<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
WILSONS THE LEATHER EXPERTS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1839933
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
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. MARTIN NUSSBAUM, ESQ.
FAEGRE & BENSON LLP SWIDLER BERLIN SHEREFF
2200 NORWEST CENTER FRIEDMAN, LLP
90 SOUTH SEVENTH STREET 919 THIRD AVENUE
MINNEAPOLIS, MINNESOTA 55402 NEW YORK, NEW YORK 10022
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered
pursuant to to dividend or interest reinvestment plans, check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(/1/) PER UNIT(/2/) OFFERING PRICE(/2/) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock........... 2,300,000 Shares $14.59 $33,557,000 $9,900
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 300,000 shares of Common Stock which may be purchased by the
Underwriters from Selling Shareholders to cover overallotments, if any.
(2)Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
----------------
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 AUGUST , 1998
PROSPECTUS
LOGO
2,000,000 SHARES
[LOGO]
COMMON STOCK
-----------
Wilsons The Leather Experts Inc. (the "Company") is offering 2,000,000 shares
of Common Stock, par value $.01 (the "Offering"). The Company's Common Stock is
listed on The Nasdaq(R) National Market under the symbol WLSN. On August ,
1998, the last sale price of the Common Stock as reported by The Nasdaq
National Market was $ per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
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>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $ $ $
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Total (3)............................... $ $ $
</TABLE>
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(1) For information regarding indemnification of the Underwriters by the
Company and certain compensation payable to the Representatives of the
Underwriters, see "Underwriting."
(2) Before deducting expenses of the Offering estimated to be approximately
$450,000. See "Use of Proceeds."
(3) The Underwriters have been granted a 30-day option to purchase up to an
additional 300,000 shares of Common Stock from Selling Shareholders solely
to cover over-allotments, if any, on the same terms and conditions as the
shares offered hereby. If the Underwriters exercise such option in full,
the total "Price to Public" and "Underwriting Discounts and Commissions"
will be $ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, when, as
and if delivered to and accepted by the Underwriters, subject to their right to
reject any order in whole or in part and to certain other conditions. It is
expected that delivery of the Common Stock will be made on or about , 1998
at the offices of Ladenburg Thalmann & Co. Inc., New York, New York.
-----------
LADENBURG THALMANN & CO. INC.
MCDONALD & COMPANY
SECURITIES, INC.
JOHN G. KINNARD AND COMPANY,
INCORPORATED
The date of this Prospectus is , 1998.
<PAGE>
[COLLECTION OF PICTURES OF INDIVIDUAL MODELS IN ASSORTED BROWN AND BLACK
LEATHER COATS.]
[GATEFOLD CONTAINING PICTURES OF (I) TWO MODELS IN LEATHER COATS AND (II)
LEATHER GLOVES, BLACK LEATHER PLANNERS, A BLACK LEATHER BRIEFCASE AND A BLACK
LEATHER BACKPACK.]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 103 OF REGULATION M PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. SEE "UNDERWRITING."
<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, 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.
("CVS," formerly Melville Corporation) on May 26, 1996 (the "Management
Buyout"). Unless otherwise indicated, references to the Company's fiscal year
refer to the year ended on the Saturday closest to January 31, which for the
most recent fiscal year end was January 31, 1998, and references to 1996 and
1997 in this Prospectus refer to the twelve months ended February 1, 1997 and
January 31, 1998, respectively. Prior to the Management Buyout, the Company's
fiscal year ended on December 31. Unless otherwise indicated, all information
in this Prospectus is given as of August 1, 1998 and assumes no exercise of the
Underwriters' over-allotment option.
THE COMPANY
Wilsons The Leather Experts is the leading specialty retailer of men's and
women's leather outerwear, apparel and accessories in the United States. The
Company operates 503 retail stores in 44 states, Canada and England, including
438 mall-based stores, 25 airport locations and 40 factory outlet stores. The
Company also operates holiday stores, numbering 197 in 1997, to better
capitalize on its peak selling season. Over 80% of the Company's merchandise is
designed and sold under Wilsons' proprietary brands, including Adventure
Bound(R), M. Julian(R), Maxima(R), Pelle Studio(R) and Wilsons The Leather
Experts(TM), with each brand positioned to appeal to identified customer
segments. Wilsons' mall-based stores average approximately 2,000 square feet
and feature merchandise tailored to the demographics and buying patterns of
each store's local customer base. The Company generated net sales of $418.1
million in 1997.
Wilsons designs, contracts for manufacture, imports, distributes and retails
more than 6,000 SKUs of leather merchandise, including coats, blazers, vests,
gloves, belts, handbags, wallets, briefcases, planners, computer cases and CD
cases. This vertical integration enables the Company to consistently provide
its customers high-quality products at attractive prices. In addition, the
Company is able to replenish faster-selling merchandise within the same season,
respond quickly to consumer preferences and rapidly increase production
capacity as the Company grows. Management believes its vertically integrated
operations, combined with its merchandising strategy of strengthening brand
recognition and tailoring its product assortment to identified customer
segments, provide it with a competitive advantage.
Management has extensive experience in the retail and leather industries and
led the Management Buyout in 1996. Prior to 1996, management initiated a
restructuring to improve the Company's portfolio of stores, enhance its
profitability and position the Company for future growth. Management closed 156
stores between January 1, 1995 and May 25, 1996 and undertook a number of
strategic initiatives to improve future operating performance, including (i)
repositioning the merchandise assortment to focus on higher-margin accessories
and target specific customer segments, (ii) restructuring store management and
staffing, (iii) upgrading critical merchandising and financial information
systems and (iv) reducing corporate overhead. As a result of these and other
initiatives, the Company's gross profit as a percentage of net sales increased
to 32.5% in 1997 from 30.6% in 1994, and selling, general and administrative
expenses as a percentage of net sales decreased to 24.1% from 27.4% over the
same period. These improvements continued into 1998
3
<PAGE>
with gross profit as a percentage of net sales increasing to 18.5% in the six
months ended August 1, 1998 from 9.8% in the six months ended August 2, 1997,
and selling, general and administrative expenses as a percentage of net sales
decreasing to 37.7% from 39.1%.
BUSINESS STRATEGY
Wilsons intends to strengthen its position as the leading specialty retailer
of leather outerwear, apparel and accessories in the United States and to
increase profitability through the following strategic initiatives:
Strengthen Brand Recognition. The name and reputation of Wilsons The Leather
Experts assures customers they are purchasing high-quality, fashionable
merchandise. Over 80% of the Company's merchandise is designed and sold under
Wilsons' proprietary brands, including Adventure Bound, M. Julian, Maxima,
Pelle Studio and Wilsons The Leather Experts. Wilsons promotes its brands
through in-store merchandise presentations, a targeted marketing and
advertising strategy and the extensive product knowledge of its sales
associates. Wilsons also selectively offers other designer brands such as Nine
West(R), Kenneth Cole(R), Andrew Marc(R), Bosca(R) and XOXO(R) to highlight the
value of its proprietary brands and enhance its product mix.
Tailor Product Assortment to Identified Customer Segments. Wilsons identifies
specific customer segments by lifestyle characteristics influenced by factors
such as age, fashion awareness, purchasing behavior, income and other
demographics. The Company markets to four key customer segments through its
proprietary brands: (i) Adventure Bound for the rugged, outdoor, casual
segment, (ii) M. Julian and Maxima for the peer- and trend-driven juniors
segment, (iii) Pelle Studio for the more sophisticated, confident and fashion-
aware segment and (iv) Wilsons The Leather Experts for the classic,
traditional, value-conscious segment. Within each store, Wilsons displays its
merchandise by lifestyle segments offering a broad variety of styles to its
many customer groups. Each Wilsons store features a core merchandise assortment
as well as merchandise tailored to meet local preferences based on market-
specific characteristics and information from Wilsons' five million customer
database.
Capitalize on Vertical Integration. Wilsons' global operations vertically
integrate the development of new leather textures, colors and finishes, the
design of leather merchandise and the sourcing and distribution of goods. The
Company believes that its vertical integration and volume purchasing allow it
to realize economies of scale and other competitive advantages, including:
. Offering its customers prices that are typically lower than those of its
competitors for merchandise of comparable quality;
. Purchasing leather and contracting for manufacturing capacity at
favorable prices;
. Effectively managing production cycles and delivery schedules;
. Responding more rapidly to market trends and consumer demand with
changes to its merchandise mix;
. Replenishing faster-selling merchandise within the same selling season;
and
. Rapidly increasing production capacity as the Company grows.
Enhance Profit Margins. The Company plans to continue to improve its
operating margins by (i) focusing on proprietary brand name merchandise which
typically generates higher gross margins than other comparable nonproprietary
merchandise, (ii) increasing the percentage of higher-margin accessories in its
mall-based stores' merchandise mix, (iii) opening additional airport and
factory outlet stores that are less seasonal and offer primarily accessories
and (iv) dynamically tailoring merchandise assortments to meet local consumer
preferences.
4
<PAGE>
GROWTH STRATEGY
Management plans to leverage Wilsons' successful restructuring efforts and
focused business strategy by implementing several growth initiatives:
Expand Existing Retail Concepts. The Company plans to expand existing retail
concepts as follows:
. Mall-Based Stores. Mall-based stores represent the Company's core retail
concept, appealing to a broad base of consumers and showcasing the full
range of Wilsons' products. The Company believes it can continue to
enhance customer loyalty and gain market share by expanding mall-based
stores into underserved markets. Wilsons currently plans to open 21
additional stores for a total of 27 new stores in 1998 and at least 20
stores per year for the next several years.
. Airport Stores. Airports with high passenger traffic represent
attractive growth opportunities for the Company. These stores offer
accessories for business travelers and tourists, including travel
luggage, briefcases, handbags, planners, wallets, computer cases and CD
cases. Airport locations average more than twice the revenue per square
foot and are subject to less seasonal variation in sales than mall-based
stores. The Company believes that airport stores increase brand name
recognition for Wilsons The Leather Experts and present an avenue for
entry into international markets. Wilsons currently plans to open three
additional locations for a total of 10 new locations, including both in-
line stores and kiosks, in 1998 and at least 15 locations per year for
the next several years.
. Factory Outlet Stores. In May 1998, through its acquisition of 40 Wallet
Works stores, Wilsons established a presence in factory outlet malls.
Factory outlet stores are subject to less seasonal variation in sales
than the Company's mall-based stores. Wilsons is utilizing this retail
concept to expand its higher-margin accessories offerings. The Company
currently plans to open three additional stores in 1998, at least 12
stores in 1999 and at least 25 per year thereafter through 2001.
Develop New Selling Concepts. Wilsons expects to further drive revenue growth
by establishing new selling concepts. Management intends to leverage its
initial success in international airport locations by introducing additional
Wilsons stores into international markets. The Company has also developed a
stand-alone mall-based accessories concept and is currently testing two stores.
Additionally, the Company expects to launch a direct sales effort through the
introduction of an Internet retail store.
Pursue Strategic Acquisitions. Wilsons believes that its market leadership,
financial strength, economies of scale and experienced management team position
it to pursue strategic acquisitions. The Company seeks acquisition candidates
which can benefit from Wilsons' vertically integrated supply strategy and
expertise in merchandising leather outerwear, apparel and accessories. The
Company does not presently have any agreements or understandings regarding a
potential acquisition or business combination.
5
<PAGE>
GENERAL
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.
THE OFFERING
Common Stock offered by the 2,000,000 shares
Company.........................
Common Stock to be outstanding
after the Offering.............
12,825,017 shares(/1/)
Use of proceeds................. Approximately $20.9 million of the net
proceeds will be used to redeem a portion
of the principal amount of the Company's
outstanding 11 1/4% senior notes due 2004
and to pay the redemption premium thereon
with the balance of the net proceeds to be
used for general corporate purposes,
including seasonal working capital needs.
See "Use of Proceeds."
The Nasdaq National Market WLSN
symbol..........................
- --------
(1) Based upon the number of shares of Common Stock outstanding as of August 1,
1998. Excludes (i) 1,141,316 shares of Common Stock issuable upon the
exercise of outstanding stock options at a weighted average exercise price
of $8.70 per share and 328,650 shares of Common Stock reserved for issuance
pursuant to the Company's 1996 Stock Option Plan (the "1996 Option Plan")
and 1998 Stock Option Plan (the "1998 Option Plan," and together with the
1996 Option Plan, the "Option Plans") and (ii) 110,000 shares of Common
Stock issuable upon exercise of underwriter warrants issued in connection
with the Company's initial public offering on May 27, 1997 (the "Initial
Public Offering") at an exercise price of $10.80 per share.
6
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
(IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS AND STORE DATA)
The following tables present summary historical consolidated financial data
of the Company, which should be read in conjunction with the historical
consolidated 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." See also "Selected Historical
Consolidated Financial and Other Data" for a description of the reporting
periods.
<TABLE>
<CAPTION>
PREDECESSOR COMBINED
COMPANIES COMPANIES(/1/) COMPANY
--------------- -------------- -------------------------
YEARS ENDED SIX MONTHS
DEC. 31, YEAR YEAR ENDED
--------------- ENDED ENDED ----------------
FEB. 1, JAN. 31, AUG. 2, AUG. 1,
1994 1995 1997 1998 1997 1998
------ ------- -------------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $474.6 $ 462.4 $424.8 $418.1 $ 93.4 $113.7
Cost of goods sold,
buying and occupancy
costs................. 329.4 317.0 286.9 282.3 84.2 92.7
------ ------- ------ ------ ------ ------
Gross profit............ 145.2 145.4 137.9 135.8 9.2 21.0
Costs and expenses:
Selling, general and
administrative
expenses.............. 130.2 114.9 103.2 100.7 36.5 42.9
Depreciation and
amortization.......... 22.3 21.4 4.8 2.3 0.9 1.7
Restricted stock
compensation
charge(/2/)........... -- -- 1.5 8.5 0.9 --
Restructuring and asset
impairment charges.... -- 182.2 -- -- -- --
------ ------- ------ ------ ------ ------
Income (loss) from
operations............. (7.3) (173.1) 28.4 24.3 (29.1) (23.6)
Interest expense, net.. 8.4 10.4 6.5 6.4 1.9 3.0
------ ------- ------ ------ ------ ------
Income (loss) before
income taxes........... (15.7) (183.5) 21.9 17.9 (31.0) (26.6)
Income tax provision
(benefit)............. (3.1) (10.1) 9.0 10.9 (11.2) (10.2)
------ ------- ------ ------ ------ ------
Income (loss) before
extraordinary gain..... (12.6) (173.4) 12.9 7.0 (19.8) (16.4)
Extraordinary gain on
early extinguishment
of debt, net of tax of
$2.5.................. -- -- -- 3.8 -- --
------ ------- ------ ------ ------ ------
Net income (loss)....... $(12.6) $(173.4) $ 12.9 $ 10.8 $(19.8) $(16.4)
====== ======= ====== ====== ====== ======
DILUTED NET INCOME
(LOSS) PER COMMON
SHARE:
Diluted net income
(loss) before
extraordinary item..... $ 0.68 $(2.39) $(1.66)
Extraordinary gain on
early extinguishment of
debt, net of tax....... 0.36 -- --
------ ------ ------
Diluted net income
(loss) per common
share.................. $ 1.04 $(2.39) $(1.66)
====== ====== ======
Weighted average common
shares outstanding (in
thousands)--assuming
dilution............... 10,398 8,289 9,886
====== ====== ======
STORE DATA:
Open at end of period:
Mall-based stores...... 624 544 450 444 440 438
Airport stores......... 4 4 11 16 12 25
Factory outlet stores.. -- -- -- -- -- 40
------ ------- ------ ------ ------ ------
Total.................. 628 548 461 460 452 503
Number of holiday stores
during period.......... 59 98 224 197
Net sales per square
foot for stores open
entire year............ $ 340 $ 373 $ 389 $ 397
Change in comparable
store
sales(/3/)............. (5.1)% (1.5)% (1.3)% 0.4% (5.8)% 15.5%
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
COMPANY
AUGUST 1, 1998
-----------------------
ACTUAL AS ADJUSTED(/4/)
------ ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $105.2 $
Total assets............................................ 190.0
Total long-term debt.................................... 75.0
Total liabilities....................................... 126.5
Shareholders' equity.................................... 63.5
</TABLE>
- --------
(1) Results for the year ended February 1, 1997, include the unaudited
financial results of the Predecessor Companies for the seventeen weeks
ended May 25, 1996 and the audited financial results of the Company for the
period from inception (May 26, 1996) to February 1, 1997, which periods
together contained 53 weeks.
(2) Represents a noncash compensation charge related to the vesting of
restricted stock (the "Restricted Stock") purchased by certain managers of
the Company in connection with the Management Buyout. See "Management
Buyout."
(3) Comparable store sales means sales generated by stores open at least one
full year.
(4) Adjusted to give effect to the issuance and sale of the 2,000,000 shares of
Common Stock in the Offering and the application of a portion of the
estimated net proceeds therefrom. See "Use of Proceeds."
8
<PAGE>
RISK FACTORS
Except for historical information contained herein, the information in this
Prospectus contains forward-looking statements that involve risks and
uncertainties, such as statements concerning the Company's beliefs, plans,
strategies, objectives, expectations, intentions and other words of similar
import. The cautionary statements made in this Prospectus should be read as
being applicable to all related forward-looking statements wherever they
appear in this Prospectus. 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 Common Stock offered hereby.
CHANGING FASHION TRENDS AND CONSUMER PREFERENCES
The Company's sales and profitability depend upon the continued demand by
its customers for leather outerwear, 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 outerwear, apparel and accessories are not generally in fashion,
the Company's results of operations are adversely affected. There can be no
assurance that demand for leather outerwear, apparel or accessories will not
decline or that the Company will be able to anticipate, gauge and respond to
changes in fashion trends. A decline in demand for leather outerwear, apparel
and accessories or a misjudgment in fashion trends by the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ADVERSE ECONOMIC CONDITIONS AND CONSUMER SHOPPING PATTERNS
The Company's sales could be adversely affected by a weak retail
environment. Apparel retailers are subject to general economic conditions and
purchases of apparel may decline at any time, especially during recessionary
periods. In addition, the Company's financial performance is sensitive to
changes in consumer spending trends and shopping patterns. Since Wilsons'
stores are located primarily in enclosed regional malls, the ability of
Wilsons to sustain or increase its level of sales is dependent in part on the
continued popularity of malls as shopping destinations and the ability of
malls or tenants and other attractions to generate a high volume of customer
traffic. Mall traffic may be adversely affected by, among other things,
economic downturns, the closing of anchor department stores, weather,
accessibility to strip malls or alternative shopping formats (such as catalogs
or Internet commerce) and changes in consumer preferences and shopping
patterns, all of which are beyond the Company's control. A decrease in the
volume of mall traffic and shifts in consumer discretionary spending to other
products or a general reduction in the level of such spending could adversely
affect the Company. The foregoing factors could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, although the Company's comparable store sales increased 15.5% for
the first two quarters of 1998 and 0.4% during 1997, the Company's comparable
store sales decreased 1.3%, 1.5%, 5.1% and 13.8% during 1996, 1995, 1994 and
1993, respectively. There can be no assurance that the Company will continue
to generate comparable store sales increases. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
9
<PAGE>
SEASONALITY OF BUSINESS
A significant portion of the Company's sales is generated from October
through December (58.5% for the year ended January 31, 1998), which includes
the holiday selling season. During the period from the day after Thanksgiving
through January 3, 1998, the Company generated 38.2% of its sales. Net sales
are generally lowest during the period from April through July. The Company
historically has not become profitable, if at all, until the fourth 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
from October through December. Given 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 a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's results of operations may also fluctuate
significantly as a result of a variety of other factors, including merchandise
mix, the timing and level of markdowns and promotions, the net sales
contributed by seasonal stores, timing of certain holidays and the number of
shopping days and weekends between Thanksgiving and Christmas. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Inflation" and "Business--Seasonality."
RISKS OF FOREIGN SOURCING AND INTERNATIONAL BUSINESS
Wilsons imports most of its products from independent foreign contract
manufacturers located primarily in the Far East. The Company does not have
long-term contracts or formal arrangements with its contract manufacturers.
Many of the Company's domestic vendors also import a substantial portion of
their merchandise from abroad. In 1997, Wilsons sourced more than 55% of its
leather apparel and accessories from contract manufacturers located in The
People's Republic of China ("China"), which currently has Most Favored Nation
("MFN") trading status with the United States. Although the United States
recently renewed China's MFN status, such status must be renewed annually and
the issue faces minority opposition in the two major political parties in the
United States. There can be no assurance that such MFN status will continue as
political conditions in the United States and China evolve. Additionally, in
1997 the Company purchased approximately 38% and 6% of its leather outerwear,
apparel and accessories from India and Indonesia, respectively. Loss of MFN
status by China, India or Indonesia 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. Other 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, restrictions on the transfer of funds and the possibility of
boycotts or other actions prompted by domestic concerns regarding foreign
labor practices or other conditions beyond the Company's control. The Company
cannot predict whether any of the countries in which its products currently
are manufactured or may be manufactured in the future will be subject to trade
restrictions imposed by the U.S. government, including the likelihood, type or
effect of any such restrictions, or whether any other conditions having an
adverse effect on the Company's ability to source its products will occur. Any
event causing a sudden disruption of imports from China or other foreign
countries, including a disruption due to financial difficulties of a supplier,
could have a material adverse effect on the Company's business, financial
condition and results of operations. The current financial instability in Asia
is an example of the instability that could affect some of the Company's
suppliers adversely. Although to date the instability in Asia has not had a
material adverse effect on the Company's ability to import leather goods, and
therefore on the Company's business, financial condition and results of
operations, no assurances can be given that it will not have such an effect in
the future.
10
<PAGE>
EFFECT OF YEAR 2000 ON INFORMATION SYSTEMS
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming century change in the year 2000. Moreover, these
programs often are highly dependent upon historical or dynamic financial and
other data that, based on the programs' inability to distinguish between the
year 2000 and other century-end years, could be misreported or misinterpreted
and cause significant resulting errors. If not corrected, many computer
applications could fail when processing year 2000 data.
Wilsons' operations are highly dependent on computerized recordkeeping,
financial reporting, and other systems, including inventory management and
distribution, point-of-sale and internal accounting systems. In addition, many
of the Company's vendors and other third parties with which the Company
conducts business also utilize computer systems that may be adversely affected
by year 2000-related programming errors. The Company is evaluating its
computer systems in order to identify and correct any year 2000-related
problems and currently estimates that the cost of its Year 2000 initiative
will be $1.5 million. There can be no assurance, however, that all such
problems will, in fact, be identified and corrected by the Company or third
parties or that expenditures will not be significantly higher. In addition,
the Company's business, financial condition and results of operations may be
adversely affected if the Company and/or other organizations with which the
Company does business are unsuccessful in completing in a timely manner the
conversion to applications that can process year 2000 dates or if the cost of
the Company's Year 2000 initiative is significantly higher than estimated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Effect of Year 2000 on Information Systems."
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 concepts, competition, consumer preferences and demand for
leather merchandise, growth in the leather outerwear, 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 extended lead times required to negotiate airport store leases, the
ability to develop new merchandise and the ability to hire and train qualified
sales associates. In addition, the Company's growth is dependent upon the
availability of suitable new store locations, including airport locations
which historically have been more difficult to acquire than mall-based stores.
During times of strong demand for mall locations, the Company may not be able
to secure as many holiday store leases as it would otherwise seek. 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."
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, and David Rogers,
President and Chief Operating Officer of Wilsons. Their experience and
worldwide contacts in the leather industry significantly benefit the Company.
Although the Company has entered into employment agreements with Messrs.
Waller and Rogers, such agreements do not contain any restrictions on
competition. The loss of the services of either of these individuals could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company does not maintain key-man life
insurance on any of its executive officers.
11
<PAGE>
LEVERAGE; CAPITAL REQUIREMENTS; RESTRICTIONS IMPOSED BY LENDERS AND INDENTURE
As of August 1, 1998, the Company's debt included $75.0 million of 11 1/4%
senior notes due 2004 (the "Senior Notes"), and the Company had no borrowings
outstanding under its three-year $150.0 million revolving credit facility that
expires in May 1999 (the "Senior Credit Facility"); however, the Company had
$43.0 million of outstanding letters of credit. The peak borrowings under the
Senior Credit Facility and outstanding letters of credit in 1997 were $30.8
million and $51.9 million, respectively. The Company's ability to service, or
refinance on favorable terms, its indebtedness depends on its future
performance, which is subject to a number of factors, some of which are beyond
the Company's control, including general economic and market conditions and
competition.
The Company's high level of debt and debt service requirements will have
several important effects on its future operations, including: (i) a portion
of the Company's consolidated cash flow from operations must be dedicated to
the payment of interest on its indebtedness and will not be available for
other purposes; (ii) covenants contained under the Senior Credit Facility
require the Company and its domestic subsidiaries to meet certain financial
tests and limit capital expenditures; (iii) certain covenants and restrictions
under the Senior Credit Facility and the indenture governing the Senior Notes
(the "Indenture") and certain other restrictions may limit the Company's
ability to borrow additional funds or dispose of assets and may affect the
Company's flexibility in planning for, and reacting to, changes in its
business, including possible acquisition activities; and (iv) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate or other purposes may be
impaired. Further, if the Company is unable to comply with the terms and
covenants under the Senior Credit Facility or the Indenture, such indebtedness
could be declared immediately due and payable. The foregoing factors or the
inability to obtain additional financing or refinancing on favorable terms
could 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."
COMPETITION IN THE RETAIL INDUSTRY
The retail leather outerwear, apparel and accessories industry is highly
competitive and fragmented. Wilsons competes with a broad range of other
retailers, including other specialty retailers, department stores, mass
merchandisers and discounters, many of which have greater financial and other
resources than Wilsons. Increased competition may reduce sales, increase
operating expenses and decrease profit margins. Management believes that the
principal bases upon which Wilsons competes are selection, style, quality,
price, value, store location and service. The Company also competes for site
locations and sales associates in certain circumstances. 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."
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 primarily by the leather
shoe, furniture and auto upholstery markets. The availability and price of
leather may fluctuate significantly. Fluctuations in the availability and
price of leather or other raw materials used by the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations.
AVAILABILITY OF PERSONNEL
Wilsons' retail business is labor intensive. The Company employs a large
number of hourly employees and incurs substantial expenses for recruiting and
training new personnel. The current low
12
<PAGE>
unemployment rate in certain geographic areas in which Wilsons operates has
contracted the labor pool available to the Company in those areas. The Company
has historically experienced a high level of turnover in its stores as is
typical in the retail environment, and there can be no assurance that the
Company will be able to successfully attract and retain labor at current
rates. A change in labor market conditions that either further reduces that
availability of hourly employees or that increases significantly the cost of
such labor could have a material adverse effect on the Company's business,
financial condition and results of operations.
POSSIBLE VOLATILITY OF STOCK PRICE
The Company's stock price, like that of other companies in the retail
industry, is subject to volatility. If revenues or earnings in any quarter
fail to meet the investment community's expectations for any reason, there
could be an immediate adverse impact on the Company's stock price. The stock
price also may be affected by broader market trends unrelated to the Company's
performance. Such volatility may limit the Company's ability in the future to
raise additional capital.
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 Senior Credit Facility and the Indenture. 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 and other factors deemed relevant at the time by the
Board.
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.
The Company's directors and executive officers beneficially own, in the
aggregate, 49.2% of the Company's outstanding shares of Common Stock. Assuming
the sale of all of the Common Stock offered hereby, the Company's directors
and executive officers will beneficially own, in the aggregate, 41.6% of the
Company's outstanding shares of Common Stock. If these shareholders vote
together as a group, they will be able to exert significant control over the
business and affairs of the Company, including the election of individuals to
the Company's Board of Directors, and to significantly affect the outcome of
certain actions that require shareholder approval, including the adoption of
amendments to the Company's Amended and Restated Articles of Incorporation,
and certain mergers, sales of assets and other business acquisitions or
dispositions.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offering, after
deducting estimated costs and expenses of the Offering, will be approximately
$ million, assuming all of the Common Stock offered hereby is sold. The
Company plans to use approximately $20.9 million of the net proceeds to redeem
$18.75 million principal amount of its outstanding 11 1/4% Senior Notes due
2004 and to pay the redemption premium of $2.1 million thereon. The Company
issued the Senior Notes in August 1997 to repurchase its outstanding senior
secured subordinated note issued to CVS (see "Management Buyout") and pay
accrued interest thereon and for general corporate purposes, including capital
expenditures and additional store openings. The Company plans to use the
remaining net proceeds from the Offering for general corporate purposes,
including seasonal working capital needs. Pending such uses, the net proceeds
of the Offering will be invested in short-term, interest-bearing investment-
grade securities or deposited in interest-bearing accounts.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on The Nasdaq National Market under the
symbol WLSN. As of August , 1998, the closing market price of the Company's
Common Stock was $ . The following table presents the Company's high and low
market prices per share of Common Stock by quarter since the effective date of
its Initial Public Offering on May 27, 1997.
<TABLE>
<CAPTION>
COMMON STOCK
---------------
QUARTER HIGH LOW
------- ------- -------
<S> <C> <C>
Fiscal quarter ended August 2, 1997 (from May 27, 1997).... $11.625 $ 9.000
Fiscal quarter ended November 1, 1997...................... 11.625 10.141
Fiscal quarter ended January 31, 1998...................... 10.000 8.500
Fiscal quarter ended May 2, 1998........................... 16.000 8.500
Fiscal quarter ended August 1, 1998........................ 16.750 14.375
Fiscal quarter ending October 31, 1998 (through August ,
1998).....................................................
</TABLE>
14
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash and capitalization of
the Company as of August 1, 1998 and as adjusted to reflect the sale of
2,000,000 shares of Common Stock offered hereby and the application of a
portion of the estimated net proceeds therefrom. The information presented
below should be read in conjunction with the historical consolidated financial
statements and the related notes thereto, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Use of
Proceeds" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 1, 1998
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................ $ 42,287 $
======== ======
Long-term debt:
Senior Notes due 2004.................................. 75,000
-------- ------
Shareholders' equity(/1/):
Common Stock, $.01 par value; 100,000,000 shares
authorized, 10,825,017 shares issued and outstanding,
actual; and 12,825,017 shares issued and outstanding,
as adjusted........................................... $ 108 $
Additional paid-in capital............................. 55,135
Retained earnings...................................... 8,339
Cumulative translation adjustment...................... (49)
-------- ------
Total shareholders' equity........................... 63,533
-------- ------
Total capitalization................................. $138,533 $
======== ======
</TABLE>
- --------
(1) Does not include: (i) 1,141,316 shares of Common Stock issuable upon the
exercise of outstanding stock options at a weighted average exercise price
of $8.70 per share and 328,650 shares of Common Stock reserved for
issuance pursuant to the Option Plans and (ii) 110,000 shares of Common
Stock issuable upon exercise of underwriter warrants issued in the
Company's Initial Public Offering at an exercise price of $10.80 per
share.
