<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 000-21543
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Wilsons The Leather Experts Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1839933
------------------------------------------ ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7401 Boone Ave. N., Brooklyn Park, MN 55428
------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 391-4000
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
----- -----
The number of shares outstanding of the Registrant's common stock as of July 8,
1997 was 9,532,083 shares.
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WILSONS THE LEATHER EXPERTS INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
May 3, 1997 and February 1, 1997 3
Consolidated Statements of Operations -
Thirteen weeks ended May 3, 1997 and April 27, 1996 4
Consolidated Statements of Cash Flows -
Thirteen weeks ended May 3, 1997 and April 27, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Index to Exhibits 17
2
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Wilsons The Leather Experts Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
May 3 February 1
Assets 1997 1997
------ ----------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 70,702 $ 81,553
Accounts receivable, net 2,971 4,851
Inventories 51,434 64,919
Prepaid expenses 1,217 1,246
-------- --------
Total current assets 126,324 152,569
Property and equipment, net 17,742 17,091
Other assets, net 1,389 1,555
Deferred income taxes 1,173 1,173
-------- --------
$146,628 $172,388
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities:
Accounts payable $ 8,915 $ 10,666
Accrued expenses 26,764 34,517
Income taxes payable 9,849 20,345
Deferred income taxes 3,243 3,243
-------- --------
Total current liabilities 48,771 68,771
Long-term debt 55,811 55,811
Other long-term liabilities 5,844 4,341
-------- --------
Shareholders' Equity:
Series A preferred stock, $1,000 stated value; 15,000 shares authorized,
7,405 shares issued and outstanding 7,405 7,405
Class A common stock, $.01 par value; 13,500,000 shares authorized,
4,320,000 shares issued and outstanding 44 44
Class B common stock, $.01 par value; 6,750,000 shares authorized,
2,925,000 shares issued and outstanding 29 29
Class C common stock, $.01 par value; 2,250,000 shares authorized,
405,000 shares issued and outstanding 4 4
Additional paid-in capital 12,501 12,501
Retained earnings 16,248 23,511
Cumulative translation adjustment (29) (29)
-------- --------
Total shareholders' equity 36,202 43,465
-------- --------
$146,628 $172,388
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
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Wilsons The Leather Experts Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
May 3, 1997 April 27, 1996
---------------- ----------------
(Company) (Predecessor
Companies)
<S> <C> <C>
Net sales $ 56,951 $ 66,771
Costs and expenses:
Cost of goods sold, buying and occupancy costs 47,265 52,700
Selling, general and administrative expenses 19,198 20,927
Depreciation and amortization 437 2,913
Restricted stock compensation expense 450 -
-------- --------
Loss from operations (10,399) (9,769)
Interest expense, net 671 1,147
-------- --------
Loss before income taxes (11,070) (10,916)
Income tax benefit (3,807) (3,726)
-------- --------
Net loss $ (7,263) $ (7,190)
======== ========
Net loss per common share $ (.81)
========
Weighted average common shares outstanding 9,002
========
Pro forma net loss per common share $ (.76)
========
Pro forma weighted average common
shares outstanding 9,619
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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Wilsons The Leather Experts Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
May 3, 1997 April 27, 1996
------------- --------------
(Company) (Predecessor
Companies)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(7,263) $(7,190)
Adjustments to reconcile net loss to net cash used in operating activities-
Restructuring charges paid - (5,256)
Depreciation and amortization 437 2,913
Amortization of deferred financing costs 167 -
Loss on disposal of assets - 138
Restricted stock compensation expense 450 -
Deferred income taxes - 5,115
Changes in operating assets and liabilities:
Accounts receivable, net 1,879 1,423
Inventories 13,485 13,696
Prepaid expenses (111) 396
Other noncurrent assets - 24
Accounts payable and accrued expenses (8,598) (7,118)
Income taxes payable and other liabilities (8,994) (9,017)
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Net cash used in operating activities (8,548) (4,876)
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INVESTING ACTIVITIES:
Additions to property and equipment (1,088) (1,427)
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Net cash used in investing activities (1,088) (1,427)
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FINANCING ACTIVITIES:
Change in due to CVS - 6,506
Change in book overdrafts (1,215) (4,175)
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Net cash provided by (used in) financing activities (1,215) 2,331
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NET DECREASE IN CASH AND CASH EQUIVALENTS (10,851) (3,972)
CASH AND CASH EQUIVALENTS, beginning of period 81,553 7,270
------- -------
CASH AND CASH EQUIVALENTS, end of period $70,702 $ 3,298
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 163 $ 1,101
======= =======
Income taxes $ 6,721 $ 202
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
Wilsons The Leather Experts Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
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 (Acquisition) from CVS New York, Inc., a New York
corporation (CVS; formerly Melville Corporation, the parent company to the
Predecessor Companies). Wilsons and its wholly owned subsidiaries are
collectively referred to as the Company. In May 1996, pursuant to a sale
agreement dated May 24, 1996 between Wilsons and CVS, Wilsons acquired the
Common Stock for (i) $2.0 million in cash, (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, (v) 4,320,000 shares of
Common Stock, and (vi) 7,405 shares of Series A Preferred Stock (Series A
Preferred). As part of the Acquisition, the Leather Investors Limited
Partnerships I and II in turn purchased from CVS the 4,320,000 shares of Common
Stock and the 7,405 shares of Series A Preferred for $10 million.
The Acquisition was accounted for using the purchase method. The basis of
CVS's 15% equity interest in the Predecessor Companies was carried over to its
equity interest in the Company in accordance with Emerging Issues Task Force
discussion 88-16. Accordingly, the purchase price of $67.8 million and CVS's
carryover basis has been allocated on a preliminary basis 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 new basis by
approximately $52.5 million, which was applied to reduce the amounts assigned to
property and equipment.
2. Basis of Financial Statement Presentation
The consolidated financial statements include all accounts of Wilsons The
Leather Experts Inc. and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated.
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the accompanying disclosures are
adequate to make the information presented not misleading, it is suggested that
these interim financial statements be read in conjunction with the Company's
most recent audited financial statements and related notes included in its Form
S-1 Registration Statement. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary for a fair
presentation of the financial position, results of operations and cash flows for
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the interim periods presented have been made. The Company's business is highly
seasonal, and accordingly, operating results for the thirteen weeks ended May 3,
1997 are not necessarily indicative of the results that may be expected for the
fiscal year ending January 31, 1998.
3. 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 May 3, 1997. The Predecessor
Companies determined cost using the retail inventory method on the FIFO basis.
4. Net Loss Per Common Share and Pro Forma Net Loss Per Common Share
Net loss per common share and pro forma net loss per common share have been
computed by dividing net loss by the weighted average number of common shares
outstanding during the period, 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. Pro forma net loss per
common share includes the effect of the exchange of Series A Preferred for
Common Stock (see Note 6).
5. Initial Public Offering
On May 27, 1997, the Securities and Exchange Commission declared effective
the Company's Registration Statement on Form S-1 relating to the initial public
offering of 1,100,000 units. In addition, the Underwriter exercised its over-
allotment option to purchase 165,000 units. Each unit consisted of one share of
Common Stock and one redeemable warrant to purchase one share of Common Stock
for $13.50 per share. The Company received net proceeds of approximately $9.5
million after payment of related underwriting discount and offering costs.
