Company owns its distribution center.
LITIGATION
The Company is involved in various routine legal proceedings incidental to
the conduct of its business. Although the outcome of these matters cannot be
determined, management does not believe that any of these legal proceedings
will have a material adverse effect on the financial condition or results of
operations of the Company.
TRADEMARKS
Wilsons conducts its business under various trade names, trademarks and
service marks in the U.S., including Wilsons The Leather Experts, Tannery
West, Georgetown Leather Design, Berman Buckskin, Adventure Bound, Maxima,
Open Road and M. Julian, and has registered several trade names and trademarks
in the United Kingdom. Although Wilsons does not believe that its operations
are dependent upon any of its service marks or its trade names, Wilsons
considers its "Wilsons The Leather Experts" name to be valuable to its
business.
EMPLOYEES
As of November 2, 1996, Wilsons had approximately 7,400 employees, which
includes approximately 3,200 additional seasonal employees. For the remainder
of the peak selling season (from November through December), Wilsons will
employ approximately 800 more seasonal employees. Wilsons considers its
relationships with its employees to be good.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company as of November 2, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Joel N. Waller........................ 57 Chairman of the Board of Directors and
Chief Executive Officer
David L. Rogers....................... 53 President, Chief Operating Officer and Di-
rector
Carol S. Lund......................... 44 Executive Vice President and General Mer-
chandise Manager
W. Michael Bode....................... 51 Vice President, Manufacturing
Betty Goff............................ 40 Vice President, Human Resources
Jed Jaffe............................. 42 Vice President, Store Sales
David B. Sharp........................ 49 Vice President, Marketing
Daniel R. Thorson..................... 37 Treasurer and Director, Business Planning
and Analysis
David J. Tidmarsh..................... 44 Vice President, Information Systems and
Strategies, Chief Information Officer and
Logistics
Douglas J. Treff...................... 39 Vice President, Finance, Chief Financial
Officer and Assistant Secretary
Thomas R. Wildenberg.................. 38 Chief Accounting Officer and Controller
Lyle Berman........................... 55 Director
Thomas J. Brosig...................... 47 Director
Morris Goldfarb....................... 46 Director
</TABLE>
All of the above-named officers have held the noted office with the Company,
and all directors have served in that capacity, since May 1996.
Joel N. Waller has served as Chairman and Chief Executive Officer of the
Company since April 1992. In 1983, Melville hired Mr. Waller as President of
Wilsons. Prior to joining Wilsons, Mr. Waller served in several capacities at
Bermans, including Senior Vice President-General Merchandise Manager from 1980
to 1983, Division Merchandise Manager from 1978 to 1980 and Buyer from 1976 to
1978. He currently serves on the Board of Directors of Grand Casinos, Inc.,
Rainforest Cafe, Inc. and Damark International, Inc.
David L. Rogers has served as President and Chief Operating Officer of the
Company since April 1992. In 1989, Mr. Rogers joined Wilsons as Executive Vice
President and Chief Operating Officer when Bermans was acquired by Wilsons.
Mr. Rogers served as Chief Operating Officer of Bermans from 1984 to 1989 and
Chief Financial Officer of Bermans from 1980 to 1984. Mr. Rogers currently
serves on the Board of Directors of Grand Casinos, Inc. and Rainforest Cafe,
Inc.
Carol S. Lund has served as Executive Vice President and General Merchandise
Manager of the Company since March 1994. Ms. Lund served as Executive Vice
President for the Snyder Leather division from 1992 to 1994, as Senior Vice
President and General Merchandise Manager of the Company from 1987 to 1992 and
as Vice President and General Merchandise Manager of the Company from 1983 to
1987. Prior to joining Wilsons, she was Divisional Merchandise Manager for
Bermans from 1981 to 1983 and a buyer for Bermans from 1976 to 1981.
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W. Michael Bode has served as Vice President, Manufacturing of the Company
since 1987. Mr. Bode served as Director of Manufacturing from 1985 to 1987, as
Divisional Merchandise Manager of Outerwear from 1982 to 1985 and as Regional
Director of Stores of the Company from 1981 to 1982.
Betty Goff has served as Vice President, Human Resources of the Company
since February 1992. Ms. Goff served as Director of Executive Recruitment and
Placement of the Company from October 1987 to February 1992.
Jed Jaffe has served as Vice President, Store Sales of the Company since
January 1996. Mr. Jaffe served as Vice President Strategic Planning from
February 1995 to December 1995, as Vice President/General Merchandise Manager
of Snyder Leather from August 1993 to January 1995, as Eastern Zone Sales Vice
President of the Company from February 1993 to August 1993, as President of
Tannery West from September 1992 to January 1993 and as Director of
Manufacturing of the Company from October 1991 to September 1992. Prior to
joining Wilsons, Mr. Jaffe served as General Merchandise Manager of Henry
Birks Jewelers, a jewelry store chain, from 1990 to 1991.
David B. Sharp has served as Vice President, Marketing of the Company since
May 1995. Prior to joining Wilsons, Mr. Sharp held several positions from 1981
to 1995 at Lever Brothers Company, a consumer products company, most recently
as Senior Vice President of Marketing from 1989 to 1995.
Daniel R. Thorson has served as Treasurer of the Company since May 1996 and
as Director of Business Planning since October 1995. Prior to joining Wilsons,
Mr. Thorson held several positions from 1981 through 1995 at Northwest
Airlines, Inc., an airline company, most recently as Director of Finance and
Administration, Pacific Division, based in Tokyo, Japan from July 1991 to June
1995.
David J. Tidmarsh has served as Vice President, Information Systems and
Strategies of the Company and Chief Information Officer since February 1994
and as Vice President, Logistics since May 1996. Mr. Tidmarsh served as
Director of Business Systems Process Engineering of the Company from September
1993 to February 1994. Prior to joining Wilsons, he served as Chief Operating
Officer for Page-Com Inc., a direct mail marketing and telecommunications
company, from May 1992 to September 1993 and Vice President of Logistics for
Pier 1 Imports, Inc., a retail home furniture, furnishings and equipment
store, from 1989 to 1992.
Douglas J. Treff has served as Vice President, Finance since January 1993
and as Chief Financial Officer and Assistant Secretary of the Company since
May 1996. Mr. Treff served as Controller of the Company from September 1992 to
January 1993 and as Director of Financial Planning and Analysis of the Company
from May 1990 to September 1992.
Thomas R. Wildenberg has served as Controller since October 1994 and as
Chief Accounting Officer of the Company since May 1996. Prior to joining
Wilsons, Mr. Wildenberg held several positions from 1990 through 1994 at
Woman's World Shops, Inc., a retail apparel company, most recently as Director
of Finance/Controller from June 1990 to October 1994.
Lyle Berman is a member of the Company's Board of Directors. Mr. Berman has
served as Chief Executive Officer and Chairman of the Board of Directors of
Grand Casinos, Inc., a gaming company, since October 1990, and as Chief
Executive Officer and Chairman of the Board of Directors of Rainforest Cafe,
Inc., a restaurant/retail company, since February 1994. From January 1989
through September 1991, Mr. Berman served as a consultant to Wilsons. Mr.
Berman served as the President and Chief Executive Officer of Bermans from
1978 until it was acquired by Wilsons in 1988. Mr. Berman is also Chief
Executive Officer and Chairman of the Board of Directors of Stratosphere
Corporation, an amusement and recreation company, Chairman of the Board of
Directors of Innovative Gaming Corporation of America and a director of G-III
Apparel Group, Ltd. ("G-III") and New Horizon Kids Quest, Inc.
Thomas J. Brosig is a member of the Company's Board of Directors. Mr. Brosig
has served as President of Grand Casinos, Inc., a gaming company, since
September 1996. Mr. Brosig also served as Executive Vice President--Investor
Relations and Special Projects of Grand Casinos, Inc. from August 1994 to
September 1996,
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as Secretary of Grand Casinos, Inc. from its inception until May 1995, as its
President from May 1993 to August 1994, as its Chief Operating Officer from
October 1991 until May 1993 and as its Chief Financial Officer from its
inception until January 1992. Mr. Brosig is also a director of G-III, Game
Financial Corporation and Famous Dave's of America, Inc.
Morris Goldfarb is a member of the Company's Board of Directors. Mr.
Goldfarb serves as director, President and Chief Executive Officer of G-III, a
leather and non-leather apparel manufacturer and distributor, a director of
Grand Casinos, Inc. and a director of Panasia Bank. Mr. Goldfarb has served as
either the President or a vice president of G-III and its predecessors since
its formation in 1974.
Directors of the Company are elected by the shareholders at each annual
meeting to serve until the next annual meeting of the shareholders or until
their successors are duly elected and qualified. Executive officers of the
Company are chosen by and serve at the discretion of the Board of Directors.
There are no family relationships among any of the directors or executive
officers of the Company.
BOARD COMMITTEES
The Company's Board of Directors has established compensation and audit
committees (respectively, the "Compensation Committee" and the "Audit
Committee") whose members are appointed by the Company's Board of Directors.
The Compensation Committee has the responsibility and authority to review and
determine the Company's executive compensation objectives and policies and
administer the Company's stock option and other employee benefit plans. The
Compensation Committee members are Thomas Brosig and Lyle Berman. The Audit
Committee has the responsibility and authority to review the accounting and
auditing principles and procedures of the Company with a view toward providing
for adequate internal controls and reliable financial records, to recommend to
the full Board the engagement of independent auditors, to review with the
independent auditors the plans and results of the auditing engagement, and to
consider the independence of the Company's auditors. The Audit Committee
members are Morris Goldfarb, Thomas Brosig and David Rogers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Lyle Berman and Thomas Brosig, directors of the Company, are members of the
Board's Compensation Committee. Mr. Berman is the Chief Executive Officer and
Chairman of the Board of Directors of both Grand Casinos, Inc. and Rainforest
Cafe, Inc. Mr. Brosig is the President of Grand Casinos, Inc. Joel N. Waller,
Chief Executive Officer and Chairman of the Board of Directors of the Company,
and David L. Rogers, President and Chief Operating Officer and a director of
the Company, are both members of the Compensation Committee of the Board of
Directors of Grand Casinos, Inc. and Rainforest Cafe, Inc.
EXECUTIVE COMPENSATION AND EMPLOYMENT CONTRACTS
The Company was incorporated in 1996. Therefore, the requirement for prior
years' information regarding executive compensation for the Chief Executive
Officer of the Company, and the next four most highly compensated executives
of the Company, is not applicable. The Company has entered into employment
agreements with Joel Waller, as Chairman and Chief Executive Officer, and
David Rogers, as President, through May 25, 2000 (the "Employment
Agreements"). The Employment Agreements are identical in all material
respects, except for job responsibilities which are consistent with Messrs.
Waller's and Rogers' titles. Under the terms of the Employment Agreements, Mr.
Waller and Mr. Rogers each receive a base salary of $380,000 per year, or such
higher amount as is determined by the Board (prorated for any partial
employment year). In no event may the Board of Directors reduce Messrs.
Waller's and Rogers' base salary for any year below the greater of $380,000 or
the amount of base salary paid by the Company to Messrs. Waller and Rogers for
the immediately preceding year. Messrs. Waller and Rogers will each be
entitled to participate in the Incentive Plan (as hereinafter defined). Mr.
Waller and Mr. Rogers are each eligible to receive an annual bonus based on
the Company's performance. Their respective bonuses for the current year could
range from zero to $266,000 (i.e., 0% to 70% of their base salary), depending
on the Company's performance in relation to set performance targets. The
employment of each of Mr. Waller and Mr. Rogers under their respective
Employment Agreements will end
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<PAGE>
only upon termination by the Company with or without Cause (as defined in the
Employment Agreements), upon death or Disability (as defined in the Employment
Agreements), upon expiration of the employment term or upon resignation. Upon
termination of employment, Mr. Waller or Mr. Rogers generally will be entitled
to receive his base salary through the date of termination (or through the end
of the employment period if termination by the Company occurred without Cause
or resignation by the employee occurred with Good Reason (as defined in the
Employment Agreements)), any amounts earned but not paid under the Incentive
Plan for a completed Plan Year (as defined in the Incentive Plan) and, in
certain circumstances, a pro rata portion of his Incentive Plan payment for
the year in which termination occurs, plus continuation of certain health,
life and disability insurance benefits. See "Employee Benefit Plans" below.
The Employment Agreements also include confidentiality and non-solicitation
provisions, but do not contain any restrictions on competition.
The next three most highly compensated executives are Carol S. Lund, David
B. Sharp and Jed Jaffe. Ms. Lund, Mr. Sharp and Mr. Jaffe are expected to be
paid base salaries at the annual rate of approximately $240,000, $208,000 and
$180,000 per year, respectively, and annual bonuses ranging from zero to
$134,400, $108,160, and $93,600, respectively, depending on the Company's
performance in relation to set performance targets. See "Employee Benefit
Plans" below.
Pursuant to the Restricted Stock Agreement dated as of May 25, 1996, Joel N.
Waller, David L. Rogers, Carol S. Lund, David B. Sharp and Jed Jaffe
purchased, respectively, 334,819.8, 334,819.8, 48,594.6, 48,594.6 and 40,495.5
shares of the Company's Restricted Stock at its then fair market value of $.60
per share. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview" and "Certain Transactions--Restricted
Stock Agreement." No options have been granted to these five most highly
compensated executive officers.
EMPLOYEE BENEFIT PLANS
The Company has an Executive and Key Management Incentive Plan (the
"Incentive Plan"), a 401(k) defined contribution Profit Sharing Plan (the
"401(k) Plan") and the 1996 Option Plan for the benefit of its employees.
The Incentive Plan provides for an annual incentive award designed to
motivate and reward key home office and distribution center associates.
Eligible participants include the Chairman, President, all Vice Presidents and
certain other key personnel. Cash awards, which range from 0% to 200% of the
payout level, are based on actual results measured generally against pre-
established corporate financial objectives for consolidated earnings, before
federal and state income taxes, of the Company and its direct and indirect
subsidiaries.
Under the 401(k) Plan, employees are entitled to make vested contributions
of up to 15% of their compensation (10% for those employees whose compensation
in the previous year exceeded $55,000) in lieu of receiving such amounts as
taxable compensation, subject to statutory limitations. Certain matching
contributions may be made by the Company, which vest after five years of
service, or at age 65 regardless of service, or upon the death of the
employee. The 401(k) Plan also allows the Company to make discretionary profit
sharing contributions, which are also subject to the vesting requirements.
The purpose of the 1996 Option Plan is to aid in maintaining and developing
personnel capable of assuring the future success of the Company by affording
them an opportunity to acquire a proprietary interest in the Company through
stock options. Options granted under the 1996 Option Plan may be either
incentive stock options ("ISOs"), as defined in the Internal Revenue Code of
1986, as amended (the "Code"), or nonstatutory stock options ("NSOs"). Subject
to certain adjustments, the maximum number of shares of Common Stock available
for issuance under the 1996 Option Plan is 1,000,000 shares. Employees of the
Company, or any parent or subsidiary thereof, including employees who are
directors or officers, are eligible to receive ISOs and NSOs under the 1996
Option Plan. Directors of, and consultants and advisors to, the Company who
are not employees of the Company, or any parent or subsidiary thereof, are
eligible to receive NSOs under the 1996 Option Plan. As of November 2, 1996,
the Company had granted options covering an aggregate of 199,980 shares of
Common
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<PAGE>
Stock at an exercise price of $4.44 per share. Such options will vest in
accordance with the option agreements entered into at the time of grant and
are subject to the possible acceleration of vesting in certain circumstances.
RESTRICTED STOCK AGREEMENT
On May 25, 1996, the Company entered into a restricted stock agreement (the
"Restricted Stock Agreement") with certain managers of the Company, including
all of the five most highly compensated executive officers. The Restricted
Stock Agreement sets forth the vesting schedule for the Restricted Stock
purchased by such managers. See "Certain Transactions--Restricted Stock
Agreement."
DIRECTOR COMPENSATION
The Company does not anticipate paying cash compensation in the near term to
members of the Board of Directors for their services as directors. On June 26,
1996, the Company granted an option for 10,800 shares of Common Stock to
Thomas J. Brosig at an exercise price of $4.44 per share. Such option will
vest, cumulatively, on a pro rata basis on each of the first, second and third
anniversaries of the date of grant if such optionee continues as a director,
subject to the possible acceleration of vesting in certain circumstances.
CERTAIN TRANSACTIONS
The following are summaries of the material terms of certain agreements.
Copies of these agreements are filed as exhibits to the Registration Statement
of which this Prospectus is a part. The following summaries do not purport to
be complete and are qualified in their entirety by the terms of such
agreements.
RESTRICTED STOCK AGREEMENT
On May 25, 1996, the Company entered into the Restricted Stock Agreement
with certain managers of the Company (the "Managers"), including Joel N.
Waller, the Chairman, Chief Executive Officer and a director of the Company,
and David L. Rogers, the President and a director of the Company. The
Restricted Stock Agreement provides that 1,080,000 shares of the Company's
Common Stock (herein called the "Restricted Stock") purchased by the Managers
for $.60 per share will vest (i) up to 20 percent each year during a five-year
performance period if the Company achieves certain earnings targets that are
determined by the Board (plus potential catch-up vesting for years in which
the Company fails to achieve its targets); (ii) immediately upon payment or
prepayment of the Note in full at any time on or prior to December 31, 2000;
(iii) immediately upon any partial prepayment of the Note at any time prior to
December 31, 2000, but only that portion of the originally purchased shares of
Restricted Stock equal to the portion of the Note that has been repaid as of
such date will vest; (iv) immediately upon the death, Disability (as defined
in the Restricted Stock Agreement) or Retirement (as defined in the Restricted
Stock Agreement) of the Manager that purchased such Restricted Stock; and (v)
upon the occurrence of a Change in Control (as defined in the Restricted Stock
Agreement), subject to the written consent of Melville to such Change in
Control as long as the Note remains outstanding. Additionally, Messrs.
Waller's and Rogers' Restricted Stock will vest upon the termination without
Cause (as defined in the Restricted Stock Agreement) of Mr. Waller or Mr.
Rogers, or the termination by Mr. Waller or Mr. Rogers of his employment as a
result of the Company breaching terms of their respective Employment
Agreements.
The Company will purchase from the Managers any shares of Restricted Stock
that have not vested by the end of the five-year performance period at a price
per share equal to the $.60 per share. To the extent any shares of Restricted
Stock have not vested by the end of the five year performance period, the
Manager Warrant held by Melville becomes exercisable for such number of
unvested shares.
The Restricted Stock is subject to the terms of the Shareholder Agreement,
which, among other restrictions, includes prohibitions on transfers of
Restricted Stock prior to vesting. Except for these restrictions, each Manager
and his or her permitted transferees have all rights of a shareholder and
record owner. Each Manager is
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<PAGE>
responsible for any taxes and other sums required by law to be withheld by the
Company in respect of the Restricted Stock.
The Company did not recognize any compensation deduction for tax purposes in
connection with the issuance of the Restricted Stock. For accounting purposes,
the Company will be required to record charges to earnings equal to the
difference between the fair market value of the Restricted Stock on the date
such Restricted Stock vests and the original purchase price of the Restricted
Stock, which was $.60 per share. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
REGISTRATION RIGHTS AGREEMENT
On May 25, 1996, the Company entered into a registration rights agreement
(the "Registration Rights Agreement") with the Managers, Melville and Limited
Partnership I and its partners (the "Partners"). The Registration Rights
Agreement provides that, subject to certain limitations, (i) at the expense of
the holders thereof, holders of a majority of the aggregate principal amount
of the Note (the "Note Holders"), holders of a majority of the Melville
Warrant (the "Warrant Holders"), and, to the extent exercisable, after April
30, 2001, holders of a majority of the Manager Warrant (the "Manager Warrant
Holders"), respectively, each will have three demand registration rights for
the Note, the Melville Warrant and the shares underlying the Manager Warrant,
for registration of such securities under the Securities Act, and (ii) at the
Company's expense, at any time after six months following the closing of the
Offering (but no later than May 25, 2007), holders of a majority of the number
of outstanding shares of Common Stock initially held by the Partners will have
two demand registration rights for such shares of Common Stock, and unlimited
demands for registration on Form S-3, if the Company can use that form, for
registration of such shares under the Securities Act. The Company is
prohibited from granting to any other holder of its securities (other than
holders of Common Stock), whether currently outstanding or issued in the
future, any incidental (piggyback) registration rights with respect to any
registration statement filed pursuant to any such demand registration. Subject
to certain limitations and customary cutbacks as reasonably determined by any
underwriter, if the Company proposes to register any of its Common Stock or
the Melville Warrant under the Securities Act, the Company will provide the
Warrant Holders and certain holders of its Common Stock (the Managers, Limited
Partnership I, the Partners and certain permitted transferees) with the
opportunity, pursuant to piggyback registration rights, to participate in such
public offering. Registration rights relating to the Common Stock expire upon
(i) certain transfers of such stock to a third party, and (ii) such Common
Stock becoming available for sale pursuant to Rule 144(k) of the Securities
Act.
The Registration Rights Agreement further provides that, if Melville desires
to transfer all or part of the Note or the Melville Warrant to a third party
in a bona fide arm's length transaction or proposes to register all or part of
the Note or the Melville Warrant pursuant to the Registration Rights
Agreement, Melville must give written notice to Joel N. Waller and David L.
Rogers, individually and on behalf of the other Managers, to Limited
Partnership I and the Partners and, in the case of a proposed sale or
registration of the Melville Warrant, to the Company (the "Parties"). Such
written notice will constitute an offer by Melville to sell the Melville
Warrant, and with respect to all Parties other than the Company, the Note to
the Parties. If the Parties fail to accept Melville's offer after a set time,
Melville will then have the right to effect a transfer to a third party of, or
to require the registration of all of, the Notes or Melville Warrant, subject
to certain terms and conditions.
SHAREHOLDER AGREEMENT
On May 25, 1996, the Company entered into a shareholder agreement (as
amended, the "Shareholder Agreement") with Limited Partnership I, Limited
Partnership II, the Partners, Waller and Rogers (as defined in the Shareholder
Agreement) and the Managers (other than Waller and Rogers, each a "Manager
Shareholder") (all parties to the Shareholder Agreement other than the Company
being collectively referred to as the "Shareholders"). The Shareholder
Agreement subjects the shares of the Company's Common Stock and Series A
Preferred (the "Subjected Shares") held by the Shareholders to significant
restrictions on transfer. Generally, except as otherwise provided in the
Shareholder Agreement, no Shareholder is permitted, directly or indirectly, to
Dispose (as defined in the Shareholder Agreement) of any Subjected Shares.
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Generally, upon the occurrence of the Termination (as defined in the
Shareholder Agreement) of a Manager Shareholder without Cause (as defined in
the Shareholder Agreement), first Waller and Rogers, then the Company and
finally the other Shareholders pro rata would have the option (or obligation
in the case of the Company to the extent it has funds legally available
therefor) to purchase such Manager Shareholder's unvested Restricted Stock at
the original purchase price. Upon the occurrence of a Termination by Waller or
Rogers without Good Reason (as defined in the Shareholder Agreement), a
Termination by a Manager Shareholder, or a Termination of Waller, Rogers or a
Manager Shareholder with Cause, first Waller and Rogers (to the extent they
are not the terminated or resigning parties), then the Company and finally the
other Shareholders pro rata would have the option to purchase such Manager's
unvested Restricted Stock at the lower of the original purchase price or the
Fair Market Value (as defined in the Shareholder Agreement).
Upon the occurrence of a Repurchase Event (as hereinafter defined) with
respect to a Manager, first Waller and Rogers (to the extent they are not such
Manager), then the Company and finally the other Shareholders pro rata would
have the option to purchase such Manager's unrestricted stock at the Fair
Market Value, provided that, if the Repurchase Event occurs as a result of the
Termination by a Manager Shareholder on or prior to May 25, 2001, or a
Termination by Waller or Rogers without Good Reason on or prior to May 25,
2001, or a Termination of Waller, Rogers or a Manager Shareholder with Cause,
the purchase price of such unrestricted stock would be the lower of the
original purchase price or Fair Market Value on the date of such Repurchase
Event. "Repurchase Event" means the death, Disability, Retirement (as such
terms are defined in the Shareholder Agreement) or Termination of or by a
Manager Shareholder, or the Termination by Waller or Rogers without Good
Reason on or before May 25, 2001, or the Termination of Waller or Rogers with
Cause.
Upon the occurrence of the death, Disability or Retirement of Waller or
Rogers, the termination of Waller or Rogers without Cause, the Termination by
Waller or Rogers with Good Reason or the Termination by Waller or Rogers after
May 25, 2001 with or without Good Reason, Waller or Rogers (or such
individual's estate) would have the right either to retain his Common Stock or
to offer to sell his Common Stock first to Waller (if Rogers or his estate is
selling such stock) or Rogers (if Waller or his estate is selling such stock),
then the Company and finally the other Shareholders pro rata, who would each,
in order, have the option to purchase such Common Stock at Fair Market Value.
Generally, if any Shareholder desires to Dispose of any Subjected Shares
(other than Dispositions of unvested Restricted Stock, which are prohibited)
to any Third Party (as defined in the Shareholder Agreement) other than a
Permitted Transferee (as defined in the Shareholder Agreement), first Waller
and Rogers (to the extent they are not the selling Shareholder), then the
Company and finally the other Shareholders pro rata would have the option to
buy such shares at the price such Third Party is willing to pay (if the
transfer is for value) or at the original purchase price (if the transfer is
other than for value); provided that (i) if Waller and Rogers desire to
Dispose of any Subjected Shares, Messrs. Berman and Goldfarb would have the
opportunity to purchase such stock before the Company, (ii) if Melville, after
becoming subject to the Shareholder Agreement pursuant to the terms of the
Melville and Manager Warrants, desires to Dispose of any Subjected Shares, the
Company, then Waller and Rogers and finally the other Shareholders pro rata
would have the option to purchase such Subjected Shares, and (iii) Waller and
Rogers would have the right to Dispose of a limited number of Subjected Shares
to employees of the Company. If no one chooses to purchase the securities,
then such Shareholder would be permitted to Dispose of the securities to such
Third Party on substantially the same terms and at a price at least equal to
the price such Third Party was originally willing to pay for such securities,
provided that such Disposition is completed within 90 days and the Third Party
agrees in writing to be subject to the Shareholder Agreement. Such right of
first refusal would not apply to sales of unrestricted stock in a public
offering or sales by Shareholders other than the Manager Shareholders of
unrestricted stock in open market transactions.
Generally, subject to the terms of the Shareholder Agreement, no Shareholder
would be permitted to sell shares of Common Stock (other than to a Permitted
Transferee, in a public offering or, in the case of Shareholders other than
the Manager Shareholders, in an open market transaction) without providing all
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<PAGE>
other Shareholders the right to participate in such sale (the "Co-Sale
Rights"); provided that Waller and Rogers would have the right to sell a
limited number of shares of Common Stock to employees of the Company. Each
Shareholder who exercises such Shareholder's Co-Sale Rights would be permitted
to sell a percentage of the shares that the prospective buyer is willing to
purchase equal to such Shareholder's percentage ownership of the outstanding
shares of unrestricted stock owned by all of the Shareholders wishing to
participate in such sale. Shares of Restricted Stock that have not yet vested
could not be sold pursuant to the Co-Sale Rights.
Generally, except as set forth in the Shareholder Agreement, the Shareholder
Agreement will terminate with respect to all Subjected Shares (other than
shares of Restricted Stock which have not yet vested) upon the first to occur
of (i) a Control Transaction (as defined in the Shareholder Agreement), or
(ii) assuming completion of the Offering, May 25, 1998. The Co-Sale Rights
would remain in effect upon the occurrence of a Control Transaction but,
assuming completion of the Offering, would expire on May 25, 1998. The
Shareholder Agreement will remain in effect for all shares of Restricted Stock
that have not vested until such shares vest or are purchased by the Company.
SALE AGREEMENT
On May 24, 1996, Melville, the Company and Wilsons Center, Inc., one of the
Predecessor Companies, entered into a sale agreement (the "Sale Agreement"),
which provided for Melville to sell the Wilsons Shares to the Company on May
25, 1996 (the "Closing"), subject to various conditions typically found in
transactions of this nature. In consideration for the Wilsons Shares, the
Company delivered to Melville (i) $2.0 million in cash, (ii) the $55.8 million
Note, (iii) the Melville Warrant, (iv) the Manager Warrant, (v) 4,320,000
shares of the Company's Common Stock, and (vi) 7,405 shares of the Company's
Series A Preferred. As part of the Acquisition, Limited Partnership I
subsequently purchased from Melville the 4,320,000 shares of the Company's
Common Stock and Limited Partnership II subsequently purchased from Melville
the 7,405 shares of the Company's Series A Preferred for an aggregate
consideration of $10.0 million.
Pursuant to the Sale Agreement, Melville agreed, subject to certain
limitations set forth therein, to indemnify the Company and its affiliates
(and their respective officers and directors) against and to hold them
harmless from any and all Damages (as defined in the Sale Agreement) incurred
or suffered by any such indemnified party arising out of, among other things,
(i) certain misrepresentations or breaches of warranties or covenants or
agreements to be performed by Melville or Wilsons Center, Inc. pursuant to the
Sale Agreement; (ii) claims relating to certain disclosed and undisclosed
liabilities of the Predecessor Companies; (iii) claims relating to the Closed
Store Leases (as defined in the Sale Agreement) and the Excluded Subsidiaries
(as defined in the Sale Agreement); (iv) claims related to certain taxes,
primarily income taxes; (v) claims related to certain recalled leather
protector sprays; and (vi) claims related to employees and certain employee
benefits matters. Generally, the indemnifications by Melville, other than
those referred to in clauses (iv), (v) and (vi) above, which will survive
until the expiration of the applicable statute of limitations and have no
dollar limit, must be asserted on or prior to August 25, 1997, and may not be
recovered except to the extent they exceed $1.2 million in the aggregate, with
such recoveries generally limited to $12 million in the aggregate. Of the
claims that must be asserted on or prior to August 25, 1997, none have accrued
as of November 2, 1996.
The Company and its affiliates have also, subject to certain limitations set
forth in the Sale Agreement, agreed to indemnify Melville and its affiliates
(and their respective officers and directors) against and to hold them
harmless from any and all Damages incurred or suffered by any such indemnified
party arising out of certain misrepresentations or breaches of warranties or
covenants or agreements to be performed by the Company or, after May 25, 1996,
by Wilsons Center, Inc. pursuant to the Sale Agreement. The indemnifications
by the Company relating to misrepresentations or breaches of warranties must
be asserted on or prior to August 25, 1997, and may not be recovered except to
the extent they exceed $1.2 million in the aggregate, with such recoveries
generally limited to $12 million in the aggregate.
WARRANTS HELD BY MELVILLE
As of November 2, 1996, the Company had issued and outstanding (i) the
Melville Warrant to purchase 1,350,000 shares of the Company's Common Stock,
at an exercise price of $.60 per share, and (ii) the Manager
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<PAGE>
Warrant to purchase up to 1,080,000 shares of the Company's Common Stock, at
an exercise price of $.60 per share. The Melville Warrant is immediately
exercisable, in whole or in part, and remains exercisable until May 25, 2006.
The Manager Warrant is exercisable in whole or in part at any time from April
30, 2001 through April 30, 2003, subject to reduction in an amount equal to
the number of shares of Restricted Stock that have vested as of April 30,
2001. See "The Acquisition" and "Restricted Stock Agreement" above. The
exercise price and number of shares of Common Stock for which each of the
Melville Warrant and the Manager Warrant is exercisable will be
proportionately adjusted to reflect any stock dividend, distribution,
subdivision, split, combination, issuance or reclassification. Upon exercise
of such warrants and receipt of the Company's Common Stock, each holder of
such stock agrees to enter into the Shareholder Agreement, as long as the
Shareholder Agreement is in effect with respect to any shares of the Company's
Common Stock. The Melville Warrant and the Manager Warrant are also subject to
certain registration rights. See "Registration Rights Agreement" and
"Shareholder Agreement" above.
SUBORDINATED NOTE
On May 25, 1996, the Company issued the Note to Melville (along with
subsequent registered transferees, the "Holder(s)") for $55.8 million as
partial consideration for the Acquisition. $55.0 million of the principal
amount of the Note bears interest at the rate of 10% per annum, compounded
annually, with all such principal and interest due and payable on December 31,
2000. The remaining principal balance of the Note ($0.8 million) does not bear
interest and is due and payable on December 31, 2000. The Company may prepay
without premium or penalty all or any portion of the principal amount of the
Note, together with accrued interest thereon to the date of such prepayment.
The Note is secured by a lien on substantially all of the Company's assets
other than real estate, equipment and fixtures, but is subordinated to the
Revolving Credit Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
If an Event of Default occurs (as defined in the Note, including, among
others, if (i) the Company defaults in the payment of the principal or
interest when the same becomes due and payable and such default continues for
a period of 30 days, (ii) the Company defaults in the performance of or
breaches certain covenants of the Company in the Note (as described below) and
such default continues for a period of 30 days, (iii) a court enters an order
for relief in respect of the Company in an involuntary case under applicable
bankruptcy law or appoints a receiver and such order remains in effect for a
period of 60 consecutive days, (iv) the Company commences a voluntary case
under any applicable bankruptcy law, or (v) there is a default under any
senior debt of the Company or its subsidiaries), the principal amount of the
Note and accrued interest becomes immediately due and payable upon written
notice of the Holders of at least 25% of the aggregate principal amount of the
Note then outstanding. The Note also contains covenants limiting, among other
things, the Company's ability to (i) liquidate the Company or sell 5% or more
of the Company's consolidated assets, (ii) generally declare or make dividends
or repurchase the Company's capital stock, (iii) sell 5% or less of the total
consolidated assets of the Company or make a public offering of the Company's
capital stock without reinvesting the proceeds of the sale or offering in the
Company's business or applying the proceeds against debt, (iv) purchase any
property or assets of any other entity in excess of five percent of the total
consolidated assets of the Company, and (v) make any material change in the
scope of the business of the Company.
Subject to certain limitations, the Holder may transfer or assign the Note,
in whole or in part, to any person without the prior written consent of the
Company. See "Registration Rights Agreement" above.
OTHER RELATIONSHIPS
The Company regularly conducts business with G-III, of which Morris
Goldfarb, a director of Wilsons, is the President, Chief Executive Officer and
a director. Purchases from G-III totaled $11.2 million and $4.7 million for
1994 and 1995, respectively, and $1.9 million for January 1 through November
2, 1996. The Company believes that transactions with G-III are on terms no
less favorable to the Company than those obtainable in arms-length
transactions with unaffiliated third parties.
See also Note 12 of Notes to Consolidated Financial Statements.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of November 2, 1996 and as adjusted
to reflect the sale of shares offered by this Prospectus by (i) each person
known by the Company to be the beneficial owner of 5% or more of the Company's
outstanding shares of Common Stock, (ii) each director of the Company and each
of the five most highly compensated executive officers, and (iii) all
directors and executive officers as a group. Except as otherwise indicated in
the footnotes to this table, each person named in this table has sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by such person.