15
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present selected historical consolidated financial data
of the Company, which should be read in conjunction with the historical
consolidated 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 historical
consolidated financial data as of February 1, 1997 and January 31, 1998 and
for the period from inception (May 26, 1996) to February 1, 1997 and for the
year ended January 31, 1998 have been derived from the historical consolidated
financial statements of the Company audited by Arthur Andersen LLP,
independent public accountants. The selected historical consolidated financial
data as of December 31, 1993, 1994 and 1995, for the years then ended and for
the five months ended May 25, 1996 have been derived from the historical
consolidated financial statements of the Predecessor Companies audited by KPMG
Peat Marwick LLP, independent auditors. The historical consolidated financial
data for the five months ended May 27, 1995 and for the eight months ended
January 27, 1996, have been derived from the unaudited consolidated financial
statements of the Predecessor Companies. The historical consolidated financial
data as of August 1, 1998 and for the six months ended August 2, 1997 and
August 1, 1998 have been derived from the unaudited financial statements of
the Company. The historical consolidated financial data for the year ended
February 1, 1997 have been derived from the unaudited financial statements of
the Predecessor Companies for the seventeen weeks ended May 25, 1996 and from
the audited financial statements of the Company for the period from inception
(May 26, 1996) to February 1, 1997. The store data as of and 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 six months ended August 1, 1998 are not necessarily indicative of the
results of operations for the entire year.
Prior to the Management Buyout, the Predecessor Companies were operated as
part of CVS. The historical consolidated financial data presented herein
reflect certain periods during which the Company did not operate as an
independent company. Such information, therefore, may not 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 such
earlier reporting periods, and are not necessarily indicative of the Company's
future results or financial condition.
16
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
(IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS AND STORE DATA)
<TABLE>
<CAPTION>
COMBINED
PREDECESSOR COMPANIES COMPANY COMPANIES(/1/) COMPANY
------------------------------------------------------ ----------- -------------- --------------------------
PERIOD FROM
YEARS ENDED FIVE MONTHS EIGHT INCEPTION SIX MONTHS
DEC. 31, ENDED MOS. (MAY 26, YEAR YEAR ENDED
------------------------- ---------------- ENDED 1996) TO ENDED ENDED -----------------
MAY 27, MAY 25, JAN. 27, FEB. 1, FEB. 1, JAN. 31, AUG. 2, AUG. 1,
1993 1994 1995 1995 1996 1996 1997 1997 1998 1997 1998
------ ------ ------- ------- ------- -------- ----------- -------------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales........ $478.5 $474.6 $ 462.4 $124.7 $ 109.6 $ 367.6 $345.1 $424.8 $418.1 $ 93.4 $113.7
Cost of goods
sold, buying
and occupancy
costs.......... 320.5 329.4 317.0 99.8 86.2 238.5 222.1 286.9 282.3 84.2 92.7
------ ------ ------- ------ ------- ------- ------ ------ ------ ------ ------
Gross profit..... 158.0 145.2 145.4 24.9 23.4 129.1 123.0 137.9 135.8 9.2 21.0
Costs and
expenses:
Selling, general
and
administrative
expenses....... 120.1 130.2 114.9 46.0 34.9 76.4 75.8 103.2 100.7 36.5 42.9
Depreciation and
amortization... 20.7 22.3 21.4 9.0 4.7 13.3 1.0 4.8 2.3 0.9 1.7
Restricted stock
compensation
charge(/2/).... -- -- -- -- -- -- 1.5 1.5 8.5 0.9 --
Restructuring
and asset
impairment
charges........ -- -- 182.2 -- -- 182.2 -- -- -- -- --
------ ------ ------- ------ ------- ------- ------ ------ ------ ------ ------
Income (loss)
from
operations...... 17.2 (7.3) (173.1) (30.1) (16.2) (142.8) 44.7 28.4 24.3 (29.1) (23.6)
Interest
expense, net... 5.1 8.4 10.4 3.4 1.5 7.4 5.3 6.5 6.4 1.9 3.0
------ ------ ------- ------ ------- ------- ------ ------ ------ ------ ------
Income (loss)
before income
taxes........... 12.1 (15.7) (183.5) (33.5) (17.7) (150.2) 39.4 21.9 17.9 (31.0) (26.6)
Income tax
provision
(benefit)....... 7.0 (3.1) (10.1) (5.5) (6.6) (4.6) 15.5 9.0 10.8 (11.2) (10.2)
------ ------ ------- ------ ------- ------- ------ ------ ------ ------ ------
Income (loss)
before
extraordinary
gain............ 5.1 (12.6) (173.4) (28.0) (11.1) (145.6) 23.9 12.9 7.1 (19.8) (16.4)
Extraordinary
gain on early
extinguishment
of debt, net of
tax of $2.5.... -- -- -- -- -- -- -- -- 3.8 -- --
------ ------ ------- ------ ------- ------- ------ ------ ------ ------ ------
Net income
(loss).......... $ 5.1 $(12.6) $(173.4) $(28.0) $ (11.1) $(145.6) $ 23.9 $ 12.9 $ 10.8 $(19.8) $(16.4)
====== ====== ======= ====== ======= ======= ====== ====== ====== ====== ======
BASIC NET INCOME
(LOSS) PER
COMMON SHARE:
Basic net income
(loss) before
extraordinary
item............ $ 3.12 $ 0.80 $(2.39) $(1.66)
Extraordinary
gain on early
extinguishment
of debt, net of
tax............. -- 0.42 -- --
------ ------ ------ ------
Basic net income
(loss) per
common share.... $ 3.12 $ 1.22 $(2.39) $(1.66)
====== ====== ====== ======
Weighted average
common shares
outstanding (in
thousands)...... 7,650 8,910 8,289 9,886
====== ====== ====== ======
DILUTED NET
INCOME (LOSS)
PER COMMON
SHARE:
Diluted net
income (loss)
before
extraordinary
item............ $ 2.67 $ 0.68 $(2.39) $(1.66)
Extraordinary
gain on early
extinguishment
of debt, net of
tax............. -- 0.36 -- --
------ ------ ------ ------
Diluted net
income (loss)
per common
share........... $ 2.67 $ 1.04 $(2.39) $(1.66)
====== ====== ====== ======
Weighted average
common shares
outstanding (in
thousands)--
assuming
dilution........ 8,970 10,398 8,289 9,886
====== ====== ====== ======
STORE DATA:
Open at end of
period:
Mall-based
stores......... 630 624 544 563 473 490 450 450 444 440 438
Airport stores.. 1 4 4 4 7 4 11 11 16 12 25
Factory outlet
stores......... -- -- -- -- -- -- -- -- -- -- 40
------ ------ ------- ------ ------- ------- ------ ------ ------ ------ ------
Total........... 631 628 548 567 480 494 461 461 460 452 503
Number of holiday
stores during
period.......... 25 59 98 98 224 224 197
Net sales per
square foot for
stores open
entire year..... $ 355 $ 340 $ 373 $ 389 $ 397
Change in
comparable store
sales(/3/)...... (13.8)% (5.1)% (1.5)% 4.4% 3.9% (3.1)% (2.7)% (1.3)% 0.4% (5.8)% 15.5%
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES COMPANY
----------------------- ---------------------------------
DECEMBER 31,
-----------------------
FEBRUARY 1, JANUARY 31, AUGUST 1,
1993 1994 1995 1997 1998 1998
------- ------- ------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(/4/).... $ 57.4 $ 77.1 $ 44.6 $ 83.8 $120.2 $105.2
Total assets............ 401.0 392.7 182.4 172.4 227.7 190.0
Total long-term
debt(/5/).............. -- -- -- 59.6 75.0 75.0
Total liabilities....... 183.8 191.7 154.8 128.9 155.0 126.5
Shareholders' equity.... 217.2 201.0 27.6 43.5 72.7 63.5
</TABLE>
- --------
(1) Results for the year ended February 1, 1997, include the unaudited
financial results of the Predecessor Companies for the seventeen weeks
ended May 25, 1996 and the audited financial results of the Company for
the period from inception (May 26, 1996) to February 1, 1997, which
periods together contain 53 weeks.
(2) Represents a noncash compensation charge related to the vesting of
Restricted Stock purchased by certain managers of the Company in
connection with the Management Buyout. See "Management Buyout."
(3) Comparable store sales means sales generated by stores open at least one
full year.
(4) The working capital calculation excludes amounts due to CVS as of December
31, 1993, 1994 and 1995.
(5) Total long-term debt as of February 1, 1997 includes accrued interest of
$3.8 million which became a portion of the principal balance of the $55.8
million note issued to CVS (the "CVS Note") by the Company in connection
with the Management Buyout on May 25, 1997.
18
<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 consolidated financial data and consolidated financial statements
and notes thereto appearing elsewhere in this Prospectus.
The fiscal year of the Predecessor Companies prior to the Management Buyout
ended on December 31. In February 1997, the Company changed the end of its
fiscal year to the Saturday closest to January 31, in conformity with the
general practice in the retail industry, which for the most recent period was
January 31, 1998. Unless otherwise indicated, references to 1996 and 1997 in
this Prospectus refer to the twelve months ended February 1, 1997 and January
31, 1998, respectively. As a result of the Management Buyout, certain
financial information for the five months ended May 27, 1995 and May 25, 1996,
for the eight months ended January 27, 1996 and for the period from inception
(May 26, 1996) to February 1, 1997 is presented in this Prospectus.
OVERVIEW
The Company operates 503 retail stores in 44 states, Canada and England,
including 438 mall-based stores, 25 airport locations and 40 factory outlet
stores. The Company also operates holiday stores, numbering 197 in 1997, to
better capitalize on its peak selling season.
Prior to 1996, management initiated a restructuring to improve the Company's
portfolio of stores, enhance its profitability and position the Company for
future growth (the "Restructuring"). Management closed 156 stores between
January 1, 1995 and May 25, 1996 and undertook a number of strategic
initiatives to improve future operating performance, including (i)
repositioning the merchandise assortment to focus on higher-margin accessories
and target specific customer segments, (ii) restructuring store management and
staffing, (iii) upgrading critical merchandising and financial information
systems and (iv) reducing corporate overhead. As a result of these and other
initiatives, the Company's gross profit as a percentage of sales increased to
32.5% in 1997 from 30.6% in 1994, and selling, general and administrative
expenses as a percentage of sales decreased to 24.1% from 27.4% over the same
period. These improvements continued into 1998 with gross profit as a
percentage of sales increasing to 18.5% in the six months ended August 1, 1998
from 9.8% in the six months ended August 2, 1997, and selling, general and
administrative expenses as a percentage of sales decreasing to 37.7% from
39.1%.
For 1997, 38.2% of the Company's sales were generated during the period from
the day after Thanksgiving through January 3, 1998. As part of the Company's
strategy to improve operating margins and maximize revenue and profitability
during nonpeak selling seasons, the Company has increased the number of less
seasonal airport and factory outlet locations and modified its product mix to
emphasize accessories. The Company intends to continue to grow accessory sales
by increasing the number of SKUs offered and the amount of floor space
allocated to accessories in its mall-based stores. As a result of these
initiatives, accessories grew as a percentage of sales to 25.8% in 1997 from
20.5% in 1994. Over the same period, men's apparel sales decreased as a
percentage of sales to 38.9% from 44.3%, and women's apparel sales remained
constant in the Company's merchandise mix.
19
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected information from the Company's
historical consolidated statements of operations, expressed as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
COMBINED
PREDECESSOR COMPANIES COMPANY COMPANIES(/1/)
------------------------------------------ -------------- --------------
YEARS ENDED FIVE MONTHS EIGHT PERIOD FROM
DEC. 31, ENDED MOS. INCEPTION YEAR
------------- ---------------- ENDED (MAY 26, 1996) ENDED
MAY 27, MAY 25, JAN. 27, TO FEB. 1, FEB. 1,
1994 1995 1995 1996 1996 1997 1997
----- ----- ------- ------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold,
buying and occupancy
costs................. 69.4 68.5 80.1 78.6 64.9 64.4 67.5
----- ----- ----- ----- ----- ----- -----
Gross margin............ 30.6 31.5 19.9 21.4 35.1 35.6 32.5
Costs and expenses:
Selling, general and
administrative
expenses.............. 27.4 24.9 36.8 31.8 20.8 22.0 24.3
Depreciation and
amortization.......... 4.7 4.6 7.2 4.3 3.6 0.3 1.1
Restricted stock
compensation charge... -- -- -- -- -- 0.4 0.4
Restructuring and asset
impairment charges.... -- 39.4 -- -- 49.6 -- --
----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............. (1.5) (37.4) (24.1) (14.7) (38.9) 13.0 6.7
Interest expense, net.. 1.8 2.3 2.7 1.4 2.0 1.5 1.5
Income tax provision
(benefit)............. (0.6) (2.2) (4.4) (6.0) (1.3) 4.5 2.1
Extraordinary gain on
early extinguishment
of debt, net of tax... -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (2.7)% (37.5)% (22.5)% (10.2)% (39.6)% 6.9% 3.0%
- --------------------------------------------------
===== ===== ===== ===== ===== ===== =====
<CAPTION>
COMPANY
--------------------------
SIX MONTHS
YEAR ENDED
ENDED -----------------
JAN. 31, AUG. 2, AUG. 1,
1998 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0%
Cost of goods sold,
buying and occupancy
costs................. 67.5 90.2 81.5
-------- -------- --------
Gross margin............ 32.5 9.8 18.5
Costs and expenses:
Selling, general and
administrative
expenses.............. 24.1 39.1 37.7
Depreciation and
amortization.......... 0.5 1.0 1.5
Restricted stock
compensation charge... 2.0 1.0 --
Restructuring and asset
impairment charges.... -- -- --
-------- -------- --------
Income (loss) from
operations............. 5.8 (31.2) (20.7)
Interest expense, net.. 1.5 2.1 2.6
Income tax provision
(benefit)............. 2.6 (12.0) (8.9)
Extraordinary gain on
early extinguishment
of debt, net of tax... 0.9 -- --
-------- -------- --------
Net income (loss)....... 2.6% (21.2)% (14.4)%
- --------------------------------------------------
======== ======== ========
</TABLE>
- -------
(1) Results for the year ended February 1, 1997 include the unaudited financial
results of the Predecessor Companies for the seventeen weeks ended May 25,
1996 and the audited financial results of the Company for the period from
inception (May 26, 1996) to February 1, 1997.
SIX MONTHS ENDED AUGUST 1, 1998 COMPARED TO SIX MONTHS ENDED AUGUST 2, 1997
Wilsons opened 13 stores, acquired 40 stores and closed 12 stores in the six
months ended August 1, 1998, compared to one store opening and 10 store
closings in the six months ended August 2, 1997. Included in the 13 stores
opened in 1998 are two stores located in Lester B. Pearson airport in Toronto,
Canada and one store located in Heathrow airport in London, England. On May 13,
1998, Wilsons acquired 40 Wallet Works stores. As of August 1, 1998, Wilsons
operated 503 stores compared to 452 stores as of August 2, 1997.
Sales for the six months ended August 1, 1998 were $113.7 million compared to
$93.4 million for the six months ended August 2, 1997, an increase of $20.3
million, or 21.7%. Comparable store sales increased 15.5% driven by strong
sales of men's, juniors and accessory products. Of this $20.3 million increase,
$14.0 million was attributable to comparable store sales increases, $3.5
million was attributable to the inclusion of Wallet Works for a portion of the
period and $2.8 million was attributable to net new store openings, primarily
new airport stores.
Cost of goods sold, buying and occupancy costs for the six months ended
August 1, 1998 were $92.7 million, or 81.5% of sales, compared to $84.2
million, or 90.2% of sales, for the six months ended August 2, 1997. As a
percent of sales, gross profit net of occupancy costs increased 3.9% for the
six months as compared to the period one year ago due primarily to decreased
markdowns resulting from strong merchandise sales associated with the 15.5%
comparable store sales increase.
20
<PAGE>
For the 1998 period, occupancy costs as a percent of sales decreased 4.8%, as
strong sales increases leveraged occupancy expenses that were flat compared to
last year.
Selling, general and administrative expenses for the six months ended August
1, 1998 were $42.9 million, or 37.7% of sales, compared to $36.5 million, or
39.1% of sales, for the six months ended August 2, 1997. The reduction in the
selling, general and administrative expenses as a percent of sales was largely
due to increased store productivity and better leveraging of corporate
operating expenses.
Depreciation and amortization expense for the six months ended August 1,
1998 was $1.7 million, or 1.5% of sales, compared to $0.9 million, or 1.0% of
sales, for the six months ended August 2, 1997. The increase in depreciation
and amortization resulted from capital expenditures for the renovation of and
improvements to existing stores and the construction of new stores.
Included in costs and expenses in the 1997 period was a $0.9 million noncash
compensation charge associated with the vesting of the Restricted Stock. The
Company did not incur any restricted stock compensation in the six months
ended August 1, 1998 as all remaining Restricted Stock vested in the third
quarter of 1997.
Wilsons had a loss from operations of $23.6 million for the six months ended
August 1, 1998, compared to a loss from operations of $29.1 million for the
six months ended August 2, 1997.
Net interest expense for the six months ended August 1, 1998 was $3.0
million, or 2.6% of sales, compared to $1.9 million, or 2.1% of sales, for the
six months ended August 2, 1997. The increase in net interest expense was due
to an increase in the average amount of long-term debt outstanding, higher
interest rates on the long-term debt and additional deferred financing cost
amortization related to the issuance of $75.0 million of senior notes due
2004. This increase was partially offset by an increase in interest income.
Income tax benefit for the six months ended August 1, 1998 was $10.1
million, or 8.9% of sales, compared to an $11.2 million income tax benefit, or
12.0% of sales, for the six months ended August 2, 1997. The effective tax
benefit rate in 1998 increased to a 38.2% tax rate from a 36.1% tax rate in
1997 due primarily to the nondeductibility of the $0.9 million restricted
stock compensation charge incurred in 1997.
YEAR ENDED JANUARY 31, 1998 COMPARED TO THE YEAR ENDED FEBRUARY 1, 1997
Wilsons opened 22 stores and closed 23 stores in the year ended January 31,
1998 compared to eight store openings and 41 store closings in the year ended
February 1, 1997. As of January 31, 1998, Wilsons operated 460 stores compared
to 461 stores at February 1, 1997. The Company operated 197 holiday stores and
100 kiosks during the 1997 holiday season compared to 224 holiday stores and
152 kiosks during the prior year holiday season.
Sales for the year ended January 31, 1998 were $418.1 million compared to
$424.8 million for the year ended February 1, 1997, a decrease of $6.7
million, or 1.6%. The additional week in the year ended February 1, 1997
accounted for $6.3 million of the sales decrease. In addition, the Company
operated on average 21 fewer stores in the year ended January 31, 1998 as the
Company closed underperforming stores. Partially offsetting the sales decline
was a 0.4% increase in comparable store sales and increased sales in the
Company's temporary mall-based holiday stores. The increase in comparable
store sales was primarily due to a fourth quarter comparable store sales
increase of 7.5% generated by a strong customer response to the merchandise
styles introduced in the fall season. Comparable store sales were negatively
impacted in the first nine months of 1997 by a reduced level of clearance
merchandise for sale in the spring, as there were fewer liquidations of closed
stores
21
<PAGE>
compared to the prior year and by unseasonably warm temperatures from
September through mid-October.
Cost of goods sold, buying and occupancy costs for 1997 were $282.4 million,
or 67.5% of sales, compared to $286.9 million, or 67.5% of sales, for the
previous year. As a percent of sales, gross profit net of occupancy costs
decreased 0.4% for the 1997 year as compared to the prior year due primarily
to additional markdowns required to liquidate clearance merchandise. In 1997,
occupancy costs decreased $2.8 million due principally to operating fewer
stores.
Selling, general and administrative expenses for 1997 were $100.7 million,
or 24.1% of sales, compared to $103.2 million, or 24.3% of sales, for the
previous year. The reduction in selling, general and administrative expenses
was due to reducing corporate expenses, controlling variable expenses in the
stores, operating on average 21 fewer locations and having one less week in
the 1997 period.
Depreciation and amortization for 1997 was $2.3 million, or 0.5% of sales,
compared to $4.8 million, or 1.1% of sales, for the previous year. The
decrease in depreciation and amortization expense resulted from the purchase
accounting adjustment as part of the Management Buyout that reduced the
amounts assigned to property and equipment, thereby reducing depreciation
expense.
Operating expenses for 1997 included an $8.5 million noncash compensation
charge associated with the vesting of the remaining 881,982 shares of
Restricted Stock. Operating expenses for 1996 included a $1.5 million noncash
compensation charge associated with the vesting of 198,018 shares of
Restricted Stock. See Note 9 of Notes to Consolidated Financial Statements.
As a result of the above, income from operations, excluding restricted stock
compensation expense, was $32.8 million for 1997 as compared to $29.9 million
for the previous year. Income from operations, including the restricted stock
compensation expense, was $24.3 million in 1997, as compared to $28.4 million
for 1996.
Net interest expense for 1997 was $6.4 million, or 1.5% of sales, compared
to $6.5 million, or 1.5% of sales, for the previous year.
Income tax expense for 1997 was $10.8 million, or 2.6% of sales, compared to
a $9.0 million income tax expense, or 2.1% of sales, for the previous year.
The effective tax rate increased in 1997 to a 60.4% tax rate from a 41.1% tax
rate in 1996 due primarily to the nondeductibility of the $8.5 million
restricted stock compensation expense. See "Management Buyout."
The Company realized a $3.8 million extraordinary gain on the early
extinguishment of debt, net of tax, in 1997. The extraordinary gain was the
result of the repurchase at a discount of the CVS Note. See Note 7 of Notes to
Consolidated Financial Statements.
PERIOD FROM INCEPTION (MAY 26, 1996) TO FEBRUARY 1, 1997 COMPARED TO EIGHT
MONTHS ENDED JANUARY 27, 1996
Wilsons opened five stores and closed 24 stores in the period from inception
(May 26, 1996) to February 1, 1997, compared to three store openings and 76
store closings in the same period one year earlier. As of February 1, 1997,
Wilsons operated 461 stores compared to 494 stores at the end of the same
period in the previous year. The reduction of 33 stores was a result of
closing unprofitable stores as part of the Restructuring. In addition, Wilsons
operated 224 holiday stores and 152 kiosks during the 1996 holiday season
compared to 98 holiday stores and 129 kiosks during the prior year holiday
season.
Sales from inception to February 1, 1997 decreased 6.1% to $345.1 million
compared with sales of $367.6 million during the same period in the previous
year, reflecting a decrease in both comparable
22
<PAGE>
store sales and in the number of stores operated. A portion of the decrease in
sales was attributable to a 2.7% decline in comparable store sales. The
comparable store sales decline was the result of weak demand for the Company's
fashion merchandise in the Midwest area of the country as compared to the
northeast and west coast markets where comparable store sales increased, as
well as five fewer shopping days between Thanksgiving and Christmas. In
addition, Wilsons operated an average of 82 fewer stores from inception to
February 1, 1997, compared to the same period one year earlier, as it closed
stores that did not meet cash flow targets. The reduction in the number of
open stores and the comparable store sales decline was partially offset by a
sales increase from operating 149 additional holiday stores and kiosks and by
the $2.8 million in sales generated in the additional week in the period from
inception (May 26, 1996) to February 1, 1997.
Cost of goods sold, buying and occupancy costs from inception to February 1,
1997 were $222.1 million, or 64.4% of sales, compared to $238.6 million, or
64.9% of sales, for the same period of the previous year. As a percent of
sales, gross profit net of occupancy costs increased for the period from
inception to February 1, 1997 as compared to the same period one year earlier
due to additional markdowns taken in the earlier period to liquidate
merchandise in 76 stores which were closed in conjunction with the
Restructuring and to an increase in the sales of accessories in the later
period. Accessories typically generate higher gross margins than apparel.
Operating expenses before restructuring and asset impairment charges from
inception to February 1, 1997, were $78.3 million, or 22.7% of sales, compared
to $89.7 million, or 24.4% of sales, for the same period in 1995. The expense
decrease of $11.4 million was due mainly to the $12.3 million decrease in
depreciation and amortization expense resulting from the Restructuring and the
purchase accounting adjustment that reduced the amounts assigned to property
and equipment. Offsetting the operating expense reduction was 149 additional
holiday stores and kiosks compared to the same period one year earlier and a
$1.5 million noncash charge associated with the vesting of Restricted Stock.
Operating expenses after restructuring and asset impairment charges from
inception to February 1, 1997, were $78.3 million, or 22.7% of sales, compared
to $271.9 million, or 74.0% of sales, for the same period in 1995. In 1995 the
Company incurred a pre-tax restructuring charge of $134.3 million to reflect
the anticipated costs associated with closing approximately 100 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 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."
Net interest expense from inception to February 1, 1997, was $5.3 million,
or 1.5% of sales, compared to $7.4 million, or 2.0% of sales, for the same
period in the previous year. The decrease in net interest expense was
primarily due to a decrease in the average amount of debt outstanding offset
by higher interest rates, the amortization of deferred financing costs and an
increase in interest income.
Income tax expense for the period from inception to February 1, 1997, was
$15.5 million compared to a $4.7 million tax benefit for the prior year
period. The effective tax rate increased in 1996 to a 39.4% tax rate from a
3.1% benefit rate in 1995. The higher effective tax rate was primarily due to
the impact of the write-off of nondeductible goodwill and other intangibles as
part of the Restructuring.
23
<PAGE>
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 kiosks combined with
unseasonably cool weather within Wilsons' areas of operation during the first
three months of 1996.
Cost of goods sold, buying and occupancy costs for the five-month period in
1996 were $86.2 million, or 78.6% of sales, as compared to $99.9 million, or
80.1% of sales, for the same period of the prior year. As a percent of sales,
gross profit net of occupancy costs increased in the five-month period of 1996
as compared to the same period one year earlier primarily due 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. For the
five months ended May 25, 1996, occupancy costs as a percent of sales decreased
as the Company closed unprofitable stores as part of the Restructuring.
Operating expenses in the five-month period in 1996 were $39.5 million, or
36.0% of sales, as compared to $54.9 million, or 44.0% of sales, for the same
period of the prior year. The expense decrease of $15.4 million 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, revising the layaway and
check acceptance policies, and reductions in headquarters 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 $4.3 million.
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 CVS
was reduced by $56.0 million from $118.1 million to $62.1 million in the 1996
five-month period. The decrease was primarily attributable to a $124.0 million
capital contribution made by CVS to facilitate the Management Buyout.
Income tax benefit for the 1996 five-month period was $6.6 million compared
to $5.5 million 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 nondeductible 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, of which 19
were closed in the fourth calendar quarter, 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 stores,
comprised of 546 stores in 46 states and the District of Columbia and two
stores in England, compared to 626 stores in 46 states and the District of
Columbia and two stores in England
24
<PAGE>
at the end of 1994. Wilsons also operated 98 holiday stores and 129 kiosks
during the fourth quarter of 1995, compared to 59 holiday stores and 76 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 it
closed 85 stores that did not meet cash flow targets. These declines were
partially offset by the expansion of holiday stores and 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. Noncomparable store sales,
other than holiday stores and kiosk sales, were down $14.0 million from 1994 as
the Company opened 18 fewer stores during 1995 compared to 1994.
Cost of goods sold, buying and occupancy costs in 1995 were $317.0 million,
or 68.6% of sales, as compared to $329.4 million, or 69.4% of sales, for the
prior year. As a percent of sales, gross profit net of occupancy costs
increased in 1995 as compared to the period one year ago 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 generally have
higher gross profit margins than apparel, to 23.1% of total sales from 20.6% in
1994 as a result of increased emphasis on accessories in the 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 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
kiosks. For the 1995 period, occupancy costs as a percent of sales increased as
Wilsons' occupancy costs, which are primarily fixed rents associated with store
leases, did not decline at the same rate as the decline in comparable store
sales.
Operating expenses in 1995, before restructuring and asset impairment
charges, were $136.3 million, or 29.5% of sales, compared to $152.5 million, or
32.1% of sales, in 1994. Of the $16.2 million decrease in operating expenses,
approximately $10 million was attributable to the strategic initiative to close
unprofitable stores. 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, improving expense control and revising layaway and check acceptance
policies while simultaneously introducing debit/ATM cards as an additional form
of payment in a number of markets.
Operating expenses in 1995, after restructuring and asset impairment charges,
were $318.5 million, or 68.9% of sales, as compared to $152.5 million, or 32.1%
of sales, in the previous year. As part of the Restructuring, the Company
recorded a pre-tax restructuring charge of $134.3 million during the fourth
quarter of 1995 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 GAAP and is not meant to represent discretionary funds
available to management.
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
25
<PAGE>
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 Company's
average annual interest rate paid on outstanding loan amounts to CVS in 1995
was 6.4% compared to 4.7% in 1994. This increase was partially offset by a
reduction in the average outstanding loan balance with CVS 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.
Income tax benefit in 1995 was $10.1 million compared to $3.1 million 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.
LIQUIDITY AND CAPITAL RESOURCES
Wilsons' capital requirements are primarily driven by the Company's seasonal
working capital needs, and its strategy to open new stores, remodel existing
stores and update information systems. 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. The Company currently plans to open 21
additional mall-based stores for a total of 27 stores in 1998 and at least 20
stores per year for the next several years; three additional airport locations
for a total of 10 new locations in 1998, including both in-line stores and
kiosks, and at least 15 locations per year for the next several years; and
three additional factory outlet stores in 1998, at least 12 stores in 1999,
and at least 25 per year thereafter through 2001. The cost to construct or to
fully remodel a mall-based store is currently estimated to range from $150,000
to $200,000, a new airport store from $125,000 to $175,000 and a new factory
outlet store from $50,000 to $80,000.