6. Series A Preferred Exchange
As of May 27, 1997, the holders of the 7,405 shares of Series A Preferred
exchanged their entire holdings of such shares for 617,083 shares of Common
Stock at an exchange rate of $12.00 per share. In connection with such exchange,
the holders of the Series A Preferred waived their rights to receive any accrued
dividends in respect of such Series A Preferred.
7
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7. New Accounting Pronouncement
The Company will adopt in the fiscal year ending January 31, 1998,
Statement of Financial Accounting Standards No. 128 "Earnings per Share" (SFAS
No. 128), which was issued in February 1997. SFAS No. 128 requires disclosure
of basic earnings per share (EPS) and diluted EPS, which replaces the existing
primary EPS and fully diluted EPS, as defined by APB No. 15. Basic EPS is
computed by dividing net income by the weighted average number of shares of
Common Stock outstanding during the year. Diluted EPS is computed similar to
EPS as previously reported provided that, when applying the treasury stock
method to common equivalent shares, the Company must use its average share price
for the period rather than the more dilutive greater of the average share price
or end-of-period share price required by APB No. 15.
8
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Item 2. 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 The Leather Experts Inc. and its wholly owned subsidiaries
(Wilsons or the Company) should be read in conjunction with the Company's most
recent audited financial statements and related notes included in its Form S-1
Registration Statement.
Overview
The Company was organized in May 1996 to acquire 100% of the Common Stock
of Wilsons Center, Inc. and its Subsidiaries (the Predecessor Companies) from
CVS New York, Inc., a New York corporation (CVS; formerly Melville Corporation,
the parent company to the Predecessor Companies). In May 1996, management and an
investor group, as the owners of the Company, acquired the Common Stock for
$67.8 million plus the CVS Warrant (as defined below) and the Manager Warrant
(as defined below)(the Acquisition) described below in the following two-step
transaction. First, CVS received (i) $2.0 million in cash, (ii) a 10% senior
secured subordinated note due December 31, 2000 in the principal amount of $55.8
million (the Note), (iii) a warrant to purchase 1,350,000 shares of Common Stock
of the Company, having an exercise price of $.60 per share (the CVS Warrant),
(iv) a warrant to purchase 1,080,000 shares of Common Stock (the Manager
Warrant) described below, (v) 4,320,000 shares of Common Stock, and (vi) 7,405
shares of Series A Preferred Stock (Series A Preferred) in consideration for the
transfer to the Company of the Common Stock. Thereafter, the 4,320,000 shares of
Common Stock and 7,405 shares of Series A Preferred were purchased from CVS by
Leather Investors Limited Partnerships I and II for an aggregate consideration
of $10.0 million. On May 27, 1997, the 7,405 shares of Series A Preferred were
exchanged for 617,083 shares of the Company's Common Stock. The Manager Warrant
will become exercisable commencing April 30, 2001, at $.60 per share, but only
to the extent shares of Restricted Stock (as defined below) are repurchased by
the Company. 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 $52.5 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 $12.1 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 CVS. Certain of the historical financial statements presented herein are for
the thirteen-week period ended April 27, 1996, during which the Predecessor
Companies 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 period, and are not necessarily
indicative of the Company's future results or financial condition.
Throughout the late 1980's and early 1990's, as part of the growth strategy
of CVS, the Predecessor Companies pursued a rapid expansion program through
acquisitions and store
9
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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 Predecessor Companies' business was
negatively affected by the difficult retail apparel market for mall-based
chains, competition and changes in consumer fashion preferences. In 1995, the
Predecessor Companies initiated a store-closing program, which resulted in a
reduction of the number of stores to 461 by February 1, 1997. The stores closed
by the Company had not achieved cash flow targets established by management.
In connection with the Acquisition, the Company sold 3,330,000 shares of
Common Stock, including 1,080,000 shares that are subject to vesting upon the
occurrence of certain events (the Restricted Stock), to certain managers of the
Company. As of May 3, 1997, 198,018 shares of such Restricted Stock had vested.
The remaining shares of Restricted Stock will vest ratably through February 3,
2001 if the Company achieves specified earnings targets or as the Company repays
the Note. 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.
The Company's business is highly seasonal, and accordingly, operating
results for the thirteen weeks ended May 3, 1997 described below are not
necessarily indicative of the results that may be expected for a full fiscal
year. A majority of the Company's net sales and operating profit is generated in
the peak selling season period from October through December, which includes the
Christmas selling season. Wilsons recorded 55.6% of its sales for the fiscal
year ended February 1, 1997 in the peak selling period. 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 quarter of a given year.
The Company does not believe that inflation has had a material adverse
effect on the results of operations for the periods presented; however, there
can be no assurance that the Company's business will not be affected by
inflation in the future.
Results of Operations for the Thirteen Weeks Ended May 3, 1997 Compared to the
Thirteen Weeks Ended April 27, 1996
Wilsons closed 10 stores in the thirteen-week period ended May 3, 1997
compared to three store openings and 15 store closings in the thirteen-week
period ended April 27, 1996. As of May 3, 1997, Wilsons operated 451 stores
compared to 482 stores for the thirteen-week period ended April 27, 1996. The
31 fewer stores were a result of closing stores that did not achieve cash flow
targets established by management.
Sales for the thirteen-week period in 1997 decreased 14.7% to $57.0 million
compared with sales of $66.8 million during the same period in the previous
year. During the thirteen-week period in 1997, the Company had a 7.5% decrease
in comparable store sales. The comparable store sales decrease was primarily
attributable to less lower-priced clearance merchandise than in
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the prior year thirteen-week period when 73 stores had been closed in the
immediately preceding quarter. In addition, as discussed above, Wilsons on
average operated 31 fewer stores for the thirteen-week period ended May 3, 1997
compared to the thirteen-week period ended April 27, 1996.
Cost of goods sold, buying and occupancy costs for the thirteen-week period
ended May 3, 1997 were $47.3 million, or 83.0% of sales, compared to $52.7
million, or 78.9% of sales, for the thirteen-week period of the previous year.
Gross margin net of occupancy costs decreased 1.8 points as a percent of sales
for the thirteen weeks ended May 3, 1997 as compared to the thirteen-week period
one year ago due to additional markdowns required to liquidate merchandise and
increased transportation expenses. Occupancy costs for the 1997 period
decreased $1.2 million due to operating fewer stores; however, they increased as
a percent of sales in 1997 as comparable store sales declined while fixed rents
associated with store leases remained flat. The Company's inventories are
valued under the retail inventory method using the last-in, first-out (LIFO)
basis. The difference in inventories between LIFO and the first-in, first-out
(FIFO) method was not material as of May 3, 1997. Quarterly inventory
determinations are partially based on assumptions as to inventory levels at the
end of the fiscal year and expected rates of inflation for the year which may
impact future financial results.