<TABLE>
<CAPTION>
% BENEFICIALLY OWNED
------------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------ ------------------ ---------- ----------
<S> <C> <C> <C>
Morris Goldfarb......... 972,000.0(1)(2) 12.7 9.1
G-III Apparel Group,
Ltd.
512 Seventh Avenue
New York, NY 10018
Goldfarb Family Partners 907,200.0(1) 11.9 8.5
L.L.C. ................
G-III Apparel Group,
Ltd.
512 Seventh Avenue
New York, NY 10018
Lyle Berman............. 43,200.0(1)(2) * *
Neil I. Sell, as sole
trustee of four
irrevocable trusts for
the benefit of Lyle
Berman's children and
of two irrevocable
trusts for the benefit
of David Rogers'
children and on behalf
of himself............. 2,191,510.8(1)(2)(3) 28.6% 20.6%
3300 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
CVS New York, Inc. 1,350,000.0(4) 15.0 11.3
(formerly Melville
Corporation)...........
One CVS Drive
Woonsocket, RI 02895
Joel N. Waller.......... 1,036,530.9 13.5 9.7
7401 Boone Avenue North
Brooklyn Park, MN 55428
David L. Rogers......... 897,019.2 11.7 8.4
7401 Boone Avenue North
Brooklyn Park, MN 55428
Carol S. Lund........... 149,833.8 2.0 1.4
David Sharp............. 141,509.7 1.9 1.3
Jed Jaffe............... 124,861.5 1.6 1.2
Thomas J. Brosig........ -- -- --
All directors and
executive
officers as a group (14
persons)............... 3,822,780.6 50.0 35.9
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of the Common
Stock.
(1) Limited Partnership I, of which Messrs. Berman, Goldfarb and Sell are
partners, currently owns 4,320,000 shares of Common Stock. Upon the
consummation of the Offering, Limited Partnership I by its terms will
dissolve, leaving the partners and the related family trusts and limited
liability company noted above, to which Messrs. Berman and Goldfarb,
respectively, have assigned certain interests in Limited Partnership I,
with direct ownership of the Common Stock in proportion to their
investments in Limited Partnership I.
(2) Does not include 3,221.175, 3,221.175 and 370.25 shares of the Company's
non-voting Series A Preferred that will be owned by Messrs. Berman,
Goldfarb and Sell, respectively, upon consummation of the Offering. These
shares are currently owned by Limited Partnership II, of which Messrs.
Berman, Goldfarb and Sell are partners and which by its terms will
dissolve upon consummation of the Offering. See "Description of Capital
Stock--Preferred Stock."
(3) Includes 1,836,000 shares of Common Stock held in four irrevocable trusts
for the benefit of Lyle Berman's children and 139,510.8 shares of Common
Stock held in two irrevocable trusts for the benefit of David L. Rogers'
children. Mr. Sell has disclaimed beneficial ownership of such shares.
(4) Includes 1,350,000 shares of Common Stock issuable to Melville upon the
exercise of the Melville Warrant, which is currently exercisable in full.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Amended Articles of Incorporation, which will become effective
upon the closing of the Offering, authorize the issuance of up to 100,000,000
shares of Common Stock, $0.01 par value, and 10,000,000 shares of Preferred
Stock, $0.01 par value, the rights and preferences of which may be established
from time to time by the Company's Board of Directors.
COMMON STOCK
As of November 2, 1996, 7,650,000 shares of Common Stock were issued and
outstanding (including 1,080,000 shares of Restricted Stock) and were held by
51 shareholders. An additional 1,350,000 and 1,080,000 shares of Common Stock,
respectively, are reserved for issuance upon exercise of the Melville Warrant
and the Manager Warrant and 1,000,000 shares of Common Stock are reserved for
issuance upon exercise of options pursuant to the 1996 Option Plan. Each
holder of shares of Common Stock, including the shares of Common Stock hereby,
will have equal rights in all respects, including the right to one vote on all
matters submitted to shareholders for each share of Common Stock standing in
the name of such holder on the books of the Company. There are no cumulative
voting rights for the election of directors, which means that the holders of
more than 50% of such outstanding shares voting for the election of directors
can elect all of the directors of the Company standing for election. Shares of
Common Stock do not have subscription or conversion rights and there are no
redemption or sinking fund provisions applicable thereto. Holders of Common
Stock have no preemptive rights to purchase pro rata portions of new issues of
Common Stock or Preferred Stock. The outstanding shares of Common Stock are,
and the shares of Common Stock offered hereby will be, when issued and sold
hereunder, fully paid and non-assessable.
PREFERRED STOCK
As of August 31, 1996, 15,000 shares were authorized as Series A Preferred,
of which 7,405 shares were issued and outstanding and were held by Limited
Partnership II. By its terms, Limited Partnership II will dissolve upon
consummation of the Offering, leaving the partners with direct ownership of
the Preferred Stock in proportion to their investments in Limited Partnership
II. The Board of Directors may from time to time issue the remaining shares of
Preferred Stock in one or more series, each of such series to have such
relative rights, voting power, preferences, qualifications, limitations and
restrictions as are adopted by the Board of Directors, including dividend
rights, redemption and liquidation preferences, conversion rights and voting
rights, any or all of which may be greater than the rights of the Common
Stock. The Board of Directors, without shareholder approval, can issue
Preferred Stock with voting, conversion or other rights that could adversely
affect the voting power and other rights of the holders of Common Stock.
Preferred Stock could thus be issued quickly with terms calculated to delay or
prevent a change in control of the Company or make removal of management more
difficult. Additionally, the issuance of Preferred Stock may have the effect
of decreasing the market price of the Common Stock, and may adversely affect
the voting and other rights of the holders of Common Stock.
The Series A Preferred does not have voting rights, except as required by
law or as set forth below. Without the affirmative vote of the holders of at
least a majority of the shares of Series A Preferred at the time outstanding,
the Company is generally prohibited from (i) issuing additional shares of
Preferred Stock on parity with or superior to the Series A Preferred, (ii)
declaring or paying dividends or making any other distribution on any shares
of capital stock of the Company at any time created and issued ranking junior
to the Series A Preferred, or (iii) amending the Amended Articles of
Incorporation of the Company so as to materially alter any existing provision
relating to the terms of the Series A Preferred or waive any of the rights
granted to the holders of the Series A Preferred by the Amended Articles of
Incorporation of the Company or otherwise alter the rights or preferences of
the Series A Preferred.
After the repayment in full of the Note plus accrued interest thereon (the
date on which such repayment is made being hereinafter referred to as the
"Note Repayment Date"), the Series A Preferred will be entitled to
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<PAGE>
receive, when and as duly declared by the Board of Directors in the manner
provided in the Amended Articles of Incorporation, cash dividends at the
annual rate of $80 per share (appropriately adjusted to reflect stock splits,
dividends or combinations, reorganizations, consolidations and similar changes
hereafter effected) from the date of issuance of such Series A Preferred,
which dividends will be cumulative (whether or not there shall be funds of the
Company legally available for the payment of such dividends) and will
accumulate (whether or not earned or declared) from the date of issuance of
such shares of Series A Preferred, and, to the extent accumulated and unpaid
as of May 31 of any year, will be payable before any dividends on any shares
of Common Stock shall be declared or paid or set apart for payment during the
twelve months following such May 31.
In the event of an involuntary or voluntary liquidation or dissolution of
the Company at any time, the holders of shares of Series A Preferred will be
entitled to receive out of the assets of the Company an amount equal to $1,000
per share (appropriately adjusted to reflect stock splits, divisions or
combinations or stock dividends, reorganizations, consolidations and similar
changes hereafter effected), plus all per-share dividends unpaid and
accumulated thereon (whether or not earned or declared) to the date of such
distribution.
The Series A Preferred will not be redeemable by the Company prior to the
Note Repayment Date without the consent of holders of a majority in principal
amount of the Note. On and after the Note Repayment Date, the Company will, to
the extent that funds are legally available therefor, have the option to
redeem without penalty or premium all or any portion of the Series A Preferred
for $1,000 per share (appropriately adjusted to reflect stock splits,
divisions or combinations, reorganizations, consolidations and similar changes
hereafter effected), plus an amount equal to all dividends unpaid and
accumulated thereon (whether or not earned or declared) to the date on which
such redemption is made.
If at any time (i) all or substantially all of the Company's assets are
sold, transferred or otherwise disposed of, or (ii) an Event of Default shall
occur and be continuing, the Company will, to the extent that funds are
legally available therefor, redeem all of the Series A Preferred for $1,000
per share (appropriately adjusted to reflect stock splits, divisions or
combinations, reorganizations, consolidations and similar changes hereafter
effected), plus an amount equal to all dividends unpaid and accumulated
thereon (whether or not earned or declared) to the date on which such
redemption is made, after payment in full of the Note. An Event of Default
will occur if, among other things, (i) the Company becomes insolvent or
bankrupt, (ii) a trustee or receiver is appointed for the Company, (iii) an
order for relief is entered in any Federal bankruptcy proceeding in which the
Company is the debtor and the order is not discharged within 60 days, or (iv)
the Company defaults in the performance or observance of certain covenants
pertaining to the Series A Preferred (such covenants include, among other
things, (i) the Company's duty not to, without the affirmative vote of the
majority of the shares of Series A Preferred outstanding at the time, (a)
issue more than 7,405 shares of Series A Preferred or authorize any shares of
stock ranking superior to or on a parity with the Series A Preferred, (b)
declare or pay any dividend or make any other distribution on any shares of
capital stock of the Company at any time created and issued ranking junior to
Series A Preferred with respect to the right to the payment of dividends or as
to the distribution of assets upon liquidation, dissolution or winding up of
the Company, and (c) amend the Articles of Incorporation of the Company so as
to materially alter any existing provision relating to the terms of the Series
A Preferred or otherwise alter the rights or preferences of the Series A
Preferred, and (ii) the Company's duty to (a) deliver to each holder of 10% or
more of the outstanding Series A Preferred within 45 days after the end of
each fiscal quarter, unaudited consolidated financial statements, and, within
90 days after the end of each fiscal year, audited consolidated financial
statements, and (b) not reissue any shares of Series A Preferred which have
been redeemed or reacquired by the Company).
WARRANTS
The Company has issued to Melville the Melville Warrant to purchase
1,350,000 shares of Common Stock at an exercise price of $.60 per share. The
Melville Warrant is immediately exercisable and remains exercisable until May
25, 2006. Subject to certain limitations, the Melville Warrant may be
transferred or assigned to any person without the prior written consent of the
Company and is subject to anti-dilution provisions. The Melville
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<PAGE>
Warrant is subject to certain registration rights. See "Certain Transactions--
Registration Rights Agreement" and "--Warrants."
The Company has also issued to Melville the Manager Warrant to purchase up
to 1,080,000 shares of Common Stock at an exercise price of $.60 per share.
The number of shares subject to the Manager Warrant will be reduced by an
amount equal to the number of shares of Restricted Stock that vest pursuant to
the terms of the Restricted Stock Agreement. To the extent any shares of
Restricted Stock have not vested after the close of business on the last
Measuring Date (as defined in the Restricted Stock Agreement), the Manager
Warrant becomes exercisable for such number of unvested shares. The Manager
Warrant cannot be exercised prior to April 30, 2001, if at all. See "The
Acquisition" and "Certain Transactions--Restricted Stock Agreement."
ANTI-TAKEOVER PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION ACT
Certain provisions of Minnesota law described below could have an anti-
takeover effect. These provisions are intended to provide a Minnesota
corporation's management flexibility to enhance the likelihood of continuity
and stability in the composition of the board of directors and in the policies
formulated by a board of directors and to discourage an unsolicited takeover
of a Minnesota corporation if its board determines that such a takeover is not
in the best interests of the Company and its shareholders. However, these
provisions could have the effect of discouraging certain attempts to acquire
the Company that could deprive the Company's shareholders of opportunities to
sell their shares of Common Stock at prices higher than prevailing market
prices.
Section 302A.671 of the Minnesota Statutes, applying to certain control
share acquisitions, is inapplicable to the Company and its shareholders under
the By-laws of the Company.
Section 302A.673 of the Minnesota Statutes generally prohibits any business
combination by a publicly held Minnesota corporation, or, in certain
circumstances, any subsidiary of the corporation, with any shareholder who
beneficially owns 10% or more of the voting power of the corporation's
outstanding shares (an "Interested Shareholder") within four years following
such Interested Shareholder's acquisition of such 10% or greater interest,
unless the business combination or the acquisition of the 10% or greater
interest is approved by a committee of all of the disinterested members of the
board of directors of the corporation before the Interested Shareholder's
acquisition of such 10% or greater interest. This statute is inapplicable to
the Company's pre-public 10% beneficial owners and, to the extent permitted by
law, the affiliates and associates of such pre-public 10% beneficial owners,
under the By-laws of the Company.
Section 302A.675 of the Minnesota Statutes generally prohibits an offeror
from acquiring shares of a publicly held Minnesota corporation within two
years following the offeror's last purchase of the corporation's shares
pursuant to a takeover offer with respect to that class, unless the
corporation's shareholders are able to sell their shares to the offeror upon
substantially equivalent terms as those provided in the earlier takeover
offer. This statute will not apply if the acquisition of shares is approved by
a committee of all of the disinterested members of the Board of Directors of
the Company before the purchase of any shares by the offeror pursuant to a
takeover offer.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock of the Company is
Norwest Bank Minnesota, N.A.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Company's
Common Stock. The Company can make no prediction as to the effect, if any,
that sales of shares of Common Stock or the availability of Common Stock for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public markets or the
perception that such sales will occur could adversely affect the market price
or the future ability of the Company to raise capital through an offering of
its equity securities.
Upon completion of the Offering, based on the number of shares outstanding
as of August 31, 1996, the Company will have outstanding an aggregate of
10,650,000 shares of Common Stock (assuming the issuance of 3,000,000 shares
of Common Stock offered by the Company hereby and assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants), of which the 3,000,000 shares offered hereby (3,450,000 if the
Underwriters over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act,
unless purchased by an "affiliate" of the Company, as that term is defined by
Rule 144 promulgated under the Securities Act (an "Affiliate"), whose sales
would be subject to certain volume limitations and other restrictions
described below.
The 7,650,000 shares of Common Stock originally issued and sold by the
Company in private transactions in reliance upon exemptions from the
Securities Act upon the consummation of the Offering will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act, and
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
two years (including the holding period of any prior owner except an Affiliate
of the Company) is entitled to sell, in "brokers' transactions" or to market
makers, within any three-month period commencing 90 days after the date of
this Prospectus, a number of shares that does not exceed the greater of (i)
one percent of the then outstanding shares of Common Stock (approximately
106,500 shares immediately after the Offering, assuming no exercise of
options, warrants or the Underwriters' over-allotment option), or (ii)
generally, the average weekly trading volume in the Common Stock during the
four calendar weeks preceding the required filing of a Form 144 with respect
to such sale, subject to certain other limitations or restrictions. Sales
under Rule 144 are generally subject to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed
to have been an Affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least three years (including the holding period of any prior owner
except an Affiliate), is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144. As a result, up to 7,650,000 shares of Common Stock originally
issued and sold by the Company on May 25, 1996 will become eligible for sale
under Rule 144 on May 25, 1998, subject to the other requirements of Rule 144
having been satisfied.
Any employee, officer or director of or consultant to the Company who
purchases his or her shares pursuant to a written compensatory plan or
contract is entitled to rely on the resale provisions of Rule 701, which
permit non-Affiliates to sell their Rule 701 shares without complying with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and which permit Affiliates to sell their Rule 701 shares without
complying with the Rule 144 holding period restrictions, in each case
commencing 90 days after the date of this Prospectus.
The holders of all 7,650,000 shares of Common Stock that are currently
outstanding, and Melville as the holder of the Melville Warrant, have agreed
not to sell, offer to sell or otherwise dispose of or grant any rights with
respect to any shares of Common Stock, any options or warrants to purchase
shares of Common Stock, or any securities convertible into or exchangeable for
shares of Common Stock, now owned or hereafter acquired directly by such
holders or with respect to which they have the power of disposition, without
the prior consent of Oppenheimer & Co., Inc., for a period of 180 days from
the date of this Prospectus. The Company has also
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<PAGE>
agreed, pursuant to the Underwriting Agreement dated the date hereof (the
"Underwriting Agreement"), not to offer, sell, contract to sell, or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or any rights to acquire Common
Stock (other than shares issuable upon exercise of outstanding warrants, and
options issued under the 1996 Option Plan and shares issued upon exercise
thereof) for a period of 180 days after the date of this Prospectus, without
the prior written consent of Oppenheimer & Co., Inc. Oppenheimer & Co., Inc.
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to such arrangements.
The Company has adopted the 1996 Option Plan and has reserved up to
1,000,000 shares of Common Stock for issuance thereunder. The Company intends
to register these shares under the Securities Act on Form S-8 as soon as
practicable after the closing of the Offering, which registration statement
will automatically become effective upon filing. Shares issued under the 1996
Option Plan after the effective date of such registration statement, other
than shares issued to Affiliates of the Company, will be freely tradable in
the public market, subject to any applicable vesting restrictions with the
Company or other contractual restrictions. Currently, the Company has options
outstanding to purchase an aggregate of 195,480 shares of Common Stock. Such
options were granted on June 26, 1996, and will vest, cumulatively, on a pro
rata basis on each of the first, second and third anniversaries of the date of
grant, subject to the possible acceleration of vesting in certain
circumstances.
The Company has also issued the Melville Warrant to purchase 1,350,000
shares of Common Stock at $.60 per share. The Melville Warrant is immediately
exercisable. If the Melville Warrant is exercised, such Common Stock will be
eligible for sale two years from the date the full purchase price or other
consideration is paid or given by the holder of the Warrant acquiring such
Common Stock from the Company.
The Company has also agreed to issue to the Representatives (as hereinafter
defined) in exchange for nominal consideration five-year warrants to purchase
an aggregate of 300,000 shares of Common Stock at a price per share initially
equal to 120% of the public offering price set forth on the cover page of this
Prospectus. These warrants are not transferable (except to certain officers or
other employees of the Representatives) and may be exercised commencing one
year after the date of this Prospectus. The exercise price and the number of
shares may, under certain circumstances, be subject to adjustment pursuant to
anti-dilution provisions. The holders will have certain registration rights
with respect to the Common Stock issuable upon exercise of these warrants. See
"Underwriting."
In addition, after the Offering, holders of all 7,650,000 shares of Common
Stock that are currently outstanding, Melville as the holder of the Melville
Warrant and the holders of certain warrants to purchase up to 300,000
additional shares of Common Stock referred to in the immediately preceding
paragraph will be entitled to certain rights to cause the Company to register
the sale of such shares or warrants under the Securities Act. See "Certain
Transactions--Registration Rights Agreement" and "Underwriting."
56
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each
of the Underwriters, for whom Oppenheimer & Co., Inc., Ladenburg Thalmann &
Co. Inc. and Piper Jaffray Inc. are acting as Representatives (the
"Representatives"), has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite their names
below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Oppenheimer & Co., Inc...................................
Ladenburg Thalmann & Co. Inc.............................
Piper Jaffray Inc........................................
---------
Total................................................ 3,000,000
=========
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to the
public initially at the public offering price set forth on the cover page of
this Prospectus and in part to certain securities dealers at such price less a
concession of $ per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to other brokers
and dealers. After the shares of Common Stock are released for sale to the
public, the offering price and other selling terms may from time to time be
changed by the Representatives. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any are taken.
The Company has granted the Underwriters an option, exercisable for up to 30
days after the date of this Prospectus, to purchase up to an aggregate of
450,000 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise such over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them as shown in the foregoing table bears to the 3,000,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the shares of Common Stock
offered hereby. The Underwriters have advised the Company that the
Underwriters do not intend to confirm sales in excess of 5% of the shares
offered hereby to any account over which they exercised discretionary
authority.
The Company has agreed to indemnify the Representatives and the several
Underwriters against certain liabilities, including, without limitation,
liabilities under the Securities Act.
The holders of all 7,650,000 shares of Common Stock that are currently
outstanding, and Melville as the holder of the Melville Warrant, have agreed
not to sell, offer to sell, contract to sell, pledge or grant any option to
purchase or otherwise dispose of such securities for 180 days after the date
of this Prospectus without the prior written consent of Oppenheimer & Co.,
Inc. The Company has also agreed not to offer, sell, contract to sell, or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or any rights to acquire
Common Stock (other than shares issuable upon exercise of outstanding
warrants, and options issued under the 1996 Option Plan and shares issued upon
exercise thereof) for a period of 180 days after the date of this Prospectus,
without the prior written consent of Oppenheimer & Co., Inc. See "Shares
Eligible for Future Sale."
The Company has agreed to issue to the Representatives in exchange for
nominal consideration five-year warrants to purchase an aggregate of 300,000
shares of Common Stock at a price per share initially equal to 120% of the
public offering price set forth on the cover page of this Prospectus. These
warrants are not transferable (except to certain officers or other employees
of the Representatives) and may be exercised commencing one year after the
date of this Prospectus. The exercise price and the number of shares may,
under
57
<PAGE>
certain circumstances, be subject to adjustment pursuant to anti-dilution
provisions. The holders will have certain registration rights with respect to
the Common Stock issuable upon exercise of these warrants.
The Company paid Piper Jaffray Inc. $20,000 to serve as a purchaser
representative for certain members of the Company's management who purchased
shares of Common Stock from the Company in a private placement in connection
with the Acquisition.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price has been determined by
negotiations between the Company and the Representatives. The principal
factors considered in such negotiations were prevailing market conditions, the
results of operations of the Company in recent periods, market valuations of
companies that the Company and the Representatives believe to be comparable to
the Company, estimates of the business potential of the Company, the history
of and prospects for the industry in which the Company competes, and such
other factors as the Company and the Representatives deem relevant.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
and certain other legal matters will be passed upon for the Company by Faegre
& Benson LLP, Minneapolis, Minnesota. Certain legal matters will be passed
upon for the Underwriters by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of August 3, 1996
and for the period from inception (May 26, 1996) to August 3, 1996 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said report.
The consolidated financial statements of the Predecessor Companies as of
December 31, 1994 and 1995 and for each of the years in the three-year period
ended December 31, 1995 and for the five-month period ended May 25, 1996 have
been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, and the rules and regulations
thereunder, with respect to the Common Stock offered hereby. This Prospectus
which forms part of the Registration Statement does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and
such Common Stock, reference is made to the Registration Statement and the
schedules and exhibits filed as a part thereof. Statements contained in this
Prospectus regarding the contents of any contract or any other document are
not necessarily complete and, where such document is an exhibit to the
Registration Statement, in each instance, reference is hereby made to the copy
of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including exhibits thereto, may be
inspected without charge at the Commission's principal office at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or
any part thereof may be obtained from the Public Reference Section, Securities
and Exchange Commission, Washington, D.C. 20549, upon payment of the
prescribed fees. In addition, the Commission maintains a World Wide Web Site
on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
58
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Independent Auditors' Report............................................... F-3
Consolidated Balance Sheets................................................ F-4
Consolidated Statements of Operations...................................... F-5
Consolidated Statements of Shareholders' Equity............................ F-6
Consolidated Statements of Cash Flows...................................... F-7
Notes to Consolidated Financial Statements................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wilsons The Leather Experts Inc.:
We have audited the accompanying consolidated balance sheet of Wilsons The
Leather Experts Inc. (a Minnesota corporation) and Subsidiaries as of August
3, 1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for the period from inception (May 26, 1996) to August
3, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wilsons
The Leather Experts Inc. and Subsidiaries as of August 3, 1996, and the
results of their operations and their cash flows for the period from inception
(May 26, 1996) to August 3, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Minneapolis, Minnesota
September 23, 1996
(except for Note 14 as to which the
date is October 11, 1996)
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Wilsons Center, Inc.:
We have audited the accompanying consolidated balance sheets of Wilsons
Center, Inc. d.b.a. Wilsons The Leather Experts (a subsidiary of Melville
Corporation) and Subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, shareholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1995
and for the five-month period ended May 25, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 12 to the consolidated financial statements, Wilsons
Center, Inc. d.b.a. Wilsons The Leather Experts has been dependent on Melville
Corporation for a significant portion of its working capital financing.
Subsequent to the close of business on May 25, 1996, Melville Corporation sold
Wilsons Center, Inc. to Wilsons The Leather Experts Inc., a newly formed
company owned by members of management of Wilsons Center, Inc. d.b.a. Wilsons
The Leather Experts and other investors.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wilsons
Center, Inc. d.b.a. Wilsons The Leather Experts and Subsidiaries as of
December 31, 1994 and 1995, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1995
and for the five-month period ended May 25, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, Wilsons
Center, Inc. d.b.a. Wilsons The Leather Experts adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, effective October 1, 1995.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 19, 1996
F-3
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANIES COMPANY
----------------- ---------------------
DECEMBER 31 AUGUST
----------------- 3, NOVEMBER 2,
1994 1995 1996 1996
-------- -------- -------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 17,325 $ 14,286 $ 9,443 $ 6,102
Accounts receivable, net........................................................... 7,692 7,618 6,618 11,930
Inventories........................................................................ 102,595 74,899 77,666 118,741
Prepaid expenses................................................................... 3,140 2,317 783 1,505
Deferred income taxes.............................................................. 6,776 14,925 -- --
-------- -------- -------- --------
Total current assets............................................................. 137,528 114,045 94,510 138,278
Property and equipment, net.......................................................... 97,216 65,884 2,161 4,552
Goodwill, net of accumulated amortization of $27,468 in 1994......................... 152,522 -- -- --
Other assets, net.................................................................... 5,404 462 1,889 1,722
Deferred income taxes................................................................ -- 1,979 5,092 5,092
-------- -------- -------- --------
$392,670 $182,370 $103,652 $149,644
======== ======== ======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable................................................................... $ 18,106 $ 11,728 $ 11,412 $ 13,684
Notes payable...................................................................... -- -- -- 40,110
Due to Melville.................................................................... 124,245 78,771 1,857 --
Accrued expenses................................................................... 41,502 52,623 26,679 31,565
Income taxes payable............................................................... 857 5,120 -- --
Deferred income taxes.............................................................. -- -- 2,819 2,819
-------- -------- -------- --------
Total current liabilities........................................................ 184,710 148,242 42,767 88,178
Long-term debt....................................................................... -- -- 55,811 55,811
Other long-term liabilities.......................................................... 6,965 6,538 1,181 2,772
-------- -------- -------- --------
Commitments and contingencies (Notes 9, 10, 11 and 13)
Shareholders' equity:
Series A preferred stock, $1,000 stated value; 15,000 shares authorized, 7,405
shares issued and outstanding in 1996............................................. -- -- 7,405 7,405
Undesignated preferred stock, $.01 par value; 9,985,000 shares authorized, no
shares issued or outstanding...................................................... -- -- -- --
Common stock, no par value; 100 shares authorized, issued and outstanding in 1994
and 1995.......................................................................... 146 146 -- --
Class A common stock, $.01 par value; 15,000,000 shares authorized, 4,320,000
issued and outstanding in 1996.................................................... -- -- 44 44
Class B common stock, $.01 par value; 7,500,000 shares authorized, 2,925,000 shares
issued and outstanding in 1996.................................................... -- -- 29 29
Class C common stock, $.01 par value; 2,500,000 shares authorized, 405,000 shares
issued and outstanding in 1996.................................................... -- -- 4 4
Undesignated common stock, $.01 par value; 25,000,000 shares authorized, no shares
issued or outstanding in 1996..................................................... -- -- -- --
Additional paid-in capital......................................................... 135,452 135,452 4,518 4,518
Retained earnings (accumulated deficit)............................................ 65,397 (108,018) (8,107) (9,117)
Cumulative translation adjustment.................................................. -- 10 -- --
-------- -------- -------- --------
Total shareholders' equity....................................................... 200,995 27,590 3,893 2,883
-------- -------- -------- --------
$392,670 $182,370 $103,652 $149,644
- --------------------------------------------------
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANIES
----------- -----------
PREDECESSOR COMPANIES PERIOD FROM
-------------------------------------------------- INCEPTION THREE
YEARS ENDED DECEMBER 31 FIVE MONTHS ENDED (MAY 26, MONTHS
---------------------------- -------------------- 1996) TO ENDED
MAY 27, MAY 25, AUGUST 3, OCTOBER 28,
1993 1994 1995 1995 1996 1996 1995
-------- -------- --------- ----------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $478,475 $474,623 $ 462,394 $124,700 $109,640 $ 28,518 $ 82,503
Cost of goods sold, buying and
warehousing costs............... 251,318 253,629 241,787 69,070 59,952 15,738 44,311
-------- -------- --------- -------- -------- --------- ---------
Gross profit................... 227,157 220,994 220,607 55,630 49,688 12,780 38,192
Selling, general and
administrative expenses......... 189,293 206,028 190,082 76,697 61,129 24,293 41,546
Depreciation and amortization.... 20,668 22,273 21,393 9,002 4,722 2 5,207
Restructuring and asset
impairment charges.............. -- -- 182,184 -- -- -- 182,184
-------- -------- --------- -------- -------- --------- ---------
Income (loss) from operations.. 17,196 (7,307) (173,052) (30,069) (16,163) (11,515) (190,745)
Interest expense, net............ 5,102 8,393 10,463 3,396 1,581 1,148 3,253
-------- -------- --------- -------- -------- --------- ---------
Income (loss) before income
taxes......................... 12,094 (15,700) (183,515) (33,465) (17,744) (12,663) (193,998)
Income tax provision (benefit)... 7,038 (3,109) (10,100) (5,461) (6,603) (4,556) (12,311)
-------- -------- --------- -------- -------- --------- ---------
Net income (loss).............. $ 5,056 $(12,591) $(173,415) $(28,004) $(11,141) $ (8,107) $(181,687)
======== ======== ========= ======== ======== ========= =========
Net loss per common share......................................................... $ (0.89)
=========
Weighted average common shares outstanding........................................ 9,066,410
- --------------------------------------------------
=========
<CAPTION>
COMPANY
-----------
THREE
MONTHS
ENDED
NOVEMBER 2,
1996
-----------
(UNAUDITED)
<S> <C>
Net sales........................ $ 86,363
Cost of goods sold, buying and
warehousing costs............... 44,763
-----------
Gross profit................... 41,600
Selling, general and
administrative expenses......... 40,597
Depreciation and amortization.... 69
Restructuring and asset
impairment charges.............. --
-----------
Income (loss) from operations.. 934
Interest expense, net............ 2,436
-----------
Income (loss) before income
taxes......................... (1,502)
Income tax provision (benefit)... (492)
-----------
Net income (loss).............. $ (1,010)
===========
Net loss per common share......................................................... $ (0.11)
===========
Weighted average common shares outstanding........................................ 9,069,371
- --------------------------------------------------
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES
---------------------------------------------------------------
RETAINED
COMMON STOCK ADDITIONAL EARNINGS CUMULATIVE TOTAL
------------- PAID-IN (ACCUMULATED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT EQUITY
------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992................... 100 $146 $135,311 $ 87,066 $-- $ 222,523
Net income............ -- -- -- 5,056 -- 5,056
Dividends paid to
Melville............. -- -- -- (10,406) -- (10,406)
--- ---- -------- --------- ---- ---------
Balance, December 31,
1993................... 100 146 135,311 81,716 -- 217,173
Net loss.............. -- -- -- (12,591) -- (12,591)
Dividends paid to
Melville............. -- -- -- (3,728) -- (3,728)
Capital contributed by
Melville............. -- -- 141 -- -- 141
--- ---- -------- --------- ---- ---------
Balance, December 31,
1994................... 100 146 135,452 65,397 -- 200,995
Net loss.............. -- -- -- (173,415) -- (173,415)
Currency translation
adjustment........... -- -- -- -- 10 10
--- ---- -------- --------- ---- ---------
Balance, December 31,
1995................... 100 146 135,452 (108,018) 10 27,590
Net loss.............. -- -- -- (11,141) -- (11,141)
Capital contributed by
Melville............. -- -- 124,000 -- -- 124,000
Currency translation
adjustment........... -- -- -- -- 12 12
Other................. -- -- (141) 139 (10) (12)
--- ---- -------- --------- ---- ---------
Balance, May 25, 1996... 100 $146 $259,311 $(119,020) $ 12 $ 140,449
=== ==== ======== ========= ==== =========
</TABLE>
<TABLE>
<CAPTION>
COMPANY
--------------------------------------------------------------
COMMON STOCK
PREFERRED ------------------------------------------------
STOCK CLASS A CLASS B CLASS C
------------- ---------------- ---------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ --------- ------ --------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization.. 7,405 $7,405 4,320,000 $44 2,925,000 $29 405,000 $ 4
Net loss.............. -- -- -- -- -- -- -- --
----- ------ --------- --- --------- --- ------- ---
Balance, August 3, 1996. 7,405 7,405 4,320,000 44 2,925,000 29 405,000 4
Net loss (unaudited).. -- -- -- -- -- -- -- --
----- ------ --------- --- --------- --- ------- ---
Balance, November 2,
1996 (unaudited)....... 7,405 $7,405 4,320,000 $44 2,925,000 $29 405,000 $ 4
===== ====== ========= === ========= === ======= ===
</TABLE>
<TABLE>
<CAPTION>
COMPANY
------------------------------------
ADDITIONAL TOTAL
PAID-IN ACCUMULATED SHAREHOLDERS'
CAPITAL DEFICIT EQUITY
---------- ----------- -------------
<S> <C> <C> <C>
Initial capitalization (continued)......... $4,518 $ -- $12,000
Net loss................................. -- (8,107) (8,107)
------ ------- -------
Balance, August 3, 1996.................... 4,518 (8,107) 3,893
Net loss (unaudited)..................... -- (1,010) (1,010)
------ ------- -------
Balance, November 2, 1996 (unaudited)...... $4,518 $(9,117) $(2,883)
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
PREDECESSOR COMPANIES COMPANY COMPANIES
-------------------------------------------------- --------- -----------
PERIOD
FROM THREE
INCEPTION MONTHS
YEARS ENDED DECEMBER 31 FIVE MONTHS ENDED (MAY 26, ENDED
---------------------------- -------------------- 1996) TO -----------
MAY 27, MAY 25, AUGUST 3, OCTOBER 28,
1993 1994 1995 1995 1996 1996 1995
------- -------- --------- ----------- -------- --------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)................. $ 5,056 $(12,591) $(173,415) $(28,004) $(11,141) $(8,107) $(181,687)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities--
Restructuring and asset
impairment charges............... -- -- 182,184 -- -- -- 182,184
Restructuring charges paid........ -- -- (338) -- (5,958) -- --
Depreciation and amortization..... 20,668 22,273 21,393 9,002 4,722 2 5,207
Amortization of deferred
financing costs.................. -- -- -- -- -- 111 --
Loss on disposal of assets........ 5,417 9,899 4,498 3,616 113 -- 353
Deferred income tax provision
(benefit)........................ 1,302 (965) (11,233) -- 5,116 (4,939) (12,311)
Changes in operating assets and
liabilities, net of assets and
liabilities acquired:
Accounts receivable, net......... (4,224) 4,832 74 4,120 3,395 (2,709) (4,931)
Inventories...................... (11,859) 1,931 27,696 27,070 19,344 (24,526) (35,251)
Prepaid expenses................. 1,979 5,257 669 5,309 5,253 (4,494) (486)
Other noncurrent assets.......... 12 1,668 (196) 12 145 -- 12
Accounts payable and accrued
expenses........................ 4,426 (14,537) (3,167) (26,444) (25,035) 2,625 9,604
Income taxes payable and other
liabilities..................... (10,765) (5,531) 4,941 (6,204) (11,926) 1,180 60
------- -------- --------- -------- -------- ------- ---------
Net cash provided by (used in)
operating activities........... 12,012 12,236 53,106 (11,523) (15,972) (40,857) (37,246)
------- -------- --------- -------- -------- ------- ---------
Investing activities:
Additions to property, equipment
and other noncurrent assets...... (26,641) (20,720) (10,117) (2,852) (3,566) (823) (3,083)
Acquisitions, net of cash
acquired......................... (6,373) -- -- -- -- 37,072 --
------- -------- --------- -------- -------- ------- ---------
Net cash provided by (used in)
investing activities........... (33,014) (20,720) (10,117) (2,852) (3,566) 36,249 (3,083)
------- -------- --------- -------- -------- ------- ---------
Financing activities:
Change in due to/from Melville.... 31,054 23,966 (45,474) 9,923 (107,442) -- 43,101
Dividends paid to Melville........ (10,406) (3,728) -- -- -- -- --
Capital contributed by Melville... -- 141 -- -- 124,000 -- --
Change in book overdrafts......... 234 11 (554) (10,581) (8,024) 2,051 (182)
Change in short-term borrowings... -- -- -- -- -- -- --
Proceeds from sale of common and
preferred stock.................. -- -- -- -- -- 12,000 --
------- -------- --------- -------- -------- ------- ---------
Net cash provided by (used in)
financing activities........... 20,882 20,390 (46,028) (658) 8,534 14,051 42,919
------- -------- --------- -------- -------- ------- ---------
Net increase (decrease) in cash and
cash equivalents.................. (120) 11,906 (3,039) (15,033) (11,004) 9,443 2,590
Cash and cash equivalents,
beginning of period............... 5,539 5,419 17,325 17,325 14,286 -- 2,349
------- -------- --------- -------- -------- ------- ---------
Cash and cash equivalents, end of
period............................ $ 5,419 $ 17,325 $ 14,286 $ 2,292 $ 3,282 $ 9,443 $ 4,939
======= ======== ========= ======== ======== ======= =========
Supplemental cash flow information:
Cash paid during the period for--
Interest.......................... $ 4,910 $ 7,865 $ 10,650 $ 6,217 $ 2,035 $ 210 $ 3,038
======= ======== ========= ======== ======== ======= =========
Income taxes...................... $17,545 $ 4,959 $ 1,735 $ 828 $ 208 $ -- $ 524
======= ======== ========= ======== ======== ======= =========
Noncash investing and financing
activities--
Liabilities assumed for
acquisition of business.......... $ 3,226 $ -- $ -- $ -- $ -- $44,191 $ --
======= ======== ========= ======== ======== ======= =========
Issuance of long-term debt........ $ -- $ -- $ -- $ -- $ -- $55,811 $ --
- --------------------------------------------------
======= ======== ========= ======== ======== ======= =========
<CAPTION>
COMPANY
-----------
THREE
MONTHS
ENDED
-----------
NOVEMBER 2,
1996
-----------
(UNAUDITED)
<S> <C>
Operating activities:
Net income (loss)................. $(1,010)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities--
Restructuring and asset
impairment charges............... --
Restructuring charges paid........ --
Depreciation and amortization..... 69
Amortization of deferred
financing costs.................. 167
Loss on disposal of assets........ --
Deferred income tax provision
(benefit)........................ --
Changes in operating assets and
liabilities, net of assets and
liabilities acquired:
Accounts receivable, net......... (5,312)
Inventories...................... (41,075)
Prepaid expenses................. (1,907)
Other noncurrent assets.......... --
Accounts payable and accrued
expenses........................ 2,423
Income taxes payable and other
liabilities..................... 1,590
-----------
Net cash provided by (used in)
operating activities........... (45,055)
-----------
Investing activities:
Additions to property, equipment
and other noncurrent assets...... (2,460)
Acquisitions, net of cash
acquired......................... --
-----------
Net cash provided by (used in)
investing activities........... (2,460)
-----------
Financing activities:
Change in due to/from Melville.... --
Dividends paid to Melville........ --
Capital contributed by Melville... --
Change in book overdrafts......... 4,064
Change in short-term borrowings... 40,110
Proceeds from sale of common and
preferred stock.................. --
-----------
Net cash provided by (used in)
financing activities........... 44,174
-----------
Net increase (decrease) in cash and
cash equivalents.................. (3,341 )
Cash and cash equivalents,
beginning of period............... 9,443
-----------
Cash and cash equivalents, end of
period............................ $ 6,102
===========
Supplemental cash flow information:
Cash paid during the period for--
Interest.......................... $ 580
===========
Income taxes...................... $ 844
===========
Noncash investing and financing
activities--
Liabilities assumed for
acquisition of business.......... $ --
===========
Issuance of long-term debt........ $ --
- --------------------------------------------------
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1. NATURE OF ORGANIZATION AND ACQUISITION:
Wilsons The Leather Experts Inc., a Minnesota corporation (Wilsons) was
formed to acquire 100% of the common stock of Wilsons Center, Inc. and its
subsidiaries (the Predecessor Companies prior to the acquisition) in a
management-led buyout from CVS New York, Inc., a New York corporation
(formerly Melville Corporation) (Melville), the parent company to the
Predecessor Companies (the Acquisition). Wilsons and Wilsons Center, Inc. are
collectively referred to as the "Company." In May 1996, pursuant to a sale
agreement dated as of May 24, 1996 between Wilsons and Melville, Wilsons
acquired said common stock in exchange for (i) $2 million, (ii) a 10% senior
secured subordinated note due December 31, 2000 in the principal amount of
$55.8 million, (iii) a warrant to purchase 1,350,000 shares of common stock,
(iv) a warrant to purchase 1,080,000 shares of common stock (reduced by terms
of the Restricted Stock Agreement--see Note 9), (v) 4,320,000 shares of common
stock, and (vi) 7,405 shares of preferred stock. As part of the Acquisition,
the Leather Investors Limited Partnerships I and II (LILP) in turn purchased
from Melville the 4,320,000 shares of common stock and the 7,405 shares of
preferred stock for $10 million.