General Electric Capital Corporation and a syndicate of banks (the "Banks")
have provided the Company with the Senior Credit Facility, which expires in
May 1999. The Senior Credit Facility provides for borrowings of up to $150.0
million in aggregate principal amount, which amount includes a letter of
credit subfacility of up to $90.0 million. The maximum amount available under
the Senior Credit Facility, however, is further subject to a borrowing base
limitation (less certain reserves) of 65.0% of eligible inventory. 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 0.25% ("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
August 1, 1998, the Company had no borrowings under the Senior Credit Facility
and $43.0 million of outstanding letters of credit. The Company pays a monthly
fee equal to 0.375% per annum on the unused amount of the Senior Credit
Facility and on that portion of the first $10.0 million in borrowings that
bears interest at prime plus a spread. For letters of credit, the Company pays
a monthly fee in an amount equal to 1.25% per annum times the daily average 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 Senior 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 Senior
Credit Facility for its immediate and future working capital needs, including
capital expenditures. For 1997, the peak borrowings and letters of credit
outstanding under the Senior Credit Facility were $30.8 million and $51.9
million, respectively. For 1997, the average amounts of borrowings and the
average amounts covered by outstanding letters of credit were $3.6 million and
$28.1 million, respectively. The Company is dependent on the Senior Credit
Facility to fund working capital and letter of credit needs, and management
believes that borrowing capacity under the Senior Credit Facility, together
with current and anticipated cash flow
26
<PAGE>
from operations, the remaining net proceeds from the exercise of the Company's
redeemable common stock purchase warrants (see Note 9 of Notes to Consolidated
Financial Statements) and proceeds from this Offering should be adequate to
meet the Company's anticipated working capital and capital expenditure
requirements until the Senior Credit Facility expires in 1999, when the
Company expects to extend or replace such facility. The Company estimates that
capital expenditures during 1998 will total approximately $15.0 million.
On August 18, 1997, the Company completed a private offering of the Senior
Notes to certain institutional buyers (the "Debt Offering"). Interest on the
Senior Notes is payable semi-annually in arrears on February 15 and August 15
of each year. The Senior Notes mature on August 15, 2004, unless previously
redeemed, and the Company is not required to make any mandatory redemption or
sinking fund payment prior to maturity. The Senior Notes are general unsecured
obligations of the Company and rank senior in right of payment to all existing
and future subordinated indebtedness of the Company and rank on equal terms in
right of payment with all other current and future unsubordinated indebtedness
of the Company. The Indenture, dated as of August 18, 1997, governing the
Senior Notes contains numerous operating covenants that limit the discretion
of management with respect to certain business matters, and which place
significant restrictions on, among other things, the ability of the Company to
incur additional indebtedness, to create liens or other encumbrances, to
declare or pay any dividend, to make certain payments or investments, loans
and guarantees and to sell or otherwise dispose of assets and merge or
consolidate with another entity. The Company used approximately $56.5 million
of the approximately $72.0 million net proceeds from the Debt Offering to
repurchase the outstanding CVS Note issued to CVS in connection with the
Management Buyout and pay the accrued interest thereon. The balance of the net
proceeds has been used for general corporate purposes, including capital
expenditures and additional store openings.
On March 27, 1998, Wilsons repurchased and simultaneously cancelled the CVS
Warrant for $10.0 million in cash. The warrant had been issued to CVS in the
Management Buyout and gave CVS the right to purchase a total of 1,350,000
shares of the Company's Common Stock.
On May 13, 1998, the Company acquired certain assets of Wallet Works, Inc.
for a purchase price of $5.1 million. The purchase will enable the Company to
expand its leather accessories business into factory outlet malls, a new
distribution channel for the Company. See Note 15 of Notes to Consolidated
Financial Statements.
On June 16, 1998, the Company completed the redemption of its outstanding
redeemable common stock purchase warrants that were issued in the Company's
Initial Public Offering. The net proceeds received by the Company from the
exercise of such warrants prompted by such warrant redemption, after deducting
costs and expenses, were approximately $17.0 million. See Note 9 of Notes to
Consolidated Financial Statements.
The Company plans to use approximately $20.9 million of the net proceeds
from the Offering to redeem a portion of the principal amount of the Senior
Notes and to pay the redemption premium thereon. The remaining net proceeds
will be used for general corporate purposes, including seasonal working
capital needs.
CASH FLOW ANALYSIS
Operating activities for the six months ended August 1, 1998 resulted in
cash used of $65.6 million. The cash used was primarily the result of the net
loss of $16.4 million, the $29.6 million seasonal decrease in accounts
payable, accrued expenses, income taxes payable and other liabilities and the
$22.5 million seasonal increase in inventories and accounts receivable. The
Company used $61.5 million for the six months ended August 2, 1997. The cash
used in 1997 was primarily the result of the net loss of $19.8 million, the
$21.2 million seasonal decrease in accounts payable, accrued
27
<PAGE>
expenses, income taxes payable and other liabilities and the $24.9 million
seasonal increase in inventories and accounts receivable.
Changes in certain balance sheet accounts between January 31, 1998 and
August 1, 1998 reflect normal seasonal variations within the retail industry.
The levels of cash and cash equivalents, inventories and accounts receivable,
accounts payable and certain accrued liabilities fluctuate due to the seasonal
nature of the working capital needs of the Company.
Investing activity for the six months ended August 1, 1998 totaled $12.3
million comprised of capital expenditures of $7.2 million and the purchase of
Wallet Works for $5.1 million. The capital expenditures were primarily for the
renovation of and improvements to existing stores and the construction of new
stores. Capital expenditures for the six months ended August 2, 1997 totaled
$2.6 million.
Cash provided by financing activities for the six months ended August 1,
1998 was $7.3 million. The $7.3 million provided by financing activities was
primarily the result of the $17.0 million net proceeds received by the Company
from the exercise of the common stock redeemable purchase warrants offset by
the $10.0 million used to repurchase the warrant issued to CVS (see Note 9 of
the Notes to the Consolidated Financial Statements). Financing activities for
the first six months of 1997 provided $6.6 million of cash, including $9.5
million of proceeds from the Company's Initial Public Offering offset by a
$2.9 million decrease in book overdrafts which occur as outstanding checks
exceed funds on deposit in noninvestment accounts.
Operating activities for the year ended January 31, 1998 resulted in cash
provided of $16.1 million compared to cash provided of $19.0 million in the
year period ended February 1, 1997. The $16.1 million cash provided by
operating activities in 1997 was primarily the result of net income of $15.6
million, excluding the nonrecurring $3.8 million extraordinary gain on early
extinguishment of debt and the $8.5 million noncash restricted stock
compensation expense.
Investing activity for the year ended January 31, 1998 was comprised of
capital expenditures totaling $10.5 million. The capital expenditures were
primarily for the implementation of certain new information systems, the
renovation of and improvements to existing stores and the construction of new
stores. Capital expenditures for the year ended February 1, 1997 totaled $9.3
million.
Cash provided by financing activities for the year ended January 31, 1998
was $25.8 million. The $25.8 million provided by financing activities in 1997
was primarily the result of $9.5 million in net proceeds from the Company's
Initial Public Offering and $16.9 million in additional cash proceeds from the
Debt Offering after repayment of the CVS Note.
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
holiday selling season. Wilsons recorded 58.5% of its 1997 sales in the peak
selling period. For 1997, 38.2% of the Company's sales were generated during
the period from the day after Thanksgiving through January 3, 1998. 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
historically has not become profitable, if at all, until the fourth quarter of
a given year. Most of the Company's stores have historically been unprofitable
during the first three quarters. Conversely, nearly all of the Company's
stores have been profitable during the fourth quarter, even those that may not
have been profitable for the full year. Historically, the Company has opened
most of its stores during the last half of the year. As a result, new mall-
based 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 nine months of the year.
28
<PAGE>
The following table sets forth certain unaudited financial information for
Wilsons for each fiscal quarter of the years ended February 1, 1997 and
January 31, 1998 and the first two quarters of the year ending January 30,
1999. 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 which, in the opinion of management,
consist 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>
YEAR ENDED YEAR ENDED YEAR ENDING
FEBRUARY 1, 1997(/1/) JANUARY 31, 1998 JANUARY 30, 1999
------------------------------------ ------------------------------- -------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER(/2/) QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------------ ------- ------- ------- ------- ------- ------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $66.8 $41.4 $86.4 $230.2 $56.9 $36.5 $81.3 $243.4 $ 68.0 $ 45.7
Gross profit............ 14.1 3.2 24.3 96.3 9.7 (0.5) 23.8 102.8 16.6 4.4
Restricted stock
compensation charge.... -- -- -- 1.5 0.4 0.5 7.6 -- -- --
Income (loss) from
operations............. (9.8) (18.0) 0.9 55.3 (10.4) (18.7) (8.3) 61.7 (6.1) (17.5)
Income (loss) before
extraordinary items.... (7.2) (11.9) (1.0) 33.0 (7.2) (12.6) (9.7) 36.5 (4.5) (11.9)
</TABLE>
- --------
(1) The year ended February 1, 1997 represented a fifty-three week period. The
first, third and fourth quarters were comprised of thirteen weeks and the
second quarter was comprised of fourteen weeks.
(2) The period ended August 3, 1996 (second quarter) combines the results of
operations of the Predecessor Companies prior to the Management Buyout
from April 28, 1996 through May 25, 1996, and the Company after the
Management Buyout from May 26, 1996 through August 3, 1996.
The Company does not believe that inflation has had a material 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.
EFFECT OF YEAR 2000 ON INFORMATION SYSTEMS
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming century change in the year 2000. Moreover, these
programs often are highly dependent upon historical or dynamic financial and
other data that, based on the programs' inability to distinguish between the
year 2000 and other century-end years, could be misreported or misinterpreted
and cause significant resulting errors. If not corrected, many computer
applications could fail when processing year 2000 data.
The Company is assessing the impact of the year 2000 issue and has or
intends to modify or replace portions of its hardware and software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The Company has also had discussions with its significant
suppliers to determine the readiness of those suppliers to correct year 2000
issues where their systems and products interface with the Company's systems
or otherwise impact its operations. The Company is assessing the extent to
which its operations are vulnerable should those suppliers fail to properly
remedy their computer systems. The Company believes that its actions with key
suppliers will minimize these risks. The scope of the year 2000 readiness
effort includes (i) information technology such as software and hardware, (ii)
non-information systems or embedded technology such as microcontrollers
contained in various equipment, safety systems, facilities and utilities and
(iii) readiness of key third-party suppliers. If needed modifications and
conversions are not made on a timely basis, the year 2000 issue could have a
material adverse effect on the Company's business, financial condition and
results of operations.
29
<PAGE>
The cost to the Company to identify and correct year 2000 issues is
estimated to be $1.5 million, although there can be no assurance that the
expenditures will not be significantly higher. As of August 1, 1998, the
Company had expensed incremental costs of $0.1 million related to the year
2000 issue. The total remaining incremental costs are estimated to be $1.4
million. The Company is expensing as incurred all costs related to the
assessment and correction of the year 2000 issue. These costs are being funded
through operating cash flows. The Company's total cost for the year 2000 issue
includes estimated costs of and time associated with interfacing with third
parties. The Company's current estimates of the amount of time and costs
necessary to modify and test its computer systems are based upon assumptions
regarding future events, including the continued availability of certain
resources, year 2000 modification plans and other factors. New developments
may occur that could affect the Company's estimates of the amount of time and
costs necessary to modify and test its systems for year 2000 compliance. These
developments include, but are not limited to (i) the availability and cost of
personnel trained in this area, (ii) the ability to locate and correct all
relevant computer codes and equipment and (iii) the year 2000 compliance
success that key suppliers attain.
While the Company believes its planning efforts are adequate to address its
year 2000 concerns, the year 2000 readiness of the Company's suppliers and
business partners may lag behind the Company's efforts. Although the Company
does not believe that the year 2000 matters discussed above will have a
material impact on its business, financial condition and results of
operations, it is uncertain as to what extent the Company may be affected by
such matters.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income," effective beginning in 1998,
establishes standards of disclosure and financial statement display for
reporting total comprehensive income and the individual components thereof.
The Company adopted SFAS No. 130 during 1998. Comprehensive income is not
materially different than net income as reported.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," effective in 1998, establishes new standards for determining
reportable segments and for disclosing information regarding each such
segment. Management believes the adoption of SFAS No. 131 will not have a
material impact on the Company's financial position or results of operations.
30
<PAGE>
BUSINESS
OVERVIEW
Wilsons The Leather Experts is the leading specialty retailer of men's and
women's leather outerwear, apparel and accessories in the United States. The
Company operates 503 retail stores in 44 states, Canada and England, including
438 mall-based stores, 25 airport locations and 40 factory outlet stores. The
Company also operates holiday stores, numbering 197 in 1997, to better
capitalize on its peak selling season. Over 80% of the Company's merchandise
is designed and sold under Wilsons' proprietary brands, including Adventure
Bound, M. Julian, Maxima, Pelle Studio and Wilsons The Leather Experts, with
each brand positioned to appeal to identified customer segments. Wilsons'
mall-based stores average approximately 2,000 square feet and feature
merchandise tailored to the demographics and buying patterns of each store's
local customer base. The Company generated net sales of $418.1 million in
1997.
Wilsons designs, contracts for manufacture, imports, distributes and retails
more than 6,000 SKUs of leather merchandise, including coats, blazers, vests,
gloves, belts, handbags, wallets, briefcases, planners, computer cases and CD
cases. This vertical integration enables the Company to consistently provide
its customers high-quality products at attractive prices. In addition, the
Company is able to replenish faster-selling merchandise within the same
season, respond quickly to consumer preferences and rapidly increase
production capacity as the Company grows. Management believes its vertically
integrated operations, combined with its merchandising strategy of
strengthening brand recognition and tailoring its product assortment to
identified customer segments, provide it with a competitive advantage.
Management has extensive experience in the retail and leather industries and
led the Management Buyout in 1996. Prior to 1996, management initiated the
Restructuring to improve the Company's portfolio of stores, enhance its
profitability and position the Company for future growth. Management closed
156 stores between January 1, 1995 and May 25, 1996 and undertook a number of
strategic initiatives to improve future operating performance, including (i)
repositioning the merchandise assortment to focus on higher-margin accessories
and target specific customer segments, (ii) restructuring store management and
staffing, (iii) upgrading critical merchandising and financial information
systems and (iv) reducing corporate overhead. As a result of these and other
initiatives, the Company's gross profit as a percentage of net sales increased
to 32.5% in 1997 from 30.6% in 1994, and selling, general and administrative
expenses as a percentage of net sales decreased to 24.1% from 27.4% over the
same period. These improvements continued into 1998 with gross profit as a
percentage of net sales increasing to 18.5% in the six months ended August 1,
1998 from 9.8% in the six months ended August 2, 1997, and selling, general
and administrative expenses as a percentage of net sales decreasing to 37.7%
from 39.1%.
BUSINESS STRATEGY
Wilsons intends to strengthen its position as the leading specialty retailer
of leather outerwear, apparel and accessories in the United States and to
increase profitability through the following strategic initiatives:
Strengthen Brand Recognition. The name and reputation of Wilsons The Leather
Experts assures customers they are purchasing high-quality, fashionable
merchandise. Over 80% of the Company's merchandise is designed and sold under
Wilsons' proprietary brands, including Adventure Bound, M. Julian, Maxima,
Pelle Studio and Wilsons The Leather Experts. Wilsons promotes its brands
through in-store merchandise presentations, a targeted marketing and
advertising strategy and the extensive product knowledge of its sales
associates. Wilsons also selectively offers other designer brands such as Nine
West, Kenneth Cole, Andrew Marc, Bosca and XOXO to highlight the value of its
proprietary brands and enhance its product mix.
31
<PAGE>
Tailor Product Assortment to Identified Customer Segments. Wilsons
identifies specific customer segments by lifestyle characteristics influenced
by factors such as age, fashion awareness, purchasing behavior, income and
other demographics. The Company markets to four key customer segments through
its proprietary brands: (i) Adventure Bound for the rugged, outdoor, casual
segment, (ii) M. Julian and Maxima for the peer- and trend-driven juniors
segment, (iii) Pelle Studio for the more sophisticated, confident and fashion-
aware segment and (iv) Wilsons The Leather Experts for the classic,
traditional, value-conscious segment. Within each store, Wilsons displays its
merchandise by lifestyle segments offering a broad variety of styles to its
many customer groups. Each Wilsons store features a core merchandise
assortment as well as merchandise tailored to meet local preferences based on
market-specific characteristics and information from Wilsons' five million
customer database.
Capitalize on Vertical Integration. Wilsons' global operations vertically
integrate the development of new leather textures, colors and finishes, the
design of leather merchandise and the sourcing and distribution of goods. The
Company believes that its vertical integration and volume purchasing allow it
to realize economies of scale and other competitive advantages, including:
. Offering its customers prices that are typically lower than those of its
competitors for merchandise of comparable quality;
. Purchasing leather and contracting for manufacturing capacity at
favorable prices;
. Effectively managing production cycles and delivery schedules;
. Responding more rapidly to market trends and consumer demand with
changes to its merchandise mix;
. Replenishing faster-selling merchandise within the same selling season;
and
. Rapidly increasing production capacity as the Company grows.
Enhance Profit Margins. The Company plans to continue to improve its
operating margins by (i) focusing on proprietary brand name merchandise which
typically generates higher gross margins than other comparable nonproprietary
merchandise, (ii) increasing the percentage of higher-margin accessories in
its mall-based stores' merchandise mix, (iii) opening additional airport and
factory outlet stores that are less seasonal and offer primarily accessories
and (iv) dynamically tailoring merchandise assortments to meet local consumer
preferences.
GROWTH STRATEGY
Management plans to leverage Wilsons' successful restructuring efforts and
focused business strategy by implementing several growth initiatives:
Expand Existing Retail Concepts. The Company plans to expand existing retail
concepts as follows:
. Mall-Based Stores. Mall-based stores represent the Company's core retail
concept, appealing to a broad base of consumers and showcasing the full
range of Wilsons' products. The Company believes it can continue to
enhance customer loyalty and gain market share by expanding mall-based
stores into underserved markets. Wilsons currently plans to open 21
additional stores for a total of 27 new stores in 1998 and at least 20
stores per year for the next several years.
. Airport Stores. Airports with high passenger traffic represent
attractive growth opportunities for the Company. These stores offer
accessories for business travelers and tourists, including travel
luggage, briefcases, handbags, planners, wallets, computer cases and CD
cases. Airport locations average more than twice the revenue per square
foot and are subject to less seasonal variation in sales than mall-based
stores. The Company believes that airport stores increase brand name
recognition for Wilsons The Leather Experts and present an avenue for
entry into international markets. Wilsons currently plans to open three
additional locations for a total of 10 new locations, including both in-
line stores and kiosks, in 1998 and at least 15 locations per year for
the next several years.
32
<PAGE>
. Factory Outlet Stores. In May 1998, through its acquisition of 40 Wallet
Works stores, Wilsons established a presence in factory outlet malls.
Factory outlet stores are subject to less seasonal variation in sales
than the Company's mall-based stores. Wilsons is utilizing this retail
concept to expand its higher-margin accessories offerings. The Company
currently plans to open three additional stores in 1998, at least 12
stores in 1999 and at least 25 per year thereafter through 2001.
Develop New Selling Concepts. Wilsons expects to further drive revenue
growth by establishing new selling concepts. Management intends to leverage
its initial success in international airport locations by introducing
additional Wilsons stores into international markets. The Company has also
developed a stand-alone mall-based accessories concept and is currently
testing two stores. Additionally, the Company expects to launch a direct sales
effort through the introduction of an Internet retail store.
Pursue Strategic Acquisitions. Wilsons believes that its market leadership,
financial strength, economies of scale and experienced management team
position it to pursue strategic acquisitions. The Company seeks acquisition
candidates which can benefit from Wilsons' vertically integrated supply
strategy and expertise in merchandising leather outerwear, apparel and
accessories. The Company does not presently have any agreements or
understandings regarding a potential acquisition or business combination.
STORE FORMATS AND LOCATIONS
Wilsons operates 503 retail stores located in 44 states, Canada and England,
including 438 mall-based stores, 25 airport locations and 40 factory outlet
stores. The Company also operates holiday stores, numbering 197 in 1997, to
better capitalize on its peak selling season. In selecting store locations,
the Company utilizes customer lifestyle and demographic data derived from its
point-of-sale network as well as data from outside sources relating to market
potential and mall performance. The Company analyzes projected occupancy costs
and store performance to evaluate each store's potential to achieve
established cash flow objectives prior to finalizing site selection and
negotiating final lease terms. Wilsons has also established a cross-functional
review committee that approves all proposed store projects, including new
sites and lease renewals.
33
<PAGE>
503 STORE LOCATIONS
[Map showing the Company's store locations and locations of the Company's
corporate headquarters and distribution center]
* Corporate Headquarters and Distribution Center
<TABLE>
<CAPTION>
MALL- FACTORY
BASED AIRPORT OUTLET TOTAL
----- ------- ------- -----
<S> <C> <C> <C> <C>
Alabama......... 2 -- 1 3
Arizona......... 5 -- 2 7
Arkansas........ 1 -- -- 1
California...... 59 -- 5 64
Colorado........ 8 -- 1 9
Connecticut..... 6 -- -- 6
Delaware........ 3 -- -- 3
Florida......... 4 2 3 9
Georgia......... 11 3 1 15
Idaho........... 1 -- -- 1
Illinois........ 35 -- -- 35
Indiana......... 11 1 -- 12
Iowa............ 6 -- 1 7
Kansas.......... 2 -- -- 2
Kentucky........ 4 -- 1 5
Louisiana....... 4 -- 2 6
Maine........... 3 -- -- 3
Maryland........ 14 2 1 17
Massachusetts... 16 1 -- 17
Michigan........ 20 -- 1 21
Minnesota....... 13 2 -- 15
Missouri........ 5 -- 2 7
Nebraska........ 3 -- -- 3
Nevada.......... 5 -- 1 6
</TABLE>
<TABLE>
<CAPTION>
MALL- FACTORY
BASED AIRPORT OUTLET TOTAL
----- ------- ------- -----
<S> <C> <C> <C> <C>
New Hampshire............. 5 -- -- 5
New Jersey................ 21 -- -- 21
New Mexico................ 1 -- -- 1
New York.................. 32 -- -- 32
North Carolina............ 8 1 1 10
North Dakota.............. 4 -- -- 4
Ohio...................... 24 1 -- 25
Oklahoma.................. 1 -- -- 1
Oregon.................... 3 -- 3 6
Pennsylvania.............. 21 3 4 28
Rhode Island.............. 2 -- -- 2
South Carolina............ 1 -- -- 1
South Dakota.............. 2 -- -- 2
Tennessee................. 7 1 2 10
Texas..................... 15 1 1 17
Utah...................... 5 -- 1 6
Virginia.................. 12 2 1 15
Washington................ 16 -- -- 16
West Virginia............. 1 -- 1 2
Wisconsin................. 16 -- 4 20
Canada.................... -- 2 -- 2
England................... -- 3 -- 3
--- --- --- ---
Total................... 438 25 40 503
=== === === ===
</TABLE>
34
<PAGE>
Mall-Based Stores
Wilsons operates 438 mall-based stores in 44 states, including 412 Wilsons
The Leather Experts stores, 14 Tannery West stores and 12 Georgetown Leather
Design stores. These stores average approximately 2,000 square feet and are
primarily located in regional shopping malls. The mall-based stores are
designed to target a broad base of consumers and showcase the full range of
Wilsons' high-quality men's and women's leather outerwear, apparel and
accessories, including coats, blazers, vests, gloves, belts, handbags,
wallets, briefcases, planners, computer cases and CD cases. The Company
intends to open new mall-based stores under the Wilsons The Leather Experts
name. In 1997, the mall-based stores had sales of $367.8 million, representing
88.0% of the Company's total sales; stores open the entire year averaged sales
of $821,000 and sales per square foot of $390 as compared to sales per store
of $806,000 and sales per square foot of $387 in 1996.
Airport Stores
Wilsons operates 25 airport locations in 12 states, Canada and England under
the name Wilsons The Leather Experts. The airport stores average approximately
800 square feet. These locations offer primarily accessories for business
travelers and tourists, including travel luggage, handbags, briefcases,
planners, wallets, computer cases and CD cases. Airport locations typically
generate more than twice the revenue per square foot and are less seasonal,
due to more even flows of customer traffic in airports during the year as
compared to malls and to an emphasis on accessories. In 1997, airport stores
had sales of $11.2 million, representing 2.7% of the Company's total sales;
stores open the entire year averaged sales of $852,000 and sales per square
foot of $981 as compared to sales per store of $791,000 and sales per square
foot of $861 in 1996.
Factory Outlet Stores
Wilsons operates 40 factory outlet stores in 22 states under the name Wallet
Works. These stores average approximately 1,300 square feet and primarily sell
wallets and other leather accessories. Wilsons purchased the 40 Wallet Works
factory outlet stores in May 1998.
Holiday Stores
In 1997, Wilsons operated 197 holiday stores in 38 states and plans to
operate 220 holiday stores in 1998. A holiday store is a temporary, full-size
Wilsons store located in a vacant mall space and typically operated from
October through December, the Company's peak selling season. Wilsons usually
locates these stores in malls where there is not an existing Wilsons store.
These stores offer a merchandise selection and presentation similar to the
mall-based Wilsons The Leather Experts stores allowing the Company to leverage
its brand recognition and national reputation. These stores also offer the
Company the ability to test new malls where the Company is considering opening
a permanent store. Furthermore, this format provides an opportunity to develop
and assess the skills of employees being considered as future store managers
of the permanent stores. In 1997, holiday stores had sales of $32.8 million,
representing 7.8% of the Company's total sales; stores averaged sales of
$169,000 as compared to $136,000 in 1996. In addition, Wilsons operates
seasonal kiosks which are generally 100 square-foot temporary units located in
the common area of malls where the Company has a permanent store. Wilsons
operated 100 kiosks in 1997 which had sales of $6.3 million and plans to
operate 40 kiosks in 1998 as the Company focuses on more profitable holiday
stores.
MERCHANDISING
Wilsons' merchandising strategy is based on offering a broad assortment of
quality leather outerwear, apparel and accessories at affordable prices,
building strong brand recognition and tailoring its product assortment to
identified customer segments. Wilsons offers more than 6,000 SKUs of leather
outerwear, apparel and accessories such as coats, blazers, vests, gloves,
belts, handbags, wallets, briefcases, planners, computer cases and CD cases.
Key elements of the Company's merchandising strategy include:
35
<PAGE>
. Selection -- Wilsons offers its customers a broad and deep selection of
high-quality leather outerwear, apparel and accessories. Management
believes that the Company's mall-based stores offer significantly more
SKUs of leather outerwear, apparel and accessories than offered by its
competition (e.g., department stores, specialty stores and mass
merchandisers).
. Value -- The Company strives to deliver its high-quality merchandise at
affordable prices, in order to provide value for its customers. The
Company believes that its integrated global product sourcing capability
enables it to offer its customers prices that are typically lower than
those of its competitors for merchandise of comparable quality.
. Style and Branding -- The Company uses its proprietary brands to
translate identified market trends into highly-focused leather
outerwear, apparel and accessory assortments. The Company tests new
designs and reorders faster-selling merchandise for its peak selling
season.
The name and reputation of Wilsons The Leather Experts assures customers
they are purchasing high-quality, fashionable merchandise. Over 80% of the
Company's merchandise is designed and sold under Wilsons' proprietary brands,
including Adventure Bound, M. Julian, Maxima, Pelle Studio and Wilsons The
Leather Experts. Wilsons promotes its brands through in-store merchandise
presentations, a targeted marketing and advertising strategy and the extensive
product knowledge of its sales associates. Wilsons also selectively offers
other designer brands such as Nine West, Kenneth Cole, Andrew Marc, Bosca and
XOXO to highlight the value of its proprietary brand and enhance its product
mix.
Wilsons identifies specific customer segments by lifestyle characteristics
influenced by factors such as age, fashion awareness, purchasing behavior,
income and other demographics. The Company markets to four key customer
segments through its proprietary brands: (i) Adventure Bound for the rugged,
outdoor, casual segment, (ii) M. Julian and Maxima for the peer- and trend-
driven juniors segment, (iii) Pelle Studio for the more sophisticated,
confident and fashion-aware segment and (iv) Wilsons The Leather Experts for
the classic, traditional, value-conscious segment. Within each store, Wilsons
displays its merchandise by lifestyle segments offering a broad variety of
styles to its many customer groups. Each Wilsons store features a core
merchandise assortment as well as merchandise tailored to meet local
preferences based on market-specific characteristics and information from
Wilsons' five million customer database.
Wilsons has increased its emphasis on accessories including gloves,
handbags, belts, wallets, briefcases, planners, computer cases and CD cases,
due to their generally higher gross 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 grew as a percentage of the Company's sales to 25.8% in 1997 from 20.5%
in 1994. Over the same period, men's apparel sales decreased as a percentage
of the Company's sales to 38.9% from 44.3%, and women's apparel sales remained
constant in the Company's merchandise mix.
36
<PAGE>
The following table sets forth the Company's percentages of net sales by
major merchandise category from 1994 to 1997.
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------
DECEMBER 31,
--------------
FEBRUARY 1, JANUARY 31,
MERCHANDISE CATEGORY 1994 1995 1997 1998
-------------------- ------ ------ ----------- -----------
<S> <C> <C> <C> <C>
Men's Apparel........................ 44.3% 42.4% 40.8% 38.9%
Women's Apparel...................... 35.2 34.4 34.8 35.3
Accessories.......................... 20.5 23.2 24.4 25.8
----- ----- ----- -----
Total.............................. 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
VERTICALLY INTEGRATED OPERATIONS
The Company believes that a key competitive advantage is its ability to
integrate the functions of leather design and development, sourcing,
merchandising, marketing and retail sales.
Merchandise Design and Development
Wilsons' buyers and designers are trained to translate market trends into
leather products that appeal to Wilsons' customers. The Company's proprietary
merchandise is created and developed by its in-house design staff. Merchandise
designs are reviewed to ensure consistency with the Company's merchandise
themes and images. The designers and buyers also work closely with the
Company's suppliers to identify and develop leather colors and finishes.