Operating expenses for the thirteen-week period ended May 3, 1997 were
$20.1 million, or 35.3% of sales, compared to $23.8 million, or 35.7% of sales,
for the thirteen-week period ended April 27, 1996. The expense decrease of $3.8
million was due mainly to the $2.5 million decrease in depreciation and
amortization expense resulting from the purchase accounting adjustment that
reduced the amounts assigned to property and equipment. In addition, in the
period ended May 3, 1997, operating expenses other than depreciation and
amortization decreased $1.3 million from the thirteen-week period one year ago
due primarily to reduced headquarters' expense and the 31 fewer open stores.
Offsetting the operating expense reductions was a $0.5 million expense
associated with the vesting of Restricted Stock.
As a result of the above, Wilsons had a loss from operations of $10.4
million for the thirteen-week period ended May 3, 1997, compared to a loss from
operations of $9.8 million for the thirteen-week period ended April 27, 1996.
Net interest expense for the thirteen-week period ended May 3, 1997 was
$0.7 million, or 1.2% of sales, compared to $1.1 million, or 1.7% of sales, for
the thirteen-week period ended April 27, 1996. The decrease in net interest
expense is primarily due to a decrease in the average amount of debt outstanding
and an increase in interest income offset by an increase in borrowing rates and
the amortization of deferred financing costs (see further discussion in the
Liquidity and Capital Resources section below).
Income tax benefit for the thirteen-week period ended May 3, 1997 was $3.8
million, or 6.7% of sales, compared to a $3.7 million tax benefit, or 5.6% of
sales, for the thirteen weeks ended April 27, 1996. The effective tax rate
increased in 1997 to a 34.4% tax rate from a 34.1% tax rate in 1996 due to the
impact of state income taxes.
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Liquidity and Capital Resources
Wilsons' primary capital requirements are driven by the Company's strategy
to open new stores, remodel existing stores, update information systems and meet
seasonal working capital needs. The Company's peak working capital needs
typically occur during the period from August through early December as
inventory levels are increased in advance of the Company's peak selling season
from October through December. In 1997, the Company currently plans to open 12
to 17 traditional mall-based stores and eight to 10 airport stores. Such stores
are part of the Company's long-term strategy to identify new growth
opportunities and increase profit margins.
Prior to the Acquisition, the primary sources of the Predecessor Companies'
cash for working capital and capital expenditures were net cash flows from
operating activities and borrowings from CVS. The Predecessor Companies
participated in CVS's centralized cash management system whereby cash received
from operations was transferred to CVS'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.
GE Capital and a syndicate of banks have provided the Company with a
Revolving Credit Facility through May 24, 1999. 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 .25% ("prime" plus 0.0% for the first $10.0 million of
borrowings) or LIBOR plus 1.75%. The spreads are subject to possible changes
based upon the Company's financial results. As of May 3, 1997, the Company had
no borrowings outstanding under its Revolving Credit Facility. 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 0.0%. For letters of credit, the Company pays
a monthly fee in an amount equal to 1.25% per annum times the daily balance of
the amount of letters of credit outstanding during each month, which percentage
is subject to possible changes based on the Company's financial results. 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 May 3, 1997, the Company had $31.7 million in outstanding
letters of credit. From the inception of the Company as a stand-alone operating
entity (May 26, 1996) through May 3, 1997, the peak borrowings and letters of
credit outstanding under the Revolving Credit Facility were $48.2 million and
$60.9 million, respectively. During 1995, the highest amounts borrowed by the
Predecessor Companies from CVS, net of the prior indebtedness eliminated as part
of the Acquisition, to fund working capital expenditures and covered by
outstanding letters
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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 CVS, 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. As of May 3, 1997, $5.2 million in interest had accrued on the Note. The
remaining principal balance of the Note ($0.8 million) does not bear interest
and is due and payable on December 31, 2000.
Cash Flow Analysis
Operating activities for the thirteen-week period ended May 3, 1997
resulted in cash used of $8.5 million compared to cash used of $4.9 million in
the thirteen-week period ended April 27, 1996. The $8.5 million cash used in
operating activities in the thirteen-week period ended May 3, 1997 was primarily
a result of a net loss of $7.3 million, a $2.3 million net increase in operating
assets and liabilities, offset by non-cash charges for depreciation and
amortization, and Restricted Stock compensation expense.
Fluctuations in certain balance sheet accounts between February 1, 1997 and
May 3, 1997 reflect normal seasonal variations within the retail industry. The
levels of cash and cash equivalents, inventories and accounts receivable
fluctuate due to the seasonal nature of the retail business. Along with the
fluctuations in these current assets, there is also a corresponding fluctuation
in trade accounts payable and certain accrued expenses.
Investing activity for the thirteen weeks ended May 3, 1997 was comprised
of capital expenditures totaling $1.1 million. The capital expenditures were
primarily for the implementation of certain new information systems, and the
renovation of and improvements to existing stores. Capital expenditures for the
thirteen-week period ended April 27, 1996 totaled $1.4 million.
Cash used in financing activities for the thirteen weeks ended May 3, 1997
was $1.2 million compared to cash provided by financing activities of $2.3
million in the period ended April 27, 1996. The $1.2 million used in financing
activities in 1997 was the result of a decrease in book overdrafts. The cash
provided by financing activities in 1996 was a result of a $6.5 million increase
in intercompany borrowings from CVS and a $4.2 million decrease in book
overdrafts. As part of the Acquisition, CVS eliminated all prior indebtedness
owed to it by the Predecessor Companies.
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Management believes that the Company's financial resources, including the
Revolving Credit Facility, the net proceeds from its initial public offering and
estimated cash flow from operations, will be adequate to fund the Company's
operations for the foreseeable future.
Except for historical information, matters discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are
forward-looking statements that involve risks and uncertainties, and actual
results may be materially different. Because actual results may differ, readers
are cautioned not to place undue reliance on forward-looking statements. Factors
that could cause actual results to differ include: declines in comparable store
sales; future losses; changes in consumer preferences and fashion trends away
from leather; economic downturns; heavy dependence on the holiday selling
season; high levels of Company debt and restrictions imposed by lenders; limited
operating history as a stand-alone Company; risks associated with foreign
contract manufacturing and importing; increased competition in the retail
leather apparel and accessories industry; risks associated with future growth;
decreased availability and increased cost of raw materials; loss of key
personnel; and volatile stock price and market.
14
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit Description
------- -----------
10.1 Amendment No. 3 to Credit Agreement
10.2 Stock Exchange Agreement
11.1 Computation of per share loss
27.1 Financial Data Schedule
B. Reports on Form 8-K: The Company did not file any reports on Form 8-K
during the quarter ended May 3, 1997.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILSONS THE LEATHER EXPERTS INC.