The Acquisition was accounted for using the purchase method. Accordingly,
the purchase price of $67.8 million has been allocated to the assets acquired
and liabilities assumed based on their estimated fair values. This resulted in
the carrying value of the net assets acquired exceeding the purchase price by
approximately $63.3 million, which was applied to reduce the amounts assigned
to property and equipment.
The Company operates a chain of 476 retail stores as of November 2, 1996,
all but two of which are located in the United States, specializing in the
retail sales of leather apparel and accessories. The Company's permanent
stores operate under two formats: (i) Wilsons The Leather Experts, the
traditional business, specializing in moderately priced products; and (ii)
Tannery West/Georgetown Leather Design, which provides a more upscale product
offering. In addition, the Company also operates holiday stores and seasonal
kiosks, primarily during the November and December peak holiday season. The
Company is the leading national specialty retailer of leather apparel and
accessories in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Consolidated financial statements and footnote disclosures prior to May 26,
1996 relate to the Predecessor Companies before the Acquisition and are not
comparable to the period presented subsequent to the acquisition date due to
the effects of certain purchase accounting adjustments and the acquisition
financing. The accompanying consolidated financial statements include those of
the Company and all of its subsidiaries. All intercompany balances and
transactions between the entities have been eliminated in consolidation.
Year-End
Wilsons' fiscal year ends on the Saturday which is 26 weeks after the
Saturday closest to January 31. In conformity with the general practice of the
retail industry, the Company intends to change the end of its fiscal year to
the Saturday closest to January 31. The Predecessor Companies' year-end was
December 31.
Interim Financial Statements
The unaudited consolidated financial information for the five-month period
ended May 27, 1995 and for the three-month periods ended October 28, 1995 and
November 2, 1996 have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management, includes
all adjustments (consisting only of normal recurring adjustments) necessary to
state fairly the financial information set forth therein. The Company's
business is seasonal and, accordingly, interim results are not indicative of
full-year results.
F-8
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Sources of Supply
The Company currently buys a significant percentage of its inventory from
China. While such sourcing is deemed preferable to meet operating
requirements, other sources of inventory are available to the Company. The
Company purchases all of its foreign sourced inventory in U.S. dollars.
Cash and Cash Equivalents
Cash equivalents consist principally of short-term investments with original
maturities of three months or less and are recorded at cost, which
approximates fair value. The Company's cash management program utilizes zero
balance accounts. Accordingly, all book overdrafts have been reclassified to
current asset or current liability accounts.
Fair Values of Financial Instruments
The carrying value of the Company's current financial assets and
liabilities, because of their short-term nature, approximates fair value. The
carrying value of the Company's long-term debt, related to the recent
financing for the Acquisition, approximates fair value.
Inventories
Inventories, principally finished goods, consist of merchandise purchased
from domestic and foreign vendors and are carried at the lower of cost or
market value, determined by the retail inventory method on the last-in, first-
out (LIFO) basis. The difference in inventories between the LIFO and first-in,
first-out (FIFO) method was not material as of August 3, 1996. The Predecessor
Companies determined cost using the retail inventory method on the FIFO basis.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property, equipment and leasehold improvements is computed on a straight-line
basis, generally over the estimated useful lives of the assets ranging from
five to forty years. Property and equipment retired or disposed of are removed
from cost and related accumulated depreciation accounts. Maintenance and
repairs are charged directly to expense as incurred. Major renewals or
replacements are capitalized after making the necessary adjustment to the
asset and accumulated depreciation accounts for the items renewed or replaced.
When changes in circumstances warrant measurement, impairment losses for store
fixed assets are calculated by the Company by comparing projected cash flows
over the lease terms to the asset carrying values.
Debt Issuance Costs
Debt issuance costs are amortized over the terms of the related financing
using the interest method and are included in other assets in the accompanying
consolidated balance sheets.
F-9
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Goodwill
The excess of acquisition cost over the fair value of net assets acquired
was being amortized on a straight-line basis over periods not exceeding 40
years. In connection with Melville's decision to sell the Predecessor
Companies, all remaining goodwill was written off in the fourth quarter of
1995 (see Note 3).
The Predecessor Companies recorded $4.8 million, $4.8 million and $4.4
million of goodwill amortization for the years ended December 31, 1993, 1994
and 1995, respectively.
During 1994, the Predecessor Companies made the decision to close the
majority of the stores in the Predecessor Companies' Snyder Leather off-price
discount chain. This resulted in a write-off of goodwill of $3.9 million,
which is included in selling, general and administrative expenses.
Store Opening and Closing Costs
New store opening costs are charged to expense as incurred. In the event a
store is planned to close before its lease has expired, the total lease
obligation less sublease income is provided for in the period the decision to
close the store is made.
Advertising Costs
Advertising costs are charged to expense during the period when the
advertising first runs.
Layaway Sales
Layaway sales are recorded in full on the date of the layaway transaction.
Allowances for estimated returns are established as appropriate.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected
to reverse.
The Predecessor Companies were included in the consolidated Federal income
tax return and, where applicable, group state and local returns of Melville
prior to May 26, 1996 in accordance with a tax sharing agreement with
Melville. The tax sharing agreement allowed for current recognition of
benefits for losses and deferred tax benefits which may only have been
realized by Melville in connection with filing consolidated Federal and state
returns.
Foreign Currency Translation
The functional currency for the Company's foreign operations is the
applicable local currency. The translation from the applicable foreign
currency to U.S. dollars is performed for balance sheet accounts using the
current exchange rate in effect at the balance sheet date and for revenue and
expense accounts using a weighted average exchange rate during the period. The
gains or losses resulting from such translation were included in shareholders'
equity. Transaction gains and losses are reflected in income. The Company has
not entered into any significant hedging transactions.
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding and dilutive
common equivalent shares assumed to be outstanding during each period. Common
equivalent shares consist of dilutive options and warrants to purchase common
stock. However, pursuant to certain rules of the Securities and Exchange
Commission, the calculation also includes equity securities, including options
and warrants, issued within one year of an initial public offering with an
issue price less than the initial public offering price, even if the effect is
anti-dilutive. The treasury stock method was used in determining the effect of
such issuances.
F-10
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Certain reclassifications have been made to the consolidated financial
statements of the prior years to conform to the 1996 presentation.
3. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES:
On October 24, 1995, Melville announced a comprehensive restructuring plan,
including the planned sale of the Predecessor Companies. As a result, the
Predecessor Companies recorded a pre-tax restructuring charge of $134.3
million to reflect the anticipated costs associated with closing approximately
100 of the Predecessor Companies' stores and the write-off of goodwill and
other intangibles. The permanent impairment decision was based upon an
analysis of the historical operating results and anticipated selling price of
the Predecessor Companies, an investment banking firm's analysis of comparable
companies' selling prices, current market multiples and discounted future cash
flows of the Predecessor Companies. Stores impacted by the plan represented
$49.9 million in sales and $6.9 million in operating losses in 1995 and $4.5
million in sales and $0.8 million in operating losses for the five-month
period ended May 25, 1996. In connection with the plan, approximately 600
store employees will be terminated. As of August 3, 1996, approximately 570
store employees have been terminated. The significant components of the
restructuring charge and the reserves remaining at December 31, 1995 were as
follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED AS OF
DECEMBER 31, DECEMBER 31,
1995 1995
------------ ------------
<S> <C> <C>
Goodwill and other intangibles write-offs...... $112,361 $ --
Lease obligations and asset write-offs for
store and other facility closings............. 21,121 8,000
Severance...................................... 476 448
Other.......................................... 378 179
-------- ------
Total...................................... $134,336 $8,627
======== ======
</TABLE>
The reserves remaining at May 25, 1996 were retained by Melville as part of
the Acquisition.
Effective October 1, 1995, the Predecessor Companies adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and recorded
a pre-tax asset impairment charge of $47.9 million related to the write-off of
fixed and intangible assets on all stores that had generated negative cash
flow in 1994. Certain of these assets relate to stores that will be closed and
the assets that will be disposed of on the store closing date. These assets
accounted for $37.7 million of the asset impairment charge.
F-11
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ACCOUNTS RECEIVABLE:
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANIES COMPANY
----------------- ---------------------
DECEMBER 31
----------------- AUGUST 3, NOVEMBER 2,
1994 1995 1996 1996
-------- ------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Layaway receivables............................................................. $ 15,904 $ 6,214 $ 8,898 $20,107
Trade receivables............................................................... 3,320 5,226 2,346 3,722
Other receivables............................................................... 1,918 1,206 349 349
-------- ------- ------- -------
21,142 12,646 11,593 24,178
Less:
Layaway return reserves....................................................... (12,000) (4,000) (4,600) (11,662)
Allowance for doubtful accounts............................................... (1,450) (1,028) (375) (586)
-------- ------- ------- -------
Total....................................................................... $ 7,692 $ 7,618 $ 6,618 $11,930
======== ======= ======= =======
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANIES COMPANY
------------------ ---------------------
DECEMBER 31
------------------ AUGUST 3, NOVEMBER 2,
1994 1995 1996 1996
-------- -------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land........................................................................... $ 1,340 $ 1,340 $ 1,340 $1,340
Buildings and improvements..................................................... 10,799 4,693 60 592
Equipment and furniture........................................................ 99,903 74,363 639 2,275
Leasehold improvements......................................................... 60,565 46,332 124 416
-------- -------- ------- ------
Total...................................................................... 172,607 126,728 2,163 4,623
Less:
Accumulated depreciation and amortization.................................... (75,391) (60,844) (2) (71)
-------- -------- ------- ------
Total........................................................................ $ 97,216 $ 65,884 $ 2,161 $4,552
======== ======== ======= ======
</TABLE>
6. ACCRUED EXPENSES:
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANIES COMPANY
----------------- ---------------------
DECEMBER 31
----------------- AUGUST 3, NOVEMBER 2,
1994 1995 1996 1996
-------- -------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Taxes other than Federal and state income taxes................................ $ 11,843 $ 12,062 $ 6,811 $ 7,698
Salaries and compensated absences.............................................. 4,667 8,158 2,526 4,747
Current portion of lease obligations for closed stores......................... 126 8,032 70 70
Other.......................................................................... 24,866 24,371 17,272 19,050
-------- -------- ------- -------
Total...................................................................... $ 41,502 $ 52,623 $26,679 $31,565
======== ======== ======= =======
</TABLE>
F-12
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM DEBT:
As part of the Acquisition, the Company issued a $55.8 million senior
secured subordinated note (the Note) to Melville. Interest is accrued annually
at 10% on $55 million of the Note and is payable on the maturity date of the
Note at December 31, 2000. The remaining $0.8 million of the Note is
noninterest-bearing and is payable on the Note's maturity date. The Note is
collateralized by substantially all assets of the Company and is subordinate
to borrowings under the revolving credit agreement.
In conjunction with the Acquisition, the Company obtained a $150 million
revolving credit agreement (the Revolver) with certain banks, which extends
through May 1999 and includes a $90 million letter of credit subfacility. The
Revolver is collateralized by substantially all assets of the Company.
Interest on cash borrowings under the Revolver is at the bank reference rate
plus 0%-1.25%, or LIBOR plus 1.75%-2.75%. The interest rate is dependent upon
the amount and term of the borrowings as well as the Company's earnings before
income taxes/cash interest coverage ratio for the trailing four quarters. The
Company pays a monthly fee equal to .375% per annum on the unused amount of
the Revolver and on that portion of the first $10.0 million in borrowings that
bears interest at prime plus .875%. There were no cash borrowings under the
Revolver at August 3, 1996, nor during the period from May 26, 1996 to August
3, 1996. As of November 2, 1996, the amounts outstanding under the Revolver
were $40.1 million of cash borrowings (interest at 8.13% to 9.13% per annum)
and $43.1 million in letters of credit. For the three-month period ended
November 2, 1996, the weighted average interest rate was 9.6%.
The Note and the Revolver contain covenants, which among other things,
restrict the ability of the Company to, above certain thresholds, incur
indebtedness; to make capital expenditures, acquisitions, investments, stock
redemptions and dispositions of assets; and to pay dividends. The Revolver
also requires the Company to maintain certain financial covenants. At August
3, 1996, the Company was in compliance with all covenants of the Note and the
Revolver.
Prior to the Acquisition, the Predecessor Companies' operations were funded
primarily by Melville (see Note 12).
8. INCOME TAXES:
The income tax provision (benefit) is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES COMPANY
---------------------------------- ---------
PERIOD
FROM
FIVE INCEPTION
MONTHS (MAY 26,
YEARS ENDED DECEMBER 31 ENDED 1996) TO
------------------------ MAY 25, AUGUST 3,
1993 1994 1995 1996 1996
------ ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Current:
Federal............................................................... $5,333 $(2,869) $ 1,137 $(11,731) $(4,705)
State................................................................. 981 (1,286) 608 -- 149
Deferred.............................................................. 724 1,046 (11,845) 5,128 --
------ ------- -------- -------- -------
Total............................................................... $7,038 $(3,109) $(10,100) $ (6,603) $(4,556)
====== ======= ======== ======== =======
</TABLE>
F-13
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reconciliations of the U.S. statutory income tax rate to the effective tax
rate are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES COMPANY
----------------------------- ---------
PERIOD
FROM
FIVE INCEPTION
YEARS ENDED MONTHS (MAY 26,
DECEMBER 31 ENDED 1996) TO
------------------- MAY 25, AUGUST 3,
1993 1994 1995 1996 1996
---- ----- ----- ------- ---------
<S> <C> <C> <C> <C> <C>
Tax rate provision (benefit):
Tax provision (benefit) at statutory rate................................... 35.0% (35.0)% (35.0)% (35.0)% (35.0)%
Goodwill amortization....................................................... 13.4 19.8 29.4 -- --
State income taxes, net of Federal tax effect............................... 9.3 (5.0) -- (2.3) (5.0)
Other, net.................................................................. 0.5 0.4 0.1 0.1 4.0
---- ----- ----- ----- -----
Effective tax rate........................................................ 58.2% (19.8)% (5.5)% (37.2)% (36.0)%
==== ===== ===== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the deferred tax asset and liability were as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANIES COMPANY
---------------- ---------
DECEMBER 31
---------------- AUGUST 3,
1994 1995 1996
------- ------- ---------
<S> <C> <C> <C>
Deferred tax asset:
Inventories............................................................................... $ 2,545 $ 327 $ --
Property and equipment.................................................................... 687 11,835 2,004
Accrued liabilities....................................................................... 3,785 4,501 4,616
Net operating loss carryforwards.......................................................... 1,678 1,678 4,148
Other..................................................................................... -- 241 --
------- ------- -------
8,695 18,582 10,768
Less--Valuation allowance................................................................. (1,678) (1,678) --
------- ------- -------
Total................................................................................... 7,017 16,904 10,768
------- ------- -------
Deferred tax liability:
Layaway and sales return reserve.......................................................... 1,121 -- 934
Inventories............................................................................... -- -- 7,486
Other..................................................................................... 225 -- 75
------- ------- -------
Total................................................................................... 1,346 -- 8,495
------- ------- -------
Net deferred tax asset.................................................................. $ 5,671 $16,904 $ 2,273
======= ======= =======
</TABLE>
As of December 31, 1995, the Predecessor Companies had a Federal net
operating loss carryforward of $4.8 million expiring in the year 2002 which
was available to offset future taxable income in the retail subsidiaries that
generated the loss. A valuation allowance was provided for the full amount of
the deferred tax benefit related to this carryforward.
No valuation allowance was provided by the Company as it anticipates it will
be able to utilize the benefits of the net deferred tax asset during future
periods.
F-14
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. CAPITAL STOCK:
Common Stock
All shares of common stock, regardless of class, will automatically be
converted into an equal number of shares of common stock of a single class
without class designation (the Conversion) without any action by any holder
thereof immediately upon the occurrence of the closing of the first public
offering by the Company of shares of common stock of the Company registered
under the Securities Act. After the Conversion, such shares of common stock
will have equal rights in all respects, including the right to one vote per
share of common stock for all matters submitted to holders of common stock for
a vote.
Holders of the Class A common stock and Class B common stock (including
holders of the Restricted Stock--as defined below) and all other common stock
(other than Class C common stock) will have one vote on all matters submitted
to shareholders for each share outstanding in the name of such holder on the
books of the Company. Except as required by law, the Class C common stock will
have no voting rights. Subject to the rights of the holders of outstanding
classes of preferred stock and the Note, each share of common stock (including
holders of the Restricted Stock) will be entitled to share in dividends (when
and if such dividends are declared and paid) and liquidation distributions
ratably with all other shares of common stock then outstanding.
As long as shares of Class B common stock are outstanding, (i) the Board of
Directors (the Board) will consist of not more than five members, (ii) the
holders of the Class B common stock, exclusively and voting as a single class,
will be entitled by a vote of a majority of the outstanding shares of Class B
common stock, to elect two directors to the Board (requirement is eliminated
upon the Company's completion of a $20 million or greater initial public
offering), and (iii) the holders of the Class A common stock, Class B common
stock and all other common stock (except Class C common stock), exclusively
and voting as a single class without regard to whether such common stock is
Class A common stock, Class B common stock or any other common stock (except
Class C common stock), will be entitled, by a vote of a majority of the sum of
the outstanding shares of Class A common stock, Class B common stock and all
other common stock (except Class C common stock) held by such holders, to
elect three of the directors to the Board. All the outstanding Class B and
Class C Common Stock was purchased by management for $.60 per share.
All shares of Class C common stock will automatically be converted into an
equal number of shares of Class B common stock without any action by any
holder thereof at such time as the number of shares of Class A common stock
over which selected shareholders shall, directly or indirectly as partners in
a partnership or a limited partnership or otherwise, have the power to vote be
reduced to less than 4,275,000 (appropriately adjusted to reflect stock
splits, dividends or combinations, reorganizations, consolidations and similar
changes hereafter effected).
In conjunction with the Acquisition, certain members of management of the
Company purchased 1,080,000 shares of common stock with restrictions (the
Restricted Stock) at $.60 per share under a restricted stock agreement (the
Restricted Stock Agreement). The Restricted Stock vests over a five-year
performance period based on the Company achieving certain performance targets,
the paydown of the Note (see Note 7) or the occurrence of other defined
events, pursuant to the Restricted Stock Agreement. No shares were vested at
August 3, 1996.
Preferred Stock
The Series A preferred stock (Series A Preferred) will not have voting
rights, except as required by law or as set forth below. Without the
affirmative vote of the holders of at least a majority of the shares of Series
A Preferred at the time outstanding, the Company is generally prohibited from
(i) issuing additional shares of
F-15
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
preferred stock on parity with or superior to the Series A Preferred, (ii)
declaring or paying dividends or making any other distribution on any shares
of capital stock of the Company at any time created and issued ranking junior
to the Series A Preferred, or (iii) amending the Articles of Incorporation of
the Company so as to materially alter any existing provision relating to the
terms of the Series A Preferred or waive any of the rights granted to the
holders of the Series A Preferred by the Articles of Incorporation of the
Company or otherwise alter the rights or preferences of the Series A
Preferred.
After the repayment in full of the Note plus accrued interest thereon (the
date of which such repayment is made being hereinafter referred to as the Note
Repayment Date), the Series A Preferred will be entitled to receive, when and
as duly declared by the Board in the manner provided in the Articles of
Incorporation, cash dividends at the annual rate of $80 per share
(appropriately adjusted to reflect stock splits, dividends or combinations,
reorganizations, consolidations and similar changes hereafter effected) from
the date of issuance of such Series A Preferred, which dividends will be
cumulative (whether or not there shall be funds of the Company legally
available for the payment of such dividends) and will accrue (whether or not
earned or declared) from the date of issuance of such shares of Series A
Preferred, and, to the extent accrued and unpaid as of May 31 of any year,
will be payable before any dividends on any shares of common stock shall be
declared or paid or set apart for payment during the 12 months following such
May 31.
In the event of an involuntary or voluntary liquidation or dissolution of
the Company at any time, the holders of shares of Series A Preferred will be
entitled to receive out of the assets of the Company an amount equal to $1,000
per share (appropriately adjusted to reflect stock splits, dividends or
combinations, reorganizations, consolidations and similar changes hereafter
effected), plus all per-share dividends unpaid and accumulated or accrued
thereon (whether or not earned or declared) to the date of such distribution.
Warrants
As part of the Acquisition, the Company issued to Melville a warrant to
purchase 1,350,000 Class A shares at an exercise price of $.60 per share (the
Melville Warrant). The Melville Warrant is immediately exercisable and remains
exercisable until the tenth anniversary of the date of grant.
The Company also issued to Melville a warrant to purchase 1,080,000 Class A
shares at an exercise price of $.60 per share (the Manager Warrant). The
number of shares subject to the Manager Warrant will be reduced by an amount
equal to the number of shares of Restricted Stock that vest over a five-year
period, pursuant to the terms of the Restricted Stock Agreement. To the extent
any shares of the Restricted Stock have not vested after the fifth year, the
Manager Warrant becomes exercisable for such number of unvested shares.
10. STOCK OPTIONS:
During May 1996, Wilsons adopted the 1996 Stock Option Plan (the Plan),
pursuant to which options to acquire an aggregate of 1,000,000 shares of the
Company's common stock may be granted. The Plan is administered by a stock
option committee which has the discretion to determine the number and purchase
price of shares subject to stock options, the term of each option, and the
time or times during its term when the option becomes exercisable. During June
1996, 195,480 options, which vest in equal installments over three years, were
granted at an exercise price of $4.44 per share. During October 1996, 4,500
options, which vest in equal installments over three years, were granted at an
exercise price of $4.44. The Company has recorded deferred compensation of
approximately $38,000 to reflect the difference between the exercise price and
the estimated fair market value on the date of grant of these options.
F-16
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. EMPLOYEE BENEFIT PLANS:
401(k) Profit Sharing Plan
The Company has a defined contribution 401(k) profit sharing plan (the
401(k) Plan) for eligible employees which is qualified under sections 401(a)
and 401(k) of the Internal Revenue Code of 1986. Employees are entitled to
make tax-deferred contributions of up to 15% of their eligible compensation
(10% for those employees whose compensation in the previous year exceeded
$55,000). For employees who have worked less than three years, the Company may
match 25% of contributions, up to a maximum of 4% of the employee's eligible
compensation. For employees who have worked more than three years, the Company
may match 50% of contributions up to a maximum of 4% of the employee's
eligible compensation. The Company may also, at its discretion, make a profit
sharing contribution to the 401(k) Plan for each plan year. The Company's
contributions vest after five years of service, or at age 65 regardless of
service, or upon the death of the employee.
The Predecessor Companies' contributions to the 401(k) Plan were $0.7
million, $0.6 million, $0.6 million, $0.3 million and $1.0 million for the
years ended December 31, 1993, 1994 and 1995 and for the five months ended May
27, 1995 and May 25, 1996, respectively. The Company's contributions to the
401(k) Plan were $0.1 million for the period from inception (May 26, 1996) to
August 3, 1996, and $0.1 million for the three-months ended November 2, 1996.
Employee Stock Ownership Plan
The Predecessor Companies' employees participated in Melville's Employee
Stock Ownership Plan (ESOP). The ESOP was a defined contribution plan for all
employees meeting certain eligibility requirements. The Company elected not to
provide for a similar plan for its employees after the Acquisition.
Compensation expense of $2.1 million, $1.4 million, $2.0 million, $0.1
million and $0.2 million was recognized during the years ended December 31,
1993, 1994 and 1995, and for the five months ended May 27, 1995 and May 25,
1996.
12. TRANSACTIONS WITH MELVILLE:
The Predecessor Companies' operations were funded primarily by Melville.
Under an agreement with Melville, the Predecessor Companies received cash
necessary to fund their daily operations. The Predecessor Companies were
dependent on Melville to provide a significant portion of their working
capital financing. The weighted average interest rate on borrowings from
Melville for the years ended December 31, 1993, 1994 and 1995, and the five
months ended May 27, 1995 and May 25, 1996, was 3.3%, 4.7%, 6.4%, 5.6% and
5.8%, respectively. Prior to the Acquisition, in anticipation of the sale,
Melville contributed $124 million to the Predecessor Companies, which was
reflected as a capital contribution in the accompanying consolidated financial
statements.
Melville allocated administrative expenses and employee benefits to the
Predecessor Companies. Allocations were based on the Predecessor Companies'
ratable share of expense paid by Melville on behalf of the Predecessor
Companies for combined programs. The total costs allocated to the Predecessor
Companies for the years ended December 31, 1993, 1994 and 1995, and for the
five months ended May 27, 1995 and May 25, 1996 were $1.3 million, $1.3
million, $1.5 million, $0.6 million and $0.5 million, respectively, and are
included in selling, general and administrative expenses.
Melville Realty Company, Inc., a subsidiary of Melville, guaranteed the
payment of the lease obligations of certain stores operated by the Predecessor
Companies and charged a fee for that service. These fees are included in
selling, general and administrative expenses and amounted to $0.6 million,
$0.7 million, $0.7 million, $0.3 million and $0.3 million for the years ended
December 31, 1993, 1994 and 1995 and for the five months ended May 27, 1995
and May 25, 1996, respectively.
F-17
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENCIES:
Leases
The Company has noncancelable operating leases, primarily for retail stores,
which expire through 2007. A limited number of the leases contain renewal
options for periods ranging from four to six years. These leases generally
require the Company to pay costs, such as real estate taxes, common area
maintenance costs and contingent rentals, based on sales. Net rental expense
for all operating leases was as follows (in thousands):
<TABLE>
<CAPTION>
COMPANY
-------------
PREDECESSOR COMPANIES
--------------------------------------------
PERIOD FROM
YEARS ENDED DECEMBER 31 FIVE MONTHS ENDED INCEPTION
----------------------- ------------------- (MAY 26, 1996)
MAY 27, MAY 25, TO AUGUST 3,
1993 1994 1995 1995 1996 1996
------- ------- ------- ----------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Minimum rentals................................................. $38,724 $43,268 $42,894 $17,436 $14,917 $5,995
Contingent rentals.............................................. 1,893 1,368 1,092 353 449 154
------- ------- ------- ------- ------- ------
40,617 44,636 43,986 17,789 15,366 6,149
Less--Sublease rentals.......................................... -- -- (18) -- (122) (49)
------- ------- ------- ------- ------- ------
Total....................................................... $40,617 $44,636 $43,968 $17,789 $15,244 $6,100
- --------------------------------------------------
======= ======= ======= ======= ======= ======
</TABLE>
As of August 3, 1996, the future rental payments due under operating leases
and future minimum sublease rental income, excluding lease obligations, for
closed stores were as follows (in thousands):
<TABLE>
<S> <C>
Fiscal years ending:
1997.......................................................... $ 31,867
1998.......................................................... 28,823
1999.......................................................... 25,210
2000.......................................................... 21,999
2001.......................................................... 17,906
Thereafter...................................................... 36,249
--------
Total....................................................... $162,054
========
Total future minimum sublease rental income..................... $ 3,852
========
</TABLE>
As of August 3, 1996, a significant number of the existing lease obligations
continue to be guaranteed by Melville. Any leases entered into subsequent to
the Acquisition will no longer be guaranteed by Melville.
Litigation
The Company is involved in various legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position and results of operations.
Pursuant to the sale agreement, Melville has agreed to indemnify the Company
for certain claims. For certain other claims, Melville's indemnification
liability is limited to claims in the aggregate which exceed $1.2 million but
not to exceed $12 million.
Guarantees
As of November 2, 1996, the Company had outstanding letters of credit of
approximately $43.1 million which were primarily used to guarantee purchase
orders with foreign vendors.
F-18
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Purchase Commitments
The Company has a contingent liability with respect to an unconditional
contractual obligation for the purchase of supplies. The Company had a
commitment to purchase $0.7 million of these supplies on an as-needed basis as
of November 2, 1996. Total payments under the agreement, which was entered
into in 1994, were $1.8 million, $1.6 million, $0.5 million, $0.1 million and
$0.4 million for the years ended December 31, 1994 and 1995, for the five
months ended May 25, 1996, for the period from inception (May 26, 1996) to
August 3, 1996 and for the three months ended November 2, 1996, respectively.
14. PROPOSED PUBLIC OFFERING:
On October 11, 1996, the Company declared a .9-for-1 reverse split of common
stock which has been retroactively reflected in the accompanying consolidated
financial statements as if the split had occurred as of inception (May 26,
1996).
The Company intends to file with the Securities and Exchange Commission a
Form S-1 Registration Statement regarding the proposed sale of 3,000,000
shares of common stock (excluding the underwriters' overallotment option to
purchase an additional 450,000 shares of common stock). The proceeds from the
offering will be used to repay any outstanding borrowings on the Revolver.
There can be no assurance that the Company will complete this proposed public
offering. Supplemental pro forma loss per common share for the three months
ended November 2, 1996 was ($0.2), which reflects the Offering as if it had
occurred as of August 4, 1996, with the proceeds used to repay outstanding
borrowings on the Revolving Credit Facility and the related interest expense
eliminated.