In order to respond effectively to changing consumer preferences, the
Company monitors emerging lifestyle and market trends affecting outerwear,
apparel and accessories and utilizes information from the Company's customers
regarding the retail performance of its merchandise. As a market trend is
identified, the Company reviews its merchandise design decisions to ensure
that key features of successful merchandise are incorporated into future
designs. As part of the design process, the Company also analyzes and
considers the anticipated retail prices of and profit margins for the
merchandise, the availability of raw materials and the capabilities of the
factories that will manufacture the merchandise.
Product Sourcing
The Company believes that a significant competitive advantage is its
sourcing expertise. In 1997, Wilsons contracted for the manufacture of
approximately 1.8 million leather garments. Management believes that its
volume purchasing enables the Company to achieve economies of scale and to
secure sufficient manufacturing capacity.
The Company has developed a sourcing infrastructure that allows it to
control merchandise production without owning manufacturing facilities.
Company personnel located in China, India, Indonesia, Hong Kong and South
Korea are primarily responsible for overseeing the production and quality
control process in overseas factories and the shipping of the merchandise to
the United States. Their responsibilities include inspecting leather at the
tanneries, coordinating the production capacity, matching 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 its overseas
personnel to coordinate order fulfillment. Between 1990 and 1997, the Company
reduced its merchandise production cycle from approximately 180 days to
approximately 90 days. The reduced merchandise production cycle allows the
Company to control its production needs and to effectively reorder faster-
selling merchandise for 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.
37
<PAGE>
Due in large part to its overseas infrastructure, the Company has developed
the technology and capability to shift its product sourcing to various
countries of the Far East, depending on labor availability and costs and
availability of leather and other raw materials. In 1989, Wilsons sourced
approximately 90% of its leather apparel from South Korean vendors. Since that
time the Company has shifted production to lower cost countries. In 1997, the
Company sourced 55% of its goods from China and approximately 38% and 6% of
its goods from India and Indonesia, respectively.
DISTRIBUTION
Merchandise is shipped directly from the Company's contract manufacturers to
its 289,000 square foot distribution center located at the Company's
headquarters in Brooklyn Park, Minnesota. The distribution center is equipped
with high-speed, garment-sorting equipment and hand-held radio frequency
scanners for rapid bar code scanning and enhanced merchandise control.
Approximately 40% of the merchandise received in the distribution center is
sent directly to the Company's stores through cross-docking, which allows for
minimal handling and 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 to stock key styles. The Company
schedules merchandise replenishment to ensure that goods sold during a weekend
are replenished to the store before the next weekend. On average, each store
is shipped merchandise one to three times per week, depending on the season
and sales volume in each store.
The Company recently signed a five-year lease for a facility with 45,600
square feet that will service the distribution needs of the airports and
factory outlet stores. The distribution facility is located in Maple Grove,
Minnesota approximately two miles from the Company's existing distribution
center.
MARKETING AND ADVERTISING
Wilsons uses its marketing and advertising programs to highlight its
proprietary brands to identified customer segments. Wilsons' advertising
strategy focuses on strengthening the image of each particular brand while
also promoting the Wilsons The Leather Experts name. The Company uses a
combination of direct mail, newspaper, radio and television advertising to
focus consumers on specific products and promote the Wilsons brands. In 1997,
Wilsons spent $4.8 million on national cable, local television and advertising
media. Once in the store, the Company uses merchandising configuration,
graphics displays and signage to enhance the customer's shopping experience
and further promote its proprietary brands.
Wilsons uses its in-house database of information on over five million
customers to identify key trends. Understanding the customer is a key element
to the success of Wilsons' merchandising and marketing programs. In addition,
Wilsons conducts marketing research of Wilsons and non-Wilsons leather
purchasing consumers to gain additional knowledge of consumer behavior.
CUSTOMER SERVICE
Wilsons has built its image as "The Leather Experts" by offering its
customers an extensive selection of affordably priced leather merchandise and
leather care products. The Company emphasizes sales associate training to
ensure each sales associate's knowledge of Wilsons' merchandise and the
customer segments that the various brands are designed to serve. The
associates receive on-going training in the unique properties of leather, the
appropriate methods of care for the various leather finishes, Wilsons'
standards of customer service and selling techniques. In addition, the Company
trains associates to perform minor repairs in the store for the customer free
of charge.
38
<PAGE>
Wilsons regularly evaluates its customer service performance through
customer comment cards, direct survey of customers who return merchandise and
annual mall intercept and telephone interview surveys. Wilsons periodically
holds customer focus groups. Issues relating to policy, procedure or
merchandise are frequently reviewed to improve service and quality.
MANAGEMENT INFORMATION SYSTEMS
During 1997, the Company completed implementation of new merchandising,
financial and human resources information systems. Management believes the new
systems have improved inventory management, providing Wilsons with the
opportunity to better control its merchandise flow from overseas factories to
the stores. The new systems provide broader and quicker access to information
at all relevant levels of the organization, stronger analytical tools for
understanding sales and operating trends and greater flexibility in
anticipating future business needs. In addition, the new merchandising system
has enhanced the Company's ability to customize merchandise offerings by store
to serve specific customer segments.
The Company's automated point-of-sale registers in all stores capture
transactions by SKU that are transmitted electronically to the headquarters'
computer, updating other systems with critical sales 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 communication system
that permits daily communications of advanced shipment notices, and electronic
tracking of inventory transfers between locations. Each store uses computer-
based interview systems for new hiring.
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 utilizes a merchandise planning
application with strong analytical capabilities and 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 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. During 1997, certain financial and human resource information
systems were replaced and upgraded to operate in a client/server environment.
The Company plans to upgrade its point-of-sale equipment during 1999. See
"Risk Factors--Effect of Year 2000 on Information Systems" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Effect of Year 2000 on Information Systems."
PROPERTIES
Wilsons operates 502 leased store locations and one owned store location.
Substantially all of Wilsons' stores are located in regional shopping malls,
airport retail locations or factory outlets. Store leases with third parties
are typically seven to ten years in duration. Most of the store leases provide
for an annual base rent plus a contingent rent based on the store's annual
sales in excess of a specified threshold. Substantially all leases that
Wilsons had entered into prior to the Management Buyout are guaranteed by an
affiliate of CVS. Wilsons is obligated, pursuant to the sale agreement dated
May 24, 1996 between the Company and CVS, to use commercially reasonable
efforts to remove the affiliate of CVS as a guarantor.
39
<PAGE>
The Company owns its distribution center and corporate offices and the land
on which they are located. The combined facility is 343,500 square feet. The
Company recently signed a five-year lease with a five-year renewal option for
a facility in Maple Grove, Minnesota to be used as a distribution center to
service the distribution needs of the airport locations and factory outlet
stores. This new facility is 45,600 square feet.
COMPETITION
The retail leather industry is both highly competitive and fragmented.
Management believes that the principal basis upon which the Company competes
are selection, style, quality, price, value, store location and service. The
Company competes with a broad range of other retailers including specialty
retailers, department stores, mass merchandisers and discounters and other
retailers of leather outerwear, apparel and accessories. Major competitors
include, among others, J.C. Penney, The Limited, Eddie Bauer, The Gap, Coach,
The Leather Loft and Burlington Coat Factory.
TRADEMARKS
Wilsons conducts its business under various trade names, brand names,
trademarks and service marks in the United States, including M. Julian(R),
Maxima(R), Pelle Studio(R), Adventure Bound(R), Wilsons The Leather
Experts(TM), Tannery West(R), Georgetown Leather Design(R), the Wallet
Works(TM), Open Road(TM), Handcrafted by Wilsons The Leather Experts(TM) and
Vintage by Wilsons The Leather Experts(TM) and has registered several trade
names and trademarks in England.
EMPLOYEES
Wilsons has approximately 4,000 employees. During the Company's peak selling
season from October through December, Wilsons employs approximately 3,500
additional seasonal employees. Wilsons considers its relationships with its
employees to be good. None of the Company's employees are governed by
collective bargaining agreements.
LITIGATION
The Company is involved in various routine legal proceedings incidental to
the conduct of its business. 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.
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company as of August 1, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joel N. Waller........ 58 Chairman of the Board of Directors and
Chief Executive Officer
David L. Rogers....... 55 President, Chief Operating Officer and Director
Douglas J. Treff...... 41 Vice President, Finance, Chief Financial Officer and
Assistant Secretary
Carol S. Lund......... 46 Executive Vice President
John Serino........... 48 Executive Vice President, Store Sales
W. Michael Bode....... 53 Vice President, Manufacturing
John Fowler........... 42 Vice President, General Merchandise Manager
Betty Goff............ 41 Vice President, Human Resources
Jed Jaffe............. 44 Vice President, Real Estate
Jeffrey W. Orton...... 42 Vice President, Information Systems and
Strategies and Logistics
David B. Sharp........ 50 Vice President, Marketing
Daniel R. Thorson..... 39 Treasurer and Director, Business Planning and
Analysis
Thomas R. Wildenberg.. 40 Chief Accounting Officer and Controller
Lyle Berman........... 56 Director
Thomas J. Brosig...... 48 Director
Morris Goldfarb....... 47 Director
</TABLE>
All of the above-named 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, CVS hired Mr. Waller as President of
Wilsons, and he served in such capacity until April 1992. Prior to joining
Wilsons, Mr. Waller served in several capacities at Bermans The Leather
Experts, 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
Wilsons since April 1992. In 1988, Mr. Rogers joined Wilsons as Executive Vice
President and Chief Operating Officer when Bermans The Leather Experts was
acquired by Wilsons, and he served in such capacity until April 1992. 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.
Douglas J. Treff has served as Chief Financial Officer and Assistant
Secretary of Wilsons since May 1996 and as Vice President, Finance since
January 1993. Mr. Treff served as Controller of Wilsons from September 1992 to
January 1993 and as Director of Financial Planning and Analysis of Wilsons
from May 1990 to September 1992.
Carol S. Lund has served as Executive Vice President of the Company since
December 1997. Ms. Lund served as Executive Vice President and General
Merchandise Manager of Wilsons from 1994 to 1997, as Executive Vice President
and General Manager for the Snyder Leather division from 1992 to 1994, as
Senior Vice President and General Merchandise Manager of Wilsons from 1987 to
1992 and as Vice President and General Merchandise Manager of Wilsons from
1983 to 1987. Prior to joining Wilsons, she was Divisional Merchandise Manager
for Bermans The Leather Experts from 1981 to 1983 and Buyer for Bermans from
1976 to 1981.
41
<PAGE>
John Serino has served as Executive Vice President, Store Sales of the
Company since January 1998. Prior to rejoining Wilsons, Mr. Serino served as
President and Chief Operating Officer of Auto Palace, ADAP Inc., an auto parts
retail company, from 1995 to 1998 and as Senior Vice President and Executive
Vice President, Sales of Marshalls, Inc., a department store company, from
1992 to 1995. Mr. Serino previously served with Wilsons as Senior Vice
President, Stores from 1989 to 1990 and as President of the Tannery West
division from 1990 to 1992.
W. Michael Bode has served as Vice President, Manufacturing of Wilsons since
1988. Prior to joining Wilsons, Mr. Bode served as Vice President,
Manufacturing since 1987, as Director of Manufacturing from 1985 to 1987, as
Divisional Merchandise Manager of Outerwear from 1982 to 1985 and as Regional
Director of Stores from 1981 to 1982 of Bermans The Leather Experts.
John Fowler has served as Vice President, General Merchandise Manager of
Wilsons since May 1998. Mr. Fowler served as Overseas Merchant for Wilsons
from February 1993 to April 1998, as Vice President, General Merchandise
Manager of Tannery West from August 1989 to January 1993, and as Divisional
Merchandise Manager from October 1986 to July 1989.
Betty Goff has served as Vice President, Human Resources of Wilsons since
February 1992. Ms. Goff served as Director of Executive Recruitment and
Placement of Wilsons from October 1987 to February 1992.
Jed Jaffe has served as Vice President, Real Estate of the Company since
March 1998. Mr. Jaffe served as Vice President, Store Sales of Wilsons from
January 1996 to March 1998, as Vice President, Strategic Planning of Wilsons
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 Wilsons from February 1993 to August 1993, as
President of Tannery West from September 1992 to January 1993 and as Director
of Manufacturing of Wilsons from October 1991 to September 1992.
Jeffrey W. Orton has served as Vice President, Information Systems and
Strategies and Logistics since October 1997. Mr. Orton served as Director of
Strategic Analysis of the Company from March 1997 to October 1997 and as
Director of Business Process Reengineering of Wilsons from September 1993 to
March 1997. Prior to joining Wilsons, Mr. Orton held various management
positions from 1986 to 1993 at United States Shoe Corporation, a manufacturing
and retail apparel and footwear company, most recently as Director of Footwear
Retail Systems from June 1992 to September 1993.
David B. Sharp has served as Vice President, Marketing of Wilsons 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 Wilsons 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.
Thomas R. Wildenberg has served as Controller since October 1994 and as
Chief Accounting Officer of Wilsons 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 1992 to October 1994.
Lyle Berman is a member of the Company's Board of Directors. Mr. Berman has
served as Chairman of the Board of Grand Casinos, Inc., a gaming corporation,
since October 1990. Mr. Berman also served as Chief Executive Officer of Grand
Casinos, Inc. from October 1990 to March 1998. Mr. Berman has served as Chief
Executive Officer and Chairman of the Board of Directors of Rainforest
42
<PAGE>
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 a director of G-
III Apparel Group, Ltd., New Horizon Kids Quest, Inc. and Innovative Gaming
Corporation of America, and he was Chairman of the Board of Innovative Gaming
Corporation of America until June 1998 when he resigned from that position.
Mr. Berman was an executive officer and a director of Stratosphere
Corporation, an amusement and recreation company, from February 1993 to July
1997. In January 1997, Stratosphere Corporation filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code.
Thomas J. Brosig is a member of the Company's Board of Directors. Mr. Brosig
has served as Chief Executive Officer of Grand Casinos, Inc., a gaming
company, since March 1998, and as President and a director 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, 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 Apparel
Group, Ltd. and Famous Dave's of America, Inc.
Morris Goldfarb is a member of the Company's Board of Directors. Mr.
Goldfarb serves as Chief Executive Officer and Chairman of the Board of
Directors of G-III Apparel Group, Ltd., a leather and non-leather apparel
manufacturer and distributor, as a director of Grand Casinos, Inc., as a
director of Panasia Bank and as a director of Smiles Amusement Company LLC.
Mr. Goldfarb has served as an executive officer of G-III and its predecessors
since its formation in 1974.
43
<PAGE>
MANAGEMENT BUYOUT
Wilsons was organized as a Minnesota corporation in May 1996 to acquire all
of the issued and outstanding capital stock (the "Wilsons Shares") of Wilsons
Center, Inc. and its subsidiaries from CVS in a management-led buyout. On May
24, 1996, CVS, Wilsons Center, Inc. and the Company, which was ultimately
owned by management and an investor group, entered into the sale agreement
under which the Company acquired the Wilsons Shares for $67.8 million plus a
warrant exercisable for 1,350,000 shares of Common Stock, with an exercise
price of $.60 per share (the "CVS Warrant"), and a second warrant issued to
CVS exercisable for up to 1,080,000 shares of Common Stock, with an exercise
price of $.60 per share, (the "Manager Warrant"), in the following two-step
transaction. First, CVS received: (i) $2.0 million in cash, (ii) the $55.8
million CVS Note, (iii) the CVS Warrant, (iv) the Manager Warrant, (v)
4,320,000 shares of Common Stock and (vi) 7,405 shares of Series A Preferred
Stock. Thereafter, Leather Investors Limited Partnership I, a Minnesota
limited partnership, and Leather Investors Limited Partnership II, a Minnesota
limited partnership (together with Leather Investors Limited Partnership I,
the "Limited Partnerships"), respectively purchased from CVS the 4,320,000
shares of Common Stock and the 7,405 shares of Series A Preferred Stock for an
aggregate consideration of $10.0 million in cash.
On May 27, 1997, the 7,405 shares of Series A Preferred Stock were exchanged
for 617,083 shares of the Company's Common Stock. Upon completion of the
Company's Initial Public Offering on June 2, 1997, the Limited Partnerships
automatically dissolved, and the shares of Common Stock held by them were
distributed to their partners based on their respective interests in the
Limited Partnerships. In addition, pursuant to the Company's Amended Articles
of Incorporation, all shares of Common Stock, regardless of class, were
automatically converted into an equal number of shares of Common Stock of a
single class without designation.
As part of the Management Buyout, management purchased 1,080,000 shares of
Restricted Stock pursuant to the restricted stock agreement between certain
managers of the Company (the "Managers") and the Company. As of February 1,
1997, 198,018 shares of such Restricted Stock had vested and, for the period
ended February 1, 1997, the Company recorded a $1.5 million noncash
compensation charge related to such shares. The remaining 881,982 shares of
Restricted Stock vested on August 18, 1997 upon repayment of the CVS Note, and
the Manager Warrant lapsed at the same time. The Company recorded an
additional noncash compensation charge of $8.5 million related to such shares
which equaled the difference between the fair market value of the Restricted
Stock on the date the shares vested, which was $10.25 per share, and the
original price of the Restricted Stock, which was $.60 per share; however,
such charge did not impact the Company's total shareholders' equity or cash
balances. Each Manager was responsible for any taxes and other sums required
by law to be withheld by the Company in connection with the Restricted Stock.
On March 27, 1998, the Company repurchased the CVS Warrant for $10.0 million
in cash and cancelled it. The purchase price of the CVS Warrant equaled $7.40
for each of the 1,350,000 shares of the Company's Common Stock subject to the
CVS Warrant ($8.00 per share minus a $.60 per share exercise price).
The Management Buyout was accounted for under the purchase method of
accounting. The carrying value of the net assets acquired exceeded the
purchase price by $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.
44
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of August 1, 1998 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, (iii) the Chief Executive Officer and the four other most highly
compensated executive officers of the Company, and (iv) 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>
AMOUNT AND NATURE OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING SHARES
- ------------------------------------ -------------------- ------------------
<S> <C> <C>
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........................... 2,208,415.8(/1/) 20.4%
3300 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Morris Goldfarb....................... 2,147,630.0(/2/) 19.8
G-III Apparel Group, Ltd.
512 Seventh Avenue
New York, NY 10018
Joel N. Waller........................ 1,111,285.3(/3/) 10.3
7401 Boone Avenue North
Brooklyn Park, MN 55428
David L. Rogers....................... 955,774.5 8.8
7401 Boone Avenue North
Brooklyn Park, MN 55428
Lyle Berman........................... 311,630.0 2.9
Thomas J. Brosig...................... 7,200.0(/4/) *
Carol S. Lund......................... 149,833.8 1.4
David B. Sharp........................ 141,509.7 1.3
Jed Jaffe............................. 124,861.5 1.2
All executive officers and directors
as a group (16 persons).............. 5,330,633.4 49.2
</TABLE>
- --------
* Represents less than 1%.
(1) Includes 1,836,000 shares of Common Stock held in four irrevocable trusts
for the benefit of Lyle Berman's children and 125,560.8 shares of Common
Stock held in two irrevocable trusts for the benefit of David Rogers'
children. Mr. Sell has disclaimed beneficial ownership of such shares.
(2) Includes 172,800 shares of Common Stock owned by the Goldfarb Family
Partners L.L.C. of which Mr. Goldfarb is the manager.
(3) Includes 100,000 shares of Common Stock owned by the Waller Family Limited
Partnership of which Mr. Waller is a general partner; 3,000 shares of
Common Stock owned by Mr. Waller's spouse and Mr. Waller's mother jointly;
and 1,000 shares of Common Stock owned by Mr. Waller's spouse.
(4) Represents options which are currently exercisable to purchase 7,200
shares of Common Stock.
45
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part, the underwriters
named below (the "Underwriters") have severally, and not jointly, agreed,
through Ladenburg Thalmann & Co. Inc., McDonald & Company Securities, Inc. and
John G. Kinnard and Company Incorporated, the representatives of the
Underwriters (the "Representatives"), to purchase from the Company, and the
Company has agreed to sell to the Underwriters, the aggregate number of shares
of Common Stock set forth opposite their respective names:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Ladenburg Thalmann & Co. Inc...................................
McDonald & Company Securities, Inc.............................
John G. Kinnard and Company Incorporated.......................
---------
Total........................................................ 2,000,000
=========
</TABLE>
The Underwriters are committed to take and to pay for all of the shares of
Common Stock offered hereby (other than the shares covered by the over-
allotment option described below), if any are purchased.
The Underwriters have advised the Company that they propose to offer all or
part of the Common Stock offered directly to the public initially at the price
to the public set forth on the cover page of this Prospectus, that they may
offer shares to certain dealers at a price that represents a concession of not
more than $ per share, and that the Underwriters may allow, and such dealers
may reallow, a concession of not more than $ per share to certain other
dealers. After the Offering, the price to the public and the concessions may
be changed from time to time by the Representatives.
The Selling Shareholders have granted to the Underwriters an option to
purchase up to an aggregate of 300,000 additional shares of Common Stock at
the price to the public set forth on the cover page of this Prospectus, less
underwriting discounts and commissions, solely to cover over-allotments, if
any. Such option may be exercised at any time until 30 days after the date of
this Prospectus. To the extent that the Underwriters exercise such option,
each of the Underwriters will be committed, subject to certain conditions, to
purchase the number of option shares proportionate to such Underwriter's
initial commitment as indicated in the preceding table.
The Company and the Selling Shareholders, if any, have agreed to indemnify
the Underwriters against certain liabilities, including civil liabilities
under the Securities Act of 1933, as amended (the "Act"), or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Company, each director and executive officer of the Company and certain
shareholders, including the Selling Shareholders, if any, have agreed with the
Underwriters not to (other than in connection with the Offering or in
connection with certain transfers to entities organized for the exclusive
benefit of family members of such persons), directly or indirectly, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, any shares of Common Stock of
the Company or issue any securities convertible into or exercisable or
exchangeable (except pursuant to
46
<PAGE>
the terms of the Option Plans) for Common Stock, or enter into any swap or the
agreement to do any of the foregoing for 150 days after the date of this
Prospectus without the written consent of Ladenburg Thalmann & Co. Inc. (the
"Lock-Up Agreement"). These "lock-up" restrictions will not apply to the
estate of any person described above in the event such person dies during the
"lock-up" period, will not prohibit gifts to donees who agree in writing to be
bound by the same restrictions or that are qualified organizations under
Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and will
not prohibit any person from exercising options (but would prohibit the sale
during the "lock-up" period of shares of Common Stock purchased upon the
exercise of such options).
In connection with the Offering, the Representatives and certain
Underwriters and selling group members, if any, and their respective
affiliates may, in accordance with Regulation M under the Securities Exchange
Act of 1934 (the "Exchange Act"), engage in over-allotment, stabilizing
transactions, syndicate covering transactions, penalty bids and other
transactions that stabilize, maintain or otherwise affect the market price for
the Common Stock. Over-allotment involved syndicate sales in excess of the
offering size, which creates a syndicate short position, in which case the
Underwriters may engage in a syndicate covering transaction or may exercise
the Underwriters' over-allotment option described above. Syndicate covering
transactions involve the purchase of Common Stock in the open market following
completion of the Offering to cover all or a portion of a syndicate short
position. Penalty bids permit the Representatives, on behalf of the
Underwriters, to reclaim a selling concession from a syndicate member when
Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified minimum. Any of the transactions
described in this paragraph may cause the price of Common Stock to be higher
than it would otherwise be in the absence of such transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and,
if commenced, may be discontinued at any time.
Shares of Common Stock offered by the Selling Shareholders hereby are
already listed on the Nasdaq National Market, and application has been made to
the Nasdaq National Market to so list the shares of Common Stock offered by
the Company hereby.
47
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
and certain other legal matters have been passed upon for the Company by
Faegre & Benson LLP, Minneapolis, Minnesota. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by
Swidler Berlin Shereff Friedman, LLP, New York, New York.
Members of the Faegre & Benson firm and members of their families own an
aggregate of less than 1.0% of the outstanding shares of the Company's Common
Stock.
EXPERTS
The consolidated financial statements of the Company as of February 1, 1997
and January 31, 1998, for the period from inception (May 26, 1996) to February
1, 1997 and for the year ended January 31, 1998 have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in its report with
respect thereto, and are included in this Prospectus in reliance upon the
authority of the firm as experts in giving its report.
The consolidated statements of operations, shareholder's equity and cash
flows of the Predecessor Companies for the year 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 auditors, appearing herein, and upon the authority of said
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as at the
following regional offices: Seven World Trade Center, Suite 1300, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site that contains reports, proxy statements and other
information filed by the Company at (http://www.sec.gov). The Company's Common
Stock is traded on the Nasdaq National Market. The foregoing materials also
should be available for inspection at the National Association of Securities
Dealers, Inc., 1735 K Street, N.W. Washington, D.C. 20006.
The Company has also filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement, copies of which may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates, or on
the Commission's Web site at (http://www.sec.gov).
48
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission under the
Exchange Act, are incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998 (which incorporates by reference certain portions of the
Company's definitive notice and proxy statement for the Company's 1998
Annual Meeting of Shareholders).
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended May
2, 1998.
(c) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed with the Commission on
April 21, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the Offering of the shares offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral requests of any such person, a
copy of any or all of the documents incorporated herein by reference (other
than exhibits to such documents which are not specifically incorporated by
reference in such documents). Written requests for such copies should be
directed to Mr. Douglas J. Treff, Assistant Secretary, Wilsons The Leather
Experts Inc., 7401 Boone Avenue North, Brooklyn Park, Minnesota 55428.
Telephone requests may be directed to Mr. Treff at (612) 391-4000.
49
<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 sheets of Wilsons The
Leather Experts Inc. (a Minnesota corporation) and Subsidiaries as of February
1, 1997 and January 31, 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for the period from inception
(May 26, 1996) to February 1, 1997 and for the year ended January 31, 1998.
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.