By: /s/ Douglas J. Treff
----------------------------------
Douglas J. Treff
Vice President, Finance,
Chief Financial Officer, and
Assistant Secretary
Date: July 9, 1997
--------------------------------
16
<PAGE>
INDEX TO EXHIBITS
Exhibit Description Method of Filing
- ------- ----------- ----------------
10.1 Amendment No. 3 to Credit Agreement Electronic Transmission
10.2 Stock Exchange Agreement Electronic Transmission
11.1 Computation of per share loss Electronic Transmission
27.1 Financial Data Schedule Electronic Transmission
17
<PAGE>
Exhibit 10.1
AMENDMENT NO. 3 TO CREDIT AGREEMENT
This AMENDMENT NO. 3 TO CREDIT AGREEMENT is entered into as of this
23rd day of May, 1997 (this "Amendment") by and between WILSONS LEATHER HOLDINGS
INC., a Minnesota corporation ("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. 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, Borrower, GE Capital, certain Credit Parties and 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 and that
certain Amendment No. 2 to Credit Agreement dated as of October 22, 1996 (as
further amended, supplemented, restated or otherwise modified from time to time,
the "Credit Agreement"); and
WHEREAS, Newco desires to enter into an agreement with its preferred
shareholders whereby all of Newco's outstanding Series A Preferred Stock (the
"Series A Preferred") would be exchanged for 617,083 shares of Newco's common
stock (the "Preferred Stock Exchange"); and
WHEREAS, Newco is contemplating an initial public offering (the "IPO")
of units (the "Units") consisting of its common stock (the "IPO Stock") and
warrants to purchase its common stock (the "Warrants"), which offering would not
constitute a Qualified Public Offering; and
WHEREAS, in connection with the Preferred Stock Exchange, Borrower has
requested certain waivers by Lenders; and
WHEREAS, in connection with the IPO, Borrower and Lenders desire to
modify certain provisions of the Credit Agreement relating to the capital
structure of Newco and issuance of its shares.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements contained herein, and for good and valuable consideration, the
parties hereto agree as follows:
1. Lenders hereby waive any breach of the Credit Agreement that
may occur by reason of the Preferred Stock Exchange, and hereby acknowledge that
upon consummation of the Preferred Stock Exchange, Disclosure Schedule 3.8 to
the Credit
<PAGE>
Agreement shall be deemed amended to reflect the exchange of all of the
outstanding Series A Preferred for 617,083 shares of Newco's common stock.
2. Effective immediately prior to the closing of the IPO, for
purposes of any supplemental disclosure required by Section 5.6 of the Credit
Agreement, the second and third sentences of Section 3.8 shall be deemed to read
as follows:
All of the issued and outstanding Stock of each of Borrower, Parent
and Store Guarantors is owned by the stockholders and in the amounts set
forth on Disclosure Schedule 3.8. There are no outstanding rights to
purchase, options, warrants or similar rights or agreements pursuant to
which Borrower, Parent or any Store Guarantor may be required to issue,
sell, repurchase or redeem any of its Stock or other equity securities or
any Stock or other equity securities of its Subsidiaries.
3. Effective immediately prior to the closing of the IPO, Section
6.5 of the Credit Agreement is hereby deleted in its entirety and in its place
the following is hereby inserted:
6.5 Capital Structure and Business. No Credit Party shall make any
changes in any of its business objectives, purposes or operations which
could in any way adversely affect the repayment of the Loans or any of the
other Obligations or could have or result in a Material Adverse Effect.
None of Borrower, Parent or any Store Guarantor shall (a) make any change
in its capital structure as described on Disclosure Schedule 3.8 (including
a change in capital structure effected through the issuance of any shares
of Stock, warrants or other securities convertible into Stock or any
revision of the terms of its outstanding Stock), or (b) amend its charter
or bylaws in a manner which would adversely affect the Agent or Lenders or
Borrower's, Parent's or Store Guarantors' duty or ability to repay the
Obligations; provided, however, that nothing herein shall prohibit a merger
or consolidation otherwise permitted by Section 6.1 hereof. No Credit
Party shall engage in any business other than the businesses currently
engaged in by it or businesses reasonably related thereto.
4. Effective immediately prior to the closing of the IPO, Section
6.8 of the Credit Agreement is hereby amended by (i) deleting that portion of
such Section 6.8 appearing after the caption and prior to "(a)" and inserting in
its place the following:
No Credit Party shall sell, transfer, convey, assign or otherwise
dispose of any of its properties or other assets, including the capital
Stock of any of its Subsidiaries, or any of their Accounts, other than as
permitted under Section 6.1 and
and (ii) adding the following at the end of such Section 6.8:
-2-
<PAGE>
None of Borrower, Parent or any Store Guarantor shall sell or issue
any of its capital Stock (other than directors' qualifying shares) to any
person other than a Credit Party.
5. Lenders hereby acknowledge that they have received notice of the
corporate mergers and name changes described on Exhibit A hereto and that the
requirements of Section 6.16 of the Credit Agreement with respect thereto have
been met.
6. 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]
-3-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
date first written above.
WILSONS LEATHER HOLDINGS INC.
By: /s/ Douglas J. Treff
-------------------------------------
Title: CFO, VP Finance
----------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent, Lender and Swing
Line Lender
By: /s/ C. L. Midkiff
-------------------------------------
Title:
----------------------------------
BANK BOSTON, as Lender
By: /s/ Ella Tilsta
-------------------------------------
Title: Director
----------------------------------
SANWA BUSINESS CREDIT CORPORATION,
as Lender
By: /s/ Michael J. Cop
-------------------------------------
Title: 1st V.P.
----------------------------------
SIGNET BANK, as Lender
By: /s/ Mara L. Suroanski
-------------------------------------
Title: Asst Vice President
----------------------------------
-4-
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC.,
as Lender
By: /s/ Allison Friedman
-----------------------------------
Title: Assistant Secretary
--------------------------------
TRANSAMERICA BUSINESS CREDIT
CORPORATION, as Lender
By: /s/ Thomas V. Fernandez
-----------------------------------
Title: Senior Account Executive
--------------------------------
CORESTATES BANK N.A., as Lender
By: /s/ Myron Landau
-----------------------------------
Title: VP
--------------------------------
BANKAMERICA BUSINESS CREDIT, INC.,
as Lender
By: /s/ Thomas G. Sullivan
-----------------------------------
Title: Vice President
--------------------------------
FIRST BANK NATIONAL ASSOCIATION,
as Lender
By: /s/ Robert E. Lercli, Jr.
-----------------------------------
Title: S.V.P.
--------------------------------
-5-
<PAGE>
EXHIBIT A
MERGERS AND NAME CHANGES ASSOCIATED WITH MERGERS
1. Alabama:
Survivor: Wilsons Leather of Alabama Inc. (f/k/a Riverchase Wilsons, Inc.)
Merged into Survivor: Madison Square Wilsons, Inc.
2. Connecticut:
Survivor: Wilsons Leather of Connecticut Inc. (f/k/a Crystal Waterford
Wilsons, Inc.)
Merged into Survivor: Buckland Hills Pelle Cuir, Inc.
Danbury Fair Wilsons, Inc.
Meriden Square Wilsons, Inc.
Trumbull Park Wilsons, Inc.
Wilsons/Georgetown Leather Design of
Farmington, CT., Inc.
Wilsons/Georgetown Leather Design of
Stamford, CT., Inc.
3. Florida:
Survivor: Wilsons Leather of Florida Inc. (f/k/a Mall at 163rd St.
Wilsons, Inc.)
Merged into Survivor: Bayside Tannery West, Inc.
Governor's Square Wilsons, Inc.
Orlando Fashion Wilsons, Inc.
Sawgrass Mills Bermans Outlet, Inc.