F-19
<PAGE>
1.VINTAGE COLLECTION (UPPER-LEFT)
1.computer bag
2.port-hole, triple gusset, pull-through handle briefcase
3.ultimate notebook with 3-ring binder and organizer
4.men's bag with organizer
2.HANDCRAFTED COLLECTION (UPPER-RIGHT)
1.triple gusset briefcase
2.extra large backpack
3.top-handle men's bag
4.2-in-1 brief/backpack
3.WILSONS THE LEATHER EXPERTS AIRPORT STORE AT THE MINNEAPOLIS/ST. PAUL AIRPORT
(BOTTOM PHOTOGRAPH)
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OF-
FER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE IN-
FORMATION CONTAINED HEREIN IS CURRENT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
SUCH DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
The Acquisition........................................................... 11
Pro Forma Unaudited Consolidated Statements of Operations................. 12
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Dilution.................................................................. 16
Capitalization............................................................ 17
Selected Historical and Pro Forma Consolidated Financial Data............. 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 30
Management................................................................ 42
Certain Transactions...................................................... 46
Security Ownership of Certain Beneficial Owners and Management............ 51
Description of Capital Stock.............................................. 52
Shares Eligible for Future Sale........................................... 55
Underwriting.............................................................. 57
Legal Matters............................................................. 58
Experts................................................................... 58
Additional Information.................................................... 58
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
[LOGO OF WILSONS LEATHER EXPERTS APPEARS HERE]
COMMON STOCK
----------------
PROSPECTUS
----------------
OPPENHEIMER & CO., INC.
LADENBURG THALMANN & CO. INC.
PIPER JAFFRAY INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.2 Amended and Restated Articles of Incorporation of the Reg-
istrant, adopted subject to completion of the Offering.
3.4 Restated By-laws of the Registrant, adopted subject to
completion of the Offering.
4.1 Specimen of Common Stock certificate.
4.4 Form of Underwriter Warrants.
5.1 Opinion of Faegre & Benson LLP.
10.10 Wilsons The Leather Experts Inc. Amended 1996 Stock Option
Plan.
10.11 Amendment No. 1 to Credit Agreement.
10.12 Amendment No. 2 to Credit Agreement.
11.1 Computation of per share loss.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Faegre & Benson LLP (included in Exhibit No.
5.1 to the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
II-1
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
MINNEAPOLIS, STATE OF MINNESOTA, ON DECEMBER 23, 1996.
Wilsons The Leather Experts Inc.
*
By __________________________________
Joel N. Waller
Chairman and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON DECEMBER 23, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board of Directors and
___________________________________________ Chief Executive Officer (Principal
Joel N. Waller Executive Officer)
/s/ Douglas J. Treff Vice President, Finance and Chief Financial
___________________________________________ Officer (Principal Financial and
Douglas J. Treff Accounting Officer)
</TABLE>
Lyle Berman Thomas J. Brosig Morris Goldfarb David L. Rogers Joel
N. Waller
Board of Directors*
- --------
* Douglas J. Treff, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named officers and/or directors of
the Company pursuant to powers of attorney duly executed by such persons.
/s/ Douglas J. Treff
By __________________________________
Douglas J. Treff, Attorney-in-fact
II-2
<PAGE>
REGISTRATION NO. 33-13967
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS
TO AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
WILSONS THE LEATHER EXPERTS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement................................
3.2 Amended and Restated Articles of Incorporation of the
Registrant, adopted subject to completion of the Offering.....
3.4 Restated By-laws of the Registrant, adopted subject to comple-
tion of the Offering..........................................
4.1 Specimen of Common Stock certificate..........................
4.4 Form of Underwriter Warrants..................................
5.1 Opinion of Faegre & Benson LLP................................
10.10 Wilsons The Leather Experts Inc. Amended 1996 Stock Option
Plan..........................................................
10.11 Amendment No. 1 to Credit Agreement...........................
10.12 Amendment No. 2 to Credit Agreement...........................
11.1 Computation of per share loss.................................
23.1 Consent of Arthur Andersen LLP................................
23.2 Consent of KPMG Peat Marwick LLP..............................
23.3 Consent of Faegre & Benson LLP (included in Exhibit No. 5.1 to
the Registration Statement)...................................
27.1 Financial Data Schedule.......................................
</TABLE>
<PAGE>
EXHIBIT 1.1
3,000,000 Shares
Wilsons The Leather Experts Inc.
Common Stock
UNDERWRITING AGREEMENT
----------------------
________ __, 1996
Oppenheimer & Co., Inc.
Ladenburg Thalmann & Co. Inc.
Piper Jaffray Inc.
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named in
Schedule I attached hereto.
Gentlemen:
Wilsons The Leather Experts Inc., a Minnesota corporation (the
"Company"), proposes to sell to you and the other underwriters named in Schedule
I to this Agreement (the "Underwriters"), for whom you are acting as
Representatives, an aggregate of 3,000,000 shares (the "Firm Shares") of the
Company's common stock, $0.01 par value (the "Common Stock"). In addition, the
Company proposes to grant to the Underwriters an option to purchase up to an
additional 450,000 shares (the "Option Shares") of Common Stock from it for the
purpose of covering over-allotments in connection with the sale of the Firm
Shares. The Firm Shares and the Option Shares are together called the "Shares."
1. Sale and Purchase of the Shares. On the basis of the
-------------------------------
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company agrees to sell to each of the Underwriters, and each of
the Underwriters agrees, severally and not jointly, to purchase from the
Company, at $[
- 1 -
<PAGE>
] per share (the "Initial Price"), the number of Firm Shares set forth opposite
the name of such Underwriter in Schedule I to this Agreement.
(b) The Company grants to the several Underwriters an option to
purchase, severally and not jointly, all or any part of the Option Shares
at the Initial Price. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage (adjusted by the Representatives
to eliminate fractions) of the total number of Option Shares to be
purchased by the Underwriters as such Underwriter is purchasing of the
Firm Shares. Such option may be exercised only to cover over-allotments in
the sales of the Firm Shares by the Underwriters and may be exercised in
whole or in part at any time on or before 12:00 noon, New York City time,
on the business day before the Firm Shares Closing Date (as defined
below), and only once thereafter within 30 days after the date of this
Agreement, in each case upon written or telegraphic notice, or verbal or
telephonic notice confirmed by written or telegraphic notice, by the
Representatives to the Company no later than 12:00 noon, New York City
time, on the business day before the Firm Shares Closing Date or at least
two business days before the Option Shares Closing Date (as defined
below), as the case may be, setting forth the number of Option Shares to
be purchased and the time and date (if other than the Firm Shares Closing
Date) of such purchase.
(c) On the Firm Shares Closing Date, the Company agrees to issue
to each of the Representatives (for their own respective accounts and not
as representatives of the several Underwriters), in exchange for the
payment by each of the Representatives to the Company of $[______] per
underlying share of Common Stock, warrants (the "Warrants") to purchase
the number of shares of the Common Stock set forth opposite the name of
such Representative in Schedule II to this Agreement(the "Warrant Shares")
at an exercise price per Warrant Share equal to 120% of the Price to
Public listed on the cover page of the Prospectus (as defined below). The
Warrants will be exercisable at any time and from time to time on or after
the first anniversary of this Agreement up to the fifth anniversary
hereof. Each Warrant shall be substantially identical to the form of
Warrant filed as an exhibit to the Registration Statement (as defined
below).
2. Delivery and Payment. Delivery by the Company of the Firm
--------------------
Shares to the Representatives for the respective accounts of the Underwriters,
and payment of the purchase price by wire transfer of immediately available
funds to the Company, shall take place at the offices of Oppenheimer & Co.,
Inc., at Oppenheimer Tower, World Financial Center, New York, New York 10281, or
such other place as the Company and the Representatives mutually select, at
10:00 a.m., New York City time, on the third business day following the date of
this Agreement, provided, however, that if the Shares sold hereunder are priced
after 4:30 p.m., New York time, on any business day, payment and delivery in
respect of the Firm Shares shall take place on the fourth business day following
the date of this Agreement; if it is determined that settlement within the
foregoing time frame is not feasible, then payment and delivery in respect of
the Firm Shares shall occur at such time on such other date, not later than 10
business days after the date of this
- 2 -
<PAGE>
Agreement, as shall be agreed upon by the Company and the Representatives (such
time and date of delivery and payment are called the "Firm Shares Closing
Date").
In the event the option with respect to the Option Shares is
exercised, delivery by the Company of the Option Shares to the Representatives
for the respective accounts of the Underwriters and payment of the purchase
price by wire transfer of immediately available funds to the Company shall take
place at the offices of Oppenheimer & Co., Inc. specified above, or such other
place as the Company and the Representatives mutually select, at the time and on
the date (which may be the same date as, but in no event shall be earlier than,
the Firm Shares Closing Date) specified in the notice referred to in Section
1(b) (such time and date of delivery and payment are called the "Option Shares
Closing Date"). The Firm Shares Closing Date and the Option Shares Closing Date
are called, individually, a "Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names
and shall be in such denominations as the Representatives shall request at least
two full business days before the Firm Shares Closing Date or, in the case of
Option Shares, on the day of notice of exercise of the option as described in
Section l(b) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, at least one
full business day before the Firm Shares Closing Date (or the Option Shares
Closing Date in the case of the Option Shares).
3. Registration Statement and Prospectus; Public Offering. The
------------------------------------------------------
Company has prepared in conformity with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and the published rules and
regulations thereunder (the "Rules") adopted by the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No. 333-
13967), including a preliminary prospectus relating to the Shares, and has filed
with the Commission the Registration Statement and such amendments thereto as
may have been required to the date of this Agreement. Copies of such
Registration Statement (including all amendments thereto) and of the related
preliminary prospectus have heretofore been delivered by the Company to you. The
Company may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Securities Act for the purpose of registering
additional Shares, which registration shall be effective upon filing with the
Commission. The term "Registration Statement" means (i) the Registration
Statement as amended at the time and on the date it becomes effective (the
"Effective Date"), including all exhibits and information, if any, deemed to be
part of the Registration Statement pursuant to Rule 424(a) and Rule 430A of the
Rules and (ii) any related registration statement filed with the Commission
pursuant to Rule 462(b) of the Rules. The term "preliminary prospectus" means
any preliminary prospectus (as described in Rule 430 of the Rules) included at
any time as a part of the Registration Statement. The term "Prospectus" means
the prospectus in the form first used to confirm sales of the Shares (whether
such prospectus was included in the Registration Statement at the time of
effectiveness or was subsequently filed with the Commission pursuant to Rule
424(b) of the Rules) or the preliminary prospectus forming part of the
Registration Statement at the time it was declared effective together with the
term sheet permitted under Rule 434(b) and filed with the Commission pursuant to
Rule 424(b), as applicable.
- 3 -
<PAGE>
The Company understands that the Underwriters propose to make a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as soon
after the Effective Date and the date of this Agreement as the Representatives
deem advisable. The Company hereby confirms that the Underwriters and dealers
have been authorized to distribute or cause to be distributed each preliminary
prospectus and are authorized to distribute the Prospectus (as from time to time
amended or supplemented if the Company furnishes amendments or supplements
thereto to the Underwriters).
4. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to each Underwriter as follows:
(a) On the Effective Date the Registration Statement complied, and on the
date of the Prospectus, on the date any post-effective amendment to the
Registration Statement or any related registration statement filed with the
Commission pursuant to Rule 462(b) of the Rules shall become effective, on
the date any supplement or amendment to the Prospectus is filed with the
Commission and on each Closing Date, the Registration Statement and the
Prospectus (and any amendment thereof or supplement thereto) will comply in
all material respects with the applicable provisions of the Securities Act
and the Rules and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder;
the Registration Statement did not, as of the Effective Date, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; and on the other dates referred to above neither the
Registration Statement, nor any amendment thereof or supplement thereto, will
contain any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and on the other dates referred to above
neither the Prospectus, nor any amendment thereof or supplement thereto, will
contain any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When any related preliminary prospectus was first filed
with the Commission (whether filed as part of the Registration Statement or
any amendment thereto or pursuant to Rule 424(a) of the Rules) and when any
amendment thereof or supplement thereto was first filed with the Commission,
such preliminary prospectus as amended or supplemented complied in all
material respects with the applicable provisions of the Securities Act and
the Rules and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading. The Company makes no
representation or warranty as to the paragraph with respect to stabilization
on the inside front cover page of the Prospectus and the statements contained
under the caption "Underwriting" in the Prospectus. The Company acknowledges
that such statements constitute the only information furnished in writing by
the Representatives
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on behalf of the several Underwriters specifically for inclusion in the
Registration Statement, any preliminary prospectus or the Prospectus.
(b) All contracts and other documents required to be filed as exhibits to
the Registration Statement have been filed with the Commission as exhibits to
the Registration Statement.
(c) The financial statements of the Company (including all notes and
schedules thereto) included in the Registration Statement and Prospectus fairly
present the financial position, the results of operations and cash flows and the
shareholders' equity (deficit) and the other information purported to be shown
therein of the Company at the respective dates and for the respective periods to
which they apply; and such financial statements have been prepared in conformity
with generally accepted accounting principles, consistently applied throughout
the periods involved (except as otherwise noted therein), and all adjustments
necessary for a fair presentation of the results for such periods have been
made. The schedules, if any, included in the Registration Statement present
fairly in all material respects the information required to be stated therein;
and the historical financial information and statistical data set forth in the
Prospectus under the captions "Summary Historical and Pro Forma Consolidated
Financial Data," "Capitalization," and "Selected Historical and Pro Forma
Consolidated Financial Data" are fairly stated in all material respects in
relation to the financial statements from which they have been derived. The pro
forma financial data included in the Registration Statement and the Prospectus
present fairly the information shown therein, comply in all material respects
with the requirements of the Act and the Rules with respect to pro forma
financial statements, have been properly compiled on the pro forma basis
described therein and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions or circumstances referred to therein.
(d) Each of Arthur Andersen LLP and KPMG Peat Marwick LLP, whose reports
are filed with the Commission as a part of the Registration Statement, is and,
during the periods covered by its reports, were independent public accountants
as required by the Securities Act and the Rules.
(e) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Minnesota. Each
subsidiary of the Company has been duly incorporated or formed and is an
existing corporation in good standing under the laws of the jurisdiction of its
incorporation or organization. Except as disclosed in the Registration Statement
and the Prospectus, all of the capital stock of each subsidiary set forth on
Exhibit 21.1 to the Registration Statement is owned by the Company, free and
clear of any liens or encumbrances. The Company has no subsidiary or
subsidiaries other than as set forth on Exhibit 21.1 to the Registration and
does not control, directly or indirectly, any other corporation, partnership,
joint venture, association or other business organization. Each of the Company
and its subsidiaries is duly qualified and in good standing as a foreign
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<PAGE>
corporation in each jurisdiction in which the character or location of its
assets or properties (owned, leased or licensed) or the nature of its business
makes such qualification necessary, except for such jurisdictions where the
failure to so qualify individually or in the aggregate would not have a material
adverse effect on the assets or properties, business, results of operations or
financial condition of the Company and its subsidiaries, taken as a whole.
Except as disclosed in the Registration Statement and the Prospectus, the
Company and its subsidiaries do not own, lease or license any asset or property
or conduct any business outside the United States of America. Each of the
Company and its subsidiaries has all requisite corporate power and authority,
and all necessary authorizations, approvals, consents, orders, licenses,
certificates and permits of and from all governmental or regulatory bodies or
any other person or entity, to own, lease and license its assets and properties
and conduct its businesses as now being conducted and as described in the
Registration Statement and the Prospectus; no such authorization, approval,
consent, order, license, certificate or permit contains a materially burdensome
restriction other than as disclosed in the Registration Statement and the
Prospectus; and the Company has all such corporate power and authority, and such
authorizations, approvals, consents, orders, licenses, certificates and permits
to enter into, deliver and perform this Agreement and to issue and sell the
Shares (except as may be required under the Securities Act and state and foreign
Blue Sky laws).
(f) Except as disclosed in the Registration Statement and the Prospectus,
the Company owns or possesses adequate and enforceable rights to use all (to the
extent any of them exist) patents, patent applications, trademarks, trademark
applications, service marks, copyrights, copyright applications, licenses and
other similar rights (collectively, the "Intangibles") necessary for the conduct
of its business as now being conducted and as described in the Registration
Statement and the Prospectus. The Company has not infringed, is not infringing,
and has not received any notice of infringement of, any Intangible of any other
person and the Company does not know of any basis therefor. The Company has not
received any notices of infringement of an Intangible of any other person that,
if adversely decided, could have a material adverse effect on the business,
results of operations or financial condition of the Company. The Company has
not received any notice of infringement of any of its Intangibles and the
Company does not know of any basis therefor.
(g) Each of the Company and its subsidiaries has good and marketable
title in fee simple to each of the items of personal property which are
reflected in the financial statements referred to in Section 4(c) or are
referred to in the Registration Statement and the Prospectus as being owned by
it and valid and enforceable leasehold interests in each of the items of real
and personal property which are referred to in the Registration Statement and
the Prospectus as being leased by it, in each case free and clear of all liens,
encumbrances, claims, security interests and defects, other than those described
in the Registration Statement and the Prospectus and tax, mechanics and
materialmen's and other similar inchoate liens securing payments that are not
delinquent.
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(h) Except as disclosed in the Registration Statement and the Prospectus,
there is no litigation or governmental or other proceeding or investigation
before any court or before or by any public body or board pending or, to the
Company's best knowledge, threatened (and the Company does not know of any basis
therefor) against, or involving the assets, properties or businesses of, the
Company or any of its subsidiaries which, if determined adversely to the Company
or any of its subsidiaries, would materially adversely affect the value or the
operation of any such assets or properties or the business, results of
operations or financial condition of the Company and its subsidiaries, taken as
a whole.
(i) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as described therein,
there has not been any material adverse change or any material adverse
development or event involving a prospective change in the assets or properties,
earnings, business affairs or business prospects, results of operations or
condition (financial or otherwise) of the Company and its subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary course of
business; each of the Company and its subsidiaries has not entered into any
transaction, other than in the ordinary course of business, that is material to
the Company or any of its subsidiaries, taken as a whole; each of the Company
and its subsidiaries has not sustained any material loss or interference with
its assets, businesses or properties from fire, explosion, earthquake, flood or
other calamity, whether or not covered by insurance, or from any labor dispute
or any court or legislative or other governmental action, order or decree; and
since the date of the latest balance sheet included in the Registration
Statement and the Prospectus, except as reflected therein, each of the Company
and its subsidiaries has not undertaken any liability or obligation, direct or
contingent, except for liabilities or obligations undertaken in the ordinary
course of business.
(j) Each agreement listed in the Exhibits to the Registration Statement
is in full force and effect and is valid and enforceable by the Company or one
of its subsidiaries in accordance with its terms, assuming the due authorization
thereof by each of the other parties thereto. Neither the Company nor, to the
best of the Company's knowledge, any other party is in default in the observance
or performance of any term or obligation to be performed by it under any such
agreement, and no event has occurred which with notice or lapse of time or both
would constitute such a default which default or event would have a material
adverse effect on the assets or properties, business, results of operations or
financial condition of the Company and its subsidiaries, taken as a whole. No
default exists, and no event has occurred which with notice or lapse of time or
both would constitute a default, in the due performance and observance of any
term, covenant or condition, by the Company of any other indenture, mortgage,
deed of trust, note or any other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which any of them or their properties
or businesses is bound or affected which default or event would have a material
adverse effect on the assets or properties, business, results of operations or
financial condition of the Company and its subsidiaries, taken as a whole.
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<PAGE>
(k) Each of the Company and its subsidiaries is not in violation of any
term or provision of its charter or by-laws or of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation, where the
consequences of such violation would have a material adverse effect on the
assets or properties, business, results of operations or financial condition of
the Company and its subsidiaries, taken as a whole.
(l) Neither the execution, delivery and performance of this Agreement by
the Company nor the consummation of any of the transactions contemplated hereby
(including, without limitation, the issuance and sale by the Company of the
Shares) will (i) give rise to a right to terminate or accelerate the due date of
any payment due under, or conflict with or result in the breach of any term or
provision of, or constitute a default (or any event which with notice or lapse
of time or both would constitute a default) under or require any consent or
waiver under, (except for consents and waivers that have been received), or
result in the execution or imposition of any lien, charge or encumbrance upon
any properties or assets of the Company or any of its subsidiaries pursuant to
the terms of, any indenture, mortgage, deed of trust, note or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which any of them or their properties or businesses is bound, or any franchise,
license, permit, judgment, decree, order, statute, rule or regulation applicable
to the Company or any of its subsidiaries or (ii) violate any provision of the
charter or by-laws of the Company or any of its subsidiaries.
(m) The Company has an authorized and outstanding capitalization as set
forth under the caption "Capitalization" in the Prospectus. The Company has
reserved and will keep available for the exercise of the Warrants such number of
authorized but unissued shares of Common Stock as are sufficient to permit the
exercise in full of the Warrants. All of the outstanding shares of Common Stock
have been duly and validly authorized and have been duly and validly issued and
are fully paid and nonassessable and none of them was issued in violation of any
preemptive or other similar statutory right. The Shares, when issued and sold
pursuant to this Agreement, and the Warrant Shares, when issued and sold
pursuant to the Warrants, will be duly and validly issued, fully paid and
nonassessable and none of them will be issued in violation of any preemptive or
other similar statutory right. Except as disclosed in the Registration
Statement and the Prospectus, there is no outstanding option, warrant or other
right calling for the issuance of, and no commitment, plan or agreement to
issue, any share of stock of the Company or any security convertible into, or
exercisable or exchangeable for, stock of the Company. The Common Stock, the
preferred stock, $0.01 par value (the "Preferred Stock"), each of the Company's
outstanding warrants, including the Warrants, and the Shares conform to all
statements in relation thereto contained in the Registration Statement and the
Prospectus.
(n) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as described or
referred to therein, the Company has not (i) issued any securities or incurred
any liability or obligation,
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<PAGE>
direct or contingent, for borrowed money, (ii) entered into any transaction not
in the ordinary course of business or (iii) declared or paid any dividend or
made any distribution on any shares of its stock or redeemed, purchased or
otherwise acquired or agreed to redeem, purchase or otherwise acquire any shares
of its stock.
(o) No holder of any security of the Company has any right to have any
security owned by such holder included in the Registration Statement or to
demand registration of any security owned by such holder during the period
ending 180 days from the date of this Agreement that has not been heretofore
waived in writing. The Company has obtained from certain officers, directors
and other stockholders of the Company, who together hold all the outstanding
shares of Common Stock, their enforceable written agreement that for a period of
at least 180 days from the date of this Agreement they will not, without the
prior written consent of Oppenheimer & Co., Inc., offer, sell, contract to sell,
distribute, pledge, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, or encumber, or exercise any registration rights with
respect to, any shares of Common Stock (or any securities convertible into or
exercisable or exchangeable for any shares of Common Stock or any rights to
acquire Common Stock).
(p) All necessary corporate action has been duly and validly taken by the
Company to authorize the execution, delivery and performance of this Agreement,
the Warrants and the issuance and sale of the Shares, the Warrants and the
Warrant Shares. This Agreement has been duly and validly executed and delivered
by the Company and the Warrants, upon payment therefor by the Representatives
and upon execution and delivery thereof, will be duly and validly executed and
delivered by the Company. This Agreement constitutes, and the Warrants, when
executed and delivered by the Company and paid for by the Representatives will
constitute, the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with their respective terms, except (A) as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles and (B) with respect to this
Agreement, to the extent that rights to indemnity or contribution under this
Agreement may be limited by federal and state securities laws or the public
policy underlying such laws.
(q) Each of the Company and its subsidiaries is conducting its business
in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without limitation,
all applicable local, state and federal environmental laws and regulations,
except where the failure to be so in compliance would not have a material
adverse effect on the assets or properties, business, results of operations or
financial condition of the Company and its subsidiaries, taken as a whole.
(r) No transaction has occurred between or among the Company or any of
its affiliates and any of its officers or directors or any affiliate or
affiliates of any such
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<PAGE>
officer or director that is required to be described in and is not described in
the Registration Statement and the Prospectus.
(s) The Company has not taken, nor will it take, directly or indirectly,
any action designed to or which might reasonably be expected to cause or result
in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the Common Stock
to facilitate the sale or resale of any of the Shares.
(t) The Company has filed all federal, state, local and foreign tax
returns which are required to be filed through the date hereof, or has received
extensions thereof, and has paid or reserved for payment all taxes shown on such
returns and all assessments received by it.
(u) The Shares have been approved for quotation on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") National
Market, subject to official notice of issuance.
(v) The Company has complied with all of the requirements and filed the
required forms as specified in Florida Statutes Section 517.075.
5. Conditions of the Underwriters' Obligations. The obligations of
-------------------------------------------
the Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 6(A)(a).
(b) The Registration Statement shall have become effective. No order
preventing or suspending the use of any preliminary prospectus or the Prospectus
shall have been or shall be in effect, and no order suspending the effectiveness
of the Registration Statement shall be in effect and no proceedings for such
purpose shall be pending before or threatened by the Commission, and any
requests for additional information on the part of the Commission (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of the Representatives.
(c) The representations and warranties of the Company contained in this
Agreement and in the certificates delivered pursuant to Section 5(d) shall be
true and correct when made and on and as of each Closing Date as if made on such
date and the Company shall have performed all covenants and agreements and
satisfied all the conditions contained in this Agreement required to be
performed or satisfied by it at or before such Closing Date.
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<PAGE>
(d) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing Date, of
the chief executive or chief operating officer and the chief financial officer
or chief accounting officer of the Company, to the effect that the signers of
such certificate have carefully examined the Registration Statement, the
Prospectus and this Agreement and that the representations and warranties of the
Company in this Agreement are true and correct on and as of such Closing Date
with the same effect as if made on such Closing Date and the Company has
performed all covenants and agreements and satisfied all conditions contained in
this Agreement required to be performed or satisfied by it at or prior to such
Closing Date.
(e) The Representatives shall have received at the time this Agreement is
executed and on each Closing Date a letter or letters signed by Arthur Andersen
LLP, addressed to the Representatives and dated, respectively, the date of this
Agreement and each such Closing Date, in form and substance satisfactory to the
Representatives, confirming that they are independent public accountants within
the meaning of the Securities Act and the Rules, that the response to Item 10 of
the Registration Statement is correct insofar as it relates to them and stating
in effect that:
(i) in their opinion the audited financial statements and financial
statement schedules and pro forma financial statements included in the
Registration Statement and the Prospectus and reported on by them comply as to
form in all material respects with the applicable accounting requirements of
the Securities Act and the Rules;
(ii) on the basis of a reading of the amounts included in the
Registration Statement and the Prospectus under the headings "Summary
Historical and Pro Forma Consolidated Financial Data" and "Selected Historical
and Pro Forma Consolidated Financial Data;" carrying out certain procedures
(but not an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of significance with
respect to the comments set forth in such letter; a reading of the minutes of
the meetings of the shareholders and directors and audit committee of the
Company, and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company as to
transactions and events subsequent to the date of the latest audited financial
statements, nothing came to their attention which caused them to believe that:
(A) the amounts in "Summary Consolidated Financial Data" and
"Selected Consolidated Financial Data" included in the Registration
Statement and the Prospectus do not agree with the corresponding amounts
in the audited and unaudited financial statements from which such amounts
were derived; or
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<PAGE>
(B) (i) with respect to the Company there were, at a
specified date not more than five business days prior to the date of the
letter, any increases in the total current liabilities, long-term debt or
capital stock of the Company or decreases in working capital (deficit),
total current assets, total assets or total stockholders' equity
(deficit), of the Company, as compared with the amounts shown on the
Company's audited August 3, 1996 balance sheet included in the
Registration Statement and the Prospectus, or (ii) for the period from
August 3, 1996 to such specified date not more than five business days
prior to the date of the letter, there were any decreases in revenues,
operating income or net income;
(iii) they have performed certain other procedures as a result
of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial
or statistical information derived from the general accounting records of
the Company) set forth in the Registration Statement and the Prospectus and
specified by the Representatives agrees with the accounting records of the
Company; and
(iv) on the basis of a reading of the unaudited pro forma financial
statements included in the Registration Statement and the Prospectus (the
"pro forma financial statements"); carrying out certain specified
procedures; inquiries of certain officials of the Company who have
responsibility for financial and accounting matters; and proving the
arithmetic accuracy of the application of the pro forma adjustments to the
historical amounts in the pro forma financial statements, nothing came to
their attention which caused them to believe that the pro forma financial
statements do not comply in form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulation S-X or that
the pro forma adjustments have not been properly applied to the historical
amounts in the compilation of such statements.
References to the Registration Statement and the Prospectus in this paragraph
(e) are to such documents as amended and supplemented at the date of the letter.
(f) The Representatives shall have received at the time this Agreement is
executed and on each Closing Date a letter or letters signed by KPMG Peat
Marwick LLP, addressed to the Representatives and dated, respectively, the
date of this Agreement and each such Closing Date, in form and substance
satisfactory to the Representatives, confirming that they are independent
public accountants within the meaning of the Securities Act and the Rules,
that the response to Item 10 of the Registration Statement is correct insofar
as it relates to them and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules and pro forma financial statements included
in the Registration Statement and the Prospectus and reported on by them
comply as
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<PAGE>
to form in all material respects with the applicable accounting requirements
of the Securities Act and the Rules;
(ii) they have performed certain procedures as a result of which they
determined that certain information of an accounting, financial or statistical
nature (which is limited to accounting, financial or statistical information
derived from the general accounting records of the Company) set forth in the
Registration Statement and the Prospectus and specified by the Representatives
agrees with the accounting records of the Company.
References to the Registration Statement and the Prospectus in this paragraph
(f) are to such documents as amended and supplemented at the date of the letter.
(g) The Representatives shall have received on each Closing Date from
Faegre & Benson LLP, counsel for the Company, an opinion, addressed to the
Representatives and dated such Closing Date, and stating in effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Minnesota. Each
subsidiary of the Company has been duly incorporated or formed and is an
existing corporation in good standing under the laws of the jurisdiction of
its incorporation or organization.
(ii) Each of the Company, Wilson Centers, Inc., Rosedale Wilsons, Inc.,
River Hills Wilsons, Inc., Bermans the Leather Experts, Inc., Wilsons Leather
Holdings Inc., Wilsons Leather of New York Inc., Wilsons Leather of Ohio Inc.
and Wilsons Leather of Pennsylvania Inc. has all requisite corporate power and
authority to own, lease and license its assets and properties and conduct its
business as now being conducted and as described in the Registration Statement
and the Prospectus; and the Company has all requisite corporate power and
authority and all necessary governmental, and all other necessary
authorizations, approvals, consents, orders, licenses, certificates and
permits, to enter into, deliver and perform this Agreement and the Warrants,
and to issue and sell the Shares, the Warrants and the Warrant Shares, other
than those required under the Securities Act and state and foreign Blue Sky
laws.
(iii) The Company has authorized and outstanding capitalization as set
forth under the caption "Capitalization" in the Prospectus; the certificates
evidencing the Shares are in due and proper legal form and have been duly
authorized for issuance by the Company; all of the outstanding shares of
Common Stock of the Company have been duly and validly authorized and have
been duly and validly issued and are fully paid and nonassessable and none of
them was issued in violation of any preemptive or other similar statutory
right. The Warrant Shares have been duly authorized and reserved by the
Company. The Shares, when issued, sold, and paid for pursuant to this
Agreement, and the
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<PAGE>
Warrant Shares, when issued, sold and paid for pursuant to the Warrants, will
be duly and validly issued, fully paid and nonassessable and none of them will
have been issued in violation of any preemptive or other similar statutory
right. Except as disclosed in the Registration Statement and the Prospectus,
to such counsel's knowledge there is no outstanding option, warrant or other
right calling for the issuance of, and no commitment, plan or agreement to
issue, any share of stock of the Company or any security convertible into, or
exercisable or exchangeable for, stock of the Company. The Common Stock, the
Preferred Stock, each of the Company's outstanding warrants, including the
Warrants, and the Shares conform to all statements in relation thereto
contained in the Registration Statement and the Prospectus.
(iv) All necessary corporate action has been duly and validly taken by
the Company to authorize the execution, delivery and performance of this
Agreement and the Warrants and the issuance and sale of the Shares, the
Warrants and the Warrant Shares. This Agreement has been duly and validly
executed and delivered by the Company and constitutes and will constitute the
legal, valid and binding obligation of the Company (and the Warrants, when so
executed and delivered, will constitute the legal, valid and binding
obligation of the Company), enforceable against the Company in accordance with
its terms except (A) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles and (B) to the extent that rights to indemnity or
contribution under this Agreement or the Warrants may be limited by federal or
state securities laws or the public policy underlying such laws.
(v) Neither the execution, delivery and performance of this Agreement by
the Company nor the consummation of any of the transactions contemplated
hereby (including, without limitation, the issuance and sale by the Company of
the Shares) will (i) give rise to a right to terminate or accelerate the due
date of any payment due under, or conflict with or result in the breach of any
term or provision of, or constitute a default (or any event which with notice
or lapse of time, or both, would constitute a default) under, or require any
consent or waiver (except for consents and waivers that have been received)
under, or result in the execution or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company or any of its
subsidiaries pursuant to the terms of, any indenture, mortgage, deed of trust,
note or other agreement or instrument of which such counsel is aware and to
which the Company or any of its subsidiaries is a party or by which any of
them or their properties or businesses is bound, or any franchise, license,
permit, judgment, decree, order, statute, rule or regulation of which such
counsel is aware and applicable to the Company or any of its subsidiaries or
(ii) violate any provision of the charter or by-laws of the Company or any of
its subsidiaries.
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<PAGE>
(vi) To such counsel's knowledge, no default exists, and no event has
occurred which with notice or lapse of time or both would constitute a
default, in the due performance and observance of any term, covenant or
condition of any indenture, mortgage, deed of trust, note or any other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which any of them or their assets or properties or businesses is
bound or affected which default would have a material adverse effect on the
assets or properties, business, results of operations or financial condition
of the Company and its subsidiaries, taken as a whole.
(vii) To such counsel's knowledge, each of the Company and its
subsidiaries is not in violation of any term or provision of its charter or
by-laws or of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation, where the consequences of such violation would
have a material adverse effect on the assets or properties, businesses,
results of operations or financial condition of the Company and its
subsidiaries, taken as a whole.
(viii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the performance of this Agreement
by the Company or the consummation of the transactions contemplated hereby,
except such as have been obtained under the Securities Act and such as may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the several Underwriters.
(ix) Except as described in the Registration Statement and the
Prospectus, to such counsel's knowledge, there is no litigation or
governmental or other proceeding or investigation before any court or before
or by any public body or board pending or threatened (and such counsel does
not know of any basis therefor) against, or involving the assets, properties
or businesses of, the Company or any of its subsidiaries which, if determined
adversely to the Company or any of its subsidiaries, would materially
adversely affect the value or the operation of any such assets or properties
or the business, results of operations or financial condition of the Company
and its subsidiaries, taken as a whole.