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 February 1, 1997 and January
31, 1998, and the results of their operations and their cash flows for the
period from inception (May 26, 1996) to February 1, 1997 and for the year
ended January 31, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Minneapolis, Minnesota
March 3, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
Wilsons Center, Inc.:
We have audited the accompanying consolidated statements of operations,
shareholder's equity, and cash flows of Wilsons Center, Inc. d.b.a. Wilsons
The Leather Experts (a subsidiary of Melville Corporation) and Subsidiaries
for the year 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 results of operations and cash
flows of Wilsons Center, Inc. d.b.a. Wilsons The Leather Experts and
Subsidiaries for the year 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>
FEBRUARY 1, JANUARY 31, AUGUST 1,
1997 1998 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 81,553 $112,975 $ 42,287
Accounts receivable, net................. 4,851 7,010 8,982
Inventories.............................. 64,919 77,911 101,495
Prepaid expenses......................... 1,246 835 1,567
-------- -------- --------
Total current assets................... 152,569 198,731 154,331
PROPERTY AND EQUIPMENT, net................ 17,091 25,182 31,501
OTHER ASSETS, net.......................... 1,555 3,759 4,168
DEFERRED INCOME TAXES...................... 1,173 -- --
-------- -------- --------
$172,388 $227,672 $190,000
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................... $ 10,666 $ 11,598 $ 13,001
Accrued expenses......................... 34,517 39,740 29,399
Income taxes payable..................... 20,345 22,418 1,287
Deferred income taxes.................... 3,243 4,770 5,462
-------- -------- --------
Total current liabilities.............. 68,771 78,526 49,149
LONG-TERM DEBT............................. 55,811 75,000 75,000
OTHER LONG-TERM LIABILITIES................ 4,341 1,494 2,318
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 10 AND
13)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value;
10,000,000 shares authorized, 7,405
($1,000 stated value) shares
issued and outstanding on February 1,
1997.................................... 7,405 -- --
Common stock, $.01 par value; 100,000,000
shares authorized, 7,650,000, 9,532,083,
and 10,825,017 shares issued and
outstanding on February 1, 1997, January
31, 1998, and August 1, 1998,
respectively............................ 77 95 108
Additional paid-in capital............... 12,501 37,850 55,135
Retained earnings........................ 23,511 34,744 8,339
Cumulative translation adjustment........ (29) (37) (49)
-------- -------- --------
Total shareholders' equity............. 43,465 72,652 63,533
-------- -------- --------
$172,388 $227,672 $190,000
======== ======== ========
</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 PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES COMPANY
---------------------------------------------- -----------------------------------------------
FIVE MONTHS ENDED SIX MONTHS ENDED
-------------------- -----------------------
PERIOD FROM
EIGHT INCEPTION
YEAR MONTHS (MAY 26,
ENDED ENDED 1996) TO YEAR ENDED
DECEMBER 31, MAY 27, MAY 25, JANUARY 27, FEBRUARY 1, JANUARY 31, AUGUST 2, AUGUST 1,
1995 1995 1996 1996 1997 1998 1997 1998
------------ ----------- -------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES............... $ 462,394 $124,700 $109,640 $ 367,639 $345,121 $418,140 $ 93,422 $113,735
COSTS AND EXPENSES:
Cost of goods sold,
buying and occupancy
costs................. 316,946 99,849 86,213 238,558 222,131 282,369 84,222 92,745
Selling, general and
administrative
expenses.............. 114,923 45,918 34,868 76,442 75,806 100,691 36,491 42,852
Depreciation and
amortization.......... 21,393 9,002 4,722 13,294 994 2,277 942 1,722
Restricted stock
compensation
expense............... -- -- -- -- 1,485 8,511 900 --
Restructuring and
asset impairment
charges............... 182,184 -- -- 182,184 -- -- -- --
--------- -------- -------- --------- -------- -------- -------- --------
Income (loss) from
operations.......... (173,052) (30,069) (16,163) (142,839) 44,705 24,292 (29,133) (23,584)
Interest expense,
net................... 10,463 3,396 1,581 7,400 5,271 6,434 1,919 2,972
--------- -------- -------- --------- -------- -------- -------- --------
Income (loss) before
income taxes........ (183,515) (33,465) (17,744) (150,239) 39,434 17,858 (31,052) (26,556)
Income tax provision
(benefit)............. (10,100) (5,461) (6,603) (4,681) 15,528 10,783 (11,208) (10,141)
--------- -------- -------- --------- -------- -------- -------- --------
Income (loss) before
extraordinary gain.. (173,415) (28,004) (11,141) (145,558) 23,906 7,075 (19,844) (16,415)
Extraordinary gain on
early extinguishment
of debt, net of tax
of $2,509............. -- -- -- -- -- 3,763 -- --
--------- -------- -------- --------- -------- -------- -------- --------
Net income (loss).... $(173,415) $(28,004) $(11,141) $(145,558) $ 23,906 $ 10,838 $(19,844) $(16,415)
========= ======== ======== ========= ======== ======== ======== ========
BASIC NET INCOME (LOSS)
PER COMMON SHARE:
Income (loss) before
extraordinary item.... $ 3.12 $ 0.80 $ (2.39) $ (1.66)
Extraordinary gain on
early extinguishment
of debt, net of tax... -- 0.42 -- --
-------- -------- -------- --------
Basic net income (loss)
per common share....... $ 3.12 $ 1.22 $ (2.39) $ (1.66)
======== ======== ======== ========
Weighted average common
shares outstanding..... 7,650 8,910 8,289 9,886
======== ======== ======== ========
DILUTED NET INCOME
(LOSS) PER COMMON
SHARE:
Income (loss) before
extraordinary item.... $ 2.67 $ 0.68 $ (2.39) $ (1.66)
Extraordinary gain on
early extinguishment
of debt, net of tax... -- 0.36 -- --
-------- -------- -------- --------
Diluted net income
(loss) per common
share.................. $ 2.67 $ 1.04 $ (2.39) $ (1.66)
======== ======== ======== ========
Weighted average common
shares outstanding--
assuming dilution...... 8,970 10,398 8,289 9,886
======== ======== ======== ========
</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>
COMPANY
--------------------------------------------------------------------------------
PREFERRED
STOCK COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
-------------- ----------------- PAID-IN RETAINED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT EQUITY
------ ------ ---------- ------ ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION.. 7,405 $7,405 7,650,000 $ 77 $11,016 $ -- $ -- $18,498
Net income............. -- -- -- -- -- 23,906 -- 23,906
Restricted stock
vested................ -- -- -- -- 1,485 -- -- 1,485
Accrued preferred stock
dividends............. -- -- -- -- -- (395) -- (395)
Currency translation
adjustment............ -- -- -- -- -- -- (29) (29)
------ ------ ---------- ---- ------- ------- --------- -------
BALANCE, February 1,
1997................... 7,405 7,405 7,650,000 77 12,501 23,511 (29) 43,465
Net income............. -- -- -- -- -- 10,838 -- 10,838
Series A Preferred
exchange.............. (7,405) (7,405) 617,083 6 7,399 -- -- --
Initial public
offering.............. -- -- 1,265,000 12 9,439 -- -- 9,451
Restricted stock
vested................ -- -- -- -- 8,511 -- -- 8,511
Accrued preferred stock
dividends cancelled... -- -- -- -- -- 395 -- 395
Currency translation
adjustment............ -- -- -- -- -- -- (8) (8)
------ ------ ---------- ---- ------- ------- --------- -------
BALANCE, January 31,
1998................... -- -- 9,532,083 95 37,850 34,744 (37) 72,652
Net loss (Unaudited)... -- -- -- -- -- (16,415) -- (16,415)
Cancellation of the CVS
Warrant (Unaudited)... -- -- -- -- -- (9,990) -- (9,990)
Stock options exercised
(Unaudited)........... -- -- 30,034 -- 266 -- -- 266
Exercise of redeemable
warrants (Unaudited).. -- -- 1,262,900 13 17,019 -- -- 17,032
Currency translation
adjustment
(Unaudited)........... -- -- -- -- -- -- (12) (12)
------ ------ ---------- ---- ------- ------- --------- -------
BALANCE, August 1, 1998
(Unaudited)............ -- $ -- 10,825,017 $108 $55,135 $ 8,339 $ (49) $63,533
====== ====== ========== ==== ======= ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES
-------------------------------------------------------------
COMMON STOCK ADDITIONAL RETAINED CUMULATIVE TOTAL
------------- PAID-IN EARNINGS TRANSLATION SHAREHOLDER'S
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT EQUITY
------ ------ ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
CVS................... -- -- 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>
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 COMPANIES
-------------------------------------------
FIVE MONTHS ENDED
--------------------
PERIOD FROM
EIGHT INCEPTION
YEAR MONTHS (MAY 26,
ENDED ENDED 1996) TO
DEC. 31, MAY 27, MAY 25, JAN. 27, FEB. 1,
1995 1995 1996 1996 1997
--------- ----------- -------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............ $(173,415) $(28,004) $(11,141) $(145,558) $ 23,906
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities--
Extraordinary gain on early
extinguishment of debt..... -- -- -- -- --
Restructuring and asset
impairment charges......... 182,184 -- -- 182,184 --
Restructuring charges paid.. (338) -- (5,958) (1,412) --
Depreciation and
amortization............... 21,393 9,002 4,722 13,294 994
Amortization of deferred
financing costs............ -- -- -- -- 444
Restricted stock
compensation charge........ -- -- -- -- 1,485
Loss on disposal of assets.. 4,498 3,616 113 882 --
Deferred income taxes....... (11,233) -- 5,116 (11,233) (4,928)
Changes in operating assets
and liabilities, net of
assets and liabilities
acquired:
Accounts receivable, net... 74 4,120 3,395 (430) (941)
Inventories................ 27,696 27,070 19,344 5,559 (11,779)
Prepaid expenses........... 669 5,309 5,253 232 (4,740)
Other noncurrent assets.... (196) 12 145 508 --
Accounts payable and
accrued expenses.......... (3,167) (26,444) (25,035) 7,809 9,074
Income taxes payable and
other liabilities......... 4,941 (6,204) (11,926) 11,197 20,684
--------- -------- -------- --------- --------
Net cash provided by (used
in) operating activities.. 53,106 (11,523) (15,972) 63,032 34,199
--------- -------- -------- --------- --------
INVESTING ACTIVITIES:
Additions to property,
equipment and other
noncurrent assets........... (10,117) (2,852) (3,566) (7,473) (5,915)
Acquisitions, net of cash
acquired.................... -- -- -- -- 37,072
--------- -------- -------- --------- --------
Net cash provided by (used
in) investing activities.. (10,117) (2,852) (3,566) (7,473) 31,157
--------- -------- -------- --------- --------
FINANCING ACTIVITIES:
Change in due to/from CVS.... (45,474) 9,923 (107,442) (57,826) --
Capital contributed by CVS... -- -- 124,000 -- --
Change in book overdrafts.... (554) (10,581) (8,024) 7,245 4,197
Proceeds from sale of common
and preferred stock and
exercise of redeemable
warrants.................... -- -- -- -- 12,000
Proceeds from issuance of
long-term debt.............. -- -- -- -- --
Repurchase of CVS Warrant.... -- -- -- -- --
Repayment of long-term
debt........................ -- -- -- -- --
--------- -------- -------- --------- --------
Net cash provided by (used
in) financing activities.. (46,028) (658) 8,534 (50,581) 16,197
--------- -------- -------- --------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS.... (3,039) (15,033) (11,004) 4,978 81,553
CASH AND CASH EQUIVALENTS,
beginning of period.......... 17,325 17,325 14,286 2,292 --
--------- -------- -------- --------- --------
CASH AND CASH EQUIVALENTS, end
of period.................... $ 14,286 $ 2,292 $ 3,282 $ 7,270 $ 81,553
========= ======== ======== ========= ========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid during the period
for--
Interest................... $ 10,650 $ 3,853 $ 2,035 $ 7,727 $ 1,678
========= ======== ======== ========= ========
Income taxes............... $ 1,735 $ 828 $ 208 $ 962 $ 1,008
========= ======== ======== ========= ========
Noncash investing and
financing activities--
Liabilities assumed for
acquisition of business... $ 46,627
========
Issuance of long-term
debt...................... $ 55,811
========
Accrued preferred stock
dividends................. $ 395
- --------------------------------------------------
========
<CAPTION>
COMPANY
---------------------------------
SIX MONTHS ENDED
-----------------------
YEAR
ENDED
JAN. 31, AUG. 2, AUG. 1,
1998 1997 1998
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............ $ 10,838 $(19,844) $(16,415)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities--
Extraordinary gain on early
extinguishment of debt..... (3,763) -- --
Restructuring and asset
impairment charges......... -- -- --
Restructuring charges paid.. -- -- --
Depreciation and
amortization............... 2,277 942 1,722
Amortization of deferred
financing costs............ 870 333 569
Restricted stock
compensation charge........ 8,511 900 --
Loss on disposal of assets.. 106 -- 168
Deferred income taxes....... 3,081 1,688 1,238
Changes in operating assets
and liabilities, net of
assets and liabilities
acquired:
Accounts receivable, net... (2,159) (2,640) (1,972)
Inventories................ (12,992) (22,258) (20,484)
Prepaid expenses........... 267 612 (884)
Other noncurrent assets.... -- -- --
Accounts payable and
accrued expenses.......... 7,224 (4,197) (8,838)
Income taxes payable and
other liabilities......... 1,836 (17,015) (20,722)
--------- ----------- -----------
Net cash provided by (used
in) operating activities.. 16,096 (61,479) (65,618)
--------- ----------- -----------
INVESTING ACTIVITIES:
Additions to property,
equipment and other
noncurrent assets........... (10,519) (2,562) (7,215)
Acquisitions, net of cash
acquired.................... -- -- (5,128)
--------- ----------- -----------
Net cash provided by (used
in) investing activities.. (10,519) (2,562) (12,343)
--------- ----------- -----------
FINANCING ACTIVITIES:
Change in due to/from CVS.... -- -- --
Capital contributed by CVS... -- -- --
Change in book overdrafts.... (540) (2,873) 97
Proceeds from sale of common
and preferred stock and
exercise of redeemable
warrants.................... 9,452 9,452 17,166
Proceeds from issuance of
long-term debt.............. 71,972 -- --
Repurchase of CVS Warrant.... -- -- (9,990)
Repayment of long-term
debt........................ (55,039) -- --
--------- ----------- -----------
Net cash provided by (used
in) financing activities.. 25,845 6,579 7,273
--------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS.... 31,422 (57,462) (70,688)
CASH AND CASH EQUIVALENTS,
beginning of period.......... 81,553 81,553 112,975
--------- ----------- -----------
CASH AND CASH EQUIVALENTS, end
of period.................... $112,975 $ 24,091 $ 42,287
========= =========== ===========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid during the period
for--
Interest................... $ 8,032 $ 388 $ 4,596
========= =========== ===========
Income taxes............... $ 8,400 $ 7,420 $ 9,999
========= =========== ===========
Noncash investing and
financing activities--
Liabilities assumed for
acquisition of business... $ -- $ -- $ --
========= =========== ===========
Issuance of long-term
debt...................... $ -- $ -- $ --
========= =========== ===========
Accrued preferred stock
dividends................. $ (395) $ (395) $ --
- --------------------------------------------------
========= =========== ===========
</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 THE MANAGEMENT BUYOUT:
Wilsons The Leather Experts Inc. (Wilsons), a Minnesota corporation, was
formed to acquire 100% of the common stock of Wilsons Center, Inc. and its
subsidiaries (the Predecessor Companies prior to the Management Buyout) in a
management-led buyout (the Management Buyout) from CVS New York, Inc. (CVS)
(formerly Melville Corporation, the parent company to the Predecessor
Companies), a New York corporation. Wilsons and Wilsons Center, Inc. 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, (ii) a 10.0% 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 Wilsons' Common Stock, (iv) a warrant
to purchase 1,080,000 shares of Wilsons' Common Stock (reduced by terms of the
Restricted Stock Agreement--see Note 9), (v) 4,320,000 shares of Wilsons'
Common Stock, and (vi) 7,405 shares of preferred stock (Series A Preferred).
As part of the Management Buyout, the Leather Investors Limited Partnerships I
and II (LILP) in turn purchased from CVS the 4,320,000 shares of Common Stock
and the 7,405 shares of Series A Preferred for $10.0 million in cash.
On May 27, 1997, the 7,405 shares of Series A Preferred were exchanged for
617,083 shares of Wilsons' Common Stock. On August 18, 1997, the warrant for
1,080,000 shares of Common Stock was cancelled with the vesting of the
remaining Restricted Stock (see Note 9).
The Management Buyout was accounted for using the purchase method. The basis
of CVS's 15.0% 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 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.
The Company is the leading specialty retailer of men's and women's leather
outerwear, apparel and accessories in the United States. The Company operates
503 retail stores located in 44 states, Canada and England, including 438
mall-based stores, 25 airport locations and 40 factory outlet stores. The
Company also operates holiday stores, numbering 197 in 1997, to better
capitalize on its peak selling season.
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 Management Buyout and are
not comparable to the periods 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.
F-8
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Year-End
Wilsons' fiscal year ends on 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, the eight-month period ended January 27, 1996, the six
months ended August 2, 1997, and the six months ended August 1, 1998, has 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.
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. Matters of significance in which management relies on these
estimates relate primarily to the realizability of assets, such as accounts
receivable and inventory, and the adequacy of certain accrued liabilities.
Actual results could differ from those estimates.
Sources of Supply
The Company imports most of its products from independent foreign contract
manufacturers located primarily in the Far East. The Company purchases such
foreign sourced inventory in U.S. dollars. In 1997, the Company sourced more
than 55% of its leather apparel and accessories 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 the Company sources goods could
result in significantly higher leather purchase and production costs for the
Company and, as a result, could negatively impact profitability, sale prices
or demand for leather merchandise. Other 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
foreign labor practices or conditions beyond the Company's control. In
addition, many of the Company's domestic vendors also import a substantial
portion of their merchandise from abroad.
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. The short-term investments
consist primarily
F-9
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
of commercial paper and money market funds. Interest income of $0.7 million,
$2.6 million, $1.7 million and $2.2 million for the period from inception (May
26, 1996) to February 1, 1997, for the year ended January 31, 1998 and the six
months ended August 2, 1997 and August 1, 1998, respectively, are included in
interest expense, net. The Predecessor Companies did not have any short-term
investments.
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 issued in August 1997 approximated fair value
as of January 31, 1998.
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 cumulative LIFO provision was $0, $0 and $0.6 million at
February 1, 1997, January 31, 1998 and August 1, 1998, respectively.
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.
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 CVS'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 $4.4 million of goodwill amortization for
the year ended December 31, 1995.
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.
F-10
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Advertising Costs
Advertising costs are generally charged to operations in the year incurred.
Layaway Sales
Layaway sales are recorded in full on the date of the layaway transaction.
Allowances for estimated returns and markdowns 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 CVS prior
to May 26, 1996, in accordance with a tax sharing agreement with CVS. The tax
sharing agreement allowed for current recognition of benefits for losses and
deferred tax benefits which may only have been realized by CVS in connection
with filing consolidated federal and state returns.
Foreign Currency Translation
The functional currency for the Company's foreign store operations (Canada
and England) 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 are
included in shareholders' equity. Transaction gains and losses are reflected
in income. The Company has not entered into any significant hedging
transactions.
Earnings Per Common Share
In the year ended January 31, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings per Share," which
requires disclosure of basic earnings per share (EPS) and diluted EPS, which
replaces the existing primary EPS and fully diluted EPS, as defined by
Accounting Principles Board (APB) Opinion 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 similarly 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.
As a result of the adoption of SFAS No. 128, the Company's reported earnings
per share for the following periods were restated. The effect of this
accounting change on previously reported EPS data was as follows:
F-11
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION SIX MONTHS
(MAY 26, 1996) TO ENDED
FEBRUARY 1, 1997 AUGUST 2, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
Primary EPS as reported..................... $2.67 $(2.06)
Effect of SFAS No. 128...................... 0.45 (0.33)
----- ------
Basic EPS as restated....................... $3.12 $(2.39)
===== ======
Fully-diluted EPS as reported............... $2.67 $(2.06)
Effect of SFAS No. 128...................... -- (0.33)
----- ------
Diluted EPS as restated..................... $2.67 $(2.39)
===== ======
</TABLE>
A reconciliation of EPS calculations under SFAS No. 128 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
PERIOD FROM
INCEPTION
(MAY 26, FOR THE
1996) TO YEAR ENDED
FEBRUARY 1, JANUARY 31, AUGUST 2, AUGUST 1,
1997 1998 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss)............. $23,906 $10,838 $(19,844) $(16,415)
======= ======= ======== ========
Weighted average common shares
outstanding.................. 7,650 8,910 8,289 9,886
Effect of options............. 78 218 -- --
Effect of outstanding
warrant...................... 1,242 1,270 -- --
------- ------- -------- --------
Weighted average common shares
outstanding--assuming
dilution..................... 8,970 10,398 8,289 9,886
======= ======= ======== ========
Basic net income (loss) per
common share................. $ 3.12 $ 1.22 $ (2.39) $ (1.66)
======= ======= ======== ========
Diluted net income (loss) per
common share................. $ 2.67 $ 1.04 $ (2.39) $ (1.66)
======= ======= ======== ========
</TABLE>
Recently Issued Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income," effective beginning in 1998,
establishes standards of disclosure and financial statement display for
reporting total comprehensive income and the individual components thereof.
The Company adopted SFAS No. 130 during 1998. Comprehensive income is not
materially different than net income as reported.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," effective in 1998, establishes new standards for determining
reportable segments and for disclosing information regarding each such
segment. Management believes the adoption of SFAS No. 131 will not have a
material impact on the Company's financial position or results of operations.
F-12
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
3. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES:
On October 24, 1995, CVS 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 months
ended May 25, 1996. In connection with the plan, approximately 590 store
employees were terminated. The significant components of the restructuring
charge and the reserves remaining at December 31, 1995 were as follows (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES
-------------------------
FOR THE
YEAR ENDED AS OF
DECEMBER 31, DECEMBER 31,
1995 1995
------------ ------------
<S> <C> <C>
Goodwill and other intangible 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 CVS as part of the
Management Buyout.
Effective October 1, 1995, the Predecessor Companies adopted 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 which were closed and the assets that were disposed of on a future
store closing date subsequent to October 1, 1995. These assets accounted for
$37.7 million of the asset impairment charge.
F-13
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
4. ACCOUNTS RECEIVABLE:
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 1, JANUARY 31, AUGUST 1,
1997 1998 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Layaway receivables..................... $ 6,118 $ 5,657 $ 9,199
Trade receivables....................... 2,425 4,083 3,255
Other receivables....................... 875 1,197 1,111
------- ------- -------
9,418 10,937 13,565
Less:
Layaway return reserves............... (3,365) (2,972) (4,198)
Allowance for doubtful accounts....... (1,202) (955) (385)
------- ------- -------
Total............................... $ 4,851 $ 7,010 $ 8,982
======= ======= =======
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 1, JANUARY 31, AUGUST 1,
1997 1998 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land................................... $ 1,340 $ 1,340 $ 1,340
Buildings and improvements............. 778 922 914
Equipment and furniture................ 15,048 21,711 27,078
Leasehold improvements................. 919 4,446 7,062
------- ------- -------
Total................................ 18,085 28,419 36,394
Less--Accumulated depreciation and
amortization.......................... (994) (3,237) (4,893)
------- ------- -------
Total................................ $17,091 $25,182 $31,501
======= ======= =======
</TABLE>
6. ACCRUED EXPENSES:
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 1, JANUARY 31, AUGUST 1,
1997 1998 1998
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Taxes other than federal and state
income taxes......................... $ 7,334 $ 6,621 $ 5,992
Salaries and compensated absences..... 4,131 5,953 3,889
Interest.............................. 62 3,879 3,979
Advertising........................... 4,328 3,618 --
Lease obligations for closed stores... 2,678 1,945 1,198
Other................................. 15,984 17,724 14,341
------- ------- -------
Total............................... $34,517 $39,740 $29,399
======= ======= =======
</TABLE>
F-14
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
7. LONG-TERM DEBT:
On August 18, 1997, the Company completed an offering of $75.0 million of 11
1/4% senior notes due 2004 (Senior Notes). Interest on the Senior Notes is
payable semi-annually in arrears on February 15 and August 15 of each year,
commencing on February 15, 1998. The Senior Notes mature on August 15, 2004,
unless previously redeemed, and the Company is not required to make any
mandatory redemption or sinking fund payment prior to maturity. The Senior
Notes are general unsecured obligations of the Company that rank senior in
right of payment to all existing and future subordinated indebtedness of the
Company, and rank on equal terms in right of payment with all other current
and future unsubordinated indebtedness of the Company. The Indenture governing
the Senior Notes contains numerous operating covenants that limit the
discretion of management with respect to certain business matters, and which
place significant restrictions on, among other things, the ability of the
Company to incur additional indebtedness, to create liens or other
encumbrances, to declare or pay any dividend, to make certain payments or
investments, loans and guarantees, and to sell or otherwise dispose of assets
and merge or consolidate with another entity. The Company used $56.5 million
of the net proceeds from the offering to repurchase the outstanding senior
secured subordinated note (including accrued interest) issued to CVS in
connection with the Management Buyout. The balance of the net proceeds,
approximately $15.5 million, was used for general corporate purposes,
including capital expenditures and additional store openings. In connection
with the Senior Notes offering, the Company incurred $3.0 million in debt
issuance costs which is included in other assets (see Note 2).
As part of the Management Buyout, the Company issued a $55.8 million senior
secured subordinated note (the Note) to CVS. Interest was accrued annually at
10.0% on $55.0 million of the Note and was payable on the maturity date of the
Note at December 31, 2000. The remaining $0.8 million of the Note was
noninterest-bearing and was payable on the Note's maturity date. The Note was
collateralized by substantially all assets of the Company and was subordinate
to borrowings under the revolving credit agreement. The Note was repurchased
by the Company on August 18, 1997. As a result of the completion of the
repurchase of the Note, the Company realized an extraordinary gain on the
early extinguishment of debt of $3.8 million, net of tax, in the third quarter
of 1997.
In conjunction with the Management Buyout, the Company obtained a $150.0
million revolving credit agreement (the Revolver) with certain banks, which
extends through May 24, 1999 and includes a $90.0 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 0.375% 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 0%-0.875%. During the six-month period ended
August 1, 1998 there were no cash borrowings under the Revolver, and as of
August 1, 1998, there was $43.0 million in letters of credit outstanding.
The Revolver contains 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 1, 1998, the
Company was in compliance with all covenants of the Senior Notes and the
Revolver.
F-15
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Prior to the Management Buyout, the Predecessor Companies' operations were
funded primarily by CVS (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
YEAR MONTHS (MAY 26,
ENDED ENDED 1996) TO YEAR ENDED
DECEMBER 31, MAY 25, FEBRUARY 1, JANUARY 31,
1995 1996 1997 1998
------------ -------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal.................................................................. $ 1,137 $(11,731) $17,642 $ 6,912
State.................................................................... 608 -- 2,814 790
Deferred................................................................... (11,845) 5,128 (4,928) 3,081
-------- -------- ------- -------
Total.................................................................. $(10,100) $ (6,603) $15,528 $10,783
======== ======== ======= =======
</TABLE>
Reconciliations of the U.S. federal statutory income tax rate to the
effective tax rate are as follows:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANIES COMPANY
-------------------- -----------------------
PERIOD FROM
FIVE INCEPTION
MONTHS (MAY 26,
YEAR ENDED ENDED 1996) TO YEAR ENDED
DECEMBER 31, MAY 25, FEBRUARY 1, JANUARY 31,
1995 1996 1997 1998
------------ ------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. federal statutory income tax (benefit) rate............................. (35.0)% (35.0)% 35.0% 35.0%
Goodwill amortization........................................................ 29.4 -- -- --
Restricted stock compensation expense........................................ -- -- 1.3 18.6
State income taxes, net of federal tax effect................................ -- (2.3) 3.0 4.0
Other, net................................................................... 0.1 0.1 0.1 2.8
----- ----- ---- ----
Effective tax rate....................................................... (5.5)% (37.2)% 39.4% 60.4%
===== ===== ==== ====
</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):
F-16
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31,
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax asset:
Accrued liabilities................................ $ 3,649 $ 4,650
Net operating loss carryforwards................... 3,587 2,201
Other.............................................. 491 413
------- -------
Total............................................ 7,727 7,264
------- -------
Deferred tax liability:
Inventories........................................ 7,264 9,546
Property and equipment............................. 1,981 2,450
Layaway and sales return reserve................... 347 193
Other.............................................. 205 225
------- -------
Total............................................ 9,797 12,414
------- -------
Net deferred tax liability....................... $ 2,070 $ 5,150
======= =======
</TABLE>
9. CAPITAL STOCK:
Common Stock and Initial Public Offering
On May 27, 1997, the Company completed an initial public offering of
1,100,000 units at $9.00 per unit. In addition, the underwriter exercised its
overallotment option to purchase 165,000 units. Each unit consisted of one
share of Common Stock and one redeemable warrant. Each redeemable warrant
entitled the holder to purchase, at any time until May 27, 2000, one share of
Common Stock at an exercise price of $13.50. The redeemable warrants were
subject to redemption by the Company for $0.01 per warrant at any time on 30
days written notice, provided that the closing bid price of the Common Stock
exceeded $14.50 per share for any 10 consecutive trading days prior to such
notice. The Company received net proceeds of approximately $9.5 million after
payment of related underwriting discount and offering costs. The proceeds from
the public offering were used to reduce seasonal borrowings under the Revolver
and to fund working capital and capital expenditures.
The Company's Amended Articles of Incorporation provide that all shares of
Common Stock, regardless of class, would 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. On June 2, 1997, upon completion of the initial public
offering, all shares of all classes of Common Stock were converted to a single
class of Common Stock. After the Conversion, such shares of Common Stock 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.
As of February 1, 1997, 4,320,000, 2,925,000 and 405,000 shares of Class A,
Class B and Class C Common Stock, respectively, were issued and outstanding. On
October 11, 1996, the Company declared a 0.9-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).
F-17
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
In conjunction with the Management Buyout, 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 vested over a five-year
performance period based on the Company achieving certain performance targets,
the paydown of the Note or the occurrence of other defined events, pursuant to
the Restricted Stock Agreement. As of February 1, 1997, the Company had
recorded $1,485,000 in compensation expense based on the number of shares
(198,018) earned pursuant to the Restricted Stock Agreement.
Upon the repurchase of the Note on August 18, 1997, the remaining 881,982
shares of Restricted Stock vested. The Company recorded a noncash compensation
charge in the year ended January 31, 1998 of $8.5 million related to such
shares, which is equal to the difference between the fair market value of the
Restricted Stock on the date the shares vested, which was $10.25 per share,
and the original purchase price of the Restricted Stock, which was $.60 per
share.
Series A Preferred Exchange
On 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.
Other Warrants
As part of the Management Buyout, the Company issued to CVS a warrant to
purchase 1,350,000 shares of Common Stock at an exercise price of $.60 per
share (the CVS Warrant). The CVS Warrant was immediately exercisable and was
to remain exercisable until the tenth anniversary of the date of grant. On
March 27, 1998, the Company repurchased the CVS Warrant for $10.0 million in
cash and simultaneously cancelled the Warrant.
The Company also issued to CVS a warrant to purchase 1,080,000 shares of
Common Stock at an exercise price of $.60 per share (the Manager Warrant). The
Manager Warrant lapsed upon the repurchase of the Note on August 18, 1997.
Redeemable Warrant Redemption (Unaudited)
On June 16, 1998, the Company completed the redemption of its outstanding
redeemable common stock purchase warrants that were issued in the Company's
initial public offering. The net proceeds received by the Company from warrant
exercises prompted by such redemption, after deducting costs and expenses,
were approximately $17.0 million.
10. STOCK OPTIONS:
During June 1996, Wilsons adopted the 1996 Stock Option Plan, pursuant to
which options to acquire an aggregate of 1,000,000 shares of the Company's
Common Stock may be granted. During January 1998, Wilsons adopted the 1998
Stock Option Plan, pursuant to which options to acquire an
F-18
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
aggregate of 500,000 shares of the Company's Common Stock may be granted. The
Company's Compensation Committee is responsible for administering the Company's
stock option plans and approves grants in connection therewith. Stock options
are granted at an option price equal to the fair market value of the Common
Stock on the date of grant and generally vest, cumulatively, on a prorated
basis on the first, second and third anniversaries from the date of grant.
A summary of the status of the Company's two stock option plans at year-end,
with the changes during the period ended, is presented in the table below:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 26, 1996) TO YEAR ENDED SIX MONTHS ENDED
FEBRUARY 1, 1997 JANUARY 31, 1998 AUGUST 1, 1998
-------------------- ------------------- --------------------
(UNAUDITED)
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding............. -- $ -- 182,700 $4.44 11,138,495 $ 8.18
Granted............... 199,980 4.44 978,935 8.79 59,225 15.18
Exercised............. -- -- -- -- (30,034) 4.47
Forfeited............. (17,280) 4.44 (23,140) 4.44 (26,370) 5.86
Expired............... -- -- -- -- -- --
--------- ------- --------- ----- ---------- ------
Outstanding, end of
period................. 182,700 $ 4.44 1,138,495 $8.18 11,141,316 $ 8.70
========= ======= ========= ===== ========== ======
Exercisable, end of
period................. -- $ -- 53,187 $4.44 68,830 $ 4.73
========= ======= ========= ===== ========== ======
Weighted average fair
value of options
granted................ $ 4.40 $ 3.62
</TABLE>
The Company accounts for the stock option plans under APB Opinion No. 25,
under which no compensation cost has been recognized. Had compensation cost for
the stock option plans been determined consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and net
income per common share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 26, 1996) YEAR ENDED
TO FEBRUARY 1, JANUARY 31,
1997 1998
-------------- -----------
<S> <C> <C>
Net income (in thousands):
As reported........................................ $23,906 $10,838
Pro forma.......................................... 23,734 10,638
Diluted net income per common share:
As reported........................................ $ 2.67 $ 1.04
Pro forma.......................................... 2.65 1.02
</TABLE>
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants for the period from inception (May 26, 1996) to
February 1, 1997 and in the year ended January 31, 1998, respectively: risk-
free interest rates of 6.4% and 5.1%, no expected dividend yields, expected
lives of three years, and expected volatility of 53.5% and 32.1%.
F-19
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
11. EMPLOYEE BENEFIT PLANS:
401(k) Profit Sharing Plan
The Company has a defined contribution 401(k) profit sharing 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 15.0% of their eligible compensation (10.0% for those
employees whose compensation in the previous year exceeded $80,000). For
employees who have worked less than three years, the Company matches 25.0% of
contributions, up to a maximum of 4.0% of the employee's eligible compensation.