4. Georgia:
Survivor: Wilsons Leather of Georgia Inc. (f/k/a Town Center Wilsons, Inc.)
Merged into Survivor: Atlanta Airport Concourse T Wilsons, Inc.
Augusta Mall Wilsons, Inc.
Concourse A Wilsons, Inc.
Cumberland Wilsons, Inc.
Gwinnett Place Wilsons, Inc.
Hartsfield Atrium Wilsons, Inc.
Macon Mall Wilsons, Inc.
North Point Wilsons, Inc.
Peachtree Mall Wilsons, Inc.
5. Indiana:
Survivor: Wilsons Leather of Indiana Inc. (f/k/a Southlake Wilsons, Inc.)
Merged into Survivor: Indianapolis Wilsons, Inc.
<PAGE>
6. Iowa:
Survivor: Wilsons Leather of Iowa Inc. (f/k/a Southern Hills Wilsons,
Inc.)
Merged into Survivor: Council Bluffs Wilsons, Inc.
Lindale Wilsons, Inc.
Old Capital Center Wilsons, Inc.
Valley West Wilsons, Inc.
7. Louisiana:
Survivor: Wilsons Leather of Louisiana Inc. (f/k/a Acadiana Mall Wilsons,
Inc.)
Merged into Survivor: Cortana Mall Wilsons, Inc.
Oakwood Wilsons, Inc.
8. Maryland:
Survivor: Wilsons Leather of Maryland Inc. (f/k/a St. Charles Wilsons,
Inc.)
Merged into Survivor: Annapolis Mall Wilsons, Inc.
Eastpoint Wilsons, Inc.
Laurel Mall Wilsons, Inc.
Marley Station Wilsons, Inc.
Salisbury Centre Wilsons, Inc.
Wilsons/Georgetown Leather Design of Bethesda, MD.,
Inc.
Wilsons/Georgetown Leather Design of Columbia, MD.,
Inc.
Wilsons/Georgetown Leather Design of Gaithersburg,
MD., Inc.
Wilsons/Georgetown Leather Design of Landover, MD.,
Inc.
Wilsons/Georgetown Leather Design of Owings, MD.,
Inc.
Wilsons/Georgetown Leather Design of Towson, MD.,
Inc.
-2-
<PAGE>
9. Massachusetts:
Survivor: Wilsons Leather of Massachusetts Inc. (f/k/a Liberty Tree Mall
Wilsons, Inc.)
Merged into Survivor: Arsenal Wilsons, Inc.
Auburn Wilsons, Inc.
Braintree Tannery West, Inc.
Cambridge Galleria Wilsons, Inc.
Eastfield Wilsons, Inc.
Emerald Square Wilsons, Inc.
Holyoke Wilsons, Inc.
Lanesborough Berkshire Mall Wilsons, Inc.
Leominster Wilsons, Inc.
Natick Mall Wilsons, Inc.
North Dartmouth Wilsons, Inc.
Northshore Wilsons, Inc.
Square One Wilsons, Inc.
Swansea Wilsons, Inc.
10. Michigan:
Survivor: Wilsons Leather of Michigan Inc. (f/k/a Fairlane Wilsons, Inc.)
Merged into Survivor: Birchwood Mall Wilsons, Inc.
Briarwood Wilsons, Inc.
Burton Wilsons, Inc.
Eastland (Mich.) Wilsons, Inc.
Fashion Square-Saginaw Wilsons, Inc.
Genesee Valley Wilsons, Inc.
Grand Rapids Wilsons, Inc.
Grand Traverse Wilsons, Inc.
Lakeview Square Wilsons, Inc.
Lansing Mall Wilsons, Inc.
Midland Mall Wilsons, Inc.
Portage Wilsons, Inc.
Taylor Township Wilsons, Inc.
Twelve Oaks Tannery West, Inc.
Wayne County Wilsons, Inc.
Westland-Detroit Wilsons, Inc.
-3-
<PAGE>
11. New Jersey:
Survivor: Wilsons Leather of New Jersey Inc. (f/k/a Wilsons/Georgetown
Leather Design of
Woodbridge, NJ., Inc.)
Merged into Survivor: Bridgewater Commons Wilsons, Inc.
Brunswick Square Wilsons, Inc.
Cherry Hill Wilsons, Inc.
Garden State Tannery West, Inc.
Hamilton Wilsons, Inc.
Livingston Mall Wilsons, Inc.
Menlo Park Wilsons, Inc.
Newport City Wilsons, Inc.
Ocean County Wilsons, Inc.
Paramus Park Wilsons, Inc.
Phillipsburg Wilsons, Inc.
Raceway Wilsons, Inc.
Rockaway Tannery West, Inc.
Willowbrook Wilsons, Inc.
Woodbridge Mall Wilsons, Inc.
-4-
<PAGE>
12. New York:
Survivor: Wilsons Leather of New York Inc. (f/k/a Smith Haven Tannery
West, Inc.)
Merged into Survivor: Avenue of the Americas Wilsons, Inc.)
Bayshore Wilsons, Inc.)
Champlain Centre Wilsons, Inc.)
Chautauqua Wilsons, Inc.)
Colonie Wilsons, Inc.)
Cross County Wilsons, Inc.)
Eastview Wilsons, Inc.)
Flatbush Wilsons, Inc.)
Green Acres Wilsons, Inc.)
Henrietta Wilsons, Inc.
Irondequoit Wilsons, Inc.
Jefferson Yorktown Wilsons, Inc.
Long Ridge Wilsons, Inc.
Nanuet Tannery West, Inc.
Newburgh Mall Wilsons, Inc.
Onondaga County Wilsons, Inc.
Poughkeepsie Galleria Wilsons, Inc.
Rd. Square Wilsons, Inc.
Roosevelt Field Tannery West, Inc.
Roosevelt Field Wilsons, Inc.
Salmon Run Wilsons, Inc.
Shoppingtown Wilsons, Inc.
Smith Haven Wilsons, Inc.
Staten Island Wilsons, Inc.
Steinway Street Wilsons, Inc.
St. Laurence Wilsons, Inc.
White Plains Galleria, Wilsons, Inc.
13. North Carolina:
Survivor: Wilsons Leather of North Carolina Inc. (f/k/a Cary Town Wilsons,
Inc.)
Merged into Survivor: Carolina Place Wilsons, Inc.
Cross Creek Mall Wilsons, Inc.
Eastland Mall Wilsons, Inc.
Four Seasons Wilsons, Inc.
Northgate-Durham Wilsons, Inc.
South Square Wilsons, Inc.
Hanes Mall Wilsons, Inc.
-5-
<PAGE>
14. Ohio:
Survivor: Wilsons Leather of Ohio Inc. (f/k/a Clermont County Wilsons,
Inc.)
Merged into Survivor: Kenwood Wilsons, Inc.
Parmatown Wilsons, Inc.
Sandusky Mall Wilsons, Inc.
15. Pennsylvania:
Survivor: Wilsons Leather of Pennsylvania Inc. (f/k/a South Hills Wilsons,
Inc.)
Merged into Survivor: Beaver Valley Wilsons, Inc.
Berkshire Wilsons, Inc.
Franklin Mills Bermans Outlet, Inc.