(x) The agreement of the Company stating that for a period of 180
days from the date of the Prospectus it will not, without Oppenheimer & Co.,
Inc.'s prior written consent issue, offer, sell, contract to sell, distribute,
pledge, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, or encumber, or exercise any registration rights with respect to,
or register with the Commission, as applicable, any shares of Common Stock (or
any securities convertible into, exercisable for, or exchangeable for any
shares of Common Stock or any rights to acquire Common Stock) has been duly
and validly delivered by the Company and constitutes a legal, valid and
binding obligations of the Company, enforceable against it in accordance with
its terms, except as
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<PAGE>
the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles.
(xi) The statements in the Prospectus under the captions "Risk Factors-
Shares Eligible for Future Sale"; "-Anti-Takeover Considerations; Control by
Current Shareholders"; "The Acquisition"; "Business-Litigation"; Trademark
Protections"; "Management-Compensation Committee Interlocks and Insider
Participation;" "-Executive Compensation and Employment Contracts"; "-Employee
Benefit Plans"; "-Restricted Stock Agreement"; "Certain
Transactions";"Description of Capital Stock"; and "Shares Eligible for Future
Sale", insofar as such statements constitute a summary of documents referred
to therein or matters of law, are fair summaries of the material provisions
thereof and accurately present the information called for with respect to such
documents and matters. All contracts and other documents required to be filed
as exhibits to, or described in, the Registration Statement have been so filed
with the Commission or are fairly described in the Registration Statement, as
the case may be.
(xii) The Registration Statement, all preliminary prospectuses and the
Prospectus and each amendment or supplement thereto (except for the financial
statements and notes and schedules and other financial and statistical data
included therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the requirements of the Securities Act
and the Rules.
(xiii) The Registration Statement has become effective under the
Securities Act, and to such counsel's knowledge no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are threatened, pending or
contemplated.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company and
public officials and on the opinions of other counsel satisfactory to the
Representatives as to matters which are governed by laws other than the laws of
the State of Minnesota and the federal laws of the United States; provided that
such counsel shall state that in their opinion the Underwriters and they are
justified in relying on such other opinions. Such counsel shall also state that
in connection with rendering the opinion in (iv) of this Section 5(g), such
counsel has assumed that the corporation laws of the State of New York are
identical to the General Corporation Law of the State of Delaware and that in
connection with rendering the opinions in (ii) of this section 5(a), such
counsel has assumed that the corporation laws of the States of New York, Ohio
and Pennsylvania are identical to the corporation laws of Minnesota. Copies of
such certificates and other opinions shall be furnished to the Representatives
and counsel for the Underwriters.
- 16 -
<PAGE>
In addition, such counsel shall state that such counsel have
participated in conferences with officers and other representatives of the
Company, representatives of the Representatives and representatives of the
independent certified public accountants of the Company, at which conferences
the contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel are not passing upon and do
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (except as
specified in the foregoing opinion), on the basis of the foregoing no facts have
come to the attention of such counsel which lead such counsel to believe that
the Registration Statement at the time it became effective (except with respect
to the financial statements and notes and schedules thereto and other financial
and statistical data, as to which such counsel need make no statement) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus as amended or supplemented (except with
respect to the financial statements and notes and schedules thereto and other
financial and statistical data, as to which such counsel need make no statement)
on the date thereof contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(h) All proceedings taken in connection with the sale of the Firm Shares
and the Option Shares and the issuance of the Warrants as herein contemplated
shall be reasonably satisfactory in form and substance to the Representatives
and their counsel and the Underwriters shall have received from Morgan, Lewis
& Bockius LLP a favorable opinion, addressed to the Representatives and dated
such Closing Date, with respect to the Shares, the Warrants, the Registration
Statement and the Prospectus, and such other related matters, as the
Representatives may reasonably request, and the Company shall have furnished
to Morgan, Lewis & Bockius LLP such documents as they may reasonably request
for the purpose of enabling them to pass upon such matters.
(i) The Representatives shall have received on each Closing Date a
certificate, including exhibits thereto, addressed to the Representatives and
dated such Closing Date, of the Secretary or an Assistant Secretary of the
Company, signed in such officer's capacity as such officer, as to the (i)
certificate of incorporation and bylaws of the Company, (ii) resolutions
authorizing the execution and delivery of the Registration Statement, this
Agreement, the Warrants and the performance of the transactions contemplated
by this Agreement, the Warrants, the Registration Statement, the Prospectus
and the offering of the Shares, and (iii) incumbency of the person or persons
authorized to execute and deliver the Registration Statement, this Agreement,
the Warrants and any other documents contemplated by the offering of the
Shares.
(j) The Representatives shall have received on each Closing Date
certificates of the Secretaries of State of each State where the Company or
any of Wilson Centers, Inc., Rosedale Wilsons, Inc., River Hills Wilsons,
Inc., Bermans the Leather Experts, Inc., Wilsons Leather Holdings Inc.,
Wilsons Leather of Ohio Inc., Wilsons Leather of
- 17 -
<PAGE>
New York Inc. and Wilsons Leather of Pennsylvania Inc. is incorporated and
doing business as to the good standing of the Company or such subsidiary,
listing all charter documents on file, if applicable, qualification of the
Company or such subsidiary to do business as a foreign corporation, if
applicable, payment of taxes and filing of annual reports. In addition, the
Representatives shall have received copies of all charter documents of the
Company and each of its subsidiaries certified by the Secretary of State of
the State of such corporation's incorporation.
(k) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives, and dated such Closing Date, of
an executive officer of the Company to the effect that the signer of such
certificate has reviewed and understands the provisions of Section 517.075 of
the Florida Statutes, and represents that the Company has complied, and at all
times will comply, with all provisions of Section 517.075 and further, that as
of such Closing Date, neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate located
in Cuba.
6. Covenants of the Company.
------------------------
(A) The Company covenants and agrees as follows:
(a) The Company shall prepare the Prospectus in a form approved by the
Representatives and file such Prospectus pursuant to Rule 424(b) under the
Securities Act not later than the Commission's close of business on the second
business day following the execution and delivery of this Agreement, or, if
such second business day would be more than fifteen business days after the
Effective Date of the Registration Statement or any post-effective amendment
thereto, such earlier date as would permit such Prospectus to be filed without
filing a post-effective amendment as set forth in Rule 430A(a)(3) under the
Securities Act, and shall promptly advise the Representatives (i) when the
Registration Statement shall have become effective, (ii) when any amendment
thereof or any related registration statement filed with the Commission
pursuant to Rule 462(b) of the Rules shall have become effective, (iii) of any
request by the Commission for any amendment of the Registration Statement or
the Prospectus or for any additional information, (iv) of the prevention or
suspension of the use of any preliminary prospectus or the Prospectus or of
the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the institution or threatening of any
proceeding for that purpose and (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Shares
for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose. If contemplated by this Agreement, the Company
shall prepare and file with the Commission in conformity with the Securities
Act and the Rules a related registration statement pursuant to Rule 462(b)
under the Securities Act for the purpose of registering additional shares. The
Company shall not file any amendment of the Registration Statement or
amendment or supplement to the Prospectus unless the Company has furnished the
Representatives a copy for its review
- 18 -
<PAGE>
prior to filing and shall not file any such proposed amendment or supplement
to which the Representatives reasonably object. The Company shall use its best
efforts to prevent the issuance of any such stop order and, if issued, to
obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Shares is required
to be delivered under the Securities Act and the Rules, any event occurs as a
result of which the Prospectus as then amended or supplemented would include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the circumstances
under which they were made not misleading, or if it shall be necessary to
amend or supplement the Prospectus to comply with the Securities Act or the
Rules, the Company promptly shall prepare and file with the Commission,
subject to the third sentence of paragraph (a) of this Section 6(A), an
amendment or supplement which shall correct such statement or omission or an
amendment which shall effect such compliance.
(c) The Company shall make generally available to its security holders
and to the Representatives as soon as practicable, but not later than 45 days
after the end of the 12-month period beginning at the end of the fiscal
quarter of the Company during which the Effective Date occurs (or 90 days if
such 12-month period coincides with the Company's fiscal year), an earnings
statement (which need not be audited) of the Company, covering such 12-month
period, which shall satisfy the provisions of Section 11(a) of the Securities
Act or Rule 158 of the Rules.
(d) The Company shall furnish to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration Statement
(including all exhibits thereto and amendments thereof) and to each other
Underwriter a copy of the Registration Statement (without exhibits thereto)
and all amendments thereof and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Securities Act or the Rules, as
many copies of any preliminary prospectus and the Prospectus and any
amendments thereof and supplements thereto as the Representatives may
reasonably request.
(e) The Company shall cooperate with the Representatives and their
counsel in endeavoring to qualify the Shares for offer and sale under the laws
of such jurisdictions as the Representatives may designate and shall maintain
such qualifications in effect so long as required for the distribution of the
Shares; provided, however, that the Company shall not be required in
connection therewith, as a condition thereof, to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction or subject itself to taxation as doing business in any
jurisdiction.
(f) For a period of five years after the date of this Agreement, the
Company shall supply to the Representatives, and to each other Underwriter who
may so request in writing, copies of such financial statements and other
periodic and special reports as the Company may from time to time distribute
generally to the holders of any class of
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<PAGE>
its capital stock and to furnish to the Representatives a copy of each annual
or other report it shall be required to file with the Commission.
(g) Without the prior written consent of Oppenheimer & Co., Inc., for a
period of 180 days after the date of this Agreement, the Company shall not
issue, offer, sell, contract to sell, distribute, grant any option for the
sale of, or register with the Commission, or otherwise encumber or dispose of,
directly or indirectly, any equity securities of the Company (or any
securities convertible into or exercisable or exchangeable for equity
securities of the Company), except for (i) the issuance of the Shares pursuant
to the Registration Statement, (ii) the issuance of shares issuable upon
exercise of currently outstanding options and warrants and (iii) the issuance
of options, and the issuance of shares pursuant to the exercise of those
options, under the Company's 1996 Stock Option Plan.
(h) On or before completion of this offering, the Company shall make all
filings required under applicable securities laws and by the Nasdaq National
Market (including any required registration under the Exchange Act).
(B) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses of the
Company incident to the public offering of the Shares and the performance of the
obligations of the Company under this Agreement including those relating to (i)
the preparation, printing, filing and distribution of the Registration Statement
including all exhibits thereto, each preliminary prospectus, the Prospectus, all
amendments and supplements to the Registration Statement and the Prospectus, and
the printing, filing and distribution of this Agreement; (ii) the preparation
and delivery of certificates for the Shares to the Underwriters; (iii) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the various jurisdictions referred to in Section
6(A)(e), including the fees and disbursements of counsel for the Underwriters in
connection with such registration and qualification and the preparation,
printing, distribution and shipment of preliminary and supplementary Blue Sky
memoranda; (iv) the furnishing (including costs of shipping and mailing) to the
Representatives and to the Underwriters of copies of each preliminary
prospectus, the Prospectus and all amendments or supplements to the Prospectus,
and of the several documents required by this Section to be so furnished, as may
be reasonably requested for use in connection with the offering and sale of the
Shares by the Underwriters or by dealers to whom Shares may be sold; (v) the
filing fees of the National Association of Securities Dealers, Inc. in
connection with its review of the terms of the public offering; (vi) the
furnishing (including costs of shipping and mailing) to the Representatives and
to the Underwriters of copies of all reports and information required by Section
6(A)(f); and (vii) inclusion of the Shares for quotation on the Nasdaq National
Market.
7. Indemnification.
----------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of
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<PAGE>
the Securities Act or Section 20 of the Exchange Act against any and all losses,
claims, damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment thereof or supplement thereto, or
arise out of or are based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that such indemnity shall not inure to
the benefit of any Underwriter (or any person controlling such Underwriter) on
account of any losses, claims, damages or liabilities arising from the sale of
the Shares to any person by such Underwriter if such untrue statement or
omission or alleged untrue statement or omission was made in such preliminary
prospectus, the Registration Statement or the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with information furnished in
writing to the Company by the Representatives on behalf of any Underwriter
specifically for use therein. This indemnity agreement will be in addition to
any liability which the Company may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, each director of the Company, and each officer of the
Company who signs the Registration Statement, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only insofar as
such losses, claims, damages or liabilities arise out of or are based upon any
untrue statement or omission or alleged untrue statement or omission which was
made in any preliminary prospectus, the Registration Statement or the
Prospectus, or any amendment thereof or supplement thereto, contained in the
last paragraph of the cover page, in the paragraph relating to stabilization on
the inside front cover page of the Prospectus and the statements with respect to
the public offering of the Shares under the caption "Underwriting" in the
Prospectus; provided, however, that the obligation of each Underwriter to
indemnify the Company (including any controlling person, director or officer
thereof) shall be limited to the net proceeds received by the Company from such
Underwriter.
(c) Any party that proposes to assert the right to be indemnified under
this Section will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section, notify each
such indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. No indemnification provided for in
Section 7(a) or 7(b) shall be available to any party who shall fail to give
notice as provided in this Section 7(c) if the party to
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<PAGE>
whom notice was not given was unaware of the proceeding to which such notice
would have related and was prejudiced by the failure to give such notice but
the omission so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from any liability that it may have to any
indemnified party for contribution or otherwise than under this Section. In
case any such action, suit or proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and the approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, except as provided below and except for the reasonable
costs of investigation subsequently incurred by such indemnified party in
connection with the defense thereof. The indemnified party shall have the
right to employ its counsel in any such action, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been authorized in writing
by the indemnifying parties, (ii) the indemnified party shall have reasonably
concluded that there may be a conflict of interest between the indemnifying
parties and the indemnified party in the conduct of the defense of such action
(in which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party) or (iii) the
indemnifying parties shall not have employed counsel to assume the defense of
such action within a reasonable time after notice of the commencement thereof,
in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying parties. An indemnifying party shall not be liable
for any settlement of any action, suit, proceeding or claim effected without
its written consent; provided, however, that such consent shall not be
unreasonably withheld.
8. Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnification provided for in
Section 7(a) or 7(b) is due in accordance with its terms but for any reason is
held to be unavailable from the Company, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted, but after deducting any contribution received by the
Company from persons other than the Underwriters, such as persons who control
the Company within the meaning of the Securities Act, officers of the Company
who signed the Registration Statement and directors of the Company, who may also
be liable for contribution) to which the Company and one or more of the
Underwriters may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company on the one
hand and the Underwriters on the
- 22 -
<PAGE>
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the offering (net of underwriting discounts but before deducting
expenses) received by the Company, as set forth in the table on the cover page
of the Prospectus, bear to (y) the underwriting discounts received by the
Underwriters, as set forth in the table on the cover page of the Prospectus. The
relative fault of the Company and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
or omission or alleged omission of a material fact related to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 8 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 8, (i) in no case shall any Underwriter (except as
may be provided in the Agreement Among Underwriters) be liable or responsible
for any amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder, and (ii) the Company shall be liable
and responsible for any amount in excess of such underwriting discount;
provided, however, that no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each person, if any, who controls the Company within
the meaning of the Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) in the
immediately preceding sentence of this Section 8. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section,
notify such party or parties from whom contribution may be sought, but the
failure so to notify such party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
Section. No party shall be liable for contribution with respect to any action,
suit, proceeding or claim settled without its written consent. The Underwriter's
obligations to contribute pursuant to this Section 8 are several in proportion
to their respective underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with respect to
-----------
the Shares to be purchased on a Closing Date by the Representatives by notifying
the Company at any time
(a) in the absolute discretion of the Representatives at or before any
Closing Date: (i) if on or prior to such date, any domestic or international
event or act or
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<PAGE>
occurrence has materially disrupted, or in the opinion of the Representatives
will in the future materially disrupt, the securities markets; (ii) if there
has occurred any new outbreak or material escalation of hostilities or other
calamity or crisis the effect of which on the financial markets of the United
States is such as to make it, in the judgment of the Representatives,
inadvisable to proceed with the offering; (iii) if there shall be such a
material adverse change in general financial, political or economic
conditions or the effect of international conditions on the financial markets
in the United States is such as to make it, in the judgment of the
Representatives, inadvisable or impracticable to market the Shares; (iv) if
trading in the Shares has been suspended by the Commission or trading
generally on the New York Stock Exchange, Inc. or on the American Stock
Exchange, Inc. has been suspended or limited, or minimum or maximum ranges
for prices for securities shall have been fixed, or maximum ranges for prices
for securities have been required, by said exchanges or by order of the
Commission, the National Association of Securities Dealers, Inc., or any
other governmental or regulatory authority; or (v) if a banking moratorium
has been declared by any state or federal authority, or
(b) at or before any Closing Date, that any of the conditions specified
in Section 5 shall not have been fulfilled when and as required by this
Agreement.
If this Agreement is terminated pursuant to any of its provisions, the
Company shall not be under any liability to any Underwriter, and no Underwriter
shall be under any liability to the Company, except that (y) if this Agreement
is terminated by the Representatives or the Underwriters because of any failure,
refusal or inability on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company will reimburse the
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of their counsel) incurred by them in connection with the proposed
purchase and sale of the Shares or in contemplation of performing their
obligations hereunder and (z) no Underwriter who shall have failed or refused to
purchase the Shares agreed to be purchased by it under this Agreement, without
some reason sufficient hereunder to justify cancellation or termination of its
obligations under this Agreement, shall be relieved of liability to the Company
or to the other Underwriters for damages occasioned by its failure or refusal.
10. Substitution of Underwriters. If one or more of the
----------------------------
Underwriters shall fail (other than for a reason sufficient to justify the
cancellation or termination of this Agreement under Section 9) to purchase on
any Closing Date the Shares agreed to be purchased on such Closing Date by such
Underwriter or Underwriters, the Representatives may find one or more substitute
underwriters to purchase such Shares or make such other arrangements as the
Representatives may deem advisable or one or more of the remaining Underwriters
may agree to purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date,
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that all
the Underwriters are
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<PAGE>
obligated to purchase on such Closing Date, then each of the nondefaulting
Underwriters shall be obligated to purchase such Shares on the terms herein
set forth in proportion to their respective obligations hereunder; provided,
that in no event shall the maximum number of Shares that any Underwriter has
agreed to purchase pursuant to Section 1 be increased pursuant to this
Section 10 by more than one-ninth of such number of Shares without the
written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, then the Company
shall be entitled to an additional business day within which it may, but is
not obligated to, find one or more substitute underwriters reasonably
satisfactory to the Representatives to purchase such Shares upon the terms
set forth in this Agreement.
In any such case, either the Representatives or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
five business days in order that necessary changes and arrangements (including
any necessary amendments or supplements to the Registration Statement or
Prospectus) may be effected by the Representatives and the Company. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company and without liability
on the part of the Company, except in both cases as provided in Sections 6(B),
7, 8 and 9. The provisions of this Section shall not in any way affect the
liability of any defaulting Underwriter to the Company or the nondefaulting
Underwriters arising out of such default. A substitute underwriter hereunder
shall become an Underwriter for all purposes of this Agreement.
11. Miscellaneous. The respective agreements, representations,
-------------
warranties, indemnities and other statements of the Company or its officers and
of the Underwriters set forth in or made pursuant to this Agreement shall remain
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Sections 7 and 8 hereof, and shall survive
delivery of and payment for the Shares. The provisions of Sections 6(B), 7, 8
and 9 shall survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters and the Company and their respective successors and assigns, and,
to the extent expressed herein, for the benefit of persons controlling any of
the Underwriters, or the Company, and directors and officers of the Company, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter merely
because of such purchase.
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<PAGE>
All notices and communications hereunder shall be in writing and
mailed or delivered or by telephone or telegraph if subsequently confirmed in
writing, (a) if to the Representatives, c/o Oppenheimer & Co., Inc., Oppenheimer
Tower, World Financial Center, New York, New York 10281 Attention: Richard D.
White, (b) if to the Company, to its agent for service as such agent's address
appears on the cover page of the Registration Statement.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
WILSONS THE LEATHER EXPERTS INC.
By
Title:
Confirmed:
OPPENHEIMER & CO., INC.
LADENBURG THALMANN & CO. INC.
PIPER JAFFRAY INC.
Acting severally on behalf of itself
and as representative of the several
Underwriters named in Schedule I annexed
hereto.
By Oppenheimer & Co., Inc.
By
Title: Managing Director
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<PAGE>
SCHEDULE I
Number of
Firm Shares to
Name Be Purchased
-----------------
Oppenheimer & Co., Inc.
Ladenburg Thalmann & Co. Inc.
Piper Jaffray Inc.
----------
TOTAL 3,000,000
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<PAGE>
SCHEDULE II
Number of
Warrant Shares
Underlying Warrants
Name To Be Purchased
--------------------
Oppenheimer & Co., Inc.
Ladenburg Thalmann & Co. Inc.
Piper Jaffray Inc.
----------
TOTAL 300,000
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<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
WILSONS THE LEATHER EXPERTS INC.
ARTICLE 1 - NAME
----------------
The name of this corporation shall be Wilsons The Leather Experts Inc.
ARTICLE 2 - REGISTERED OFFICE
-----------------------------
The registered office of this corporation shall be 7401 Boone Avenue
North, Brooklyn Park, Minnesota 55428.
ARTICLE 3 - AUTHORIZED SHARES
-----------------------------
Section 1. Authorized Capital Stock.
------------------------
(a) Total Number of Shares.
----------------------
The aggregate number of shares of stock which the corporation is
authorized to issue is 110,000,000 shares, consisting of 100,000,000 shares of
common stock, par value $.01 (the "Common Stock"), and 10,000,000 shares of
preferred stock, par value $.01 (the "Preferred Stock"). The shares of
Preferred Stock and Common Stock are sometimes collectively referred to herein
as the "capital stock".
(b) Series of Preferred Stock.
-------------------------
Of the total number of shares of Preferred Stock authorized in paragraph
(a) above, 15,000 shares are hereby designated Series A Preferred Stock ("Series
A Preferred"). The remaining shares of Preferred Stock may be issued by the
Board of Directors of the corporation from time to time in one or more series,
each of such series to have such relative rights, voting power, preferences and
restrictions as adopted by the Board of Directors of the corporation.
Section 2. Description of Capital Stock.
----------------------------
The rights, voting power, preferences and restrictions granted to or
imposed upon respective classes or series of shares designated in these Articles
of Incorporation or the holders thereof are as follows:
(a) Voting Power.
------------
(i) General. Each holder of Common Stock shall have one vote
-------
on all matters submitted to the shareholders for each share of Common
Stock registered in the name of such holder on the books of the
corporation. Except as otherwise provided herein or by law, the Series A
Preferred shall have no voting rights.
<PAGE>
(ii) Election of Directors. The Board of Directors of the
---------------------
corporation shall consist of not less than five or more than nine members
and the directors of the corporation shall be elected by the affirmative
vote of the holders of the greater of (a) a majority of the voting power of
the shares of capital stock of the corporation present and entitled to vote
on the election of directors or (b) a majority of the voting power of the
minimum number of shares of capital stock of the corporation entitled to
vote that would constitute a quorum for the transaction of business at a
duly held meeting of shareholders.
(iii) Additional Class Votes by Series A Preferred. Without the
--------------------------------------------
affirmative vote of the holders of at least a majority of the shares of
Series A Preferred at the time outstanding, the corporation shall not:
(A) issue more than 7,405 shares of Series A Preferred or
authorize or issue any shares of stock ranking on a parity with or
superior to the Series A Preferred as to the payment of dividends or
as to the payment or distribution of assets upon the liquidation or
dissolution, voluntary or involuntary, of the corporation; or
(B) declare or pay any dividend or make any other distribution
on any shares of capital stock, including Common Stock, of the
corporation at any time created and issued ranking junior to Series A
Preferred with respect to the right to the payment of dividends or as
to the distribution of assets upon liquidation, dissolution or winding
up of the corporation ("Junior Stock"), other than dividends or
distributions payable solely in shares of Junior Stock, or purchase,
redeem or otherwise acquire for any consideration (other than
purchases of shares of Common Stock required or permitted to be
repurchased by the terms of that certain Shareholder Agreement dated
as of May 25, 1996 among the corporation and shareholders and limited
and general partners of shareholders of the corporation on that date
and retained at the principal executive office of the corporation (the
"Shareholder Agreement")), or set aside a sinking fund or other fund
for the redemption or repurchase of any shares of Junior Stock or any
warrants, rights or options to purchase shares of Junior Stock;
provided, however, that the corporation may purchase the Common Stock
issued pursuant to that certain Restricted Stock Agreement dated as of
May 25, 1996 among the corporation and certain shareholders of the
corporation and retained at the principal executive office of the
corporation (the "Restricted Stock Agreement"), to the extent such
purchases are required by the terms of the Restricted Stock Agreement;
or
(C) amend the Articles of Incorporation of the corporation so
as to materially alter any existing provision relating to the terms of
the Series A Preferred or waive any of the rights granted to the
holders of the Series A Preferred by the Articles of Incorporation of
the corporation or otherwise alter the rights or preferences of the
Series A Preferred .
-2-
<PAGE>
(iv) No Cumulative Voting. No holder of shares of capital stock of
--------------------
the corporation shall have any cumulative voting rights.
(b) Preemptive Rights.
-----------------
No holder of shares of any class of capital stock of the corporation
shall be entitled as such, as a matter of right, to subscribe for, purchase or
receive any part of any new or additional issue of shares of stock of any class
or series whatsoever, or of securities convertible into or exchangeable for or
exercisable for or carrying a right to purchase any shares of stock of any class
or series whatsoever, whether now or hereafter authorized and whether issued for
cash or other consideration or by way of dividend or other distribution.
(c) Dividends on Series A Preferred.
-------------------------------
(i) Prior to Note Repayment. Prior to the repayment in full of the
-----------------------
note (the "Note") issued by the corporation to Melville Corporation
("Melville"), pursuant to the Sale Agreement dated May 24, 1996 among the
corporation, Melville and Wilsons Center, Inc. retained at the principal
executive office of the Corporation (the "Note Repayment Date"), the
holders of shares of Series A Preferred shall not be entitled to receive
any dividends on the Series A Preferred.
(ii) After Note Repayment. On or after the Note Repayment Date, the
--------------------
Series A Preferred shall be entitled to receive, when and as declared by
the Board of Directors of the corporation, cash dividends at the annual
rate of $80 per share (appropriately adjusted to reflect stock splits,
divisions or combinations or stock dividends, reorganizations,
consolidations and similar changes hereafter effected) from the date of
issuance of such shares of Series A Preferred, whether or not earned or
declared, which dividends shall accrue from the date of issuance of such
shares of Series A Preferred and, to the extent accrued and unpaid as of
May 31 of any year, shall be payable before any dividends on any shares of
Common Stock shall be declared or paid or set apart for payment during the
twelve months following such May 31, and shall be cumulative (whether or
not there shall be funds of the corporation legally available for the
payment of such dividends), so that if any dividends accrued on the
outstanding Series A Preferred at such rate through May 31 of any year have
not been paid thereon, or funds set apart for the payment thereof, the
amount of such unpaid, accrued dividends on the Series A Preferred through
such May 31 shall be fully paid, or set apart for payment, before any
distribution by way of dividend or otherwise (except purchases of shares of
Common Stock required or permitted to be repurchased by the terms of the
Shareholder Agreement or required to be repurchased by the terms of the
Restricted Stock Agreement) shall be declared or paid upon, or set apart
during the twelve months following such May 31 for, the shares of Common
Stock or any other class of shares of Junior Stock. The amount of dividends
accruing on the Series A Preferred shall be computed on the basis of a year
of 360 days of twelve 30-day months but not more than 360 days in any year.
-3-
<PAGE>
(d) Other Terms of the Series A Preferred.
-------------------------------------
(i) Liquidation Preference. In the event of an involuntary or
----------------------
voluntary liquidation or dissolution of the corporation at any time, the
holders of shares of Series A Preferred shall be entitled to receive out of
the assets of the corporation an amount equal to $1,000 per share
(appropriately adjusted to reflect stock splits, divisions or combinations
or stock dividends, reorganizations, consolidations and similar changes
hereafter effected), plus all per-share dividends unpaid and accumulated or
accrued thereon (whether or not earned or declared) to the date of such
distribution. In the event of either an involuntary or a voluntary
liquidation or dissolution of the corporation, payment shall be made to the
holders of Series A Preferred in the amounts herein fixed before any
payment shall be made or any assets distributed to the holders of the
Common Stock or any other Junior Stock. If upon any liquidation or
dissolution of the corporation, the assets available for distribution shall
be insufficient to pay the holders of all outstanding shares of Series A
Preferred the full amounts to which they respectively shall be entitled,
the holders of such shares shall share pro rata in any such distribution.
For purposes of this paragraph (d), none of a statutory merger of
the corporation into or with another corporation or of another corporation
into or with the corporation, a statutory share exchange involving the
corporation or a sale, transfer or other disposition of all or any part of
the assets of the corporation (except a transfer or other disposition of
substantially all of the assets of the corporation to its shareholders in
their capacities as shareholders) shall constitute a liquidation or
dissolution of the corporation.
(ii) Redemption.
----------
(A) Optional Redemption. The Series A Preferred shall not be
-------------------
redeemable by the corporation prior to the Note Repayment Date without
the consent of holders of a majority in principal amount of the Note.
On and after the Note Repayment Date, the corporation shall, to the
extent that funds are legally available therefor, have the option to
redeem without penalty or premium all or any portion of the Series A
Preferred for $1,000 per share (appropriately adjusted to reflect
stock splits, divisions or combinations, reorganizations,
consolidations and similar changes hereafter effected), plus an amount
equal to all dividends unpaid and accumulated or accrued thereon
(whether or not earned or declared) (the "Redemption Price") to the
date on which such redemption is made (the "Redemption Date").
(B) Mandatory Redemption. If at any time (x) all or
--------------------
substantially all of the corporation's assets are sold, transferred or
otherwise disposed of, or (y) an Event of Default (as hereinafter
defined) shall occur and be continuing, the corporation shall, on the
date of the closing of such sale, transfer, other disposition or Event
of Default, to the extent that funds are legally available therefor,
redeem all of the Series A Preferred for the Redemption Price after
payment in full of the Note. In the event the corporation does not
have sufficient funds legally available to redeem 100% of the shares
of outstanding Series A Preferred, the corporation
-4-
<PAGE>
shall redeem such shares ratably among all holders of shares of the
Series A Preferred in accordance with their holdings of such shares.
Each of the following events shall be an event of default (an "Event
of Default"):
(1) if the corporation becomes insolvent or bankrupt, or
admits in writing its inability to pay its debts as they mature,
or makes an assignment for the benefit of creditors, or ceases
doing business as a going concern, or the corporation applies for
or consents to the appointment of a trustee or receiver for the
corporation, or for the major part of the property of the
corporation; or
(2) if a trustee or receiver is appointed for the corporation
or for the major part of the property of the corporation and the
order of such appointment is not discharged, vacated or stayed
within 60 days after such appointment; or
(3) if an order for relief shall be entered in any Federal
bankruptcy proceeding in which the corporation is the debtor; or
if bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings, or other proceedings for relief under
any bankruptcy or similar law or laws for the relief of debtors,
are instituted by or against the corporation and, if instituted
against the corporation, are consented to or, if contested by the
corporation, are not dismissed by the adverse parties or by an
order, decree or judgment within 60 days after such institution;
or
(4) if a default shall be made in the due and punctual
performance or observance of any covenant set forth in Section
2(a)(iii) above or Section 2(d)(iii) below, and such default
shall have continued for a period of 30 days after written notice
thereof to the corporation by the holder of any Series A
Preferred.
(C) Notice. The corporation shall give notice by mail of
------
redemptions to the holders of record of the shares of Series A
Preferred at least 10 days prior to the date of redemption. The
notice (1) shall specify the date of redemption and the number of
shares to be redeemed from each shareholder and (2) shall be addressed
to each shareholder at the shareholder's post-office address as shown
on the records of the corporation. On or after the date fixed for
redemption, each holder of shares of Series A Preferred called for
redemption shall surrender the certificate or certificates evidencing
such shares to the corporation at the place designated in such notice
and shall thereupon be entitled to receive payment. If less than all
of the shares represented by any such surrendered certificate or
certificates are redeemed, the corporation shall issue a new
certificate for the unredeemed shares.
-5-
<PAGE>
(iii) Covenants. The corporation shall:
---------
(A) deliver to each holder of ten percent or more of the
outstanding Series A Preferred as soon as practicable, but in any
event within 90 days after the end of each fiscal year, an audited
consolidated balance sheet of the corporation and its subsidiaries, as
of the end of such fiscal year, together with the related consolidated
statements of operations, shareholders' equity and cash flow for such
fiscal year;
(B) deliver to each holder of ten percent or more of the
outstanding Series A Preferred as soon as practicable, but in any
event within 45 days after the end of each fiscal quarter, an
unaudited consolidated balance sheet of the corporation and its
subsidiaries, as of the end of such fiscal quarter, together with the
related consolidated statements of operations, shareholders' equity
and cash flow for such fiscal quarter;
(C) not reissue any shares of Series A Preferred which shall
have been redeemed or reacquired by the corporation in any manner
after the original issuance thereof, and all such shares so redeemed
or reacquired shall become undesignated Preferred Stock.
ARTICLE 4 - VOTE OF DIRECTORS OR COMMITTEE
------------------------------------------
No action by the corporation shall be taken with respect to any of the
following matters without the approval of a majority of the directors of the
corporation (or of a majority of the members of a committee designated to
consider such matters by a majority of the directors of the corporation):
(a) the determination of compensation, benefits, perquisites and other
incentives for executive officers of the corporation or any of its subsidiaries
and the approval or amendment of any employee benefits plans or contracts or
employment contracts in connection therewith;
(b) the issuance or allotment of additional unissued shares of capital
stock or other securities (including but not limited to warrants, options and
other rights to purchase capital stock or other securities), of the corporation;
(c) any alteration or amendment to the terms of any material
contracts or arrangements for borrowed money; or
(d) any dividends or other distributions on any capital stock of the
corporation.
ARTICLE 5 - LIMITATION OF DIRECTOR LIABILITY
--------------------------------------------
To the fullest extent permitted by Chapter 302A, Minnesota Statutes, as
the same exists or may hereafter be amended, a director of this corporation
shall not be personally liable to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director.
-6-
<PAGE>
No amendment or repeal of this Article shall apply to or have any effect on the
liability or alleged liability of any director of this corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
-7-
<PAGE>
Exhibit 3.4
RESTATED BY-LAWS
OF
WILSONS THE LEATHER EXPERTS INC.