For employees who have worked more than three years, the Company matches 50.0%
of contributions up to a maximum of 4.0% of the employee's eligible
compensation. The Company may also, at its discretion, make a profit sharing
contribution to the 401(k) profit sharing 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) profit sharing plan
were $0.6 million, $0.3 million, $1.0 million and $0.3 million for the year
ended December 31, 1995, for the five months ended May 27, 1995 and May 25,
1996, and for the eight months ended January 27, 1996, respectively. The
Company's contributions to the 401(k) profit sharing plan were $1.1 million,
$1.5 million, $0.3 million and $1.0 million for the period from inception (May
26, 1996) to February 1, 1997, for the year ended January 31, 1998 and for the
six months ended August 2, 1997 and August 1, 1998, respectively.
Employee Stock Ownership Plan
The Predecessor Companies' employees participated in CVS'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 Management Buyout.
Compensation expense of $2.0 million, $0.1 million, $0.2 million and $2.0
million was recognized for the year ended December 31, 1995, for the five
months ended May 27, 1995 and May 25, 1996, and during the eight months ended
January 27, 1996, respectively.
12. TRANSACTIONS WITH CVS:
The Predecessor Companies' operations were funded primarily by CVS. Under an
agreement with CVS, the Predecessor Companies received cash necessary to fund
their daily operations. The Predecessor Companies were dependent on CVS to
provide a significant portion of their working capital financing. The weighted
average interest rate on borrowings from CVS for the year ended December 31,
1995, for the five months ended May 27, 1995 and May 25, 1996, and for the
eight months ended January 27, 1996, was 6.4%, 5.6%, 5.8% and 6.2%,
respectively. Prior to the Management Buyout, in anticipation of the sale, CVS
contributed $124.0 million to the Predecessor Companies, which was reflected as
a capital contribution in the accompanying consolidated financial statements.
CVS allocated administrative expenses and employee benefits to the
Predecessor Companies. Allocations were based on the Predecessor Companies'
ratable share of expense paid by CVS on behalf of the Predecessor Companies for
combined programs. The total costs allocated to the
F-20
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Predecessor Companies for the year ended December 31, 1995, for the five months
ended May 27, 1995 and May 25, 1996, and for the eight months ended January 27,
1996, were $1.5 million, $0.6 million, $0.5 million and $1.0 million,
respectively, and are included in selling, general and administrative expenses.
CVS Realty Company, Inc., a subsidiary of CVS, 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 $0.7 million, $0.3 million, $0.3
million, and $0.5 million for the year ended December 31, 1995, for the five
months ended May 27, 1995 and May 25, 1996, and for the eight months ended
January 27, 1996, respectively.
13. COMMITMENTS AND CONTINGENCIES:
Leases
The Company has noncancelable operating leases, primarily for retail stores,
which expire through 2008. A limited number of the leases contain renewal
options for periods ranging from six months to five 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>
PREDECESSOR COMPANIES COMPANY
--------------------------------------------- -----------------------
PERIOD FROM
EIGHT INCEPTION
FIVE MONTHS ENDED MONTHS (MAY 26,
YEAR ENDED ------------------- ENDED 1996) TO YEAR ENDED
DECEMBER 31, MAY 27, MAY 25, JANUARY 27, FEBRUARY 1, JANUARY 31,
1995 1995 1996 1996 1997 1998
------------ ----------- ------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Minimum rentals......... $42,894 $17,436 $14,917 $28,598 $26,972 $37,326
Contingent rentals...... 1,092 353 449 942 1,924 3,058
------- ------- ------- ------- ------- -------
43,986 17,789 15,366 29,540 28,896 40,384
Less--Sublease rentals.. (18) -- (122) (24) (207) (588)
------- ------- ------- ------- ------- -------
Total................. $43,968 $17,789 $15,244 $29,516 $28,689 $39,796
======= ======= ======= ======= ======= =======
</TABLE>
As of January 31, 1998, 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:
1999......................................................... $ 31,089
2000......................................................... 27,473
2001......................................................... 24,041
2002......................................................... 19,995
2003......................................................... 16,558
Thereafter..................................................... 30,346
--------
Total...................................................... $149,502
========
Total future minimum sublease rental income.................... $ 941
========
</TABLE>
F-21
<PAGE>
WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
As of January 31, 1998, a significant number of the existing lease
obligations continue to be guaranteed by CVS. Any leases entered into
subsequent to the Management Buyout will no longer be guaranteed by CVS.
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, CVS has agreed to indemnify the Company for
certain claims. For certain other claims, CVS's indemnification liability is
limited to claims in the aggregate which exceed $1.2 million but not to exceed
$12.0 million.
Guarantees
As of February 1, 1997, January 31, 1998 and August 1, 1998, the Company had
outstanding letters of credit of approximately $7.9 million, $6.5 million and
$43.0 million, respectively (see Note 7), which were primarily used to
guarantee foreign purchase orders.
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 $0.5 million, $0.4 million and $0.4 million of these
supplies on an as-needed basis as of February 1, 1997, January 31, 1998 and
August 1, 1998, respectively. Total payments under this agreement, which was
entered into in 1994, were $1.6 million, $0.9 million, $0.5 million, $0.8
million, $0.9 million, $0.8 million, $0.4 million and $0.6 million for the
year ended December 31, 1995, for the five months ended May 27, 1995 and
May 25, 1996, for the eight months ended January 27, 1996, for the period from
inception (May 26, 1996) to February 1, 1997, for the year ended January 31,
1998 and for the six months ended August 2, 1997 and August 1, 1998.
14. RELATED PARTY TRANSACTION:
The Company regularly conducts business with G-III Apparel Group, Ltd. (G-
III), of which Morris Goldfarb, a director of Wilsons, is the Chief Executive
Officer and Chairman of its Board of Directors. Purchases from G-III totaled
$4.7 million, $5.0 million, $7.5 million, and $2.2 million for the year ended
December 31, 1995, the thirteen months ended February 1, 1997, the year ended
January 31, 1998 and the six months ended August 1, 1998, respectively. 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.
For a discussion of related party transactions involving the Predecessor
Companies, see also Note 12.
15. ACQUISITION OF WALLET WORKS (UNAUDITED):
On May 13, 1998, the Company acquired certain assets of Wallet Works stores
for a purchase price of $5.1 million. The transaction was accounted for under
the purchase method of accounting.
F-22
<PAGE>
[Picture of Wilsons The Leather Experts mall-based store at Ridgedale Mall,
Minneapolis Minnesota (top-half); picture of Wilsons The Leather Experts
airport store at Minneapolis-St. Paul International Airport (bottom-half)]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK TO WHICH IT RELATES OR AN
OFFER IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT 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............................................................. 9
Use of Proceeds.......................................................... 14
Price Range of Common Stock.............................................. 14
Capitalization........................................................... 15
Selected Historical Consolidated Financial and Other Data................ 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 31
Management............................................................... 41
Management Buyout........................................................ 44
Principal Shareholders................................................... 45
Underwriting............................................................. 46
Legal Matters............................................................ 48
Experts.................................................................. 48
Available Information.................................................... 48
Incorporation of Certain Documents by Reference.......................... 49
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
LOGO
COMMON STOCK
-------------
PROSPECTUS
-------------
LADENBURG THALMANN & CO. INC.
MCDONALD & COMPANY
SECURITIES, INC.
JOHN G. KINNARD AND COMPANY,
INCORPORATED
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee............................................... $ 9,900
NASD filing fee.................................................... 3,865
Nasdaq listing fee................................................. 17,500
Legal fees and expenses............................................ 150,000
Accounting fees and expenses....................................... 50,000
Blue Sky fees and expenses......................................... 10,000
Printing expenses.................................................. 100,000
Transfer agent fees and expenses................................... 10,000
Miscellaneous expenses............................................. 98,735
--------
Total.......................................................... $450,000
========
</TABLE>
Except for the SEC registration fee, the NASD filing fee and the Nasdaq
listing fee, all of the foregoing expenses have been estimated. All of such
expenses will be paid by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Article V of the Company's By-laws, the Company indemnifies its
directors and officers to the extent permitted by Minnesota Statutes Section
302A.521. Section 302A.521 requires the Company to indemnify a person made or
threatened to be made a party to a proceeding, by reason of the former or
present official capacity of the person with respect to the Company, against
judgments, penalties, fines, including without limitation, excise taxes
assessed against the person with respect to an employee benefit plan,
settlement, and reasonable expenses, including attorneys' fees and
disbursements, if, with respect to the acts or omissions of the person
complained of in the proceeding, such person (1) has not been indemnified by
another organization or employee benefit plan for the same judgments,
penalties, fines, including, without limitation, excise taxes assessed against
the person with respect to an employee benefit plan, settlements, and
reasonable expenses, including attorneys' fees and disbursements, incurred by
the person in connection with the proceeding with respect to the same acts or
omissions; (2) acted in good faith; (3) received no improper personal benefit,
and statutory procedure has been followed in the case of any conflict of
interest by a director; (4) in the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful; and (5) in the case of
acts or omissions occurring in the person's performance in the official
capacity of director or, for a person not a director, in the official capacity
of officer, committee member, employee or agent, reasonably believed that the
conduct was in the best interests of the Company, or in the case of
performance by a director, officer, employee or agent of the Company as a
director, officer, partner, trustee, employee or agent of another organization
or employee benefit plan, reasonably believed that the conduct was not opposed
to the best interests of the Company. In addition, Section 302A.521, subd. 3
requires payment by the Company, upon written request, of reasonable expenses
in advance of final disposition in certain instances. A decision as to
required indemnification is made by a majority of the disinterested Board of
Directors present at a meeting at which a disinterested quorum is present, or
by a designated committee of disinterested directors, by special legal
counsel, by the disinterested shareholders, or by a court.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Commission, such indemnification is against public policy as expressed
in the Act, and is therefore unenforceable.
II-1
<PAGE>
Under the terms of the form of Underwriting Agreement filed as Exhibit 1.1
hereto, the underwriters of this Offering have agreed to indemnify, under
certain conditions, the Company, its directors, certain of its officers and
persons who control the Company within the meaning of the Act, against certain
liabilities.
The Company also maintains a director and officer insurance policy to cover
the Company, its directors and its officers against certain liabilities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1 Sale Agreement dated as of May 24, 1996 by and among CVS New York, Inc., Wilsons
Center, Inc., and the Company.(1)
3.1 Amended and Restated Articles of Incorporation of the Company adopted June 16, 1998.
3.2 Restated By-laws of the Company as amended June 16, 1998.
4.1 Specimen of Common Stock certificate.(1)
4.2 Underwriter Warrants.(2)
4.3 Indenture dated as of August 18, 1997, by and among the Company, the other corporations
listed on the signature pages thereof, and Norwest Bank Minnesota, National Association,
including specimen certificate of 11 1/4% Series A Senior Notes due 2004 and specimen
certificate of 11 1/4% Series B Senior Notes due 2004.(3)
4.4 Purchase Agreement dated as of August 14, 1997, by and among the Company, the
Subsidiary Guarantors party thereto, and BancAmerica Securities, Inc.(4)
4.5 Registration Rights Agreement dated as of May 25, 1996, by and among CVS New York,
Inc., the Company, the Managers listed on the Signature Pages thereto, Leather Investors
Limited Partnership I and the Partners listed on the Signature Pages thereto.(5)
5.1 Opinion of Faegre & Benson LLP.
21.1 Subsidiaries of the Company.
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).
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule for the quarter ended August 2, 1997.
</TABLE>
- --------
(1) Incorporated by reference to the same-numbered exhibit to the Company's
Registration Statement on Form S-1 (333-13967) filed with the
Commission on October 11, 1996.
(2) Incorporated by reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-4 (333-37055) filed with the Commission on October
2, 1997.
(3) Incorporated by reference to Exhibit 10.3 to the Company's Report on
Form 10-Q for the quarter ended August 2, 1997 filed with the
Commission.
(4) Incorporated by reference to Exhibit 10.4 to the Company's Report on
Form 10-Q for the quarter ended August 2, 1997 filed with the
Commission.
(5) Incorporated by reference to Exhibit 4.8 to the Company's Registration
Statement on Form S-1 (333-13967) filed with the Commission on October
11, 1996.
(b) Financial Statement Schedules
None required.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes that, for purposes of determining
any liability under the Act, each filing of the Company's annual report
pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to the provisions summarized in Item 15 above, or otherwise, the
Company has been advised that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act, and will be governed by
the final adjudication of such issue.
The undersigned Company hereby undertakes:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF MINNEAPOLIS, STATE OF MINNESOTA, ON AUGUST 20,
1998.
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
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON AUGUST 20, 1998.
SIGNATURE TITLE
* Chairman of the Board of Directors
- ------------------------------------- and Chief Executive Officer
JOEL N. WALLER (Principal Executive Officer)
/s/ Douglas J. Treff Vice President, Finance and Chief
- ------------------------------------- Financial Officer (Principal
DOUGLAS J. TREFF Financial Officer)
/s/ Thomas R. Wildenberg Chief Accounting Officer and
- ------------------------------------- Controller (Principal Accounting
THOMAS R. WILDENBERG Officer)
<TABLE>
<S> <C>
Lyle Berman
Thomas J. Brosig
Morris Goldfarb Board of Directors*
David L. Rogers
Joel N. Waller
</TABLE>
- --------
* 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-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION METHOD OF FILING
- --------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement..........................Filed Electronically
2.1 Sale Agreement dated as of May 24, 1996 by and among
CVS New York, Inc., Wilsons Center, Inc., and
the Company (1).........................................Incorporated by Reference
3.1 Amended and Restated Articles of Incorporation of
the Company adopted June 16, 1998 ......................Filed Electronically
3.2 Restated By-laws of the Company as amended
June 16, 1998 ..........................................Filed Electronically
4.1 Specimen of Common Stock certificate (1)................Incorporated by Reference
4.2 Underwriter Warrants (2)................................Incorporated by Reference
4.3 Indenture dated as of August 18, 1997, by and among
the Company, the other corporations listed on the
signature pages thereof, and Norwest Bank Minnesota,
National Association, including specimen certificate
of 11 1/4% Series A Senior Notes due 2004 and
specimen certificate of 11 1/4% Series B Senior
Notes due 2004 (3)......................................Incorporated by Reference
4.4 Purchase Agreement dated as of August 14, 1997, by
and among the Company, the Subsidiary Guarantors
party thereto, and BancAmerica Securities, Inc. (4).....Incorporated by Reference
4.5 Registration Rights Agreement dated as of
May 25, 1996, by and among CVS New York, Inc., the
Company, the Managers listed on the Signature Pages
thereto, Leather Investors Limited Partnership I and
the Partners listed on the Signature Pages
thereto (5).............................................Incorporated by Reference
5.1 Opinion of Faegre & Benson LLP..........................Filed Electronically
21.1 Subsidiaries of the Company.............................Filed Electronically
23.1 Consent of Arthur Andersen LLP..........................Filed Electronically
23.2 Consent of KPMG Peat Marwick LLP........................Filed Electronically
23.3 Consent of Faegre & Benson LLP (included in
Exhibit No. 5.1 to the Registration Statement)
24.1 Powers of Attorney......................................Filed Electronically
27.1 Financial Data Schedule ................................Filed Electronically
27.2 Restated Financial Data Schedule for the quarter
ended August 2, 1997 ...................................Filed Electronically
</TABLE>
- ----------
(1) Incorporated by reference to the same-numbered exhibit to the Company's
Registration Statement on Form S-1 (333-13967) filed with the Commission on
October 11, 1996.
(2) Incorporated by reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-4 (333-37055) filed with the Commission on October 2,
1997.
(3) Incorporated by reference to Exhibit 10.3 to the Company's Report on Form
10-Q for the quarter ended August 2, 1997 filed with the Commission.
(4) Incorporated by reference to Exhibit 10.4 to the Company's Report on Form
10-Q for the quarter ended August 2, 1997 filed with the Commission.
(5) Incorporated by reference to Exhibit 4.8 to the Company's Registration
Statement on Form S-1 (333-13967) filed with the Commission on October 11,
1996.
<PAGE>
Exhibit 1.1
2,000,000 Shares
WILSONS THE LEATHER EXPERTS INC.
Common Stock, $.01 par value
FORM OF UNDERWRITING AGREEMENT
______________ _, 1998
LADENBURG THALMANN & CO. INC.
MCDONALD & COMPANY SECURITIES, INC.
JOHN G. KINNARD AND COMPANY, INCORPORATED
As Representatives of the several Underwriters
named in Schedule A hereto
c/o Ladenburg Thalmann & Co. Inc.
590 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
1. Introductory. Wilsons The Leather Experts Inc., a Minnesota corporation
(the "Company"), proposes to sell, pursuant to the terms of this Agreement, to
the several underwriters named in Schedule A hereto (the "Underwriters," or,
each, an "Underwriter"), an aggregate of 2,000,000 shares of common stock, $.01
par value (the "Common Stock"), of the Company. The aggregate of 2,000,000
shares so proposed to be sold is hereinafter referred to as the "Firm Stock." In
addition, solely for the purpose of covering over-allotments, the Company
proposes to grant the Underwriters, upon the terms and conditions set forth in
Section 4 hereof, up to an additional 300,000 shares of Common Stock (the
"Option Stock") of which the Company has granted to certain stockholders of the
Company named in Schedule C hereto (the "Selling Shareholders") the option to
sell to the Underwriters up to 300,000 shares of Common Stock from them. The
Firm Stock and the Option Stock are hereinafter collectively referred to as the
"Stock." Ladenburg Thalmann & Co. Inc. ("Ladenburg"), McDonald & Company
Securities, Inc. and John G. Kinnard and Company, Incorporated are acting as
representatives of the several Underwriters and in such capacity are hereinafter
referred to as the "Representatives."
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement on Form S-3 (File No. 333- ) in the form
in which it became or becomes effective and also in such form as it may be
when any post-
<PAGE>
effective amendment thereto shall become effective with respect to the
Stock, including any pre-effective prospectuses included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Securities Act
of 1933, as amended (the "Securities Act"), and the rules and regulations
of the Securities and Exchange Commission (the "Commission") thereunder,
copies of which have heretofore been delivered to you, has been carefully
prepared by the Company in conformity with the requirements of the
Securities Act and has been filed with the Commission under the Securities
Act; one or more amendments to such registration statement, including in
each case an amended pre-effective prospectus, copies of which amendments
have heretofore been delivered to you, have been so prepared and filed.
Such registration statement is referred to hereinafter as the "Registration
Statement." If it is contemplated, at the time this Agreement is executed,
that a post-effective amendment to the Registration Statement will be filed
and must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement means
the Registration Statement as amended by said post-effective amendment. As
used in this Agreement, the term "Registration Statement" shall also
include any registration statement relating to the Stock that is filed
pursuant to Rule 462(b) under the Securities Act. The term "Prospectus" as
used in this Agreement means the prospectus in the form included in the
Registration Statement, or, (A) if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the
Securities Act and such information is included in a prospectus filed with
the Commission pursuant to Rule 424(b) under the Securities Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement as supplemented by the addition of
the Rule 430A information contained in the prospectus filed with the
Commission pursuant to Rule 424(b) and (B) if prospectuses that meet the
requirements of Section 10(a) of the Securities Act are delivered pursuant
to Rule 434 under the Securities Act, then (i) the term "Prospectus" as
used in this Agreement means the "prospectus subject to completion" (as
such term is defined in Rule 434(g) under the Securities Act) as
supplemented by (a) the addition of Rule 430A information or other
information contained in the form of prospectus delivered pursuant to Rule
434(b)(2) under the Securities Act or (b) the information contained in the
term sheets described in Rule 434(b)(3) under the Securities Act, and (ii)
the date of such prospectuses shall be deemed to be the date of the term
sheets. The term "Pre-effective Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the
Registration Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such prospectus shall
have been amended from time to time prior to the date of the Prospectus.
Reference made herein to any Pre-effective Prospectus or to the Prospectus,
as amended or supplemented, shall include all documents and information
incorporated by reference therein and shall be deemed to refer to and
include any documents filed after the date of such Pre-effective Prospectus
or Prospectus, as the case may be, and so incorporated by reference, under
the Securities Exchange Act of 1934 (the "Exchange Act"). For purposes of
this Agreement, the term "Rules and Regulations" means the rules and
regulations adopted by the Commission under either the Securities Act or
the Exchange Act, as applicable.
(b) The Commission has not issued or threatened to issue any order
preventing
2
<PAGE>
or suspending the use of any Pre-effective Prospectus, and, at its date of
issue, each Pre-effective Prospectus conformed in all material respects
with the requirements of the Securities Act and did not include any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, not
misleading; and, when the Registration Statement becomes effective and at
all times subsequent thereto up to and including the Closing Dates (as
hereinafter defined), the Registration Statement and the Prospectus and any
amendments or supplements thereto contained and will contain all material
statements and information required to be included therein by the
Securities Act and conformed and will conform in all material respects to
the requirements of the Securities Act and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto,
included or will include any untrue statement of a material fact or omit to
state any material fact required to be stated therein, or necessary to make
the statements therein not misleading, provided, however, that the
foregoing representations, warranties and agreements shall not apply to
information contained in or omitted from any Pre-effective Prospectus or
the Registration Statement or the Prospectus or any such amendment or
supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any Underwriter,
directly or through you, specifically for use in the preparation thereof;
and each Pre-effective Prospectus and Prospectus delivered to the
Underwriters for use in connection with the offering of the Stock will, at
the time of such delivery, be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T under the Securities Act. There is no
franchise, lease, contract, agreement or document required to be described
in the Registration Statement or Prospectus or to be filed as an exhibit to
the Registration Statement which is not described or filed therein as
required; and all descriptions of any such franchises, leases, contracts,
agreements or documents contained in the Registration Statement are
accurate and complete descriptions of such documents in all material
respects.
(c) The documents which are incorporated by reference in the
Prospectus or from which information is so incorporated by reference, when
they became effective or were filed with the Commission, as the case may
be, complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as applicable, and the Rules and
Regulations, and any documents so filed and incorporated by reference
subsequent to the effective date of the Registration Statement shall, when
they are filed with the Commission, conform in all material respects with
the requirements of the Securities Act and the Exchange Act, as applicable,
and the Rules and Regulations. No such documents when they were filed (or,
if amendments with respect to such documents were filed, when such
amendments were filed), contained an untrue statement of a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(d) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and at each Closing
Date, except as is otherwise disclosed in the Registration Statement or
Prospectus, there has not been: any change in the capital stock, other than
issuance of Common Stock upon exercise of options granted under
3
<PAGE>
the 1996 Option Plan and the 1998 Option Plan (as those terms are defined
in the Registration Statement, and together, the "Option Plans") or
warrants outstanding on the date of this Agreement; any material increase
in the long-term debt (including any capitalized lease obligation) or
short-term debt of the Company or any Subsidiary, other than borrowings or
letters of credit under the Senior Credit Facility; any issuance of
options, warrants, convertible securities or other rights to purchase the
capital stock of the Company or any Subsidiary, other than options granted
under the Option Plans; any material adverse change, or any development
involving a material adverse change, in or affecting the condition
(financial or otherwise), earnings, operations, property, business, or
business prospects, management, financial position, stockholders' equity,
net worth, results of operations or general condition of the Company and/or
any of its Subsidiaries, individually or in the aggregate (a"Material
Adverse Effect"); any transaction entered into by the Company or any
Subsidiary that is material to the Company; any obligation, direct or
contingent, incurred by the Company or any Subsidiary that is material to
the Company, except obligations incurred in the ordinary course of business
that, in the aggregate, are not material; any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company; or any
loss or damage (whether or not insured) to the property of the Company or
any Subsidiary which has been sustained which has a Material Adverse Effect
on the Company.
(e) Arthur Andersen LLP and KPMG Peat Marwick LLP, each of which has
expressed its opinion with respect to the financial statements filed as
part of the Registration Statement and included in the Registration
Statement, the Prospectus and the Pre-effective Prospectus, are independent
certified public accountants as required by the Securities Act and the
Rules and Regulations. The historical financial statements and schedules
(including the related notes) included or incorporated by reference in the
Registration Statement, and any Pre-effective Prospectus or Prospectus,
comply in all material respects with the requirements of the Securities Act
and fairly present the financial position, the results of operations and
changes in financial condition of the entities purported to be shown
thereby at the respective dates and/or for the respective periods to which
they apply in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (subject, in the case
of unaudited financial statements, to normal year-end adjustments which in
the opinion of management of the Company are not material, and except as
otherwise stated therein). The historical selected and summary financial
and statistical data included in the Registration Statement present fairly
the information shown therein and have been compiled on a basis consistent
with the audited financial statements presented therein. No other financial
statements or schedules are required by the Securities Act or the Rules and
Regulations to be included in the Registration Statement.
(f) The Company has no subsidiaries other than those identified in
Exhibit 21.1 to the Registration Statement (each one a "Subsidiary" and
collectively the "Subsidiaries") and is not affiliated with any other
company or business entity, except as disclosed in the Prospectus. Each of
the Company and its Subsidiaries has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate
and other) to own, lease and operate
4
<PAGE>
its properties and conduct its business as described in the Registration
Statement and Prospectus; except as otherwise disclosed in the Registration
Statement, the Company owns all of the outstanding capital stock of each of
the Subsidiaries free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; and no preemptive right, co-sale
right, registration right, right of first refusal or other similar right of
stockholders exists with respect to any shares of the Subsidiaries. The
Company and each Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business
requires such qualification and in which the failure to be qualified or in
good standing would have a Material Adverse Effect; and no proceeding has
been instituted in any such jurisdiction revoking, limiting or curtailing,
or seeking to revoke, limit or curtail, such power and authority or
qualification. Except as described in the Registration Statement and the
Prospectus, the Company is not party to any agreement or understanding,
written or oral, regarding the acquisition of, or an interest in, any
corporation, firm, partnership, joint venture, association or other entity.
(g) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable,
have been issued in compliance with all federal and state securities laws,
were not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities, and the authorized
and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" and conforms in all material
respects to the statements relating thereto incorporated by reference into
the Registration Statement and the Prospectus (and such statements
correctly state the substance of the instruments defining the
capitalization of the Company); the Firm Stock and the Option Stock to be
purchased from the Company hereunder have been duly and validly authorized
for issuance and sale to the Underwriters pursuant to this Agreement and,
when issued and delivered by the Company against payment therefor in
accordance with the terms of this Agreement, will be duly and validly
issued and fully paid and nonassessable, and will be sold free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right
of first refusal or other similar right of stockholders exists with respect
to any shares of the Firm Stock or Option Stock to be purchased from the
Company hereunder or the issuance and sale thereof. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Stock except as may be
required under state or other securities or blue sky laws. Except as
disclosed in the Prospectus and the audited consolidated financial
statements of the Company and the related notes thereto, included in the
Prospectus, the Company does not have outstanding any options to purchase,
or any preemptive rights or other rights to subscribe for or to purchase,
any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations.
(h) All the issued and outstanding capital stock of each of the
Subsidiaries has been duly authorized and validly issued, is fully paid and
nonassessable and, except for (i) directors qualifying shares, (ii) liens
or encumbrances contained in the Company's currently
5
<PAGE>
existing three-year senior credit facility that expires in May 1999 (the
"Senior Credit Facility"), and (iii) as otherwise disclosed in the
Prospectus, are directly or indirectly owned beneficially by the Company
free and clear of all liens, security interests, pledges, charges,
encumbrances, defects, shareholders' agreements, voting trusts, equities or
claims of any nature whatsoever. Other than the Subsidiaries and except for
short-term working capital cash investments, the Company does not own,
directly or indirectly, any capital stock or other equity securities of any
other corporation or any partnership interest in any partnership, joint
venture or other association other than as disclosed in the Prospectus.
(i) Except as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company, any Subsidiary or
any of their respective officers is a party or of which any property of the
Company or any Subsidiary is subject, which, if determined adversely to the
Company or any such Subsidiary, might individually or in the aggregate (i)
prevent or adversely affect the transactions contemplated by this
Agreement, (ii) suspend the effectiveness of the Registration Statement,
(iii) prevent or suspend the use of the Pre-effective Prospectus in any
jurisdiction or (iv) result in a Material Adverse Effect; and to the best
of the Company's knowledge no such proceedings are threatened against the
Company or any Subsidiary by governmental authorities or others. Neither
the Company nor any Subsidiary is a party or subject to the provisions of
any material injunction, judgment, decree or order of any court, regulatory
body or other governmental agency or body.
(j) The execution, delivery and performance of this Agreement and the
consummation of the transactions herein and therein contemplated, will not
result (with or without due notice or lapse of time or both) in the
creation of any lien or breach or violation of any of the terms and
provisions of, or constitute a default under any of the terms or provisions
of, or give rise to any right of termination, cancellation or acceleration
under any indenture, license, mortgage, deed of trust, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, any
lease, contract, joint venture or other material agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which it or
any of them or any of their properties is or may be bound, nor will such
action conflict with or violate any provision of the charter, By-laws or
other organizational documents of the Company or any of its Subsidiaries or
any law, statute, order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its
Subsidiaries or any of their properties, except, in any such case, where
such breach, violation, default, or other conflict (other than in respect
of the charter, By-laws or other organizational documents of the Company or
any of its Subsidiaries) would not have a Material Adverse Effect.
(k) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company
or any of its Subsidiaries of the transactions contemplated by this
Agreement, except such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or under the securities or blue sky
laws of any jurisdiction in connection with the purchase and distribution
of the Stock by the Underwriters.
6
<PAGE>
(l) The Company has the full power and authority (corporate and other)
to enter into this Agreement and to consummate the transactions
contemplated hereby (including to issue, sell and deliver the Stock), and
this Agreement has been duly and validly authorized, executed and delivered
by the Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that rights to indemnity and contribution hereunder may be limited
by federal or state securities laws or the public policy underlying such
laws or by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or
by general equitable principles.
(m) The Company and each of its Subsidiaries possesses all
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from, and have made all declarations and filings with, all
regulatory or governmental officials, bodies and tribunals ("Permits") to
own, lease or operate their respective properties and to conduct their
respective businesses described in the Registration Statement and the
Prospectus, except where the failure to have obtained or made the same
would not have a Material Adverse Effect and neither the Company nor any of
its Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Permits.