Harrisburg Wilsons, Inc.
King of Prussia Wilsons, Inc.
Monroeville Wilsons, Inc.
Neshaminy Wilsons, Inc.
Park City Wilsons, Inc.
Philadelphia Gallery Wilsons, Inc.
Pittsburgh Airport Wilsons, Inc.
Ross Park Wilsons, Inc.
Wilsons/Georgetown Leather Design of King of
Prussia, PA., Inc.
Wilsons/Georgetown Leather Design of Willow Grove,
PA., Inc.
York Mall Wilsons, Inc.
16. Rhode Island:
Survivor: Wilsons Leather of Rhode Island Inc. (f/k/a Midland Mall Wilsons
House of Suede, Inc.)
Merged into Survivor: Rhode Island-Warwick Wilsons House of Suede, Inc.
Snyder Leather of Warwick, RI., Inc.
17. Tennessee:
Survivor: Wilsons Leather of Tennessee Inc. (f/k/a Wilsons/Georgetown
Leather Design of
Nashville, TN., Inc.)
Merged into Survivor: Hamilton Place Wilsons, Inc.
Hickory Ridge Bermans, Inc.
Bellevue Bermans Inc.
-6-
<PAGE>
18. Texas:
Survivor: Wilsons Leather of Texas Inc. (f/k/a Cielo Vista Wilsons, Inc.)
Merged into Survivor: Barton Creek Wilsons, Inc.
Hulen Mall Wilsons, Inc.
Ingram Park Wilsons, Inc.
Irving Wilsons, Inc.
Laredo Wilsons, Inc.
Sharpstown Wilsons, Inc.
Tyler Wilsons, Inc.
19. Virginia:
Survivor: Wilsons Leather of Virginia Inc. (f/k/a Military Circle Wilsons,
Inc.)
Merged into Survivor: Landmark Center (VA.) Wilsons, Inc.
Pentagon City Tannery West, Inc.
Roanoke Wilsons, Inc.
Spotsylvania Wilsons, Inc.
Wilsons/Georgetown Leather Design of Arlington, VA.,
Inc.
Wilsons/Georgetown Leather Design of Dale City, VA.,
Inc.
Wilsons/Georgetown Leather Design of Fairfax, VA.,
Inc.
Wilsons/Georgetown Leather Design of McLean, VA.,
Inc.
Wilsons/Georgetown Leather Design of Springfield,
VA., Inc.
20. West Virginia:
Survivor: Wilsons Leather of West Virginia Inc. (f/k/a Parkersburg
Wilsons, Inc.)
Merged into Survivor: Huntington-West VA., Wilsons, Inc.
21. Wisconsin:
Survivor: Wilsons Leather of Wisconsin Inc. (f/k/a Janesville Wilsons,
Inc.)
Merged into Survivor: Capitol Court Wilsons, Inc.
-7-
<PAGE>
22. All Other States:
Survivor: River Hills Wilsons, Inc.
Merged into Survivor: Metro Wilsons, Inc.
Paradise Valley Wilsons, Inc.
Scottsdale Wilsons, Inc.
Tucson Mall Wilsons, Inc.
Antelope Valley Wilsons, Inc.
Arden Fair Wilsons, Inc.
Baldwin Hills Wilsons, Inc.
Bayshore (C.A.) Wilsons, Inc.
Carson Wilsons, Inc.
Chula Vista Wilsons, Inc.
County Fair Wilsons, Inc.
Del Amo Bermans, Inc.
Escondido Wilsons, Inc.
Great Mall Snyder Leather Outlet, Inc.
Hanford Wilsons, Inc.
Lakewood Wilsons, Inc.
Long Beach Wilsons, Inc.
Main Place Wilsons, Inc.
Mission Valley Wilsons, Inc.
Montclair Wilsons, Inc.
Montebello Wilsons, Inc.
Northgate Wilsons, Inc.
North County Fair Tannery West, Inc.
Oakridge Wilsons, Inc.
Parkway Plaza Wilsons, Inc.
Sacramento Wilsons, Inc.
San Leandro Wilsons, Inc.
Santa Anita Wilsons, Inc.
Santa Maria Wilsons, Inc.
Santa Rosa Wilsons, Inc.
Serramonte Wilsons, Inc.
Sherwood Wilsons, Inc.
Sierra Vista Wilsons, Inc.
Solano Mall Wilsons, Inc.
Stoneridge Tannery West, Inc.
Stonewood Wilsons, Inc.
The Oaks Wilsons, Inc.
Tyler Mall Wilsons, Inc.
Victor Valley Wilsons, Inc.
West Covina Wilsons, Inc.
Yuba City Wilsons, Inc.
-8-
<PAGE>
Boulder Wilsons, Inc.
Foothills Wilsons, Inc.
Southwest Plaza Wilsons, Inc.
Westminster (Colo.) Wilsons, Inc.
Wilsons/Georgetown Leather Design of
Denver, CO., Inc.
Boise Wilsons, Inc.
Carbondale IL., Wilsons, Inc.
Century City Wilsons, Inc.
Charlestowne Wilsons, Inc.
Chicago Ridge Wilsons, Inc.
Chicago Yard Wilsons, Inc.
Ford City Pelle Cuir, Inc.
Golf Mill Wilsons, Inc.
Gurnee Mills Bermans Outlet, Inc.
Machesney Wilsons, Inc.
Orland Sq. Wilsons, Inc.
Randhurst Wilsons, Inc.
Spring Hill Wilsons, Inc.
Stratford Square Wilsons, Inc.
Touhy Avenue Pelle Cuir, Inc.
Towne East Wilsons, Inc.
Auburn-Maine Wilsons, Inc.
Bangor Mall Wilsons, Inc.
Maine Mall Wilsons, Inc.
Ridgedale Tannery West, Inc.
Dakota Square Wilsons, Inc.
Crossroads Wilsons, Inc.
Oakview Wilsons, Inc.
Fox Run Wilsons, Inc.
Mall of Manchester Wilsons, Inc.
Pheasant Wilsons, Inc.
Rockingham Park Wilsons, Inc.
Steeplegate Wilsons, Inc.
Coronado Wilsons, Inc.
Boulevard Mall Wilsons, Inc.
Park Lane Wilsons, Inc.
Rogue Valley Wilsons, Inc.
Rushmore Mall Wilsons, Inc.
Crossroads Wilsons, Inc.
Fashion Place Wilsons, Inc.
Layton Hills Wilsons, Inc.
University Mall Wilsons, Inc.
Bellis Fair Wilsons, Inc.
Cascade Mall Wilsons, Inc.
Great Northwest Bermans Outlet, Inc.
-9-
<PAGE>
Kelso Wilsons, Inc.
Kitsap Mall Wilsons, Inc.
Northtown Wilsons, Inc.
South Hill (WA) Wilsons, Inc.
Tacoma Wilsons, Inc.
Vancouver Mall Wilsons, Inc.
Yakima Wilsons, Inc.
-10-
<PAGE>
NAME CHANGES AND NEWLY-FORMED ENTITIES
1. Arkansas:
Name Change: Wilsons Leather of Arkansas Inc. (f/k/a Park Plaza Wilsons,
Inc.)