TABLE OF CONTENTS
Section Page
- ------- ----
SHAREHOLDERS 1
- ------------
1.01 Place of Meetings 1
1.02 Regular Meetings 1
1.03 Special Meetings 1
1.04 Meetings Held Upon Shareholder Demand 1
1.05 Adjournments 2
1.06 Notice of Meetings 2
1.07 Waiver of Notice 2
1.08 Voting Rights 2
1.09 Proxies 2
1.10 Quorum 3
1.11 Acts of Shareholders 3
1.12 Action Without a Meeting 3
1.13 Advance Notice Requirements 3
DIRECTORS 5
- ---------
2.01 Qualifications 5
2.02 Term 5
2.03 Intentionally Omitted 5
2.04 Place of Meetings 5
2.05 Regular Meetings 5
2.06 Special Meetings 5
2.07 Waiver of Notice; Previously Scheduled Meetings 5
2.08 Quorum 6
2.09 Acts of Board 6
2.10 Participation by Electronic Communications 6
2.11 Absent Directors 6
2.12 Action Without a Meeting 6
2.13 Committees 6
2.14 Special Litigation Committee 7
2.15 Compensation 7
-i-
<PAGE>
Section Page
- ------- ----
OFFICERS 7
- --------
3.01 Number and Designation 7
3.02 Chief Executive Officer 7
3.03 Chief Financial Officer 8
3.04 President 8
3.05 Vice Presidents 8
3.06 Secretary 8
3.07 Treasurer 8
3.08 Authority and Duties 8
3.09 Term 9
3.10 Salaries 9
INDEMNIFICATION 9
- ---------------
4.01 Indemnification 9
4.02 Insurance 9
SHARES 9
- ------
5.01 Certificated and Uncertificated Shares 9
5.02 Declaration of Dividends and Other Distributions 10
5.03 Transfer of Shares 10
5.04 Record Date 10
MISCELLANEOUS 10
- -------------
6.01 Execution of Instruments 10
6.02 Advances 11
6.03 Corporate Seal 11
6.04 Fiscal Year 11
6.05 Amendments 11
6.06 Inapplicability of Control Share Acquisition Statute 11
6.07 Limited Applicability of Business Combination Statute 11
This Table of Contents is not part of the By-Laws of the Corporation.
It is intended merely to aid in the utilization of the By-Laws.
-ii-
<PAGE>
Exhibit 3.4
RESTATED BY-LAWS
OF
WILSONS THE LEATHER EXPERTS INC.
SHAREHOLDERS
------------
Section 1.01 Place of Meetings. Each meeting of the shareholders
------------ -----------------
shall be held at the principal executive office of the Corporation or at such
other place as may be designated by the Board of Directors or the Chief
Executive Officer; provided, however, that any meeting called by or at the
demand of a shareholder or shareholders shall be held in the county where the
principal executive office of the Corporation is located.
Section 1.02 Regular Meetings. Regular meetings of the shareholders
------------ ----------------
may be held on an annual or other less frequent basis as determined by the Board
of Directors; provided, however, that if a regular meeting has not been held
during the immediately preceding 15 months, a shareholder or shareholders
holding three percent or more of the voting power of all shares entitled to vote
may demand a regular meeting of shareholders by written demand given to the
Chief Executive Officer or Chief Financial Officer of the Corporation. At each
regular meeting the shareholders shall elect qualified successors for directors
who serve for an indefinite term or whose terms have expired or are due to
expire within six months after the date of the meeting and may transact any
other business, provided, however, that no business with respect to which
special notice is required by law shall be transacted unless such notice shall
have been given.
Section 1.03 Special Meetings. A special meeting of the shareholders
------------ ----------------
may be called for any purpose or purposes at any time by the Chief Executive
Officer; by the Chief Financial Officer; by the Board of Directors or any two or
more members thereof; or by one or more shareholders holding not less than ten
percent of the voting power of all shares of the Corporation entitled to vote
(except that a special meeting for the purpose of considering any action to
directly or indirectly facilitate or effect a business combination, including
any action to change or otherwise affect the composition of the Board for that
purpose, must be called by shareholders holding not less than 25 percent of the
voting power of all shares of the Corporation entitled to vote), who shall
demand such special meeting by written notice given to the Chief Executive
Officer or the Chief Financial Officer of the Corporation specifying the
purposes of such meeting.
Section 1.04 Meetings Held Upon Shareholder Demand. Within 30 days
------------ -------------------------------------
after receipt of a demand by the Chief Executive Officer or the Chief Financial
Officer from any shareholder or shareholders entitled to call a meeting of the
shareholders, it shall be the duty of the Board of Directors of the Corporation
to cause a special or regular meeting of shareholders, as the
<PAGE>
case may be, to be duly called and held on notice no later than 90 days after
receipt of such demand. If the Board fails to cause such a meeting to be called
and held as required by this Section, the shareholder or shareholders making the
demand may call the meeting by giving notice as provided in Section 1.06 hereof
at the expense of the Corporation.
Section 1.05 Adjournments. Any meeting of the shareholders may be
------------ ------------
adjourned from time to time to another date, time and place. If any meeting of
the shareholders is so adjourned, no notice as to such adjourned meeting need be
given if the date, time and place at which the meeting will be reconvened are
announced at the time of adjournment and the adjourned meeting is held within
120 days after the date fixed for the original meeting.
Section 1.06 Notice of Meetings. Unless otherwise required by law,
------------ ------------------
written notice of each meeting of the shareholders, stating the date, time and
place and, in the case of a special meeting, the purpose or purposes, shall be
given at least ten days and not more than 60 days prior to the meeting to every
holder of shares entitled to vote at such meeting except as specified in Section
1.05 or as otherwise permitted by law. The business transacted at a special
meeting of shareholders is limited to the purposes stated in the notice of the
meeting.
Section 1.07 Waiver of Notice. A shareholder may waive notice of the
------------ ----------------
date, time, place and purpose or purposes of a meeting of shareholders. A
waiver of notice by a shareholder entitled to notice is effective whether given
before, at or after the meeting, and whether given in writing, orally or by
attendance. Attendance by a shareholder at a meeting is a waiver of notice of
that meeting, unless the shareholder objects at the beginning of the meeting to
the transaction of business because the meeting is not lawfully called or
convened, or objects before a vote on an item of business because the item may
not lawfully be considered at that meeting and does not participate in the
consideration of the item at that meeting.
Section 1.08 Voting Rights. Subdivision 1. A shareholder shall have
------------ -------------
one vote for each share held which is entitled to vote. Except as otherwise
required by law, a holder of shares entitled to vote may vote any portion of the
shares in any way the shareholder chooses. If a shareholder votes without
designating the proportion or number of shares voted in a particular way, the
shareholder is deemed to have voted all of the shares in that way.
Subdivision 2. The Board of Directors may fix a date not more than 60
days before the date of a meeting of shareholders as the date for the
determination of the holders of shares entitled to notice of and entitled to
vote at the meeting. When a date is so fixed, only shareholders on that date
are entitled to notice of and permitted to vote at that meeting of shareholders.
Section 1.09 Proxies. A shareholder may cast or authorize the
------------ -------
casting of a vote by filing a written appointment of a proxy with an officer of
the Corporation at or before the meeting at which the appointment is to be
effective. The shareholder may sign or authorize the written appointment by
telegram, cablegram or other means of electronic transmission, provided that the
Corporation has no reason to believe that the telegram, cablegram or other
electronic transmission
-2-
<PAGE>
was not authorized by the shareholder. Any copy, facsimile, telecommunication or
other reproduction of the original of either the writing or transmission may be
used in lieu of the original, provided that it is a complete and legible
reproduction of the entire original.
Section 1.10 Quorum. The holders of a majority of the voting power
------------ ------
of the shares entitled to vote at a shareholders meeting are a quorum for the
transaction of business. If a quorum is present when a duly called or held
meeting is convened, the shareholders present may continue to transact business
until adjournment, even though the withdrawal of a number of the shareholders
originally present leaves less than the proportion or number otherwise required
for a quorum.
Section 1.11 Acts of Shareholders. Subdivision 1. Except as
------------ --------------------
otherwise required by law or specified in the Articles of Incorporation of the
Corporation, the shareholders shall take action by the affirmative vote of the
holders of the greater of (a) a majority of the voting power of the shares
present and entitled to vote on that item of business or (b) a majority of the
voting power of the minimum number of shares entitled to vote that would
constitute a quorum for the transaction of business at a duly held meeting of
shareholders.
Subdivision 2. A shareholder voting by proxy authorized to vote on
less than all items of business considered at the meeting shall be considered to
be present and entitled to vote only with respect to those items of business for
which the proxy has authority to vote. A proxy who is given authority by a
shareholder who abstains with respect to an item of business shall be considered
to have authority to vote on that item of business.
Section 1.12 Action Without a Meeting. Any action required or
------------ ------------------------
permitted to be taken at a meeting of the shareholders of the Corporation may be
taken without a meeting by written action signed by all of the shareholders
entitled to vote on that action. The written action is effective when it has
been signed by all of those shareholders, unless a different effective time is
provided in the written action.
Section 1.13 Advance Notice Requirements. Only persons who are
------------ ---------------------------
nominated in accordance with the procedures set forth in this Section 1.13 shall
be eligible for election as directors. Nominations of persons for election to
the Board of Directors of the Corporation may be made at a meeting of
shareholders (a) by or at the direction of the Board of Directors or (b) by any
shareholder of the Corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Section
1.13. Nominations by shareholders shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 50 days prior to the meeting; provided,
however, that in the event that less than 60 days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed
-3-
<PAGE>
or such public disclosure was made. Such shareholder's notice shall set forth
(x) as to each person whom the shareholder proposes to nominate for election or
re-election as a director, (i) such person's name, and (ii) all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, if the
Corporation is then subject to Regulation 14A (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 (y) as to the shareholder giving the notice, (i) the
name and address, as they appear on the Corporation's books, of such shareholder
and (ii) the class and number of shares of the Corporation which are
beneficially owned by such shareholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a shareholder's notice of nomination which pertains
to a nominee. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 1.13. The Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed in this Section 1.13 and, if the Chairman should so
determine, the Chairman shall so declare to the meeting and the defective
nomination shall be disregarded.
At any regular or special meeting of shareholders, only such business
shall be conducted as shall have been brought before the meeting (a) by or at
the direction of the Board of Directors or (b) by any shareholder of the
Corporation who complies with the notice procedures set forth in this Section
1.13. For business to be properly brought before any regular or special meeting
by a shareholder, the shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 50 days prior to the meeting, provided,
however, that in the event that less than 60 days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be received not later than the close of
business on the 10th day following the day on which such notice of the date of
the regular or special meeting was mailed or such public disclosure was made. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the regular or special meeting (w) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (x) the name and address,
as they appear on the Corporation's books, of the shareholder proposing such
business, (y) the class and number of shares of the Corporation which are
beneficially owned by the shareholder and (z) any material interest of the
shareholder in such business. Notwithstanding anything in these By-Laws to the
contrary, no business shall be conducted at any regular or special meeting
except in accordance with the procedures set forth in this Section 1.13. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 1.13 and, if the Chairman should
so determine,
-4-
<PAGE>
the Chairman shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
DIRECTORS
---------
Section 2.01 Qualifications. Except as authorized by the shareholders
------------ --------------
pursuant to a shareholder control agreement or unanimous affirmative vote, the
business and affairs of the Corporation shall be managed by or under the
direction of a Board. Directors shall be natural persons. Subject to the
Articles of Incorporation of the Corporation, the shareholders at each regular
meeting shall determine the number of directors to constitute the Board,
provided that subject to the Articles of Incorporation of the Corporation,
thereafter the authorized number of directors may be increased by the
shareholders or the Board and decreased by the shareholders. Directors need not
be shareholders.
Section 2.02 Term. Each director shall serve for an indefinite term
------------ ----
that expires at the next regular meeting of the shareholders. A director shall
hold office until a successor is elected and has qualified or until the earlier
death, resignation, removal or disqualification of the director.
Section 2.03 Intentionally Omitted.
------------
Section 2.04 Place of Meetings. Each meeting of the Board of Directors
------------ -----------------
shall be held at the principal executive office of the Corporation or at such
other place as may be designated from time to time by a majority of the members
of the Board or by the Chief Executive Officer. A meeting may be held by
conference among the directors using any means of communication through which
the directors may simultaneously hear each other during the conference.
Section 2.05 Regular Meetings. Regular meetings of the Board of
------------ ----------------
Directors for the election of officers and the transaction of any other business
shall be held without notice at the place of and immediately after each regular
meeting of the shareholders.
Section 2.06 Special Meetings. A special meeting of the Board of
------------ ----------------
Directors may be called for any purpose or purposes at any time by any member of
the Board by giving not less than two days' notice to all directors of the date,
time and place of the meeting, provided that when notice is mailed, at least
four days' notice shall be given. The notice need not state the purpose of the
meeting.
Section 2.07 Waiver of Notice; Previously Scheduled Meetings.
------------ -------------------------------------- --------
Subdivision 1. A director of the Corporation may waive notice of the date, time
and place of a meeting of the Board. A waiver of notice by a director entitled
to notice is effective whether given before, at or after the meeting, and
whether given in writing, orally or by attendance. Attendance by a director at
a meeting is a waiver of notice of that meeting, unless the director objects at
the beginning of the meeting to the transaction of business because the
-5-
<PAGE>
meeting is not lawfully called or convened and thereafter does not participate
in the meeting.
Subdivision 2. If the day or date, time and place of a Board meeting
have been provided herein or announced at a previous meeting of the Board, no
notice is required. Notice of an adjourned meeting need not be given other than
by announcement at the meeting at which adjournment is taken of the date, time
and place at which the meeting will be reconvened.
Section 2.08 Quorum. The presence in person of a majority of the
------------ ------
directors currently holding office shall be necessary to constitute a quorum for
the transaction of business. In the absence of a quorum, a majority of the
directors present may adjourn a meeting from time to time without further notice
until a quorum is present. If a quorum is present when a duly called or held
meeting is convened, the directors present may continue to transact business
until adjournment, even though the withdrawal of a number of the directors
originally present leaves less than the proportion or number otherwise required
for a quorum.
Section 2.09 Acts of Board. Except as otherwise required by law or
------------ -------------
specified in the Articles of Incorporation of the Corporation, the Board shall
take action by the affirmative vote of the greater of (a) a majority of the
directors present at a duly held meeting at the time the action is taken or (b)
a majority of the minimum proportion or number of directors that would
constitute a quorum for the transaction of business at the meeting.
Section 2.10 Participation by Electronic Communications. A director
------------ ------------------------------------------
may participate in a Board meeting by any means of communication through which
the director, other directors so participating and all directors physically
present at the meeting may simultaneously hear each other during the meeting. A
director so participating shall be deemed present in person at the meeting.
Section 2.11 Absent Directors. A director of the Corporation may give
------------ ----------------
advance written consent or opposition to a proposal to be acted on at a Board
meeting. If the director is not present at the meeting, consent or opposition
to a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as the vote of
a director present at the meeting in favor of or against the proposal and shall
be entered in the minutes or other record of action at the meeting, if the
proposal acted on at the meeting is substantially the same or has substantially
the same effect as the proposal to which the director has consented or objected.
Section 2.12 Action Without a Meeting. An action required or permitted
------------ ------------------------
to be taken at a Board meeting may be taken without a meeting by written action
signed by all of the directors.
Section 2.13 Committees. Subdivision 1. A resolution approved by the
------------ ----------
affirmative vote of a majority of the Board may establish committees having the
authority of the
-6-
<PAGE>
Board in the management of the business of the Corporation only to the extent
provided in the resolution. Committees shall be subject at all times to the
direction and control of the Board, except as provided in Section 2.14 or
otherwise provided by law.
Subdivision 2. A committee shall consist of one or more natural persons,
who need not be directors, appointed by affirmative vote of a majority of the
directors present at a duly held Board meeting.
Subdivision 3. Section 2.04 and Sections 2.06 to 2.12 hereof shall apply
to committees and members of committees to the same extent as those sections
apply to the Board and directors.
Subdivision 4. Minutes, if any, of committee meetings shall be made
available upon request to members of the committee and to any director.
Section 2.14 Special Litigation Committee. Pursuant to the procedure
------------ ----------------------------
set forth in Section 2.13, the Board may establish a committee composed of one
or more independent directors or other independent persons to determine whether
it is in the best interests of the Corporation to consider legal rights or
remedies of the Corporation and whether those rights and remedies should be
pursued. The committee, once established, is not subject to the direction or
control of, or (unless required by law) termination by, the Board. To the
extent permitted by law, a vacancy on the committee may be filled by a majority
vote of the remaining committee members. The good faith determinations of the
committee are binding upon the Corporation and its directors, officers and
shareholders to the extent permitted by law. The committee terminates when it
issues a written report of its determinations to the Board.
Section 2.15 Compensation. The Board may fix the compensation, if any,
------------ ------------
of directors.
OFFICERS
--------
Section 3.01 Number and Designation. The Corporation shall have one or
------------ ----------------------
more natural persons exercising the functions of the offices of Chief Executive
Officer and Chief Financial Officer. The Board of Directors may elect or
appoint such other officers or agents as it deems necessary for the operation
and management of the Corporation, with such powers, rights, duties and
responsibilities as may be determined by the Board, including, without
limitation, a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall have the powers, rights, duties and
responsibilities set forth in these By-Laws unless otherwise determined by the
Board. Any of the offices or functions of those offices may be held by the same
person.
Section 3.02 Chief Executive Officer. Unless provided otherwise by a
------------ -----------------------
resolution adopted by the Board of Directors, the Chief Executive Officer
(a) shall have general active management of the business of the Corporation;
(b) shall, when present, preside at all meetings of
-7-
<PAGE>
the shareholders and Board; (c) shall see that all orders and resolutions of the
Board are carried into effect; (d) may maintain records of and certify
proceedings of the Board and shareholders; and (e) shall perform such other
duties as may from time to time be assigned by the Board.
Section 3.03 Chief Financial Officer. Unless provided otherwise by a
------------ -----------------------
resolution adopted by the Board of Directors, the Chief Financial Officer (a)
shall keep accurate financial records for the Corporation; (b) shall deposit all
monies, drafts and checks in the name of and to the credit of the Corporation in
such banks and depositories as the Board shall designate from time to time; (c)
shall endorse for deposit all notes, checks and drafts received by the
Corporation as ordered by the Board, making proper vouchers therefor; (d) shall
disburse corporate funds and issue checks and drafts in the name of the
Corporation, as ordered by the Board; (e) shall render to the Chief Executive
Officer and the Board, whenever requested, an account of all of such officer's
transactions as Chief Financial Officer and of the financial condition of the
Corporation; and (f) shall perform such other duties as may be prescribed by the
Board or the Chief Executive Officer from time to time.
Section 3.04 President. Unless otherwise determined by the Board of
------------ ---------
Directors, the President shall be the Chief Executive Officer of the
Corporation. If an officer other than the President is designated Chief
Executive Officer, the President shall perform such duties as may from time to
time be assigned by the Board.
Section 3.05 Vice Presidents. Any one or more Vice Presidents, if any,
------------ ---------------
may be designated by the Board of Directors as Executive Vice Presidents or
Senior Vice Presidents. During the absence or disability of the President, it
shall be the duty of the highest ranking Executive Vice President, and, in the
absence of any such Vice President, it shall be the duty of the highest ranking
Senior Vice President or other Vice President, who shall be present at the time
and able to act, to perform the duties of the President. The determination of
who is the highest ranking of two or more persons holding the same office shall,
in the absence of specific designation of order of rank by the Board, be made on
the basis of the earliest date of appointment or election, or, in the event of
simultaneous appointment or election, on the basis of the longest continuous
employment by the Corporation.
Section 3.06 Secretary. The Secretary, unless otherwise determined by
------------ ---------
the Board of Directors, shall attend all meetings of the shareholders and all
meetings of the Board, shall record or cause to be recorded all proceedings
thereof in a book to be kept for that purpose, and may certify such proceedings.
Except as otherwise required or permitted by law or by these By-Laws, the
Secretary shall give or cause to be given notice of all meetings of the
shareholders and all meetings of the Board.
Section 3.07 Treasurer. The Treasurer shall perform such duties as may
------------ ---------
from time to time be assigned by the Board.
-8-
<PAGE>
Section 3.08 Authority and Duties. In addition to the foregoing
------------ --------------------
authority and duties, all officers of the Corporation shall respectively have
such authority and perform such duties in the management of the business of the
Corporation as may be designated from time to time by the Board of Directors.
Unless prohibited by a resolution approved by the affirmative vote of a majority
of the directors present, an officer elected or appointed by the Board may,
without the approval of the Board, delegate some or all of the duties and powers
of an office to other persons.
Section 3.09 Term. Subdivision 1. All officers of the Corporation
------------ ----
shall hold office until their respective successors are chosen and have
qualified or until their earlier death, resignation or removal.
Subdivision 2. An officer may resign at any time by giving written
notice to the Corporation. The resignation is effective without acceptance when
the notice is given to the Corporation, unless a later effective date is
specified in the notice.
Subdivision 3. An officer may be removed at any time, with or without
cause, by a resolution approved by the affirmative vote of a majority of the
directors present at a duly held Board meeting.
Subdivision 4. A vacancy in an office because of death, resignation,
removal, disqualification or other cause may, or in the case of a vacancy in the
office of Chief Executive Officer or Chief Financial Officer shall, be filled
for the unexpired portion of the term by the Board.
Section 3.10 Salaries. The salaries of all officers of the Corporation
------------ --------
shall be fixed by the Board of Directors or by the Chief Executive Officer if
authorized by the Board.
INDEMNIFICATION
---------------
Section 4.01 Indemnification. The Corporation shall indemnify its
------------ ---------------
officers and directors for such expenses and liabilities, in such manner, under
such circumstances, and to such extent, as required or permitted by Minnesota
Statutes, Section 302A.521, as amended from time to time, or as required or
permitted by other provisions of law.
Section 4.02 Insurance. The Corporation may purchase and maintain
------------ ---------
insurance on behalf of any person in such person's official capacity against any
liability asserted against and incurred by such person in or arising from that
capacity, whether or not the Corporation would otherwise be required to
indemnify the person against the liability.
SHARES
------
-9-
<PAGE>
Section 5.01 Certificated and Uncertificated Shares. Subdivision 1.
------------ --------------------------------------
The shares of the Corporation shall be either certificated shares or
uncertificated shares. Each holder of duly issued certificated shares is
entitled to a certificate of shares.
Subdivision 2. Each certificate of shares of the Corporation shall bear
the corporate seal, if any, and shall be signed by the Chief Executive Officer,
or the President or any Vice President, and the Chief Financial Officer, or the
Secretary or any Assistant Secretary, but when a certificate is signed by a
transfer agent or a registrar, the signature of any such officer and the
corporate seal upon such certificate may be facsimiles, engraved or printed. If
a person signs or has a facsimile signature placed upon a certificate while an
officer, transfer agent or registrar of the Corporation, the certificate may be
issued by the Corporation, even if the person has ceased to serve in that
capacity before the certificate is issued, with the same effect as if the person
had that capacity at the date of its issue.
Subdivision 3. A certificate representing shares issued by the
Corporation shall, if the Corporation is authorized to issue shares of more than
one class or series, set forth upon the face or back of the certificate, or
shall state that the Corporation will furnish to any shareholder upon request
and without charge, a full statement of the designations, preferences,
limitations and relative rights of the shares of each class or series authorized
to be issued, so far as they have been determined, and the authority of the
Board to determine the relative rights and preferences of subsequent classes or
series.
Subdivision 4. A resolution approved by the affirmative vote of a
majority of the directors present at a duly held meeting of the Board may
provide that some or all of any or all classes and series of the shares of the
Corporation will be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until the certificate is surrendered to
the Corporation.
Section 5.02 Declaration of Dividends and Other Distributions. Subject
------------ ---------------------------------- -------------
to the Articles of Incorporation of the Corporation, the Board of Directors
shall have the authority to declare dividends and other distributions upon the
shares of the Corporation to the extent permitted by law.
Section 5.03 Transfer of Shares. Shares of the Corporation may be
------------ ------------------
transferred only on the books of the Corporation by the holder thereof, in
person or by such person's attorney. In the case of certificated shares, shares
shall be transferred only upon surrender and cancellation of certificates for a
like number of shares. The Board of Directors, however, may appoint one or more
transfer agents and registrars to maintain the share records of the Corporation
and to effect transfers of shares.
Section 5.04 Record Date. The Board of Directors may fix a time, not
------------ -----------
exceeding 60 days preceding the date fixed for the payment of any dividend or
other distribution, as a record date for the determination of the shareholders
entitled to receive payment of such dividend or other
-10-
<PAGE>
distribution, and in such case only shareholders of record on the date so fixed
shall be entitled to receive payment of such dividend or other distribution,
notwithstanding any transfer of any shares on the books of the Corporation after
any record date so fixed.
MISCELLANEOUS
-------------
Section 6.01 Execution of Instruments. Subdivision 1. All deeds,
------------ ------------------------
mortgages, bonds, checks, contracts and other instruments pertaining to the
business and affairs of the Corporation shall be signed on behalf of the
Corporation by the Chief Executive Officer, or the President, or any Vice
President, or by such other person or persons as may be designated from time to
time by the Board of Directors.
Subdivision 2. If a document must be executed by persons holding
different offices or functions and one person holds such offices or exercises
such functions, that person may execute the document in more than one capacity
if the document indicates each such capacity.
Section 6.02 Advances. The Corporation may, without a vote of the
------------ --------
directors, advance money to its directors, officers or employees to cover
expenses that can reasonably be anticipated to be incurred by them in the
performance of their duties and for which they would be entitled to
reimbursement in the absence of an advance.
Section 6.03 Corporate Seal. The seal of the Corporation, if any,
------------ --------------
shall be a circular embossed seal having inscribed thereon the name of the
Corporation and the following words:
"Corporate Seal Minnesota".
Section 6.04 Fiscal Year. The fiscal year of the Corporation shall be
------------ -----------
determined by the Board of Directors.
Section 6.05 Amendments. The Board of Directors shall have the power
------------ ----------
to adopt, amend or repeal the By-Laws of the Corporation, subject to the power
of the shareholders to change or repeal the same, provided, however, that the
Board shall not adopt, amend or repeal any By-Law fixing a quorum for meetings
of shareholders, prescribing procedures for removing directors or filling
vacancies in the Board, or fixing the number of directors or their
classifications, qualifications or terms of office, but may, subject to the
Articles of Incorporation of the Corporation, adopt or amend a By-Law that
increases the number of directors.
Section 6.06 Inapplicability of Control Share Acquisition Statute.
------------ ----------------------------------------------------
Neither Section 302A.671 of the Minnesota Business Corporation Act nor any
successor statute thereto shall apply to, or govern in any manner, the
Corporation or any control share acquisition of shares of capital stock of the
Corporation or limit in any respect the voting or other rights of any existing
or future shareholder of the Corporation or entitle the Corporation
-11-
<PAGE>
or its shareholders to any redemption or other rights with respect to
outstanding capital stock of the Corporation that the Corporation or its
shareholders would not have in the absence of Section 302A.671 of the Minnesota
Business Corporation Act or any successor statute thereto.
Section 6.07 Limited Applicability of Business Combination Statute.
------------ -----------------------------------------------------
Neither Section 302A.673 of the Minnesota Business Corporation Act nor any
successor statute thereto shall apply to any business combination (as defined in
the Minnesota Business Corporation Act) of the Corporation with, with respect
to, proposed by or on behalf of, or pursuant to any written or oral agreement,
arrangement, relationship, understanding or otherwise with, any interested
shareholder (as defined in the Minnesota Business Corporation Act) whose share
acquisition date (as defined in the Minnesota Business Corporation Act) is
either before the date on which the Corporation becomes a publicly held
corporation (as defined in the Minnesota Business Corporation Act) or on that
date, but prior to the time the Corporation becomes a publicly held corporation
(or, to the extent permitted by the Minnesota Business Corporation Act, any
affiliate or associate (each as defined in the Minnesota Business Corporation
Act) of any such interested shareholder), including Leather Investors Limited
Partnership I, Lyle Berman, Morris Goldfarb, Joel Waller, David Rogers and
Melville Corporation (and, to the extent permitted by the Minnesota Business
Corporation Act, each affiliate and associate of any thereof). All references
in this section to the Minnesota Business Corporation Act shall be deemed to be
references to the Minnesota Business Corporation Act as in effect from time to
time, including all amendments thereto after adoption of this section.
-12-
<PAGE>
Exhibit 4.1
COUNTERSIGNED AND REGISTERED:
NORWEST BANK MINNESOTA, N.A.
(MINNEAPOLIS, MINNESOTA) TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
COMMON [LOGO OF WILSONS COMMON STOCK
STOCK THE LEATHER EXPERTS
APPEARS HERE] SEE REVERSE FOR
INCORPORATED UNDER THE LAWS OF CERTAIN DEFINITION
THE STATE OF MINNESOTA
----------------------
THIS CERTIFIES that CUSIP 972463 10 3
----------------------
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR
VALUE OF $.01 PER SHARE, OF
WILSONS THE LEATHER EXPERTS INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned and registered by
the Transfer Agent and registrar.
Witness the fascimile signatures of its duly authorized officers.
Dated:
/s/ Philip S. Garon /s/ David L. Rogers
Secretary PRESIDENT AND
CHIEF OPERATING OFFICER
No Corporate Seal
<PAGE>
WILSONS THE LEATHER EXPERTS INC.
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND
RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED,
SO FAR AS THEY HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD OF
DIRECTORS TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT
CLASSES OR SERIES.
--------------------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM --as tenants in common UNIF GIFT MIN ACT--..............Custodian..............
(Cust) (Minor)
under Uniform Gifts to Minors
TEN ENT --as tenants by the entireties
JT TEN --as joint tenants with right of
survivorship and not as tenants Act..........
in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
FOR VALUE RECEIVED ______________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------
- -------------------------------------------
____________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ SHARES
represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ ATTORNEY
to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises
Dated ____________________________________________
____________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED
<PAGE>
EXHIBIT 4.4
Draft of October 31, 1996
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT.
VOID AFTER 5:00 P.M., NEW YORK TIME, ON [_____________ ___], 2001 OR IF NOT A
BUSINESS DAY, AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK TIME, ON THE NEXT
FOLLOWING BUSINESS DAY.
WARRANT TO PURCHASE
[_____________]
SHARES OF COMMON STOCK
NO. 1
WARRANT TO PURCHASE
COMMON STOCK
OF
WILSONS THE LEATHER EXPERTS INC.
TRANSFER RESTRICTED -- SEE SECTION 5.02
This certifies that, for good and valuable consideration,
[REPRESENTATIVE NAME], and its registered, permitted assigns (collectively, the
"Warrantholder"), is entitled to purchase from Wilsons The Leather Experts Inc.,
a Minnesota corporation (the "Company"), subject to the terms and conditions
hereof, at any time on or after 9:00 A.M., New York time, on [_______________
_____], 1997, and before 5:00 P.M., New York time, on [______________ ____],
2001 (or, if such day is not a Business Day, at or before 5:00 P.M., New York
time, on the next following Business Day), the number of fully paid and non-
assessable shares of Common Stock stated above at the Exercise Price. The
Exercise Price and the number of shares purchasable hereunder are subject to
adjustment from time to time as provided in Article III hereof.
ARTICLE I
Section 1.01: Definition of Terms. As used in this Warrant, the following
------------ -------------------
capitalized terms shall have the following respective meanings:
(a) Business Day: A day other than a Saturday, Sunday or other day
------------
on which banks in the State of New York are authorized by law to remain closed.
(b) Common Stock: Common Stock, $.01 par value per share, of
------------
the Company.
(c) Common Stock Equivalents: Securities that are convertible into
------------------------
or exercisable for shares of Common Stock.
(d) Demand Registration: See Section 6.02.
-------------------
<PAGE>
(e) Exchange Act: The Securities Exchange Act of 1934, as amended.
-------------
(f) Exercise Price: $[insert exercise price] per Warrant Share, as
--------------
such price may be adjusted from time to time pursuant to Article III hereof.
(g) Expiration Date: 5:00 P.M., New York time, on [_____________
---------------
___], 2001 or if such day is not a Business Day, the next succeeding day which
is a Business Day.
(h) 25% Holders: At any time as to which a Demand Registration is
-----------
requested, the Holder and/or the holders of any other Warrants and/or the
holders of Warrant Shares who have the right to acquire or hold, as the case may
be, not less than 25% of the combined total of Warrant Shares issuable and
Warrant Shares outstanding at the time such Demand Registration is requested.
(i) Holder: A Holder of Registrable Securities.
------
(j) NASD: National Association of Securities Dealers, Inc., and
----
NASDAQ: NASD AQ National Market System.
- ------
(k) Person: An individual, partnership, joint venture, corporation,
------
trust, unincorporated organization or government or any department or agency
thereof.
(l) Piggyback Registration: See Section 6.01.
----------------------
(m) Prospectus: Any prospectus included in any Registration
----------
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments and all material
incorporated by reference in such Prospectus.
(n) Public Offerings: A public offering of any of the Company's
----------------
equity or debt securities pursuant to a registration statement under the
Securities Act.
(o) Registration Expenses: Any and all expenses incurred in
---------------------
connection with any registration or action incident to performance of or
compliance by the Company with Article VI, including, without limitation, (i)
all SEC, national securities exchange and NASD registration and filing fees; all
listing fees and all transfer agent fees; (ii) all fees and expenses of
complying with state securities or blue sky laws (including the fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities); (iii) all printing, mailing,
messenger and delivery expenses and (iv) all fees and disbursements of counsel
for the Company and of its accountants, including the expenses of any special
audits and/or "cold comfort" letters required by or incident to such performance
and compliance, but excluding underwriting discounts and commissions, brokerage
fees and transfer taxes, if any, and fees of counsel or accountants retained by
the Holders of Registrable Securities to advise them in their capacity as
Holders of Registrable Securities.
(p) Registrable Securities: Any Warrant Shares issued to Oppenheimer
----------------------
& Co., Inc., Ladenburg Thalmann & Co. Inc. and Piper Jaffray Inc. and/or their
designees or transferees as permitted under Section 5.02 and/or other securities
that may be or are issued by the Company upon exercise of this Warrant,
including those which may thereafter be issued by the Company in respect of any
such securities
2
<PAGE>
by means of any stock splits, stock dividends, recapitalizations,
reclassifications or the like, and as adjusted pursuant to Article III hereof.
(q) Registration Statement: Any registration statement of the Company
----------------------
filed or to be filed with the SEC which covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including all amendments
(including post-effective amendments) and supplements thereto, all exhibits
thereto and all material incorporated therein by reference.
(r) SEC: The Securities and Exchange Commission or any other federal
---
agency at the time administering the Securities Act or the Exchange Act.
(s) Securities Act: The Securities Act of 1933, as amended.
--------------
(t) Transfer: See Section 5.02.
--------
(u) Warrants: This Warrant, all other warrants issued on the date
--------
hereof and all other warrants that may be issued in its or their place (together
evidencing the right to purchase an aggregate of 300,000 shares of Common
Stock), originally issued as set forth in the definition of Registrable
Securities.
(v) Warrantholder: The person(s) or entity(ies) to whom this Warrant
-------------
is originally issued, or any successor in interest thereto, or any assignee or
transferee thereof, in whose name this Warrant is registered upon the books to
be maintained by the Company for that purpose.
(w) Warrant Shares: Common Stock, Common Stock Equivalents and other
--------------
securities purchased or purchasable upon exercise of the Warrants.