(n) The Company and each of its Subsidiaries owns, and/or possesses
adequate rights to use, free and clear of all liens, charges, encumbrances,
pledges, security interests or defects, all patents, trademarks, service
marks, logos, trade names, trade secrets, know how, copyrights, proprietary
technology and licenses, and rights with respect to the foregoing
(collectively, "Intellectual Property"), used in the conduct of their
respective businesses as described in the Registration Statement and the
Prospectus, and none of the Intellectual Property presently owned, held or
used by the Company or any of its Subsidiaries infringes or conflicts with
any Intellectual Property of any other person or entity or are in dispute,
and neither the Company nor any Subsidiary has received a notice, or knows
of any basis, of any infringement of or conflict with the asserted rights
of others in any such respect.
(o) The Company and each of its Subsidiaries owns and has the right to
use all other trade secrets, know-how (including all other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information that are material to its
business, properties and operations.
(p) The Company and each of its Subsidiaries is in compliance with,
and conducts its business in conformity with, all applicable federal,
state, local and foreign laws, rules and regulations of each court or
governmental agency or body having jurisdiction over the Company or any of
the Subsidiaries, except where the failure to be in compliance would not
have a Material Adverse Effect; to the knowledge of the Company, otherwise
than as set forth in the Registration Statement and the Prospectus, no
prospective change in any of such federal or state laws, rules or
regulations has been adopted which, when made effective, would
7
<PAGE>
have a Material Adverse Effect.
(q) The Company and each of its Subsidiaries is in compliance with all
federal, state, local or foreign laws or regulations relating to pollution
or protection of human health or the environment ("Environmental Laws"),
except where the failure to be in compliance would not have a Material
Adverse Effect. Neither the Company nor any of the Subsidiaries has
authorized, conducted or generated, transported, stored, used, treated,
disposed or released any hazardous substance, hazardous waste, hazardous
material, hazardous constituent, toxic substance, pollutant, contaminant,
petroleum product, natural gas, liquefied gas or synthetic gas, defined or
regulated under any Environmental Law on, in or under any property
currently leased or owned or by any means controlled by the Company or any
of its Subsidiaries (the "Real Property") in violation of any applicable
law, except for any violation which would not have a Material Adverse
Effect; there is no pending or, to the Company's knowledge, threatened
claim, action, litigation or any administrative agency proceeding involving
the Company, any of its Subsidiaries or their respective properties, nor
has the Company or any of its Subsidiaries received any written notice, or
any oral notice to any executive officer of the Company or any of its
Subsidiaries or any other employee responsible for receipt of any such
notice, from any governmental entity or third party, that (A) alleges a
violation of any Environmental Laws by the Company or any of its
Subsidiaries or any person or entity whose liability for a violation of an
Environmental Law the Company or any of its Subsidiaries has retained or
assumed either contractually or by operation of law, which liability or
violation could be reasonably expected to have a Material Adverse Effect,
(B) alleges the Company or any of its Subsidiaries is a liable party under
the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. ' 9601 ET SEQ., or any state superfund law, (C) alleges possible
contamination of the environment by the Company or any of its Subsidiaries
or (D) alleges possible contamination of the Real Property.
(r) The Company and each of its Subsidiaries has filed all necessary
federal, state, local and foreign income, payroll, franchise and other tax
returns and has paid all taxes shown as due thereon or with respect to any
of its properties, and there is no tax deficiency that has been, or to the
knowledge of the Company is likely to be, asserted against the Company or
any of its Subsidiaries or any of their respective properties or assets and
all tax liabilities are adequately provided for on the books of the Company
and each of its Subsidiaries.
(s) Neither the Company nor any of its officers, directors or
affiliates has taken or will take, directly or indirectly, any action
designed or intended to stabilize or manipulate the price of any security
of the Company, or which caused or resulted in, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.
(t) Neither the Company nor any of its Subsidiaries is in violation of
its respective charter or By-laws. Neither the Company nor any of its
Subsidiaries is in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any contract,
8
<PAGE>
lease, indenture, mortgage, loan agreement, joint venture or other
agreement or instrument to which it is a party or by which it or its
respective properties are bound, which default would have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries has
received or sent any notice of such default or breach.
(u) Neither the Company nor any of its Subsidiaries is involved in any
material labor dispute nor, to their knowledge, is any such dispute
threatened. Neither the Company nor any of its Subsidiaries is aware that
(A) any executive officer or significant group of employees of the Company
or any Subsidiary plans to terminate employment with the Company or any
such Subsidiary or (B) any such executive officer is subject to any
noncompete, nondisclosure, confidentiality, employment, consulting or
similar agreement that would be violated by the present or proposed
business activities of the Company or any of its Subsidiaries. Neither the
Company nor any Subsidiary has or expects to have any liability for any
prohibited transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing or other
plan which is subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), to which the Company or any Subsidiary makes or
ever has made a contribution and in which any employee of the Company or
any Subsidiary is or has ever been a participant. With respect to such
plans, the Company and each Subsidiary is in compliance in all material
respects with all applicable provisions of ERISA.
(v) The Company has obtained the written agreement described in
Section 10(i) of this Agreement from each of its officers, directors and
holders of Common Stock listed on Schedule B hereto.
(w) The Company and each of its Subsidiaries have, and as of the
Closing Dates will have, good and marketable title to all real property
free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as would not have a Material Adverse
Effect; and any real property and buildings held under lease by the Company
or any of its Subsidiaries or proposed to be held after giving effect to
the transactions described in the Prospectus are, or will be as of the
Closing Dates, held by them under valid, subsisting and enforceable leases
with such exceptions as would not have a Material Adverse Effect, in each
case except as described in the Prospectus. All personal property used by
the Company and each of its Subsidiaries in their business is either owned
or leased by the Company or its Subsidiaries and is in good working order
and condition, ordinary wear and tear excepted or such as would not have a
Material Adverse Effect.
(x) The Company and each of its Subsidiaries is insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as is customary in the businesses in which it is engaged or
proposes to engage after giving effect to the transactions described in the
Prospectus; and neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue their business at a cost
that would not have a Material Adverse Effect.
9
<PAGE>
(y) The Company is taking or has taken steps to replace/and or modify
its software systems to include the requisite design, performance and
functionality so that the Company does not reasonably expect to experience
invalid or incorrect results or abnormal software operation related to
calendar year 2000.
(z) Other than as contemplated by this Agreement, the Registration
Statement or the Prospectus, there is no broker, finder or other party that
is entitled to receive from the Company any brokerage or finder's fee or
other fee or commission as a result of any of the transactions contemplated
by this Agreement.
(aa) The inventory of the Company and each of its Subsidiaries is in
merchantable condition and can be sold in the ordinary course of business
at the carrying value of such inventory, as shown in the Company's or its
Subsidiaries' financial statements, subject to pricing reductions in the
ordinary course of business.
(bb) The Company and each of its Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(cc) No Subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any
distributions on such Subsidiary's capital stock to the Company, from
repaying to the Company any loans or advances to such Subsidiary or from
transferring any of such Subsidiary's property or assets to the Company or
any other Subsidiary of the Company, except as disclosed in the Prospectus.
(dd) To the Company's knowledge, neither the Company nor any of its
Subsidiaries nor any employee or agent of the Company or any of its
Subsidiaries has made any payment of funds of the Company or any of its
Subsidiaries or received or retained any funds in violation of any law,
rule or regulation, which payment, receipt or retention of funds is of a
character required to be disclosed in the Prospectus.
(ee) Neither the Company nor any of its Subsidiaries is an "investment
company," or an entity "controlled" by an "investment company" required to
be registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as such terms are defined in the 1940 Act, and neither the
Company nor any of its Subsidiaries expects to be treated as such by reason
of the receipt and application of the net proceeds from the sale of the
Stock.
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(ff) The Stock is eligible for quotation on the Nasdaq National
Market.
(gg) No holder of any security of the Company has the right to have
any security owned by such holder included in the Registration Statement,
except those rights which have been received in writing, and, except as
described in the Registration Statement and the Prospectus or any document
incorporated by reference therein, no holder of any security of the Company
has the right to demand registration of any security owned by such holder
during the period ending 12 months after the date of the Prospectus.
(hh) Each certificate signed by any officer of the Company, or any
Subsidiary, and delivered to the Underwriters or counsel for the
Underwriters pursuant to this Agreement shall be deemed to be a
representation and warranty by the Company as to the matters covered
thereby.
(ii) The conditions for use of Form S-3, set forth in the General
Instructions thereto, have been satisfied.
3. Representations and Warranties of the Selling Shareholders. Each of the
Selling Shareholders, severally and not jointly, represents and warrants to, and
agrees with, each of the several Underwriters and the Company that:
(a) The Selling Shareholders have the full power and authority
(corporate and other) to enter into this Agreement, the Power of Attorney
and the Custody Agreement (as hereinafter defined) and to consummate the
transactions contemplated herein and therein (including to sell and deliver
the Stock), and this Agreement, the Power of Attorney and the Custody
Agreement have been duly and validly authorized, executed and delivered by
the Selling Shareholders and are the valid and binding obligation of the
Selling Shareholders, enforceable against the Selling Shareholders in
accordance with their terms, except to the extent that rights to indemnity
and contribution thereunder may be limited by federal or state securities
laws or the public policy underlying such laws or by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
(b) The execution, delivery and performance of this Agreement, the
Power of Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated, will not result (with or
without due notice or lapse of time or both) in the creation of any lien or
breach or violation of any of the terms and provisions of, or constitute a
default under any of the terms or provisions of, or give rise to any right
of termination, cancellation or acceleration under any indenture, license,
mortgage, deed of trust, loan agreement, bond, debenture, note agreement or
other evidence of indebtedness, any lease, contract, joint venture or other
material agreement or instrument to which any such Selling Shareholder is a
party or by which it or any of its properties is or may be bound, nor will
such action conflict with or violate any law, statute, order, rule or
regulation of any court or
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governmental agency or body having jurisdiction over any such Selling
Shareholder or any of its properties, except, in any such case, where such
breach, violation, default, or other conflict would not have a material
adverse effect on the ability of such Selling Shareholder to consummate the
transactions contemplated by this Agreement.
(c) Such Selling Shareholder has, or immediately prior to the First
Closing Date, such Selling Shareholder will have, good and valid title to
the Stock to be sold by such Selling Shareholder hereunder, without notice
of any adverse claim, free and clear of all liens, security interest,
pledges, charges, encumbrances, defects, shareholders' agreements, voting
trusts, equities or claims of any nature whatsoever; and, upon delivery of
such Stock against payment therefore as provided herein (assuming that such
Stock is purchased in good faith without notice of adverse claim) good and
valid title to such Stock, free and clear of all liens, security interests,
pledges, charges, encumbrances, defects, shareholders' agreements, voting
trusts, equities or claims of any nature whatsoever, will pass to the
several Underwriters.
(d) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Selling
Shareholders of the transactions contemplated by this Agreement, the Power
of Attorney and the Custody Agreement, except such as may be required by
the National Association of Securities Dealers, Inc. (the "NASD") or under
the securities or blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Stock by the Underwriters.
(e) Such Selling Shareholder has not (A) taken directly or indirectly,
any action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale
of the Stock or (B) since the filing of the Registration Statement (i)
sold, bid for, purchased or paid anyone any compensation for soliciting
purchases of, the Stock or (ii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.
(f) To the knowledge of each of the Selling Shareholders, neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, included or will include any untrue statement of a material fact
or omit to state any material fact required to be stated therein, or
necessary to make the statements therein not misleading, provided, however,
that the foregoing representations, warranties and agreements shall not
apply to information contained in or omitted from any Pre-effective
Prospectus or the Registration Statement or the Prospectus or any such
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any
Underwriter, specifically for use in the preparation thereof.
(g) All information furnished or to be furnished to the Company by or
on behalf of any of the Selling Shareholders for use in connection with the
preparation of the Registration Statement and the Prospectus and any
amendment or supplement thereto, does not and will not include any untrue
statement of material fact or omit to state any material fact
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required to be stated therein or necessary to make the statements therein
not misleading.
Each of the Selling Shareholders represents and warrants that certificates
in negotiable form representing all of the Stock to be sold by such Selling
Shareholder hereunder have been placed in custody (or, in the case of the
contemplated exercise of stock options, a duly executed notice of exercise of
stock options to purchase the Stock to be sold by the Selling Shareholders
hereunder has been placed in custody) under a custody agreement, in the form
heretofore furnished to and approved by you (the "Custody Agreement"), duly
executed and delivered by such Selling Shareholder, and that such Selling
Shareholder has duly executed and delivered a Power of Attorney, in the form
heretofore furnished to and approved by you, appointing the persons indicated in
Schedule C hereto as such Selling Shareholder's attorney-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this Agreement on
behalf of such Selling Shareholder, to determine the purchase price to be paid
by the Underwriters to the Selling Shareholder, to determine the purchase price
to be paid by the Underwriters to the Selling Shareholders as provided in
Section 4 hereof, to authorize the delivery of the Stock to be sold by such
Selling Shareholder hereunder and otherwise to act on behalf of such Selling
Shareholder in connection with the transactions contemplated by this Agreement
and the Custody Agreement.
Each of the Selling Shareholders specifically agrees that Stock represented
by the certificates held in custody for such Selling Shareholder under the
Custody Agreement are subject to the interests of the Underwriters hereunder,
and that the arrangements made by such Selling Shareholder for such custody, and
the appointment by such Selling Shareholder of the Attorneys-in-Fact by the
Power of Attorney, are irrevocable. Each of the Selling Shareholders
specifically agrees that the obligations of the Selling Shareholders hereunder
shall not be terminated by operation of law, whether by the death or incapacity
of any Selling Shareholder, or by the occurrence of any other event.
4. Purchase by, and Sale and Delivery to, Underwriters-Closing Dates. The
Company agrees to sell to the Underwriters the Firm Stock, and on the basis of
the representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase the Firm Stock from the Company, the
number of Firm Stock to be purchased by each Underwriter being set opposite its
name in Schedule A, subject to adjustment in accordance with Section 14 hereof.
The purchase price per share to be paid by the Underwriters to the Company
will be $____ per share (the "Purchase Price").
The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or prior
to 12:00 Noon, New York City time, on the second full business day preceding the
First Closing Date (as defined below) or, if no such direction is received, in
the names of the respective Underwriters or in such other names as Ladenburg may
designate (solely for the purpose of administrative convenience) and in such
denominations as Ladenburg may determine), against
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payment of the aggregate Purchase Price therefor by wire transfer of same day
funds to an account specified by the Company in writing at least two (2)
business days prior to the First Closing Date, all at the offices of Swidler
Berlin Shereff Friedman, LLP, 919 Third Avenue, New York, New York 10022 or such
other place as the parties may designate. The time and date of the delivery and
closing shall be at 10:00 A.M., New York City time, on __________, 1998, in
accordance with Rule 15c6-1 of the Exchange Act. The time and date of such
payment and delivery are herein referred to as the "First Closing Date." The
First Closing Date and the location of delivery of, and the form of payment for,
the Firm Stock may be varied by agreement between the Company and Ladenburg. The
First Closing Date may be postponed pursuant to the provisions of Section 14.
The Company shall make the certificates for the Stock available to the
Representatives for examination on behalf of the Underwriters not later than
10:00 A.M., New York City time, on the business day preceding the First Closing
Date at the offices of Ladenburg, 590 Madison Avenue, New York, New York 10022.
It is understood that any of the Representatives, individually and not as a
Representative of the several Underwriters, may (but shall not be obligated to)
make payment to the Company on behalf of any Underwriter or Underwriters, for
the Stock to be purchased by such Underwriter or Underwriters. Any such payment
by any of the Representatives shall not relieve such Underwriter or Underwriters
from any of its or their other obligations hereunder.
The several Underwriters agree to make a public offering of the Firm Stock
at the public offering price set forth on the cover page of the Prospectus as
soon after the effectiveness of the Registration Statement as in their judgment
is advisable. The Representatives shall promptly advise the Company of the
making of the public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Company hereby grants to the Underwriters an option to purchase, severally and
not jointly, an aggregate of up to 300,000 shares of Common Stock. The price per
share to be paid for the Option Stock shall be the Purchase Price. The Company
has granted the Selling Shareholders an option to sell to the Underwriters, in
lieu of the Company, up to an aggregate of 300,000 shares of Common Stock for
purposes of satisfying the Underwriters' over-allotment option. The Option Stock
shall be purchased by the several Underwriters from the Company and, in the
event and to the extent they exercise their options, the Selling Shareholders as
provided herein. The option granted hereby may be exercised as to all or any
part of the Option Stock at any time, and from time to time, not more than
thirty (30) days subsequent to the effective date of this Agreement. No Option
Stock shall be sold and delivered unless the Firm Stock previously has been, or
simultaneously is, sold and delivered. The right to purchase the Option Stock or
any portion thereof may be surrendered and terminated at any time upon notice by
the Underwriters to the Company.
The option granted hereby may be exercised by the Underwriters by giving
written notice from Ladenburg to the Company (which shall be responsible for
notifying the Selling Shareholders) setting forth the number of shares of Option
Stock as to which the option is being
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exercised and the date and time for delivery of and payment for the Option
Stock. Each date and time for delivery of and payment for the Option Stock
(which may be the First Closing Date, but not earlier) is herein called the
"Option Closing Date" and shall in no event be earlier than two (2) business
days nor later than ten (10) business days after written notice is given. (The
Option Closing Date and the First Closing Date are herein called the "Closing
Dates.") Option Stock shall be purchased for the account of each Underwriter in
the same proportion as the number of Firm Stock set forth opposite such
Underwriter's name in Schedule A hereto bears to the total number of Firm Stock
(subject to adjustment by the Underwriters to eliminate odd lots).The Company
shall notify the Underwriters not later than one business day prior to the
Option Closing Date if the Selling Shareholders have exercised all or a portion
of their options, and the exact number of shares of Option Stock the Selling
Shareholders will sell to the Underwriters. Upon exercise of the option by the
Underwriters, the Company agrees to sell to the Underwriters the number of
Option Stock set forth in the written notice of exercise and the Underwriters
agree, severally and not jointly and subject to the terms and conditions herein
set forth, to purchase the number of such determined as aforesaid.
The Company will deliver the Option Stock to the Underwriters (in the form
of definitive certificates, issued in such names and in such denominations as
the Representatives may direct by notice in writing to the Company given at or
prior to 12:00 Noon, New York City time, on the second full business day
preceding the Option Closing Date or, if no such direction is received, in the
names of the respective Underwriters or in such other names as Ladenburg may
designate (solely for the purpose of administrative convenience) and in such
denominations as Ladenburg may determine), against payment of the aggregate
Purchase Price therefor by wire transfer of same-day funds to an account
specified by the Company in writing at least two (2) business days prior to the
Option Closing Date, all at the offices of Swidler Berlin Shereff Friedman, LLP,
919 Third Avenue, New York, New York 10022. The Option Closing Date and the
location of delivery of, and the form of payment for, the Option Stock may be
varied by agreement between the Company and Ladenburg. The Option Closing Date
may be postponed pursuant to the provisions of Section 14.
5 Covenants and Agreements of the Company. The Company covenants and agrees
with the several Underwriters that:
(a) The Company will (i) if the Company and the Representatives have
determined not to proceed pursuant to Rule 430A, use its best efforts to
cause the Registration Statement to become effective, (ii) if the Company
and the Representatives have determined to proceed pursuant to Rule 430A,
use its best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to Rule 430A and Rule 424 of
the Rules and Regulations and will notify the Representatives promptly (in
writing if requested) of such filings, and (iii) if the Company and the
Representatives have determined to deliver Prospectuses pursuant to Rule
434 of the Rules and Regulations, to use its best efforts to comply with
all the applicable provisions thereof. The Company will advise the
Representatives promptly as to the time at which the Registration Statement
becomes effective, will advise the Representatives promptly of the issuance
by the Commission of any stop order or other order suspending the
effectiveness of the Registration Statement or of the
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<PAGE>
institution of any proceedings for that purpose, and will use its best
efforts to prevent the issuance of any such stop order or other such order
and to obtain as soon as possible the lifting thereof, if issued. The
Company will advise the Representatives promptly of the receipt of any
comments of the Commission or any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus
or for additional information and will not at any time file any amendment
to the Registration Statement or supplement to the Prospectus or file any
document under the Exchange Act before the termination of the offering of
the Stock by the Underwriters if such document would be deemed to be
incorporated by reference into the Pre-effective Prospectus or Prospectus,
which shall not previously have been submitted to the Representatives a
reasonable time prior to the proposed filing thereof or to which the
Representatives shall reasonably object in writing or which is not in
compliance with the Securities Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon the request of the Representatives, any amendments or supplements to
the Registration Statement or the Prospectus which in the opinion of the
Representatives may be necessary to enable the several Underwriters to
continue the distribution of the Stock and will use its best efforts to
cause the same to become effective as promptly as possible.
(c) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be
delivered under the Securities Act any event relating to or affecting the
Company or any of its Subsidiaries occurs as a result of which the
Prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it is necessary at any
time to amend the Prospectus to comply with the Securities Act or to file
under the Exchange Act any document which would be deemed to be
incorporated by reference in the Prospectus in order to comply with the
Securities Act or the Exchange Act, the Company will promptly notify the
Representatives thereof and will prepare an amended or supplemented
prospectus or file such document which will correct such statement or
omission; and in case any Underwriter is required to deliver a prospectus
relating to the Stock nine (9) months or more after the effective date of
the Registration Statement, the Company upon the request of the
Representatives and at the expense of such Underwriter will prepare
promptly such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Securities Act.
(d) The Company will deliver to the Representatives, without charge,
at or before the Closing Dates, signed copies of the Registration
Statement, as originally filed with the Commission, and all amendments and
supplements thereto including all financial statements and exhibits thereto
(including any document filed under the Exchange Act and deemed to be
incorporated by reference into the Prospectus), and will deliver to the
Representatives such number of copies of the Registration Statement,
including such financial statements but without exhibits, and all
amendments thereto, as the Representatives may reasonably request. The
Company will deliver or mail to or upon the order of the
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Representatives, from time to time until the effective date of the
Registration Statement, as many copies of the Pre-effective Prospectus as
the Representatives may reasonably request. The Company will deliver or
mail to or upon the order of the Representatives on the date of the public
offering, and thereafter from time to time during the period when delivery
of a prospectus relating to the Stock is required under the Securities Act,
as many copies of the Prospectus, in final form or as thereafter amended or
supplemented as the Representatives may reasonably request; provided,
however, that the expense of the preparation and delivery of any prospectus
required for use nine (9) months or more after the effective date of the
Registration Statement shall be borne by the Underwriters required to
deliver such prospectus.
(e) The Company will make generally available to its stockholders, in
the manner contemplated by Rule 158(b) under the Securities Act, as soon as
practicable, but not later than fifteen (15) months after the effective
date of the Registration Statement, an earnings statement which will be in
reasonable detail (but which need not be audited) and which will comply
with Section 11(a) of the Securities Act, covering a period of at least
twelve (12) consecutive months beginning after the "effective date" (as
defined in Rule 158 under the Securities Act) of the Registration
Statement.
(f) The Company will cooperate with the Representatives to enable the
Stock to be registered or qualified for offering and sale by the
Underwriters and by dealers under the securities laws of such jurisdictions
as the Representatives may reasonably designate and at the request of the
Representatives will make such applications and furnish such consents to
service of process or other documents as may be required of it as the
issuer of the Stock for that purpose; provided, however, that the Company
shall not be required to qualify to do business or to file a general
consent (other than that arising out of the offering or sale of the Stock)
to service of process in any such jurisdiction where it is not now so
subject. The Company will, from time to time, prepare and file such
statements and reports as are or may be required of it as the issuer of the
Stock to continue such qualifications in effect for so long a period as the
Representatives may reasonably request for the distribution of the Stock.
The Company will advise the Representatives promptly after the Company
becomes aware of the suspension of the qualifications or registration of
(or any such exception relating to) the Common Stock of the Company for
offering, sale or trading in any jurisdiction or of any initiation or
threat of any proceeding for any such purpose, and in the event of the
issuance of any orders suspending such qualifications, registration or
exception, the Company will, with the cooperation of the Representatives
use its best efforts to obtain the withdrawal thereof.
(g) The Company will furnish to its stockholders annual reports
containing financial statements certified by independent public accountants
and with quarterly summary financial information in reasonable detail which
may be unaudited. During the period of five (5) years from the date hereof,
the Company will deliver to the Representatives, as soon as they are
available, copies of each annual report of the Company containing the
balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public
accountants and each other report or communication furnished by the
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Company to its stockholders and will deliver to the Representatives, (i) as
soon as they are available, copies of any other reports or communication
(financial or other) which the Company shall publish or otherwise make
available to any of its stockholders as such and (ii) as soon as they are
available, copies of any reports and financial statements furnished to or
filed with the Commission, or the NASD or any national securities exchange.
So long as the Company has active subsidiaries, such financial statements
will be on a consolidated basis to the extent the accounts of the Company
and its subsidiaries are consolidated in reports furnished to its
stockholders generally. Separate financial statements shall be furnished
for all subsidiaries whose accounts are not consolidated but which at the
time are significant subsidiaries as defined in the Rules and Regulations.
(h) The Company will use its best efforts to maintain the listing of
the Stock on the Nasdaq National Market.
(i) The Company will maintain a transfer agent and registrar for its
Common Stock.
(j) If the Company elects to rely on Rule 462(b), the Company shall
both file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with
Rule 111 of the Act by the earlier of (i) 10:00 P.M., New York City time,
on the date of this Agreement, and(ii) the time that confirmation are given
or sent, as specified by Rule 462(b)(2).
(k) The Company will not, without the prior written consent of
Ladenburg, directly or indirectly, offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of , any shares of Common Stock of the Company or issue any
securities convertible or exercisable or exchangeable (except pursuant to
the terms of the Company's Options Plans) for Common Stock, or enter into
any swap or the agreement to do any of the foregoing, through March 8,
1999. These "lock-up" restrictions will not apply to the estate of any
person described above in the event such person dies during the "lock-up"
period, will not prohibit gifts to donees who agree in writing to be bound
by the same restrictions or that are qualified organizations under Section
501(c)(3) of the Internal Revenue Code of 1986, as amended, and will not
prohibit any person from exercising options (but would prohibit the sale
during the "lock-up" period of shares of Common Stock purchased upon the
exercise of such options).
(l) The Company will apply the net proceeds from the sale of the Stock
as set forth in the description under "Use of Proceeds" in the Prospectus,
which description complies in all respects with the requirements of Item
504 of Regulation S-K.
(m) The Company will supply you with copies of all correspondence to
and from, and all documents issued to and by, the Commission in connection
with the registration of the Stock under the Securities Act.
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(n) Prior to the Closing Dates the Company will furnish to you, as
soon as they have been prepared, copies of any unaudited interim
consolidated financial statements of the Company and each of its
Subsidiaries for any periods subsequent to the periods covered by the
financial statements appearing in the Registration Statement and the
Prospectus.
(o) Prior to the Closing Dates the Company will issue no press release
or other communications directly or indirectly and hold no press conference
with respect to the Company or any of its Subsidiaries, the financial
condition, results of operation, business, prospects, assets or liabilities
of any of them, or the offering of the Stock, without your prior written
consent.
(p) The Company will not at any time directly or indirectly, take any
action designed or intended to stabilize or manipulate the price of any
security of the Company, or which caused or resulted in, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.
(q) The Company will use the proceeds of the offering substantially as
set forth in the Prospectus under the caption "Use of Proceeds."
6. Covenants and Agreements of the Selling Shareholders. Each Selling
Shareholder, severally and not jointly, covenants and agrees with each of the
Underwriters:
(a) That he or she has executed the so-called "lock-up" agreement
described in Section 10(i) of this Agreement.
(b) That he or she will not, at any time, directly or indirectly, take
any action designed or intended to stabilize or manipulate the price of any
security of the Company, or which caused or resulted in, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.
7. Payment of Expenses. (a) The Company will pay (directly or by
reimbursement) all costs, fees and expenses incurred in connection with expenses
incident to the performance of its obligations under this Agreement and in
connection with the transactions contemplated hereby, including but not limited
to (i) all expenses and taxes incident to the issuance and delivery of the Stock
to the Representatives; (ii) all expenses incident to the registration of the
Stock under the Securities Act; (iii) the costs of preparing stock certificates
(including printing and engraving costs); (iv) all fees and expenses of the
registrar and transfer agent of the Stock; (v) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Stock to the
Underwriters; (vi) fees and expenses of the Company's counsel and the Company's
independent accountants; (vii) all costs and expenses (excluding, however, fees
of the Underwriter's counsel) incurred in connection with the preparation,
printing, filing, shipping and distribution of the Registration Statement, each
Pre-effective Prospectus and the Prospectus (including all exhibits and
financial statements) and all amendments and supplements provided for herein,
the "Agreement Among Underwriters" between the Representatives and the
Underwriters, the Selling Agreement, the Underwriters' Questionnaire and the
Blue Sky memoranda, if any, and this Agreement; (viii) all filing fees,
attorneys' fees and expenses incurred by the Company or the Underwriters in
connection
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with exemptions from the qualifying or registering (or obtaining qualification
or registration of) all or any part of the Stock for offer and sale and
determination of its eligibility for investment under the Blue Sky or other
securities laws of such jurisdictions as the Representatives may designate and
all fees and expenses, including attorneys' fees, paid or incurred in connection
with filings made with the NASD; (ix) all fees and expenses in connection with
qualifying the Stock for inclusion on the Nasdaq National Market and (x) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section 7.
In addition, each Selling Shareholder will pay all costs and expenses incident
to (i) the fees, disbursements and expenses of separate counsel for such Selling
Shareholder, and (ii) the sale and delivery of the Stock to be sold by such
Selling Shareholder to the Underwriters hereunder.
(b) In addition to its other obligations under Section 8(a) hereof, the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
(i) any statement or omission or any alleged statement or omission or (ii) any
breach or inaccuracy in its representations and warranties, it will reimburse
each Underwriter on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse each Underwriter for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Underwriter shall promptly return
it to the Company together with interest, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) announced from time to time by Citibank, NA, New York, New York (the
"Prime Rate"). Any such interim reimbursement payments which are not made to an
Underwriter in a timely manner as provided below shall bear interest at the
Prime Rate from the due date for such reimbursement. This expense reimbursement
agreement will be in addition to any other liability which the Company may
otherwise have. The request for reimbursement will be sent to the Company.