2. Delaware:
Name Change: Wilsons Leather of Delaware Inc. (f/k/a Christiana Wilsons,
Inc.)
3. Mississippi:
Newly-Formed Entity: Wilsons Leather of Mississippi Inc.
4. Missouri:
Name Change: Wilsons Leather of Missouri Inc. (f/k/a Wilsons/Georgetown
Leather Design of St.
Louis, MO., Inc.)
5. South Carolina:
Name Change: Wilsons Leather of South Carolina Inc. (f/k/a Haywood
Wilsons, Inc.)
6. Vermont:
Name Change: Wilsons Leather of Vermont Inc. (f/k/a Burlington Wilsons,
Inc.)
-11-
<PAGE>
Exhibit 10.2
STOCK EXCHANGE AGREEMENT
THIS AGREEMENT made and entered into as of the 27th day of May, 1997
by and among Wilsons The Leather Experts Inc., a Minnesota corporation (the
"Company"), and Leather Investors Limited Partnership II, a Minnesota limited
partnership (the "Shareholder").
WHEREAS, the Company has filed a registration statement for a public
offering of units consisting of its Common Stock, par value $.01 per share,
without designation as to class (the "Undesignated Common Stock") and warrants
to purchase Undesignated Common Stock ("Warrants"); and
WHEREAS, the Shareholder owns of record all 7,405 shares of the
Company's Series A Preferred Stock, par value $.01 per share (the "Preferred
Stock"), currently outstanding; and
WHEREAS, the Company has available for issuance shares of its Class A
Common Stock, par value $.01 per share (the "Common Stock"); and
WHEREAS, the Company and the Shareholder desire to facilitate said
public offering of units consisting of Undesignated Common Stock and Warrants
and to simplify the capital structure of the Company by exchanging the
Shareholder's shares of Preferred Stock for newly-issued shares of Common Stock;
and
WHEREAS, the Company and the Shareholder understand that in the event
the contemplated public offering is completed following the exchange of the
Preferred Stock for Common Stock, the shares of Common Stock to be issued to the
Shareholders in exchange for the 7,405 shares of Preferred Stock automatically
will be converted into Undesignated Common Stock as provided in the Amended
Articles of Incorporation of the Company.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Delivery of Certificates. The Shareholder hereby agrees to
deliver to the Company stock certificates representing the 7,405 shares of
Preferred Stock held of record by the Shareholder in a form suitable for
surrender to the Company.
2. New Certificates. In consideration for such surrender, the
Company hereby agrees to issue in exchange for each such share of Preferred
Stock so surrendered 83 1/3 shares of Common Stock (with the total number of
shares of Common Stock so
<PAGE>
issued to be rounded to the nearest whole share), such that a total of 617,083
shares of Common Stock shall be issued by the Company to the Shareholder in
exchange for the Shareholder's Preferred Stock. The Company agrees to issue to
the Shareholder a certificate or certificates registered in the Shareholder's
name representing such shares of Common Stock. Notwithstanding anything to the
contrary provided in the Amended Articles of Incorporation of the Company or
otherwise, no dividends, whether accumulated, cumulative, accrued or otherwise,
shall be paid with respect to the Preferred Stock, and the Shareholder waives,
effective upon consummation of the exchange, its rights to receive any such
dividends or any other payments or other distributions for or in respect of the
Preferred Stock, other than the 617,083 shares of Common Stock to be issued
pursuant to this Agreement in exchange for the Preferred Stock.
3. Consummation of Exchange. The transactions contemplated by
paragraphs 1 and 2 hereof shall be consummated immediately prior to the
effectiveness of the registration statement filed by the Company for the
proposed public offering of units consisting of Undesignated Common Stock and
Warrants, and shall not occur in the event such registration statement does not
become effective.
4. Representations and Warranties of the Shareholder. The
Shareholder hereby represents and warrants as follows:
(a) The Shareholder is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Minnesota and
has the partnership power and authority to own Preferred Stock and Common
Stock of the Company.
(b) The Shareholder has good and valid title to, and owns,
beneficially and of record, 7,405 shares of Preferred Stock, which
constitute all of the shares of Preferred Stock registered in its name on
the books of the Company, free and clear of any pledge, lien, charge,
encumbrance, adverse claim or other restriction thereon (other than
restrictions on transfer imposed by federal and state securities laws and
restrictions imposed by the Shareholder Agreement hereinafter referred to),
and the Shareholder has full power and authority to surrender such shares
to the Company hereunder in exchange for Common Stock.
(c) The execution, delivery and performance of this Agreement,
including the exchange of Preferred Stock for Common Stock pursuant to the
terms of this Agreement, have been duly authorized by all necessary
partnership action on the part of the Shareholder. This Agreement has been
duly executed and delivered by the Shareholder and, assuming due
authorization, execution and delivery of this Agreement by the Company,
constitutes a valid and binding obligation of the Shareholder, enforceable
against the Shareholder in accordance with its terms.
2
<PAGE>
(d) There is no legal action or suit or governmental proceeding or
investigation pending or, to the knowledge of the Shareholder, threatened
against the Shareholder or the shares of Preferred Stock owned of record by
the Shareholder which in any way adversely affects, limits or prevents the
exchange and delivery of the shares of Preferred Stock to the Company
hereunder.
(e) The execution, delivery and performance of this Agreement by the
Shareholder will not result in a breach or violation by the Shareholder of,
or constitute a default by the Shareholder under, any agreement, instrument
or order to which the Shareholder is a party or by which the Shareholder is
bound or under the limited partnership agreement of the Shareholder or
under any governmental statute, regulation or other law.
(f) Any and all shares of Common Stock received in exchange for
shares of Preferred Stock under this Agreement will be acquired by the
Shareholder for investment purposes only and not with a view to public
distribution in violation of the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws. However, the Company
understands that in the event the proposed public offering of units
consisting of Undesignated Common Stock and Warrants is completed, the
Shareholder will be liquidated and the Common Stock received in exchange
for the Preferred Stock will be distributed in such liquidation to the
partners of the Shareholder. The Shareholder acknowledges that the Common
Stock being acquired by the Shareholder in exchange for the Preferred Stock
pursuant to the terms of this Agreement is being issued and sold under
exemptions from registration provided in the Securities Act and under
applicable state securities laws and, therefore, cannot be offered, sold,
transferred or otherwise disposed of by the Shareholder or its partners
following the liquidation of the Shareholder unless subsequently registered
under the Securities Act and all applicable state securities laws or unless
in the written opinion of counsel to the Shareholder reasonably acceptable
to the Company that is delivered to the Company an exemption from such
registration is available, and that the certificates representing the
shares of Common Stock to be issued pursuant to this Agreement will contain
a legend substantially to such effect. Each of the Shareholder and its
partners is an "accredited investor" as such term in defined in Regulation
D promulgated under the Securities Act. The Shareholder acknowledges that
it has been furnished with, and has distributed to each of its partners,
copies of a Preliminary Prospectus dated May 6, 1997 relating to the
proposed public offering by the Company of units consisting of Undesignated
Common Stock and Warrants, and that each of the Shareholder and such
partners has been given the opportunity to carefully review such
Preliminary Prospectus.