ARTICLE II
Duration and Exercise of Warrant
--------------------------------
Section 2.01: Duration of Warrant. Subject to the limitations specified
------------ -------------------
in (S)2.02.(a)(ii) regarding a Cashless Exercise, the Warrantholder may exercise
this Warrant at any time and from time to time after 9:00 A.M., New York time,
on [___________ ___], 1997, and before 5:00 P.M., New York time, on the
Expiration Date. If this Warrant is not exercised on or prior to the Expiration
Date, it shall become void, and all rights hereunder shall thereupon cease.
Section 2.02.: Exercise of Warrant.
------------- -------------------
(a) The Warrantholder may exercise this Warrant, in whole or in part, as
follows:
(i) By presentation and surrender of this Warrant to the Company at its
principal executive offices or at the office of its stock transfer agent, if
any, with the Subscription Form annexed hereto duly executed and accompanied by
payment of the full Exercise Price for each Warrant Share to be purchased; or
(ii) By presentation and surrender of this Warrant to the Company at its
principal executive offices with a Cashless Exercise Form annexed hereto duly
executed (a "Cashless Exercise"). In the event of a Cashless Exercise, the
Warrantholder shall
3
<PAGE>
exchange its warrant for that number of shares of Common Stock determined by
multiplying the number of Warrant Shares that would be otherwise be purchasable
pursuant to Section 2.02(a)(i) hereof by a fraction, the numerator of which
shall be the amount by which the then current market price per share of Common
Stock exceeds the Exercise Price, and the denominator of which shall be the then
current market price per share of Common Stock. For purposes of any computation
under this Section 2.02(a)(ii), the then current market price per share of
Common Stock at any date shall be deemed to be the last sale price of the Common
Stock on the business day prior to the date of the Cashless Exercise or, in case
no such reported sales take place on such day, the average of the last reported
bid and asked prices of the Common Stock on such day, in either case on the
principal national securities exchange on which the Common Stock is admitted to
trading or listed, or if not listed or admitted to trading on any such exchange,
the representative closing bid price of the Common Stock as reported by NASDAQ,
or other similar organization if NASDAQ is no longer reporting such information,
or if not so available, the fair market price of the Common Stock as determined
by the Board of Directors.
(b) Upon receipt of this Warrant, in the case of Section 2.02 (a) (i), with
the Subscription Form duly executed and accompanied by payment of the aggregate
Exercise Price for the Warrant Shares for which this Warrant is then being
exercised, or, in the case of Section 2.02 (a) (ii), with the Cashless Exercise
Form duly executed, the Company shall cause to be issued certificates for the
total number of whole shares of Common Stock for which this Warrant is being
exercised (adjusted to reflect the effect of the anti-dilution provisions
contained in Article III hereof, if any, and as provided in Section 2.04 hereof)
in such denominations as are requested for delivery to the Warrantholder, and
the Company shall thereupon deliver such certificates to the Warrantholder. The
Warrantholder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the
Warrantholder. If at the time this Warrant is exercised, a Registration
Statement is not in effect to register under the Securities Act the Warrant
Shares issuable upon exercise of this Warrant, the Company may require the
Warrantholder to make such representations, and may place such legends on
certificates representing the Warrant Shares, as may be reasonably required in
the opinion of counsel to the Company to permit the Warrant Shares to be issued
without such registration.
(c) In case the Warrantholder shall exercise this Warrant with respect
to less than all of the Warrant Shares that may be purchased under this Warrant,
the Company shall execute a new warrant in the form of this Warrant for the
balance of such Warrant Shares and deliver such new warrant to the
Warrantholder.
(d) The Company shall pay any and all stock transfer and similar taxes
which may be payable in respect of the issue of this Warrant or in respect of
the issue of any Warrant Shares.
Section 2.03: Reservation of Shares. The Company hereby agrees that at
------------- ---------------------
all times there shall be reserved for issuance and delivery upon exercise of
this Warrant such number of shares of Common Stock or other shares of capital
stock of the Company from time to time issuable upon exercise of this Warrant.
All such shares shall be duly authorized, and when issued upon such exercise,
shall be validly issued, fully paid and nonassessable, free and clear of all
liens, security interests, charges and other encumbrances or
4
<PAGE>
restrictions on sale and free and clear of all preemptive rights (except the
restrictions imposed by the legend appearing at the top of Page 1 of this
Warrant).
Section 2.04: Fractional Shares. The Company shall not be required to
------------- -----------------
issue any fraction of a share of its capital stock in connection with the
exercise of this Warrant, and in any case where the Warrantholder would, except
for the provisions of this Section 2.04, be entitled under the terms of this
Warrant to receive a fraction of a share upon the exercise of this Warrant, the
Company shall, upon the exercise of this Warrant and tender of the Exercise
Price (as adjusted to cover the balance of the share), issue the larger number
of whole shares purchasable upon exercise of this Warrant. The Company shall
not be required to make any cash or other adjustment in respect of such fraction
of a share to which the Warrantholder would otherwise be entitled.
Section 2.05: Listing. Prior to the issuance of any shares of Common
------------- -------
Stock upon exercise of this Warrant, the Company shall secure the listing of
such shares of Common Stock upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance upon exercise of this Warrant) and shall
maintain, so long as any other shares of Common Stock shall so be listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon the
exercise of this Warrant if and so long as any shares of the same class shall be
listed on such national securities exchange or automated quotation system.
ARTICLE III
Adjustment of Shares of Common Stock
Purchasable and of Exercise Price
---------------------------------
The Exercise Price and the number and kind of Warrant Shares shall be
subject to adjustment from time to time upon the happening of certain events as
provided in this Article III.
Section 3.01: Mechanical Adjustments. (a) If at any time prior to the
------------- ----------------------
exercise of this Warrant in full, the Company shall (i) declare a dividend or
make a distribution on the Common Stock payable in shares of its capital stock
(whether shares of Common Stock or of capital stock of any other class); (ii)
subdivide, reclassify or recapitalize outstanding Common Stock into a greater
number of shares; (iii) combine, reclassify or recapitalize its outstanding
Common Stock into a smaller number of shares; or (iv) issue any shares of its
capital stock by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or a merger in which the
Company is the continuing corporation), the Exercise Price in effect at the time
of the record date of such dividend, distribution, subdivision, combination,
reclassification or recapitalization shall be adjusted so that the Warrantholder
shall be entitled to receive the aggregate number and kind of shares which, if
this Warrant had been exercised in full immediately prior to such event, he
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, distribution, subdivision, combination, reclassification or
recapitalization. Any adjustment required by this Section 3.01(a) shall be made
successively immediately after the record date, in the case of a dividend or
distribution, or the effective date, in the case of a subdivision, combination,
reclassification or recapitalization to allow the purchase of such aggregate
number and kind of shares.
5
<PAGE>
(b) If at any time after [_____________ ____], 1996 and prior to the
exercise of this Warrant in full, the Company shall (i) issue or sell any Common
Stock or Common Stock Equivalents without consideration or for consideration per
share (in cash, property or other assets) less than the current market price per
share on the date of such issuance or sale as defined in Section 3.01 (f)
(except for the issuance of any Common Stock or Common Stock Equivalents
pursuant to any options, warrants, rights or other agreements in effect prior to
[_____________ ____], 1996 and except for issuances of Common Stock provided
for in Section 3.01(a)) or (ii) fix a record date for the issuance of
subscription rights, options or warrants to all holders of Common Stock
entitling them to subscribe for or purchase Common Stock (or Common Stock
Equivalents) at a price (or having an exercise or conversion price per share)
less than the current market price of the Common Stock (as determined pursuant
to Section 3.01 (f)) on the record date described below, the Exercise Price
shall be adjusted so that the Exercise Price shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the date of such
sale or issuance (which date in the event of distribution to shareholders shall
be deemed to be the record date set by the Company to determine shareholders
entitled to participate in such distribution) by a fraction, the numerator of
which shall be (i) the number of shares of Common Stock outstanding on the date
of such sale or issuance, plus (ii) the number of additional shares of Common
Stock which the aggregate consideration received by the Company upon such
issuance or sale (plus the aggregate of any additional amount to be received by
the Company upon the exercise of such subscription rights, options or warrants)
would purchase at such current market price per share of the Common Stock; and
the denominator of which shall be (i) the number of shares of Common Stock
outstanding on the date of such issuance or sale, plus (ii) the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the Common Stock Equivalents so offered are exercisable or convertible).
Any adjustments required by this Section 3.01 (b) shall be made immediately
after such issuance or sale or record date, as the case may be. Such
adjustments shall be made successively whenever such event shall occur. To the
extent that shares of Common Stock (or Common Stock Equivalents) are not
delivered in connection with such subscription rights, options or warrants, the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights, options or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock (or Common Stock Equivalents) actually delivered.
(c) If at any time prior to the exercise of this Warrant in full, the
Company shall fix a record date for the issuance or making a distribution to all
holders of Common Stock (including any such distribution to be made in
connection with a consolidation or merger in which the Company is to be the
continuing corporation) of evidences of its indebtedness, any other securities
of the Company or any cash, property or other assets (excluding (i) a dividend,
distribution, subdivision, combination, reclassification or recapitalization
referred to in Section 3.01 (a), (ii) regular cash dividends or cash
distributions paid out of net profits legally available therefor and in the
ordinary course of business and (iii) subscription rights, options or warrants
for Common Stock referred to in Section 3.01 (b)) (any such event being herein
called a "Special Dividend"), the Exercise Price shall be decreased immediately
after the record date for such Special Dividend to a price determined by
multiplying the Exercise Price then in effect by a fraction, the numerator of
which shall be the then current market price of the Common Stock (as defined in
Section 3.01 (f)) on such record date less the fair market value (as determined
by the Company's Board of Directors) of the evidences of indebtedness,
securities or property, or other assets issued or distributed in such Special
Dividend applicable to one share of Common Stock or of such subscription rights,
options or warrants applicable to one share of Common Stock and the denominator
of which shall be such then current market price per share of Common Stock (as
so determined). Any adjustment required by this Section 3.01 (c) shall be made
successively whenever such a record date is fixed and in the event that such
distribution is not so made, the Exercise Price shall again be adjusted to be
the Exercise Price that was in effect immediately prior to such record date.
6
<PAGE>
(d) If at any time prior to the exercise of this Warrant in full, the
Company shall make a distribution to all holders of the Common Stock of stock of
a subsidiary or securities convertible into or exercisable for such stock, then
in lieu of an adjustment in the Exercise Price or the number of Warrant Shares
purchasable upon the exercise of this Warrant, each Warrantholder, upon the
exercise hereof at any time after such distribution, shall be entitled to
receive from the Company, such subsidiary or both, as the Company shall
determine, the stock or other securities to which such Warrantholder would have
been entitled if such Warrantholder had exercised this Warrant immediately prior
thereto, all subject to further adjustment as provided in this Article III, and
the Company shall reserve, for the life of the Warrant, such securities of such
subsidiary or other corporation; provided, however, that no adjustment in
respect of dividends or interest on such stock or other securities shall be made
during the term of this Warrant or upon its exercise.
(e) Whenever the Exercise Price payable upon exercise of this Warrant
is adjusted pursuant to paragraph (a), (b) or (c) of this Section 3.01, the
Warrant Shares issuable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Warrant Shares issuable upon exercise of
this Warrant immediately before such adjustment by the Exercise Price in effect
immediately before such adjustment and dividing the product so obtained by the
Exercise Price, as adjusted.
(f) For the purpose of any computation under this Section 3.01, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for 20 consecutive trading days
commencing 30 trading days before such date. The closing price for each day
shall be the last sale price regular way or, in case no such reported sales take
place on such day, the average of the last reported bid and asked prices regular
way, in either case on the principal national securities exchange on which the
Common Stock is admitted to trading or listed, or if not listed or admitted to
trading on any such exchange, the representative closing bid price as reported
by NASDAQ, or other similar organization if NASDAQ is no longer reporting such
information, or if not so available, the fair market price as determined by the
Board of Directors of the Company.
(g) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($.10) in
such price; provided, however, that any adjustments which by reason of this
-------- -------
paragraph (g) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
3.01 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. Notwithstanding anything in this Section 3.01 to the
contrary, the Exercise Price shall not be reduced to less than the then existing
par value of the Common Stock as a result of any adjustment made hereunder.
(h) In the event that at any time, as a result of any adjustment made
pursuant to Section 3.01(a), the Warrantholder thereafter shall become entitled
to receive any shares of the Company other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of any Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in Section 3.01(a).
(i) In the case of an issue of additional Common Stock or Common Stock
Equivalents for cash, the consideration received by the Company therefor, after
deducting therefrom any discount or commission or other expenses paid by the
Company for any underwriting of, or otherwise in connection with, the issuance
thereof, shall be deemed to be the amount received by the Company therefor. The
term "issue" shall include the sale or other disposition of shares held by or on
account of the Company or in the
7
<PAGE>
treasury of the Company but until so sold or otherwise disposed of such shares
shall not be deemed outstanding.
Section 3.02: Notice of Adjustment. Whenever the number of Warrant Shares
------------ --------------------
or the Exercise Price is adjusted as herein provided, the Company shall prepare
and deliver forthwith to the Warrantholder a certificate signed by its
President, and by any Vice President, Treasurer or Secretary, setting forth the
adjusted number of shares purchasable upon the exercise of this Warrant and the
Exercise Price of such shares after such adjustment, a brief statement of the
facts requiring such adjustment and the computation by which adjustment was
made.
Section 3.03: No Adjustment for Dividends. Except as provided in Section
------------ ---------------------------
3.01 of this Agreement, no adjustment in respect of any cash dividends paid by
the Company shall be made during the term of this Warrant or upon the exercise
of this Warrant.
Section 3.04: Preservation of Purchase Rights in Certain Transactions. In
------------ -------------------------------------------------------
case of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock (other than a subdivision or a combination of
the outstanding Common Stock and other than a change in the par value of the
Common Stock) or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which the
Company is the continuing corporation and said merger does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in case
of any sale, lease, transfer or conveyance to another corporation of the
property and assets of the Company as an entirety or substantially as an
entirety, the Company shall, as a condition precedent to such transaction, cause
such successor or purchasing corporation, as the case may be, to execute with
the Warrantholder an agreement granting the Warrantholder the right thereafter,
upon payment of the Exercise Price in effect immediately prior to such action,
to receive upon exercise of this Warrant the kind and amount of shares and other
securities and property which he would have owned or have been entitled to
receive after the happening of such reclassification, change, consolidation,
merger, sale or conveyance had this Warrant been exercised immediately prior to
such action. Such agreement shall provide for adjustments in respect of such
shares of stock and other securities and property, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
III. In the event that in connection with any such reclassification, capital
reorganization, change, consolidation, merger, sale or conveyance, additional
shares of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for, or of, a security of the Company other than
Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of Article III. The provisions of this Section 3.04
shall similarly apply to successive reclassification, capital reorganizations,
consolidations, mergers, sales or conveyances.
Section 3.05: Form of Warrant After Adjustments. The form of this
------------ ---------------------------------
Warrant need not be changed because of any adjustments in the Exercise
Price or the number or kind of the Warrant Shares, and Warrants theretofore or
thereafter issued may continue to express the same price and number and kind of
shares as are stated in this Warrant, as initially issued.
Section 3.06: Treatment of Warrantholder. Prior to due presentment for
------------ --------------------------
registration of transfer of this Warrant, the Company may deem and treat the
Warrantholder as the absolute owner of this Warrant (notwithstanding any
notation of ownership or other writing hereon) for all purposes and shall not be
affected by any notice to the contrary.
ARTICLE IV
8
<PAGE>
Other Provisions Relating
to Rights of Warrantholder
--------------------------
Section 4.01: No Rights as Shareholders; Notice to Warrantholders.
------------ ---------------------------------------------------
Nothing contained in this Warrant shall be construed as conferring upon the
Warrantholder or his or its transferees the right to vote or to receive
dividends or to consent to or receive notice as a shareholder in respect of any
meeting of shareholders for the election of directors of the Company or any
other matter, or any other rights whatsoever as shareholders of the Company.
The Company shall give notice to the Warrantholder by registered mail, if at any
time prior to the expiration or exercise in full of the Warrants, any of the
following events shall occur:
(a) the Company shall authorize the payment of any dividend upon
shares of Common Stock payable in any securities or authorize the making of any
distribution (other than a cash dividend subject to the parenthetical set forth
in Section 3.01(c)) to all holders of Common Stock;
(b) the Company shall authorize the issuance to all holders of Common
Stock of any additional shares of Common Stock or Common Stock Equivalents or of
rights, options or warrants to subscribe for or purchase Common Stock or Common
Stock Equivalents or of any other subscription rights, options or warrants;
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger, or sale or conveyance of the
property of the Company as an entirety or substantially as an entirety); or
(d) a capital reorganization or reclassification of the Common Stock
(other than a subdivision or combination of the outstanding Common Stock and
other than a change in the par value of the Common Stock) or any consolidation
or merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
that does not result in any reclassification or change of Common Stock
outstanding) or in the case of any sale or conveyance to another corporation of
the property of the Company as an entirety or substantially as an entirety.
Such giving of notice shall be initiated (i) at least 10 Business Days prior to
the date fixed as a record date or effective date or the date of closing of the
Company's stock transfer books for the determination of the shareholders
entitled to such dividend, distribution or subscription rights, or for the
determination of the shareholders entitled to vote on such proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or winding up. Such
notice shall specify such record date or the date of closing the stock transfer
books, as the case may be. Failure to provide such notice shall not affect the
validity of any action taken in connection with such dividend, distribution or
subscription rights, or proposed merger, consolidation, sale, conveyance,
dissolution, liquidation or winding up.
Section 4.02: Lost, Stolen, Mutilated or Destroyed Warrants. If this
------------ ---------------------------------------------
Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms
as to indemnity or otherwise as it may in its discretion impose (which shall, in
the case of a mutilated Warrant, include the surrender thereof), issue a new
Warrant of like denomination and tenor as and in substitution for this Warrant.
ARTICLE V
9
<PAGE>
Split-Up, Combination
Exchange and Transfer of Warrants
---------------------------------
Section 5.01: Split-Up, Combination, Exchange and Transfer of
------------ -----------------------------------------------
Warrants. Subject to the provisions of Section 5.02 hereof, this Warrant may be
- --------
split up, combined or exchanged for another Warrant or Warrants containing the
same terms to purchase a like aggregate number of Warrant Shares. If the
Warrantholder desires to split up, combine or exchange Warrants, he or it shall
make such request in writing delivered to the Company and shall surrender to the
Company any Warrants to be so split up, combined or exchanged. Upon any such
surrender for a split up, combination or exchange, the Company shall execute and
deliver to the person entitled thereto a Warrant or Warrants, as the case may
be, as so requested. The Company shall not be required to effect any split up,
combination or exchange which will result in the issuance of a Warrant entitling
the Warrantholder to purchase upon exercise a fraction of a share of Common
Stock or a fractional Warrant. The Company may require such Warrantholder to
pay a sum sufficient to cover any tax or governmental charge that may be imposed
in connection with any split up, combination or exchange of Warrants.
Section 5.02: Restrictions on Transfer. Neither this Warrant nor the
------------ ------------------------
Warrant Shares may be disposed of or encumbered (any such action, a "Transfer"),
except (i) to [REPRESENTATIVE NAME], any successor to the business of such
company, or any officer of such company, or (ii) to any underwriter in
connection with a Public Offering of the Common Stock, provided (as to (ii))
that this Warrant is exercised upon such Transfer and the shares of Common Stock
issued upon such exercise are sold by such underwriter as part of such Public
Offering and, as to both (i) and (ii), only in accordance with and subject to
the provisions of the Securities Act and the rules and regulations promulgated
thereunder. If at the time of a Transfer, a Registration Statement is not in
effect to register this Warrant or the Warrant Shares, the Company may require
the Warrantholder to make such representations, and may place such legends on
certificates representing this Warrant, as may be reasonably required in the
opinion of counsel to the Company to permit a Transfer without such
registration.
ARTICLE VI
Registration Under the Securities Act of 1933
---------------------------------------------
Section 6.01: Piggyback Registration.
------------ ----------------------
(a) Right to Include Registrable Securities. If at any time or from
---------------------------------------
time to time after [__________ ___], 1997 and prior to the Expiration Date, the
Company proposes to register any of its securities under the Securities Act on
any form for the registration of securities under such Act, whether or not for
its own account (other than by a registration statement on Form S-8 or other
form which does not include substantially the same information as would be
required in a form for the general registration of securities or would not be
available for the Registrable Securities) (a "Piggyback Registration"), it shall
as expeditiously as possible give written notice to all Holders of its intention
to do so and of such Holders' rights under this Section 6.01. Such rights are
referred to hereinafter as "Piggyback Registration Rights." Upon the written
request of any such Holder made within 15 days after receipt of any such notice
(which request shall specify the Registrable Securities intended to be disposed
of by such Holder), the Company shall include in the Registration Statement
the Registrable Securities which the Company has been so requested to register
by the Holders thereof and the Company shall keep such registration statement in
effect and maintain compliance with each Federal and state law or regulation for
the period necessary for
10
<PAGE>
such Holder to effect the proposed sale or other disposition (but in no event
for a period greater than 120 days).
(b) Withdrawal of Piggyback Registration by Company. If, at any time
-----------------------------------------------
after giving written notice of its intention to register any securities in a
Piggyback Registration but prior to the effective date of the related
Registration Statement, the Company shall determine for any reason not to
register such securities, the Company shall give written notice of such
determination to each Holder and, thereupon, shall be relieved of its obligation
to register any Registrable Securities in connection with such Piggyback
Registration. All best efforts obligations of the Company pursuant to Section
6.04 shall cease if the Company determines to terminate prior to such effective
date any registration where Registrable Securities are being registered pursuant
to this Section 6.01.
(c) Piggyback Registration of Underwritten Public Offerings. If a
-------------------------------------------------------
Piggyback Registration involves an offering by or through underwriters, then,
(i) all Holders requesting to have their Registrable Securities included in the
Company's Registration Statement must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to other selling shareholders and (ii) any Holder requesting to have his or its
Registrable Securities included in such Registration Statement may elect in
writing, not later than three Business Days prior to the effectiveness of the
Registration Statement filed in connection with such registration, not to have
his or its Registrable Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for Piggyback Registration. The
-----------------------------------------------------------
Company shall pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to a Piggyback Registration Right
contained in this Section 6.01
(e) Priority in Piggyback Registration. If a Piggyback Registration
----------------------------------
involves an offering by or through underwriters, the Company shall not be
required to include Registrable Shares therein if and to the extent the
underwriter managing the offering reasonably believes in good faith and advises
each Holder requesting to have Registrable Securities included in the Company's
Registration Statement that such inclusion would materially adversely affect
such offering; provided that any reduction or elimination of securities
requested to be registered shall be pro rata to all holders of the securities of
--------
the Company exercising "piggyback registration rights" similar to those set
forth herein in proportion to the respective number of shares they have
requested to be registered, and in such event, such Holders may delay any
offering by them of all Registrable Shares requested to be included (and shall
delay any offering by them of that portion of such Registrable Shares eliminated
for such period, not to exceed 90 days, as the managing underwriter shall
request) and the Company shall file such supplements and post-effective
amendments and take such other action necessary under Federal and state law or
regulation as may be necessary to permit such Holders to make their proposed
offering for a period of 90 days following such period of delay.
Section 6.02: Demand Registration.
------------ --------------------
(a) Request for Registration. If, at any time subsequent to
------------------------
[____________ ____], 1997 and prior to the Expiration Date, any 25% Holders
request that the Company file a registration statement under the Securities Act,
the Company as soon as practicable shall use its best efforts to file a
registration statement
with respect to all Warrant Shares that it has been so requested to include and
obtain the effectiveness thereof, and to take all other action necessary under
any Federal or state law or regulation to permit the Warrant Shares that are
then held and/or that may be acquired upon the exercise of the Warrants
specified in the notices of the Holders or holders thereof to be sold or
otherwise disposed of, and the
11
<PAGE>
Company shall maintain such compliance with each such Federal and state law and
regulation for the period necessary for such Holders or holders to effect the
proposed sale or other disposition (but in no event for more than 120 days);
provided, however, the Company shall be entitled to defer such registration for
- -------- -------
a period of up to 60 days if and to the extent that its Board of Directors shall
determine that such registration would interfere with a pending corporate
transaction. The Company shall also promptly give written notice to the Holder
and the holders of any other Warrants and/or the holders of any Warrant Shares
who or that have not made a request to the Company pursuant to the provisions of
this subsection (a) of its intention to effect any required registration or
qualification and shall use its best efforts to effect as expeditiously as
possible such registration or qualification of all other such Warrant Shares
that are then held and/or that may be acquired upon the exercise of the
Warrants, the Holder or holders of which have requested such registration or
qualification, within 15 days after such notice has been given by the Company,
as provided in the preceding sentence. The Company shall be required to effect a
registration or qualification pursuant to this subsection (a) on one occasion
only.
(b) Payment of Registration Expenses for Demand Registration. The
--------------------------------------------------------
Company shall pay all Registration Expenses in connection with the Demand
Registration.
(c) Selection of Underwriters. If any Demand Registration is
-------------------------
requested to be in the form of an underwritten offering, the managing
underwriter shall be Oppenheimer & Co., Inc. and the co-manager (if any) and the
independent pricer required under the rules of the NASD (if any) shall be
selected and obtained by the Holders of a majority of the Warrant Shares to be
registered. Such selection shall be subject to the Company's consent, which
consent shall not be unreasonably withheld. All fees and expenses (other than
Registration Expenses otherwise required to be paid) of any managing
underwriter, any co-manager or any independent underwriter or other independent
pricer required under the rules of the NASD shall be paid for by such
underwriters or by the Holders or holders whose shares are being registered. If
Oppenheimer & Co., Inc. should decline to serve as managing underwriter, the
Holders of a majority of the Warrant Shares to be registered may select and
obtain one or more managing underwriters. Such selection shall be subject to
the Company's consent, which consent shall not be unreasonably withheld.
Section 6.03: Buy-outs of Registration Demand. In lieu of carrying
------------ -------------------------------
out its obligations to effect a Piggyback Registration or Demand Registration of
any Registrable Securities pursuant to this Article VI, the Company may carry
out such obligation by offering to purchase and purchasing such Registrable
Securities requested to be registered at an amount in cash equal to the
difference between (a) the last sale price of the Common Stock on the day the
request for registration is made and (b) the Exercise Price in effect on such
day.
Section 6.04: Registration Procedures. If and whenever the Company
------------ -----------------------
is required to use its best efforts to take action pursuant to any Federal or
state law or regulation to permit the sale or other disposition of any Warrant
Shares that are then held or that may be acquired upon exercise of the Warrants,
in order to effect or cause the registration of any Registrable Securities under
the Securities Act as provided in this Article VI, the Company shall, as
expeditiously as practicable:
(a) furnish to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Registration
Statement, the Prospectus or the Prospectuses (including each preliminary
prospectus) and any amendment or supplement thereto as they may reasonably
request;
12
<PAGE>
(b) enter into such agreements (including an underwriting agreement)
and take all such other actions reasonably required in connection therewith in
order to expedite or facilitate the disposition of such Registrable Securities
and in such connection, if the registration is in connection with an
underwritten offering, (i) make such representations and warranties to the
underwriters in such form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions in form, scope and substance shall be
reasonably satisfactory to the underwriters) addressed to the underwriters and
the Holders covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such underwriters; (iii) obtain "cold comfort" letters and updates thereof from
the Company's accountants addressed to the underwriters, such letters to be in
customary form and to cover matters of the type customarily covered in "cold
comfort" letters to underwriters and the Holders in connection with underwritten
offerings; (iv) set forth in full, in any underwriting agreement entered into,
the indemnification provisions and procedures of Section 6.05 hereof with
respect to all parties to be indemnified pursuant to said Section; and (v)
deliver such documents and certificates as may be reasonably requested by the
underwriters to evidence compliance with clause (i) above and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company; the above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder;
(c) make available for inspection by one or more representatives of
the Holders of Registrable Securities being sold, any underwriter participating
in any disposition pursuant to such registration, and any attorney or accountant
retained by such Holders or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representatives in connection with such registration;
(d) otherwise use its best efforts to comply with all applicable
Federal and state regulations; and take such other action as may be reasonably
necessary or advisable to enable each such Holder and each such underwriter to
consummate the sale or disposition in such jurisdiction or jurisdictions in
which any such Holder or underwriter shall have requested that the Registrable
Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have sole
control in connection with the preparation, filing, withdrawal, amendment or
supplementing of each Registration Statement, the selection of underwriters, and
the distribution of any preliminary prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders.
Each seller of Registrable Securities as to which any registration is
being effected shall furnish to the Company such information regarding the
distribution of such securities and such other information as may otherwise be
required by the Securities Act to be included in such Registration Statement.
Section 6.05: Indemnification.
------------ ---------------
(a) Indemnification by Company. In connection with each Registration
--------------------------
Statement relating to disposition of Registrable Securities, the Company shall
indemnify and hold harmless each Holder and each underwriter of Registrable
Securities and each Person, if any, who controls such Holder or underwriter
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) against any and all losses, claims, damages and liabilities, joint
or several (including any reasonable
13
<PAGE>
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other Federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement, Prospectus or
preliminary prospectus or any amendment thereof or supplement thereto, or arise
out of or are based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that such indemnity shall not inure
-------- -------
to the benefit of any Holder or underwriter (or any Person controlling such
Holder or underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) on account of any losses, claims, damages or
liabilities arising from the sale of Registrable Securities if such untrue
statement or omission or alleged untrue statement or omission was made in such
Registration Statement, Prospectus or preliminary prospectus, or such amendment
or supplement, in reliance upon and in conformity with information furnished in
writing to the Company by the Holder or underwriter specifically for use
therein. The Company shall also indemnify selling brokers, dealer managers and
similar securities industry professionals participating in the distribution,
their officers and directors and each Person who controls such Persons (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) to the same extent as provided above with respect to the indemnification of
the Holders of Registrable Securities, if requested. This indemnity agreement
shall be in addition to any liability which the Company may otherwise have.
(b) Indemnification by Holder. In connection with each Registration
-------------------------
Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company in Section 6.05(a), the Company, its
directors and each officer who signs the Registration Statement and each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act) but only insofar as such losses, claims,
damages and liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in the
Registration Statement, the Prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, in reliance upon and in conformity with
information furnished in writing by such Holder to the Company specifically for
use therein. In no event shall the liability of any selling Holder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the net proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
so furnished in writing by such Persons specifically for inclusion in any
Prospectus, Registration Statement or preliminary prospectus or any amendment
thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that proposes to
------------------------------------
assert the right to be indemnified hereunder will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or parties
under this Section, notify each such indemnifying party of the commencement of
such action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 6.05(a) or 6.05(b) shall be available to
any party who shall fail to give notice as provided in this Section 6.05(c) if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was prejudiced by the failure to give such
notice, but the omission so to notify such indemnifying party of any such
action, suit or proceeding shall not relieve it from any liability that it may
have to any indemnified party for contribution or otherwise than under this
Section. In case any such action, suit or proceeding shall be brought against
any indemnified party and it shall notify the
14
<PAGE>
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and the approval by the indemnifying party to such indemnified
party of its election so to assume the defense thereof and the approval by the
indemnified party of such counsel, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses, except as provided below
and except for the reasonable costs of investigation subsequently incurred by
such indemnified party in connection with the defense thereof. The indemnified
party shall have the right to employ its counsel in any such action, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party unless (i) the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the indemnified party
shall have reasonably concluded that there may be a conflict of interest between
the indemnifying parties and the indemnified party in the conduct of the defense
of such action (in which case the indemnifying parties shall not have the right
to direct the defense of such action on behalf of the indemnified party) or
(iii) the indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the commencement
thereof, in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying parties. An indemnifying party shall not be liable
for any settlement of any action, suit, proceeding or claim effected without its
written consent.
(d) Contribution. In connection with each Registration Statement
------------
relating to the disposition of Registrable Securities, if the indemnification
provided for in subsection (a) hereof is unavailable to an indemnified party
thereunder in respect of any losses, claims, damages or liabilities referred to
therein, then the Company shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities. The amount to be contributed by
the Company hereunder shall be an amount which is in the same proportionate
relationship to the total amount of such losses, claims, damages or liabilities
as the total net proceeds from the offering (before deducting expenses) of the
Registrable Securities bears to the total price to the public (including
underwriters' discounts) for the offering of the Registrable Securities covered
by such registration.
(e) Specific Performance. The Company and the Holder acknowledge
--------------------
that remedies at law for the enforcement of this Section 6.05 may be inadequate
and intend that this Section 6.05 shall be specifically enforceable.
ARTICLE VII
Other Matters
-------------
Section 7.01: Amendments and Waivers. The provisions of this
------------ ----------------------
Warrant, including the provisions of this sentence, may not be amended, modified
or supplemented, and waiver or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of holders
of at least a majority of the outstanding Registrable Securities. Holders shall
be bound by any consent authorized by this Section whether or not certificates
representing such Registrable Securities have been marked to indicate such
consent.
15
<PAGE>
Section 7.02: Counterparts. This Warrant may be executed in any
------------ ------------
number of counterparts and by the parties hereto in separate counterparts, each
of which so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
Section 7.03: Governing Law. This Warrant shall be governed by and
------------ -------------
construed in accordance with the laws of the State of New York.
Section 7.04: Severability. In the event that any one or more of the
------------ ------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provisions in every other respect and of the
remaining provisions contained herein shall not be affected or impaired thereby.
Section 7.05: Attorneys' Fees. In any action or proceeding brought
------------ ---------------
to enforce any provisions of this Warrant, or where any provisions hereof or
thereof is validly asserted as a defense, the successful party shall be entitled
to recover reasonable attorneys' fees and disbursements in addition to its costs
and expenses and any other available remedy.
Section 7.06: Computations of Consent. Whenever the consent or
------------ -----------------------
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its affiliates
(other than the Warrantholder or subsequent Holders if they are deemed to be
such affiliates solely by reason of their holdings of such Registrable
Securities) shall not be counted in determining whether such consent or approval
was given by the Holders of such required percentage.
Section 7.07: Notice. Any notices or certificates by the Company to
------------ ------
the Holder and by the Holder to the Company shall be deemed delivered if in
writing and delivered in person or by registered mail (return receipt requested)
to the Holder addressed to him in care of [NAME AND ADDRESS OF REPRESENTATIVE]
or, if the Holder has designated, by notice in writing to the Company, any other
address, to such other address, and if to the Company, addressed to it at 7401
Boone Avenue North, Brooklyn Park, Minnesota 55428. The Company may change its
address by written notice to the Holder and the Holder may change his or its
address by written notice to the Company.
16
<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by the
Company under its corporate seal as of the ___ day of , 1996.
WILSONS THE LEATHER EXPERTS INC.
By:
Name:
Title:
Attest:
Secretary
17
<PAGE>
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)
For value received, _________________________ hereby sells, assigns
and transfers unto _______________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ____________________________ attorney, to transfer said
Warrant Certificate on the books of the within-named Company with respect to the
number of Warrants set forth below, with full power of substitution in the
premises:
Name (s) of
Assignees (s) Address No. of Warrants
------------- ------- ---------------
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the Warrants represented by said
Warrant Certificate
Dated: ___________________, 19__
- --------------------------
Note: The above signature should correspond exactly with the name on the face of
this Warrant Certificate.
18
<PAGE>
SUBSCRIPTION FORM
(TO BE EXECUTED UPON EXERCISE OF WARRANT
PURSUANT TO SECTION 2.02 (a) (i))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder shares of Common Stock, as provided for therein, and
tenders herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $ .
Please issue a certificate or certificates for such Common Stock in
the name of:
Name _______________________ (Please Print
Name, Address and Social Security Number)
Signature
NOTE: The above signature should respond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
19
<PAGE>
CASHLESS EXERCISE FORM
(TO BE EXECUTED UPON EXERCISE OF WARRANT
PURSUANT TO SECTION 2.02 (a) (ii))
The undersigned hereby irrevocably elects to Exchange its Warrant for
such shares of Common Stock pursuant to the Cashless Exercise provisions of the
within Warrant Certificate, as provided for in Section 2.02 (a) (ii) of such
Warrant Certificate.
Please issue a certificate or certificates for such Common Stock in
the name of:
Name____________________________(Please Print
Name, Address and Social Security Number)
Signature_______________________
NOTE: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant Certificate, a new Warrant Certificate
is to be issued in the name of the undersigned for the balance remaining of the
shares purchasable rounded up to the next higher number of shares.
20
<PAGE>
Exhibit 5.1
FAEGRE & BENSON LLP
2200 NORWEST CENTER
90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402-3901
TELEPHONE 612-336-3000
FACSIMILE 612-336-3026
December 23, 1996
Wilsons The Leather Experts Inc.
7401 Boone Avenue North
Brooklyn Park, Minnesota 55428
Re: Registration Statement No. 333-13967
------------------------------------
Ladies and Gentlemen:
In connection with the proposed registration under the Securities Act
of 1933, as amended, of 3,450,000 shares of Common Stock, par value $.01 per
share ("Common Stock"), of Wilsons The Leather Experts Inc., a Minnesota
corporation (the "Company"), proposed to be sold by the Company, we have
examined such corporate records and other documents, including the above-
referenced Registration Statement on Form S-1 (the "Registration Statement"),
and have reviewed such matters of law as we have deemed necessary for this
opinion, and we advise you that in our opinion:
1. The Company is a corporation duly organized and existing under the
laws of the State of Minnesota.
2. When the Board of Directors of the Company or the Stock Committee
thereof determines the number and price of the shares of Common Stock to be
sold by the Company, all necessary corporate action on the part of the
Company will have been taken to authorize the issuance and sale of such
shares of Common Stock by the Company, and, when issued and sold as
contemplated in the Registration Statement, such shares will be legally
issued, fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Legal Matters" in the
prospectus constituting a part of the Registration Statement and to the
reference to our firm wherever appearing therein.
Very truly yours,
FAEGRE & BENSON LLP
<PAGE>
Exhibit 10.10
WILSONS THE LEATHER EXPERTS INC.
1996 STOCK OPTION PLAN
Effective as of June 25, 1996,
Including October 10, 1996 Amendments
1. Purpose. The purpose of this 1996 Stock Option Plan (the
"Plan") is to promote the interests of Wilsons The Leather Experts Inc., a
Minnesota corporation (the "Company"), and its shareholders by providing
personnel of the Company and any subsidiaries thereof with an opportunity to
acquire a proprietary interest in the Company and thereby develop a stronger
incentive to put forth maximum effort for the continued success and growth of
the Company. In addition, the opportunity to acquire a proprietary interest in
the Company will aid in attracting and retaining personnel of outstanding
ability.
2. Administration.
(a) General. This Plan shall be administered by a committee of
two or more directors of the Company (the "Committee") appointed by the
Company's Board of Directors (the "Board"). If the Board has not appointed
a committee to administer this Plan, then the Board shall constitute the
Committee. The Committee shall have the power, subject to the limitations
contained in this Plan, to fix any terms and conditions for the grant or
exercise of any option under this Plan. From and after the date on which
the Company first registers a class of its equity securities under Section
12 ("Section 12 Registration") of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), unless the Board shall constitute the
Committee, no director shall serve as a member of the Committee unless such
director shall be a "non-employee director" as that term is defined in Rule
16b-3 promulgated under the Exchange Act or any successor statute or
regulation comprehending the same subject matter. A majority of the members
of the Committee shall constitute a quorum for any meeting of the
Committee, and the acts of a majority of the members present at any meeting
at which a quorum is present or the acts unanimously approved in writing by
all members of the Committee shall be the acts of the Committee. Subject to
the provisions of this Plan, the Committee may from time to time adopt such
rules for the administration of this Plan as it deems appropriate. The
decision of the Committee on any matter affecting this Plan or the rights
and obligations arising under this Plan or any option granted hereunder,
shall be final, conclusive and binding upon all persons, including without
limitation the Company, shareholders and optionees.
(b) Indemnification. To the full extent permitted by law, (i) no
member of the Committee shall be liable for any action or determination
taken or made in good faith with respect to this Plan or any option granted
hereunder and (ii) the members of the Committee and each person to whom the
Committee delegates authority
<PAGE>
under this Plan shall be entitled to indemnification by the Company against
and from any loss incurred by such member or person by reason of any such
actions and determinations.
(c) Delegation of Authority. The Committee may delegate all or any
part of its authority under this Plan to the Chief Executive Officer of the
Company for purposes of granting and administering awards granted to
persons other than persons who are then subject to the reporting
requirements of Section 16 of the Exchange Act ("Section 16 Individuals").
The Chief Executive Officer of the Company may, in turn, delegate such
authority to such other officer of the Company as the Chief Executive
Officer may determine.
3. Shares. The shares that may be made subject to options granted
under this Plan shall be authorized and unissued shares of Class C Common Stock
of the Company, par value $0.01 per share or, in the event of the conversion of
all outstanding Class C Common Stock of the Company to Class B Common Stock or
Common Stock of the Company without designation as to class pursuant to the
Articles of Incorporation of the Company, shall be authorized and unissued
shares of Class B Common Stock, par value $0.01 per share, or Common Stock of
the Company without designation as to class, par value $0.01 per share, as the
case may be ("Shares," and each individually a "Share"), and they shall not
exceed 1,000,000 Shares in the aggregate after giving effect to the .90 for one
reverse stock split and combination effective October 11, 1996, subject to
adjustment as provided in paragraph 13, below, except that, if any option lapses
or terminates for any reason before such option has been completely exercised,
the Shares covered by the unexercised portion of such option may again be made
subject to options granted under this Plan.
4. Eligible Participants. For purposes of this Plan, any person who
is employed by the Company, or any parent or subsidiary thereof, is referred to
herein as an "Associate." Options may be granted under this Plan to any
Associate, including any such Associate who is also an officer or director of
the Company or any parent or subsidiary thereof. Nonstatutory stock options (as
defined in subparagraph 5(a) below) also may be granted to any director of the
Company who is not an "employee" of the Company or any parent or subsidiary
thereof and may also be granted to other individuals or entities who are not
"employees" but who provide services to the Company or a parent or subsidiary
thereof in the capacity of an advisor or consultant. References herein to
"employment" and similar terms (except "Associate") shall include the providing
of services in any such capacity or as a director. The Associates and other
individuals and entities to whom options may be granted pursuant to this
paragraph 4 are referred to herein as "Eligible Participants."
-2-
<PAGE>
5. Terms and Conditions of Associate, Advisor, Consultant and
Director Options.
(a) General. Subject to the terms and conditions of this
Plan, the Committee may, from time to time during the term of this Plan,
grant to such Eligible Participants as the Committee may determine options
to purchase such number of Shares of the Company on such terms and
conditions as the Committee may determine. In determining the Eligible
Participants to whom options shall be granted and the number of Shares to
be covered by each option, the Committee may take into account the nature
of the services rendered by the respective Eligible Participants, their
present and potential contributions to the success of the Company, and such
other factors as the Committee in its sole discretion may deem relevant.
The date and time of approval by the Committee of the granting of an option
shall be considered the date and the time of the grant of such option. The
Committee in its sole discretion may designate whether an option granted to
an Associate is to be considered an "incentive stock option" (as that term
is defined in Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any amendment thereto) or a nonstatutory stock option (an
option granted under this Plan that is not intended to be an "incentive
stock option"). The Committee may grant both incentive stock options and
nonstatutory stock options to the same Associate. However, if an incentive
stock option and a nonstatutory stock option are awarded simultaneously,
such options shall be deemed to have been awarded in separate grants, shall
be clearly identified, and in no event shall the exercise of one such
option affect the right to exercise the other. To the extent that the
aggregate Fair Market Value (as defined in paragraph 7 below) of Shares
with respect to which incentive stock options (determined without regard to
this sentence) are exercisable for the first time by any Associate during
any calendar year (under all plans of the Company and its parent and
subsidiary corporations) exceeds $100,000, such options shall be treated as
nonstatutory stock options. The maximum number of Shares subject to options
that may be granted to any one Eligible Participant under the Plan in any
fiscal year of the Company may not exceed 250,000 Shares after giving
effect to the .90 for one reverse stock split and combination effective
October 11, 1996 (subject to adjustment pursuant to paragraph 13 hereof).
Notwithstanding the foregoing, no incentive stock option may be granted
under this Plan unless this Plan is approved by the shareholders of the
Company within twelve months after the effective date of this Plan.
(b) Purchase Price. The purchase price of each Share subject
to an option granted pursuant to this paragraph 5 shall be fixed by the
Committee, subject, however, to the remainder of this subparagraph 5(b).
For nonstatutory stock options, such purchase price may be set at any price
the Committee may determine; provided, however, that from and after a
Section 12 Registration, such purchase price shall be not less than 85% of
the Fair Market Value of a Share on the date of grant. For incentive stock
options, such purchase price shall be no less than 100% of the Fair Market
Value of a Share on the date of grant, provided that if such incentive
stock option is granted to
-3-
<PAGE>
an Associate who owns, or is deemed under Section 424(d) of the Code to
own, at the time such option is granted, stock of the Company (or of any
parent or subsidiary of the Company) possessing more than 10% of the total
combined voting power of all classes of stock therein (a "10%
Shareholder"), such purchase price shall be no less than 110% of the Fair
Market Value of a Share on the date of grant.
(c) Vesting. Each option agreement provided for in paragraph 6
shall specify when each option granted under this Plan shall become
exercisable with respect to the Shares covered by the option.
Notwithstanding the provisions of any option agreement provided for in
paragraph 6, the Committee may, in its sole discretion, declare at any time
that any option granted under this Plan shall be immediately exercisable.
(d) Termination. Each option granted pursuant to this paragraph
5 shall expire, and all rights to purchase Shares thereunder shall
terminate, on the earliest of:
(i) ten years after the date such option is granted (or in
the case of an incentive stock option granted to a 10% Shareholder,
five years after the date such option is granted) or on such date
prior thereto as may be fixed by the Committee on or before the date
such option is granted;
(ii) the expiration of the period after the termination of
the optionee's employment within which the option is exercisable as
specified in paragraph 10(b) or 10(c), whichever is applicable
(provided that the Committee may, in any option agreement provided for
in paragraph 6 or by Committee action with respect to any outstanding
option, extend the periods specified in paragraph 10(b) and 10(c)); or
(iii) the date, if any, fixed for cancellation pursuant to
paragraph 11(c) or 12 below.
6. Option Agreements. All options granted under this Plan shall
be evidenced by a written agreement in such form or forms as the Committee may
from time to time determine, which agreement shall, among other things,
designate whether the options being granted thereunder are nonstatutory stock
options or incentive stock options. So long as the Shareholder Agreement dated
as of May 25, 1996 among Leather Investors Limited Partnership I, Leather
Investors Limited Partnership II, Joel Waller, David Rogers, certain investors
and managers named in the signature pages thereto, and the Company (the
"Shareholder Agreement") is in effect with respect to any share of common stock
of the Company, regardless of class or lack of class designation (other than
"Restricted Stock," as defined in the Shareholder Agreement), each option
agreement will provide that any person
-4-
<PAGE>
exercising an option will execute and deliver to the Company an agreement to
subscribe to the terms and conditions of the Shareholder Agreement at the time
of such option exercise.
7. Fair Market Value. For purposes of this Plan, the "Fair
Market Value" of a Share at a specified date shall, unless otherwise expressly
provided in this Plan, mean the closing sale price of a Share on the date
immediately preceding such date or, if no sale of Shares shall have occurred on
that date, on the next preceding day on which a sale of Shares occurred, on the
Composite Tape for New York Stock Exchange listed shares or, if Shares are not
quoted on the Composite Tape for New York Stock Exchange listed shares, on the
Nasdaq National Market or any similar system then in use or, if Shares are not
included in the Nasdaq National Market or any similar system then in use, the
mean between the closing "bid" and the closing "asked" quotation of a Share on
the date immediately preceding the date as of which such Fair Market Value is
being determined, or, if no closing bid or asked quotation is made on that date,
on the next preceding day on which a quotation is made, on the Nasdaq SmallCap
Market or any similar system then in use, provided that if the Shares in
question are not quoted on any such system, Fair Market Value shall be what the
Committee determines in good faith to be 100% of the fair market value of a
Share as of the date in question. Notwithstanding anything stated in this
paragraph 7, if the applicable securities exchange or system has closed for the
day by the time the determination is being made, all references in this
paragraph to the date immediately preceding the date in question shall be deemed
to be references to the date in question.
8. Manner of Exercise. A person entitled to exercise an option
granted under this Plan may, subject to its terms and conditions and the terms
and conditions of this Plan, exercise it in whole at any time, or in part from
time to time, by delivery to the Company at its principal executive office, to
the attention of its Vice President, Human Resources, of written notice of
exercise, specifying the number of Shares with respect to which the option is
being exercised. The purchase price of the Shares with respect to which an
option is being exercised shall be payable in full at the time of exercise,
provided that, to the extent permitted by law, the holder of an option may
simultaneously exercise an option and sell all or a portion of the Shares
thereby acquired pursuant to a brokerage or similar relationship and use the
proceeds from such sale to pay the purchase price of such Shares. The purchase
price of each Share on the exercise of any option shall be paid in full in cash
(including check, bank draft or money order) or, at the discretion of the person
exercising the option, by delivery to the Company of unencumbered Shares, by a
reduction in the number of Shares delivered upon exercise of the option, or by a
combination of cash and such Shares (in each case such Shares having an
aggregate Fair Market Value on the date of exercise equal to the amount of the
purchase price being paid through such delivery or reduction of Shares);
provided, however, that no person shall be permitted to pay any portion of the
purchase price with Shares if, in the opinion of the Committee, payment in such
manner could have adverse financial accounting consequences for the Company.
The granting of an option to a person shall give such person no rights as a
shareholder except as to Shares issued to such person.
-5-
<PAGE>
9. Tax Withholding. Delivery of Shares upon exercise of any
nonstatutory stock option granted under this Plan shall be subject to any
required withholding taxes. A person exercising such an option may, as a
condition precedent to receiving the Shares, be required to pay the Company a
cash amount equal to the amount of any required withholdings. In lieu of all or
any part of such a cash payment, the Committee may, but shall not be required
to, provide in any option agreement provided for in paragraph 6 (or provide by
Committee action with respect to any outstanding option) that a person
exercising an option may cover all or any part of the required withholdings, and
any additional withholdings up to the amount needed to cover the individual's
full FICA and federal, state and local income tax liability with respect to
income arising from the exercise of the option, through the delivery to the
Company of unencumbered Shares, through a reduction in the number of Shares
delivered to the person exercising the option or through a subsequent return to
the Company of Shares delivered to the person exercising the option (in each
case, such Shares having an aggregate Fair Market Value on the date of exercise
equal to the amount of the withholding taxes being paid through such delivery,
reduction or subsequent return of Shares).
10. Transferability and Termination of Employment.
(a) Transferability. During the lifetime of an optionee, only
such optionee or his or her guardian or legal representative may
exercise options granted under this Plan, and no option granted under
this Plan shall be assignable or transferable by the optionee
otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder; provided, however, that any optionee may transfer a
nonstatutory stock option granted under this Plan to a member or
members of his or her immediate family (i.e., his or her children,
grandchildren and spouse) or to one or more trusts for the benefit of
such family members or partnerships in which such family members are
the only partners, if (i) the option agreement with respect to such
option, which must be approved by the Committee, expressly so provides
either at the time of initial grant or by amendment to an outstanding
option agreement and (ii) the optionee does not receive any
consideration for the transfer. Any option held by any such transferee
shall continue to be subject to the same terms and conditions that
were applicable to such option immediately prior to its transfer and
may be exercised by such transferee as and to the extent that such
option has become exercisable and has not terminated in accordance
with the provisions of the Plan and the applicable option agreement.
For purposes of any provision of this Plan relating to notice to an
optionee or to vesting or termination of an option upon the death,
disability or termination of employment of an optionee, the references
to "optionee" shall mean the original grantee of an option and not any
transferee.
-6-
<PAGE>
(b) Termination of Employment During Lifetime. During the
lifetime of an optionee, an option may be exercised only while the optionee
is employed by the Company or by a parent or subsidiary thereof, and only
if such optionee has been continuously so employed since the date the
option was granted, except that:
(i) an option shall continue to be exercisable for three
months after termination of the optionee's employment but only to the
extent that the option was exercisable immediately prior to such
optionee's termination of employment;
(ii) in the case of an optionee who is disabled (as
hereinafter defined) while employed, such optionee or his or her legal
representative may exercise the option within one year after
termination of such optionee's employment; and
(iii) as to any optionee whose termination occurs following a
declaration pursuant to paragraph 12 below, such optionee may exercise
the option at any time permitted by such declaration.
(c) Termination Upon Death. With respect to an optionee whose
employment terminates by reason of death, any option held by such optionee
at the time of death may be exercised by such optionee's legal
representatives, heirs or legatees, but only within one year after the
death of such optionee.
(d) Vesting Upon Disability or Death. In the event of the
disability (as hereinafter defined) or death of an optionee, any option
held by such individual or his or her legal representative that was not
previously exercisable shall become immediately exercisable in full if the
disabled or deceased individual shall have been continuously employed by
the Company or a parent or subsidiary thereof between the date such option
was granted and the date of such disability or death. "Disability" of an
optionee shall mean any physical or mental incapacitation whereby such
optionee is therefore unable for a period of twelve consecutive months or
for an aggregate of twelve months in any twenty-four consecutive month
period to perform his or her duties for the Company or any parent or
subsidiary thereof. "Disabled", with respect to any optionee, shall mean
that such optionee has incurred a Disability.
(e) Transfers and Leaves of Absence. Neither the transfer of
employment of a person to whom an option is granted between any combination
of the Company, a parent corporation or a subsidiary thereof, nor a leave
of absence granted to such person and approved by the Committee, shall be
deemed a termination of employment for purposes of this Plan. The terms
"parent" or "parent corporation" and "subsidiary" as used in this Plan
shall have the meaning ascribed to "parent corporation" and "subsidiary
corporation", respectively, in Sections 424(e) and (f) of the Code.
-7-
<PAGE>
(f) Right to Terminate Employment. Nothing contained in this
Plan, or in any option granted pursuant to this Plan, shall confer upon any
optionee holding an option any right to continued employment by the Company
or any parent or subsidiary of the Company or limit in any way the right of
the Company or any such parent or subsidiary to terminate such optionee's
employment at any time.
(g) Expiration Date. In no event shall any option be exercisable
at any time after the time it shall have expired in accordance with
paragraph 5(d) of this Plan. When an option is no longer exercisable, it
shall be deemed to have lapsed or terminated and will no longer be
outstanding.
11. Change in Control.
(a) A "Change in Control" shall be deemed to have occurred if
there shall have occurred a Change in Control as defined in that certain
restricted stock agreement dated as of May 25, 1996 by and among the
Company and certain employees of the Company or a direct or indirect
subsidiary of the Company, without regard to any amendments to or
termination of such restricted stock agreement subsequent to the effective
date of this Plan.
(b) Acceleration of Vesting. Notwithstanding anything in
subparagraph 5(c) above to the contrary, if a Change of Control of the
Company shall occur, then, without any action by the Committee or the
Board, each option granted under this Plan and not already exercised in
full or otherwise terminated, expired or canceled shall become immediately
exercisable in full.
(c) Cash Payment. If a Change in Control of the Company shall
occur, then, so long as a majority of the members of the Board are persons
(i) who are named as directors in the Company's articles of incorporation
or who are nominated by, or for whose election proxies shall have been
solicited by, the Board, or (ii) who are then serving as directors
appointed by the Board to fill vacancies on the Board caused by death or
resignation (but not by removal) or to fill newly-created directorships,
the Committee, in its sole discretion, and without the consent of the
holder of any option affected thereby, may determine that some or all
outstanding options shall be cancelled as of the effective date of any such
Change in Control and that the holder or holders of such cancelled options
shall receive, with respect to some or all of the Common Shares subject to
such options, as of the date of such cancellation, cash in an amount, for
each Share subject to such options, equal to the excess of the per Share
Fair Market Value of such Shares immediately prior to such Change in
Control of the Company over the exercise price per Share of such options.
(d) Limitation on Change in Control Payments. Notwithstanding
anything in subparagraph 11(b) or 11(c) above or paragraph 12 below to the
contrary, if,
-8-
<PAGE>
with respect to an optionee, the acceleration of the exercisability of an
option or the payment of cash in exchange for all or part of an option as
provided in subparagraph 11(b) or 11(c) above or paragraph 12 (which
acceleration or payment could be deemed a "payment" within the meaning of
Section 280G(b)(2) of the Code), together with any other payments which
such optionee has the right to receive from the Company or any corporation
which is a member of an "affiliated group" (as defined in Section 1504(a)
of the Code without regard to Section 1504(b) of the Code) of which the
Company is a member, would constitute a "parachute payment" (as defined in
Section 280G(b)(2) of the Code), then such acceleration of exercisability
and payments pursuant to subparagraph 11(b) or 11(c) above or paragraph 12
shall be reduced to the largest amount as, in the sole judgment of the
Committee, will result in no portion of such payments being subject to the
excise tax imposed by Section 4999 of the Code.
12. Dissolution, Liquidation, Merger. In the event of (a) the
proposed dissolution or liquidation of the Company, (b) a proposed sale of
substantially all of the assets of the Company or (c) a proposed merger,
consolidation of the Company with or into any other entity, regardless of
whether the Company is the surviving corporation, or a proposed statutory share
exchange with any other entity (the actual effective date of the dissolution,
liquidation, sale, merger, consolidation or exchange being herein called an
"Event"), the Committee may, but shall not be obligated to, either (i) if the
Event is a merger, consolidation or statutory share exchange, make appropriate
provision for the protection of outstanding options granted under this Plan by
the substitution, in lieu of such options, of options to purchase appropriate
voting common stock (the "Survivor's Stock") of the corporation surviving any
such merger or consolidation or, if appropriate, the parent corporation of the
Company or such surviving corporation, or, alternatively, by the delivery of a
number of shares of the Survivor's Stock which has a Fair Market Value as of the
effective date of such merger, consolidation or statutory share exchange equal
to the product of (x) the excess of (A) the Event Proceeds per Share (as
hereinafter defined) covered by the option as of such effective date over (B)
the exercise price per Share of the Shares subject to such option, times (y) the
number of Shares covered by such option or (ii) declare, at least twenty days
prior to the Event, and provide written notice to each optionee of the
declaration, that each outstanding option, whether or not then exercisable,
shall be cancelled at the time of, or immediately prior to the occurrence of,
the Event (unless it shall have been exercised prior to the occurrence of the
Event). In connection with any declaration pursuant to clause (ii) of the
preceding sentence, the Committee may, but shall not be obligated to, cause
payment to be made, within twenty days after the Event, in exchange for each
cancelled option to each holder of an option that is cancelled, of cash equal to
the amount (if any), for each Share covered by the cancelled option, by which
the Event Proceeds per Share (as hereinafter defined) exceeds the exercise price
per Share covered by such option. At the time of any declaration pursuant to
clause (ii) of the first sentence of this paragraph 12, each option that has not
previously expired pursuant to subparagraph 5(d)(i) or 5(d)(ii) of this Plan
shall immediately become exercisable in full and each holder of an option shall
have the right, during the period preceding the time of cancellation of the
option, to exercise his or her option as to all or any part of the Shares
covered thereby. In the event of a declaration pursuant to
-9-
<PAGE>
clause (ii) of the first sentence of this paragraph 12, each outstanding option
granted pursuant to this Plan that shall not have been exercised prior to the
Event shall be cancelled at the time of, or immediately prior to, the Event, as
provided in the declaration, and this Plan shall terminate at the time of such
cancellation, subject to the payment obligations of the Company provided in this
paragraph 12. Notwithstanding the foregoing, no person holding an option shall
be entitled to the payment provided in this paragraph 12 if such option shall
have expired pursuant to subparagraph 5(d)(i) or 5(d)(ii) of this Plan. For
purposes of this paragraph 12, "Event Proceeds per Share" shall mean the cash
plus the fair market value, as determined in good faith by the Committee, of the
non-cash consideration to be received per Share by the shareholders of the
Company upon the occurrence of the Event.
13. Adjustments. In the event of any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights offering, or extraordinary dividend
or divestiture (including a spin-off), or any other change in the corporate
structure or Shares of the Company, the Committee (or if the Company does not
survive any such transaction, a comparable committee of the Board of Directors
of the surviving corporation) may, without the consent of any optionee, make
such adjustment as it determines in its discretion to be appropriate as to the
number and kind of securities subject to and reserved under this Plan and, in
order to prevent dilution or enlargement of rights of participants in this Plan,
the number and kind of securities issuable upon exercise of outstanding options
and the exercise price thereof.
14. Substitute Options. Options may be granted under this Plan
from time to time in substitution for stock options held by employees of other
corporations who are about to become Associates, or whose employer is about to
become a subsidiary of the Company, as the result of a merger or consolidation
of the Company or a subsidiary of the Company with another corporation, the
acquisition by the Company or a subsidiary of the Company of all or
substantially all the assets of another corporation or the acquisition by the
Company or a subsidiary of the Company of at least 50% of the issued and
outstanding stock of another corporation. The terms and conditions of the
substitute options so granted may vary from the terms and conditions set forth
in this Plan to such extent as the Board at the time of the grant may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted, but with respect to stock
options which are incentive stock options, no such variation shall be permitted
which affects the status of any such substitute option as an incentive stock
option.
15. Compliance With Legal Requirements.
(a) General. No certificate for Shares distributable under
this Plan shall be issued and delivered unless the issuance of such
certificate complies with all applicable legal requirements including,
without limitation, compliance with the provisions of applicable state
securities laws, the Securities Act of 1933, as amended, and the Exchange
Act.
-10-
<PAGE>
(b) Rule 16b-3. With respect to Section 16 Individuals,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of this Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee.
16. Governing Law. To the extent that federal laws do not otherwise
control, this Plan and all determinations made and actions taken under this Plan
shall be governed by the laws of the State of Minnesota and construed
accordingly.
17. Amendment and Discontinuance of Plan. The Board may at any time
amend, suspend or discontinue this Plan; provided, however, that no amendment to
this Plan shall, without the consent of the holder of the option, alter or
impair any option previously granted under this Plan. To the extent considered
necessary to comply with applicable provisions of the Code, any such amendments
to this Plan may be made subject to approval by the shareholders of the Company.
18. Term.
(a) Effective Date. This Plan shall be effective as of June 25,
1996.
(b) Termination. This Plan shall remain in effect until all
Shares subject to it are distributed or this Plan is terminated under
paragraph 17 above. No award of an incentive stock option shall be made
under this Plan more than ten years after the effective date of this Plan
(or such other limit as may be required by the Code) if such limitation is
necessary to qualify the option as an incentive stock option.
-11-
<PAGE>
Exhibit 10.11
AMENDMENT NO. 1 TO CREDIT AGREEMENT
-----------------------------------
This AMENDMENT NO. 1 is entered into as of this 11th day of July, 1996
(this "Amendment") among WILSONS LEATHER HOLDINGS INC., a Minnesota corporation
(the "Borrower"), GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation
(in its individual capacity, "GE Capital"), for itself, as Lender, as Swing Line
Lender and as Agent for Lenders, and the other Lenders signatory hereto from
time to time.
Recitals
--------
WHEREAS, the Borrower, GE Capital and the Lenders are parties to that
certain Credit Agreement dated as of May 25, 1996 (the "Credit Agreement"; all
capitalized terms used herein and not otherwise defined herein shall have the
meaning ascribed to them in the Credit Agreement), providing for a revolving
credit facility to the Borrower of up to $150,000,000; and
WHEREAS, the designation of one of the Lenders, Signet Bank, in the Credit
Agreement is inaccurate as to the precise form of its legal name; and
WHEREAS, the Borrower, the Lenders and GE Capital consent to this Amendment
to the Credit Agreement for purposes of showing the proper legal name of one of
the Lenders.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
agreements contained herein, and for other good and valuable consideration, the
parties hereto agree as follows:
1. Each and every reference to "Signet Business Credit, as Lender" in
the Credit Agreement be and hereby is amended and replaced in its entirety with
the words "Signet Bank, as Lender". Accordingly, each and every reference to
"Signet Business Credit" in the Credit Agreement shall be construed to be a
reference to "Signet Bank".
[signature pages follow]
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first written above.
WILSONS LEATHER HOLDINGS INC.
By:
---------------------------------
Title:
------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent, Lender and
Swing Line Lender
By:
---------------------------------
Title:
------------------------------
THE FIRST NATIONAL BANK OF BOSTON,
as Lender
By:
---------------------------------
Title:
------------------------------
SANWA BUSINESS CREDIT CORPORATION,
as Lender
By:
---------------------------------
Title:
------------------------------
SIGNET BANK, as Lender
By:
---------------------------------
Title:
------------------------------
2
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC.,
as Lender
By:
---------------------------------
Title:
------------------------------
TRANSAMERICA BUSINESS CREDIT
CORPORATION, as Lender
By:
---------------------------------
Title:
------------------------------
CORESTATES BANK N.A., as Lender
By:
---------------------------------
Title:
------------------------------
BANKAMERICA BUSINESS CREDIT, INC.,
as Lender
By:
---------------------------------
Title:
------------------------------
FIRST BANK NATIONAL ASSOCIATION,
as Lender
By:
---------------------------------
Title:
------------------------------
3
<PAGE>
Exhibit 10.12
AMENDMENT NO. 2 TO CREDIT AGREEMENT
-----------------------------------
This AMENDMENT NO. 2 TO CREDIT AGREEMENT is entered into as of this 22nd
day of October, 1996 (this "Amendment") by and between WILSONS LEATHER HOLDINGS
---------
INC., a Minnesota corporation (the "Borrower") and GENERAL ELECTRIC CAPITAL
--------
CORPORATION, a New York corporation (in its individual capacity, "GE Capital"),
----------
for itself, as Swing Line Lender. Unless otherwise specified herein, all
capitalized terms used in this Amendment shall have the meaning ascribed to them
in the Credit Agreement (as hereinafter defined).
RECITALS
--------
WHEREAS, the Borrower, GE Capital, certain Credit Parties and certain
Lenders are parties to a Credit Agreement dated as of May 25, 1996, as amended
by that certain Amendment No. 1 to Credit Agreement dated as of July 11, 1996
(as further amended, supplemented, restated or otherwise modified from time to
time, the "Credit Agreement"); and
----------------
WHEREAS, the Borrower and GE Capital desire to reduce the interest rate on
the Swing Line Loan;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
agreements contained herein, and for other good and valuable consideration, the
parties hereto agree as follows:
1. Effective October 1, 1996, the column entitled "Applicable Swing
Line Margin is" in Section 1.6 of the Credit Agreement is hereby deleted in
-----------
its entirety and in its place the following column is hereby inserted:
Applicable
----------
Swing Line
----------
Margin is:
----------
.875%
.625%
.125%
0.0%
2. This Amendment may be executed in counterparts with each such
counterpart considered an original and all such counterparts constituting
one and the same document. THE TERMS OF THIS AMENDMENT SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF ILLINOIS (EXCLUSIVE OF ANY RULES AS TO CONFLICT OF LAWS) AND THE
LAWS OF THE UNITED STATES APPLICABLE THEREIN. Except as specifically
amended hereby, the Credit Agreement remains in full force and effect.
[signature pages follow]
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first written above.
WILSONS LEATHER HOLDINGS INC., as Borrower
By: /s/ Douglas J. Treff
-----------------------------------------
Title: Chief Financial Officer
--------------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION, as Swing Line Lender
By: /s/ Abigail Wolf
-----------------------------------------
Title: Authorized Signer
--------------------------------------
2
<PAGE>
Exhibit 11.1
WILSONS THE LEATHER EXPERTS INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Period from Inception
(May 26, 1996) to Three Months Ended
August 3, 1996 November 2, 1996
--------------------- ------------------
<S> <C> <C>
Weighted average number of issued shares outstanding 7,650,000 7,650,000
Effect of:
1996 Stock Option Plan 128,716 131,677
Melville Warrant to purchase common stock 1,287,694 1,287,694
----------- -----------
Weighted average shares outstanding 9,066,410 9,069,371
=========== ===========
Net loss $(8,107,000) $(1,010,000)
=========== ===========
Net loss per common share $ (0.89) $ (0.11)
=========== ===========
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As an independent public accountant, we hereby consent to the use of our report
(and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
December 23, 1996
<PAGE>
EXHIBIT 23.2
Auditors' Consent
-----------------
The Board of Directors
Wilsons Center, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 23, 1996
M1:0186224.02
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary consolidated financial information
extracted from Wilsons The Leather Experts Inc. and Subsidiaries as of August 3,
1996 and November 2, 1996 and for the period from inception (May 26, 1996) to
August 3, 1996 and the three months ended November 2, 1996 and is qualified in
its entirety by reference to such consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 2-MOS 3-MOS
<FISCAL-YEAR-END> AUG-03-1996 AUG-02-1997
<PERIOD-START> MAY-26-1996 AUG-04-1996
<PERIOD-END> AUG-03-1996 NOV-02-1996
<CASH> 9,443 6,102
<SECURITIES> 0 0
<RECEIVABLES> 11,593 24,178
<ALLOWANCES> (4,975) (11,930)
<INVENTORY> 77,666 118,741
<CURRENT-ASSETS> 94,510 138,278
<PP&E> 2,163 4,623
<DEPRECIATION> (2) (71)
<TOTAL-ASSETS> 103,652 149,644
<CURRENT-LIABILITIES> 42,767 88,178
<BONDS> 55,811 55,811
<COMMON> 77 77
0 0
7,405 7,405
<OTHER-SE> (3,589) (4,599)
<TOTAL-LIABILITY-AND-EQUITY> 103,652 149,644
<SALES> 28,518 86,363
<TOTAL-REVENUES> 28,518 86,363
<CGS> 15,738 44,763
<TOTAL-COSTS> 24,293 40,597
<OTHER-EXPENSES> 2 69
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,148 2,436
<INCOME-PRETAX> (12,663) (1,502)
<INCOME-TAX> (4,556) (492)
<INCOME-CONTINUING> (8,107) (1,010)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,107) (1,010)
<EPS-PRIMARY> (0.89) (0.11)
<EPS-DILUTED> 0 0
</TABLE>