(g) No representation or warranty of the Shareholder made herein
contains any untrue statement of a material fact or omits to state any
material facts necessary to make the statements herein not misleading.
3
<PAGE>
5. Representations and Warranties of the Company. The Company
represents and warrants as follows:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Minnesota and has the
corporate power and authority to own and operate its properties and to
carry on its business.
(b) The Company has full power and authority to issue the shares of
Common Stock and to exchange and deliver such shares for the Shareholder's
shares of Preferred Stock pursuant to the terms of this Agreement.
(c) The execution, delivery and performance of this Agreement,
including the exchange of Common Stock for Preferred Stock pursuant to the
terms of this Agreement, have been duly authorized by all necessary
corporate action on the part of the Company. This Agreement has been duly
executed and delivered by the Company and, assuming due authorization,
execution and delivery of this Agreement by the Shareholder, constitutes a
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms.
(d) There is no legal action or suit or governmental proceeding or
investigation pending or, to the knowledge of the Company, threatened
against the Company which in any way adversely affects, limits or prevents
the exchange and delivery of the shares of Common Stock to the Shareholder
hereunder.
(e) The execution, delivery and performance of this Agreement by the
Company will not result in a breach or violation by it of, or constitute a
default by it under, any agreement, instrument or order to which the
Company is a party or by which the Company is bound or under the Amended
Articles of Incorporation or Bylaws of the Company or under any
governmental statute, regulation or other law.
(f) The shares of Common Stock being issued in exchange for the
Preferred Stock pursuant to the terms of this Agreement have been duly
authorized and are validly issued, fully paid and non-assessable and are
being issued by the Company free and clear of any restrictions imposed
thereon by the Company (other than restrictions imposed by the Shareholder
Agreement hereinafter referred to), and are not being issued in violation
of any preemptive rights.
(g) No representation or warranty of the Company made herein contains
any untrue statement of a material fact or omits to state any material
facts necessary to make the statements herein not misleading.
4
<PAGE>
6. Survival of Representations and Warranties. All representations
and warranties contained herein shall survive the execution of this Agreement
and the consummation of the exchange of the shares contemplated hereby.
7. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
8. Complete Agreement. This Agreement contains the complete
agreement between the parties hereto with respect to the exchange of the shares
and supersedes all prior agreements and understandings between the parties
hereto with respect thereto.
9. Amendment. This Agreement may be amended, modified or
supplemented only by written agreement of the Company and the Shareholder.
10. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute but one instrument.
12. Shareholder Agreement. The Shareholder acknowledges and agrees
that the shares of Common Stock being issued in exchange for the Preferred Stock
pursuant to the terms of this Agreement shall become subject immediately upon
such issuance to the terms of the Shareholder Agreement dated as of May 25, 1996
among the Company, the Shareholder, Leather Investors Limited Partnership I and
certain other shareholders of the Company and partners of the Shareholder and
Leather Investors Limited Partnership I, as from time to time amended, without
further action of the Shareholder or any other party thereto, and that the
certificates representing the shares of Common Stock to be issued pursuant to
this Agreement will contain a legend substantially to such effect.
13. Registration Rights Agreement. It is the intent of the parties
hereto that the Shareholder and its transferees shall be entitled, with respect
to the shares of Common Stock being issued in exchange for the Preferred Stock
pursuant to the terms of this Agreement, to the same rights under the
Registration Rights Agreement dated as of May 25, 1996 among CVS New York, Inc.
(formerly known as Melville Corporation), the Company, Leather Investors Limited
Partnership I and certain other shareholders of the Company and partners of
Leather Investors Limited Partnership I (the "Registration Rights Agreement") as
Leather Investors Limited Partnership I and its transferees have with respect to
the shares of Common Stock currently held by such partnership as if the Common
Stock being issued in exchange for the Preferred Stock pursuant to the terms of
this Agreement was outstanding as of the date of the Registration Rights
Agreement and
5
<PAGE>
owned by Leather Investors Limited Partnership I or its transferees. Any such
rights to demand registration or in respect of any such demand (herein, "demand
rights") shall be exercised jointly with Leather Investors Limited Partnership I
or its transferees (at the direction of the holders of a majority of the
outstanding shares of Common Stock being issued in exchange for the Preferred
Stock pursuant to the terms of this Agreement and the outstanding shares of
Common Stock currently held by Leather Investors Limited Partnership I), and
shall not be independent of or in addition to the demand rights held by Leather
Investors Limited Partnership I and its transferees. In the event the
Shareholder reasonably determines that the Registration Rights Agreement must be
amended to provide for such rights, the Company agrees to use its best efforts
to cause such an amendment to be entered into in accordance with the terms of
the Registration Rights Agreement. If, after using its best efforts, the Company
is unable to obtain such an amendment, the Company will enter into a separate
registration rights agreement with the Shareholder and/or its transferees, as
the case may be, providing for such rights (provided that Leather Investors
Limited Partnership I, unless it has previously liquidated, and its partners
and/or other transferees shall have consented in writing to such separate
registration rights agreement and agreed in writing to the joint exercise of
demand rights and other matters provided for in the second sentence of this
paragraph 13 notwithstanding anything to the contrary provided in the
Registration Rights Agreement).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above stated.
WILSONS THE LEATHER EXPERTS INC.
By /s/ Joel N. Waller
----------------------------------
Its Chief Executive Officer
LEATHER INVESTORS LIMITED
PARTNERSHIP II
By /s/ Lyle Berman
----------------------------------
Its General Partner
And /s/ Morris Goldfarb
---------------------------------
Its General Partner
6
<PAGE>
Exhibit 11.1
Wilsons The Leather Experts Inc. and Subsidiaries
Computation of Per Share Loss
For the Thirteen Week Period Ended May 3, 1997
(In Thousands, Except Per Share Amounts)
Weighted average number of issued shares outstanding 7,650
Effect of:
1996 Stock Option Plan 92
Melville Warrant to purchase common stock 1,260
-------
Weighted average shares outstanding 9,002
=======
Net loss $(7,263)
=======
Net loss per common share $ (.81)
=======
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES AS OF MAY 3, 1997
AND FOR THE THIRTEEN WEEK PERIOD ENDED MAY 3, 1997. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<CASH> 70,702
<SECURITIES> 0
<RECEIVABLES> 5,796
<ALLOWANCES> 2,825
<INVENTORY> 51,434
<CURRENT-ASSETS> 126,324
<PP&E> 19,149
<DEPRECIATION> 1,407
<TOTAL-ASSETS> 146,628
<CURRENT-LIABILITIES> 48,771
<BONDS> 55,811
0
7,405
<COMMON> 77
<OTHER-SE> 28,720
<TOTAL-LIABILITY-AND-EQUITY> 146,628
<SALES> 56,951
<TOTAL-REVENUES> 56,951
<CGS> 47,265
<TOTAL-COSTS> 66,463
<OTHER-EXPENSES> 887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 671
<INCOME-PRETAX> (11,070)
<INCOME-TAX> (3,807)
<INCOME-CONTINUING> (7,263)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,263)
<EPS-PRIMARY> (.81)
<EPS-DILUTED> (.81)
</TABLE>