(c) In addition to its other obligations under Section 8(b) hereof, each
Underwriter severally agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in Section 8(c) hereof which relates to written information furnished
to the Company by the Representatives on behalf of the Underwriters specifically
for inclusion in the Registration Statement and the Prospectus, it will
reimburse the Company (and, to the extent applicable, each officer, director or
controlling person) on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director or controlling person) for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company (and, to the
extent
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applicable, each officer, director or controlling person) shall promptly return
it to the Underwriters together with interest, compounded daily, determined on
the basis of the Prime Rate. Any such interim reimbursement payments which are
not made to the Company within thirty (30) days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
(d) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in paragraph (b) and/or (c) of this
Section 7, including the amounts of any requested reimbursement payments and the
method of determining amounts, shall be settled by arbitration conducted under
the provisions of the Constitution and Rules of the Board of Governors of the
New York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure
of the NASD. Any such arbitration must be commenced by service of a written
demand for arbitration or written notice of intention to arbitrate, therein
electing the arbitration tribunal. In the event the party demanding arbitration
does not make such designation of an arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized to do
so. Such an arbitration would be limited to the operation of the interim
reimbursement provisions contained in paragraph (b) and/or (c) of this Section 7
and would not resolve the ultimate propriety or enforceability of the obligation
to reimburse expenses which is created by the provisions of Section 8.
8. Indemnification and Contribution. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls such
Underwriter within the meaning of the Securities Act and the respective
officers, directors, partners, employees, representatives and agents of each of
such Underwriter (collectively, the "Underwriter Indemnified Parties" and, each,
an "Underwriter Indemnified Party"), against any losses, claims, damages,
liabilities or expenses (including the reasonable cost of investigating and
defending against any claims therefor and counsel fees incurred in connection
therewith), joint or several, which may be based upon the Securities Act, the
Exchange Act, or any other statute or at common law, on the ground that any
Pre-effective Prospectus, the Registration Statement or the Prospectus (or any
Pre-effective Prospectus, the Registration Statement or the Prospectus as from
time to time amended or supplemented) includes or allegedly includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of any Underwriter (or any person controlling such) on account of any
losses, claims, damages, liabilities or expenses arising from the sale of the
Stock to any person by such Underwriter (i) if such untrue statement or omission
or alleged untrue statement or omission was made in any Pre-effective
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 or (ii) as to any Pre-effective Prospectus, with
respect to any Underwriter, to the extent that any such loss, claim, damage,
liability or expense of such Underwriter results from an untrue statement of a
material fact contained in, or the omission of a material fact from, such
Pre-effective Prospectus, which untrue statement or omission was corrected in
the Prospectus, if such Underwriter sold Stock to the person alleging such loss,
claim, damage or liability without sending or giving, at or prior to the written
confirmation of such sale, a copy of the
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Prospectus, unless such failure resulted from the failure of the Company to
deliver copies of the Prospectus to such Underwriter on a timely basis to permit
such sending or giving. The Company will be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but if the Company elects to assume the
defense, such defense shall be conducted by counsel chosen by it. In the event
the Company elects to assume the defense of any such suit and retain such
counsel, any Underwriter Indemnified Parties, defendant or defendants in the
suit, may retain additional counsel but shall bear the fees and expenses of such
counsel unless (i) the Company shall have specifically authorized the retaining
of such counsel or (ii) the parties to such suit include any such Underwriter
Indemnified Parties, and the Company and such Underwriter Indemnified Parties at
law or in equity have been advised by counsel to the Underwriters that one or
more legal defenses may be available to it or them which may not be available to
the Company, in which case the Company shall not be entitled to assume the
defense of such suit notwithstanding its obligation to bear the fees and
expenses of such counsel. This indemnity agreement is not exclusive and will be
in addition to any liability which the Company might otherwise have and shall
not limit any rights or remedies which may otherwise be available at law or in
equity to each Underwriter Indemnified Party. The Company agrees that the
statements with respect to the price and underwriting discount set forth on, and
the information contained in the last paragraph of, the cover page of the
Prospectus, the stabilization legend on the inside front cover page of the
Prospectus, and the table of Underwriters, the paragraph regarding price and
underwriting discount, the paragraph regarding the amounts of the selling
concession and reallowance, all set forth under the caption "Underwriting" in
the Prospectus, constitute the only information provided in writing by the
Representatives on behalf of any Underwriter expressly for use in the
Registration Statement or the Prospectus.
(b) Each Underwriter severally and not jointly agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who shall have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act (collectively, the "Company
Indemnified Parties") against any losses, claims, damages, liabilities or
expenses (including, unless the Underwriter or Underwriters elect to assume the
defense, the reasonable cost of investigating and defending against any claims
therefor and counsel fees incurred in connection therewith), joint or several,
which arise out of or are based in whole or in part upon the Securities Act, the
Exchange Act or any other federal, state, local or foreign statute or
regulation, or at common law, on the ground or alleged ground that any
Pre-effective Prospectus, the Registration Statement or the Prospectus (or any
Pre-effective Prospectus, the Registration Statement or the Prospectus, as from
time to time amended and supplemented) includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, but only
insofar as any such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such
Underwriter, directly or through the Representatives, specifically for use in
the preparation thereof; provided, however, that in no case is such Underwriter
to be liable with respect to any claims made against any Company Indemnified
Party against whom the action is brought unless such Company Indemnified Party
shall have notified such Underwriter in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon the Company Indemnified Party, but failure to
notify
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<PAGE>
such Underwriter of such claim shall not relieve it from any liability which it
may have to any Company Indemnified Party otherwise than on account of its
indemnity agreement contained in this paragraph. Such Underwriter shall be
entitled to participate at its own expense in the defense, or, if it so elects,
to assume the defense of any suit brought to enforce any such liability, but, if
such Underwriter elects to assume the defense, such defense shall be conducted
by counsel chosen by it. In the event that any Underwriter elects to assume the
defense of any such suit and retain such counsel, the Company Indemnified
Parties and any other Underwriter or Underwriters or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, respectively. The Underwriter
against whom indemnity may be sought shall not be liable to indemnify any person
for any settlement of any such claim effected without such Underwriter's
consent. This indemnity agreement is not exclusive and will be in addition to
any liability which such Underwriter might otherwise have and shall not limit
any rights or remedies which may otherwise be available at law or in equity to
any Company Indemnified Party.
(c) Each of the Selling Shareholders severally and not jointly agrees to
indemnify and hold harmless the Company, each director of the Company, each
officer of the Company who shall have signed the Registration Statement, each
Underwriter and each person, if any, who controls the Company or any Underwriter
within the meaning of the Securities Act (collectively, the "Company and
Underwriter Indemnified Parties"), to the same extent as the foregoing indemnity
from the Company to the several Underwriters in Section 8(a), but only (i) on
the ground or alleged ground that any Pre-effective Prospectus, the Registration
Statement or the Prospectus (or any Pre-effective Prospectus, the Registration
Statement or the Prospectus, as from time to time amended and supplemented)
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, and only insofar as any such statement or omission was
made in reliance upon, and in conformity with, written information furnished to
the Company by or on behalf of the Selling Shareholders, specifically for use in
the preparation thereof, or (ii) with respect to any breach of any
representation, warranty, covenant, or agreement of the Selling Shareholders
contained in this Agreement. In case any action shall be brought against the
Company, any Underwriter, or any Company and Underwriter Indemnified Parties in
respect of which indemnity may be sought against the Selling Shareholders, the
Selling Shareholders shall have the rights and duties given to the indemnifying
parties, and the Company, the Underwriters, and each other person so indemnified
shall have the rights and duties given to the indemnified parties, by the
provisions of Section 8(a).
(d) If the indemnification provided for in this Section 8 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a), (b) or
(c) above in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof referred to herein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by the Company, the Selling Shareholders and the Underwriters
from the offering of the Stock. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault
23
<PAGE>
of the Company, the Selling Shareholders and the Underwriters in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company, the Selling Shareholders and the Underwriters shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and/or the Selling Shareholders on
the one hand, bear to the total underwriting discounts and commissions received
by the Underwriters on the other hand, in each case as set forth in the table on
the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Shareholders or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
the Selling Shareholders and the Underwriters agree that it would not be just
and equitable if contribution 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. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating, defending, settling or compromising any such claim.
Notwithstanding the provisions of this subsection (c), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the shares of the Stock underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. The Underwriters'
obligations to contribute are several in proportion to their respective
underwriting obligations and not joint. 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.
9. Survival of Indemnities, Representations, Warranties, etc. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company, the Selling Shareholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Selling
Shareholders, the Company or any of the Company's officers or directors or any
controlling person, and shall survive delivery of and payment for the Stock.
10. Conditions of Underwriters' Obligations. The respective obligations of
the several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated herein) as of the date hereof and at and as of the
Closing Dates, of the representations and warranties made herein by the Company
and the Selling Shareholders, to compliance at and as of the Closing Dates by
the Company and the Selling Shareholders with their covenants and agreements
herein contained and other provisions hereof to be satisfied at or prior to the
Closing Dates, and to the following additional conditions:
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<PAGE>
(a) The Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge
of the Company or the Representatives, shall be threatened by the
Commission, and any request 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 reasonable satisfaction
of the Representatives. Any filings of the Prospectus, or any supplement
thereto, required pursuant to Rule 424(b) or Rule 434 of the Rules and
Regulations, shall have been made in the manner and within the time period
required by Rule 424(b) and Rule 434 of the Rules and Regulations, as the
case may be.
(b) The Representatives shall have been satisfied that there shall not
have occurred any change, on a consolidated basis, prior to the Closing
Dates in the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of the Company
and its Subsidiaries, or any change in the capital stock, short-term or
long-term debt of the Company and its Subsidiaries, taken as a whole, such
that (i) the Registration Statement or the Prospectus, or any amendment or
supplement thereto, contains an untrue statement of fact which is material,
or omits to state a fact which is required to be stated therein or is
necessary to make the statements therein not misleading, or (ii) it is
impracticable in the reasonable judgment of the Representatives to proceed
with the public offering or purchase the Stock as contemplated hereby.
(c) At the time of execution of this Agreement and at each of the
Closing Dates, each of Arthur Andersen LLP and KPMG Peat Marwick LLP shall
have furnished to the Underwriters a letter or letters, dated,
respectively, the date of execution of this Agreement and each of the
Closing Dates, confirming that they are independent certified public
accountants with respect to the Company and each of its Subsidiaries within
the meaning of the Securities Act and the applicable published Rules and
Regulations and based upon the procedures described in such letter
delivered to you concurrently with the execution of this Agreement (herein
called the "Comfort Letter"), but carried out to a date not more than five
(5) business days prior to the First Closing Date or such later date on
which the Option Stock is to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set
forth in the Comfort Letter are accurate as of the First Closing Date or
such later date on which Option Stock is to be purchased, as the case may
be, and (ii) setting forth any revisions and additions to the statements
and conclusions set forth in the Comfort Letter which are necessary to
reflect any changes in the facts described in the Comfort Letter since the
date of such letter, or to reflect the availability of more recent
financial statements, data or information. The letter shall not contain any
disclosure relating to any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company or any of its Subsidiaries from that set forth in the Registration
Statement or Prospectus, which, in your sole judgment, is material and
adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Stock as
contemplated by the Prospectus. The Comfort Letter shall be addressed to or
for the use of
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<PAGE>
the Underwriters in form and substance satisfactory to the Underwriters and
shall (i) represent that they are independent certified public accountants
with respect to the Company and each of the Subsidiaries within the meaning
of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the consolidated
balance sheets of the Company as of February 1, 1997 and January 31, 1998
(in the case of Arthur Andersen LLP), and December 31, 1995 and May 25,
1996 (in the case of KPMG Peat Marwick LLP), and related consolidated
statements of operations, shareholders' equity, and cash flows for the
twelve (12) months (or five months in the case of the period ended May 25,
1996), then ended, and (ii) address other matters agreed upon by Arthur
Andersen LLP and KPMG Peat Marwick LLP and you. In addition, you shall have
received from Arthur Andersen LLP at the time of execution of this
Agreement, if requested by the Representatives, a letter addressed to the
Company and made available to you for the use of the Underwriters stating
that their review of the Company's system of internal accounting controls,
to the extent they deemed necessary in establishing the scope of their
examination of the above financial statements as of February 1, 1997 and
January 31, 1998, did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.
(d) The Representatives shall have received from Faegre & Benson LLP,
counsel for the Company, an opinion, dated each of the Effective Date and
the Closing Dates, to the effect set forth in Exhibit I hereto. Counsel
rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or the State of Minnesota upon
opinions of local counsel, and as to questions of fact upon representations
or certificates of officers of the Company and/or its Subsidiaries, and of
government officials, in which case their opinion is to state that they are
so relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. Copies of
any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to
Underwriters' Counsel.
(e) The Representatives shall have received from Swidler Berlin
Shereff Friedman, LLP, counsel for the Underwriters, their opinion or
opinions dated the Closing Dates with respect to the incorporation of the
Company, the validity of the Stock, the Registration Statement and the
Prospectus and such other related matters as it may reasonably request, and
the Company shall have furnished to such counsel such documents as they may
reasonably request for the purpose of enabling them to pass upon such
matters. In rendering such opinion, Swidler Berlin Shereff Friedman, LLP
may rely as to all matters governed other than by the laws of New York or
federal laws on the opinion of counsel referred to in paragraph (d) of this
Section 10.
(f) The Representatives shall have received a certificate, dated the
Closing Dates, of the chief executive officer or the president, and the
chief financial officer of the Company to the effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the best of the
knowledge of the signers, no
26
<PAGE>
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act;
(ii) Neither any Pre-effective Prospectus, as of its date, nor
the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto (including any documents filed under the Exchange
Act and deemed to be incorporated by reference into the Pre-effective
Prospectus and the Prospectus), as of the time when the Registration
Statement became effective and at all times subsequent thereto up to
the delivery of such certificate, included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein;
(iii) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except
as set forth or contemplated in the Prospectus, neither the Company
nor any of its Subsidiaries has incurred any material liabilities or
obligations, direct or contingent, nor entered into any material
transactions not in the ordinary course of business and there has not
been any material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net worth or
results of operations of the Company and its Subsidiaries, or any
change in the capital stock, short-term or long-term debt of the
Company and any of its Subsidiaries;
(iv) The representations and warranties of the Company in this
Agreement are true and correct at and as of the Closing Dates, and the
Company has complied with all the agreements and performed or
satisfied all the conditions on its part to be performed or satisfied
at or prior to the Closing Dates; and
(v) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, and except as
disclosed in or contemplated by the Prospectus, (i) there has not been
any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), properties,
business, management, prospects, net worth or results of operations of
the Company and its Subsidiaries considered as a whole; (ii) the
business and operations conducted by the Company and its Subsidiaries
have not sustained a loss by strike, fire, flood, accident or other
calamity (whether or not insured) of such a character as to interfere
materially with the conduct of the business and operations of the
Company and its Subsidiaries considered as a whole; (iii) no legal or
governmental action, suit or proceeding is pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries which is material to the Company and its Subsidiaries
considered as a whole, whether or not arising from transactions in the
ordinary course of business, or which may materially and adversely
affect the transactions contemplated by this Agreement; (iv) since
such dates and except as so disclosed, the Company has not incurred
any material liability or obligation, direct, contingent or indirect,
made any change in its capital stock (except pursuant to its Option
Plans), made any material
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<PAGE>
change in its short-term or funded debt or repurchased or otherwise
acquired any of the Company's capital stock; and (v) the Company has
not declared or paid any dividend, or made any other distribution,
upon its outstanding capital stock payable to stockholders of record
on a date prior to the Closing Dates.
(g) The Representatives shall have received a certificate, dated the
Closing Dates, of each of the Selling Shareholders to the effect that the
representations and warranties of each such Selling Shareholder in this
Agreement are true and correct as of the Closing Dates, and that each such
Selling Shareholder has complied with all the agreements and performed or
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Dates.
(h) The Company shall have furnished to the Representatives such
additional certificates as the Representatives may have reasonably
requested as to the accuracy, at and as of the Closing Dates, of the
representations and warranties made herein by it and as to compliance at
and as of the Closing Dates by it with its covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to the
Closing Dates, and as to satisfaction of the other conditions to the
obligations of the Underwriters hereunder.
(i) Ladenburg shall have received the written agreements of the
officers and directors of the Company and the holders of securities of the
Company listed on Schedule B, and listed on Schedule C, that each will not
directly or indirectly, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or
dispose of , any shares of Common Stock of the Company or issue any
securities convertible or exercisable or exchangeable (except pursuant to
the terms of the Company's Options Plans) for Common Stock, or enter into
any swap or the agreement to do any of the foregoing, through March 8,
1999. These "lock-up" restrictions will not apply to the estate of any
person described above in the event such person dies during the "lock-up"
period, will not prohibit gifts to donees who agree in writing to be bound
by the same restrictions, or that are qualified organizations under Section
501(c)(3) of the Internal Revenue Code of 1986, as amended, and will not
prohibit any person from exercising options (but would prohibit the sale
during the "lock-up" period of shares of Common Stock purchased upon the
exercise of such options).
(j) The Stock shall be listed on the Nasdaq National Market.
(k) All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in
form and substance to the Representatives. The Company and the Selling
Shareholders will furnish to the Representatives conformed copies of such
opinions, certificates, letters and other documents as the Representatives
shall reasonably request. If any of the conditions hereinabove provided for
in this Section 10 shall not have been satisfied when and as required by
this Agreement, this Agreement may be terminated by the Representatives by
notifying the Company of such termination in writing or by telegram at or
prior to the Closing Dates, but Ladenburg shall be
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entitled to waive any of such conditions.
(l) Ladenburg shall have received such additional opinions of counsel
as shall be reasonably satisfactory to Ladenburg in its sole discretion.
11. Effective Date. This Agreement shall become effective immediately as to
Sections 7, 8, 9, 11, 12, 13, 15, 16, 17, 18, 19, 20 and 21 and, as to all other
provisions, at 11:00 A.M. New York City time on the first full business day
following the effectiveness of the Registration Statement or at such earlier
time after the Registration Statement becomes effective as the Representatives
may determine on and by notice to the Company or by release of any of the Stock
for sale to the public. For the purposes of this Section 11, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by you of
telegrams (i) advising Underwriters that the shares of Stock are released for
public offering or (ii) offering the Stock for sale to securities dealers,
whichever may occur first.
12. Termination. This Agreement (except for the provisions of Section 7)
may be terminated by the Company at any time before it becomes effective in
accordance with Section 11 by notice to the Representatives and may be
terminated by the Representatives at any time before it becomes effective in
accordance with Section 11 by notice to the Company. In the event of any
termination of this Agreement under this or any other provision of this
Agreement, there shall be no liability of any party to this Agreement to any
other party, other than as provided in Sections 7, 8 and 13 and other than as
provided in Section 14 as to the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to any First Closing
Date trading in securities on any of the New York Stock Exchange, American Stock
Exchange or Nasdaq National Market shall have been suspended or minimum or
maximum prices shall have been established and are then currently in effect on
any such exchange or market, or a banking moratorium shall have been declared by
New York or United States authorities; (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market; (iii) if at or prior to any Closing Date there shall have been (A) an
outbreak or escalation of hostilities between the United States and any foreign
power or of any other insurrection or armed conflict involving the United States
or (B) any change in financial markets or any calamity or crisis which, in the
reasonable judgment of the Representatives, makes it impractical or inadvisable
to offer or sell the Firm Stock on the terms contemplated by the Prospectus;
(iv) if there shall have been any development or prospective development
involving particularly the business or properties or securities of the Company
or any of its Subsidiaries or the transactions contemplated by this Agreement
which, in the reasonable judgment of the Representatives, makes it impracticable
or inadvisable to offer or deliver the Firm Stock on the terms contemplated by
the Prospectus; (v) if there shall be any litigation or proceeding, pending or
threatened, which, in the reasonable judgment of the Representatives, makes it
impracticable or inadvisable to offer or deliver the Firm Stock on the terms
contemplated by the Prospectus; or (vi) if there shall have occurred any of the
events specified in the immediately preceding clauses (i) - (v) together with
any other such event that makes it, in the reasonable judgment of the
Representatives, impractical or inadvisable to offer or deliver the Firm Stock
on the
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terms contemplated by the Prospectus.
13. Reimbursement of Underwriters. Notwithstanding any other provisions
hereof, if this Agreement shall not become effective by reason of any election
of the Company pursuant to the first paragraph of Section 12 or shall be
terminated by the Representatives under Section 10 or Section 12, the Company
will bear and pay the expenses specified in Section 7 hereof and, in addition to
its obligations pursuant to Section 8 hereof, the Company will reimburse the
reasonable out-of-pocket expenses of the several Underwriters (including
reasonable fees and disbursements of counsel for the Underwriters) incurred in
connection with this Agreement and the proposed purchase of the Stock, and
promptly upon demand the Company will pay such amounts to you as
Representatives.
14. Substitution of Underwriters. If on the First Closing Date or the
Option Closing Date, as the case may be, any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Stock hereunder
(otherwise than by reason of default on the part of the Company, you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 48 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the shares of Stock which the defaulting Underwriter
or Underwriters failed to purchase. If during such 48 hours you, as such
Representatives, shall not have procured such other Underwriters, or any others,
to purchase the shares of Stock agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of shares which
such defaulting Underwriter or Underwriters agreed but failed to purchase does
not exceed ten percent (10%) of the total number of shares underwritten, the
other Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the shares of Stock which such
defaulting Underwriter or Underwriters agreed but failed to purchase, or (b) if
the aggregate number of shares of Stock with respect to which such default or
defaults occur is more than ten percent (10%) of the total number of shares
underwritten, the Company or you, as the Representatives of the Underwriters,
will have the right, by written notice given within the next 48-hour period to
the parties to this Agreement, to terminate this Agreement without liability on
the part of the non-defaulting Underwriters or the Company.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 14, (i) the Company
shall have the right to postpone the Closing Dates for a period of not more than
five (5) full business days in order that the Company may effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be made necessary, and (ii) the respective
numbers of shares to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken as the basis of their underwriting obligation for
all purposes of this Agreement. Nothing herein contained shall relieve any
defaulting Underwriter of its liability to the Company or the other Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 14 shall be without liability on the part of
any non-defaulting Underwriter or the Company, except for expenses to be paid or
reimbursed pursuant
30
<PAGE>
to Section 7 and except for the provisions of Section 8.
15. Notices. All communications hereunder shall be in writing and, if sent
to the Underwriters shall be mailed, delivered or telegraphed and confirmed to
you, as their Representatives c/o Ladenburg Thalmann & Co. Inc. at 590 Madison
Avenue, New York, New York 10022, attention: Mr. Michael Bauer, except that
notices given to an Underwriter pursuant to Section 8 hereof shall be sent to
such Underwriter at the address furnished by the Representatives or, if sent to
the Company, shall be mailed, delivered or telegraphed and confirmed c/o Wilsons
the Leather Experts Inc., 7401 Boone Avenue North, Brooklyn Park, Minnesota
44528, Attention: Mr. David L. Rogers.
16. Successors. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company, the Selling Shareholders and their
respective successors and legal representatives. Nothing expressed or mentioned
in this Agreement is intended or shall be construed to give any person other
than the persons mentioned in the preceding sentence any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations, warranties,
covenants, agreements and indemnities of the Company contained in this Agreement
shall also be for the benefit of the person or persons, if any, who control any
Underwriter or Underwriters within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, and the indemnities of the several
Underwriters shall also be for the benefit of each director of the Company, each
of its officers who has signed the Registration Statement and the person or
persons, if any, who control the Company or the Selling Shareholders within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act.
17. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
choice of law principles thereof.
18. Authority of the Representatives. In connection with this Agreement,
you will act for and on behalf of the several Underwriters, and any action taken
under this Agreement by you, as Representatives, or individually as a
Representative, will be binding on all the Underwriters.
19. Partial Unenforceability. The invalidity or unenforceability of any
section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other section, paragraph or provision hereof. If any
section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.
20. General. This Agreement constitutes the entire agreement of the parties
to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.
31
<PAGE>
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company and the Representatives.
21. Counterparts. This Agreement may be signed in two or more counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
32
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
WILSONS THE LEATHER EXPERTS INC.
By:
---------------------------------------
Name: Joel N. Waller
Title: Chairman of the Board and Chief
Executive Officer
SELLING SHAREHOLDERS
By:
---------------------------------------
Name:
Title:
Accepted and delivered in New York, New York
as of the date first above written.
LADENBURG THALMANN & CO. INC.
McDONALD & COMPANY SECURITIES, INC.
JOHN G. KINNARD AND COMPANY, INCORPORATED
By: Ladenburg Thalmann & Co. Inc.
By:_________________________________
(Authorized Representative)
On behalf of each of the Underwriters
33
<PAGE>
SCHEDULE A
Name Number of
Firm Stock to be Purchased
---------------
Ladenburg Thalmann & Co. Inc.
McDonald & Company Securities, Inc.
John G. Kinnard and Company, Incorporated
Total. 2,000,000
=========
<PAGE>
SCHEDULE B
LIST OF OFFICERS, DIRECTORS, AND SHAREHOLDERS
SUBJECT TO LOCK UP PROVISION
<PAGE>
SCHEDULE C
LIST OF SELLING SHAREHOLDERS
<PAGE>
EXHIBIT I
Matters to be covered in
opinion of Counsel to the Company(1)
------------------------------------
1. The Company is validly existing as a corporation in good standing
under the laws of the State of Minnesota; each of its Subsidiaries is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation;
2. The Company has all requisite corporate power and authority
necessary to own or hold its properties and to conduct its business as described
in the Prospectus; each of the Subsidiaries has all requisite corporate power
and authority necessary to own or hold its properties and to conduct their
respective businesses as described in the Prospectus;
3. The Company and each of its Subsidiaries is duly qualified to do
business and is in good standing as a foreign corporation in each of the
jurisdictions set forth on a Schedule to the opinion; to such counsel' s
knowledge, the Company does not own or control, directly or indirectly, any
corporation, association or other entity other than its Subsidiaries;
4. The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus under the caption "Capitalization" as of the
dates stated therein; have not been issued in violation of or subject to any
statutory preemptive right, and, to such counsel's knowledge, have not been
issued in violation of or subject to any contractual preemptive right, co-sale
right, registration right, right of first refusal or other similar right and,
except as set forth in the Registration Statement, to such counsel's knowledge,
there are no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, any shares of capital stock or other
equity interest in the Company; based solely on a review of stock ledgers and
relying upon such ledgers to be complete, true and accurate, all the issued and
outstanding shares of capital stock of each of the Subsidiaries are owned of
record and beneficially by the Company, free and clear of any security
interests, liens, encumbrances, equities or other claims and there are no
outstanding rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, any shares of capital stock or other equity interest
in any of the Subsidiaries;
5. The Stock has been duly and validly authorized by the Company for
issuance, and the Company has full corporate power and authority to issue, sell
and deliver the Stock, and, when the Stock is issued and delivered against
payment therefor in accordance with the terms hereof, they will be fully paid
and nonassessable, and will not have been issued in violation of or subject to
any statutory preemptive right, or to such counsel's knowledge, any contractual
preemptive right, co-sale right, registration right, right of first refusal or
other similar right; and there are no restrictions upon the voting or transfer
of, any of the Stock pursuant to the Articles of Incorporation (as hereinafter
defined) or Restated By-laws, or pursuant to any agreement or other instrument
of the
- ------------------
(1) Capitalized terms used herein but not defined shall have the
meanings given such terms in the Underwriting Agreement.
<PAGE>
Company known to such counsel.
6. To such counsel's knowledge, there are no legal or governmental
proceedings pending against the Company or any of its Subsidiaries or of which
any property or assets of the Company or any of its Subsidiaries is the subject
which are of a character required to be disclosed in the Registration Statement
or the Prospectus by the Securities Act or the Rules and Regulations, other than
those described therein; and, to such counsel's knowledge, no such proceedings
are threatened by governmental authorities or other third parties.
7. This Agreement has been duly and validly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution and delivery
of this Agreement by you, is a valid and binding agreement of the parties; the
Company has full requisite corporate power and authority to enter into this
Agreement.
8. This Agreement, the Power of Attorney and the Custody Agreement have
been duly and validly authorized executed and delivered by the Selling
Shareholders and are the valid and binding obligation of the parties; the
Selling Shareholders have the full power and authority (corporate and other) to
enter into this Agreement, the Power of Attorney and the Custody Agreement and
to consummate the transaction contemplated hereby and thereby (including to sell
and deliver the Stock).
9. All sales of the Company's capital stock by the Company during the
period of time since its inception were at the time of each sale duly registered
under the Act or exempt from the registration requirements of the Act.
10. The execution, delivery and performance of the Underwriting
Agreement and the consummation of the transactions herein contemplated will not
result, with or without due notice or lapse of time or both, in any breach or
violation of the charter or By-laws of the Company or any of its Subsidiaries,
or result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any bond, debenture, note or other evidence of
indebtedness, or any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other material agreement or instrument
known to such counsel to which the Company or any of its Subsidiaries is a party
or by which the their properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to the best of such counsel's knowledge,
any order, writ or decree of any court, government or governmental agency or
body having jurisdiction over the Company, its Subsidiaries or any of their
material properties or operations;
11. To such counsel's knowledge, the Company and its Subsidiaries, are
not presently (a) in violation of their charter or By-laws, or (b), to such
counsel's knowledge, in breach or default under any lease, contract, indenture,
mortgage, deed of trust, instrument, license, permit or any other agreement to
which the Company or any of its Subsidiaries is bound or to which any property
or assets of the Company or any of its Subsidiaries is the subject, where the
consequences of such violation, breach or default would have a Material Adverse
Effect;
<PAGE>
12. The execution, delivery and performance of this Agreement, the
Power of Attorney and the Custody Agreement, and the consummation of the
transactions herein and therein contemplated, will not result (with or without
due notice or lapse of time or both) in the creation of any lien or breach or
violation of any of the terms and provisions of, or constitute a default under
any of the terms or provisions of, or give rise to any right of termination,
cancellation or acceleration under any indenture, license, mortgage, deed of
trust, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, any lease, contract, joint venture or other material agreement or
instrument to which any such Selling Shareholder is a party or by which it or
any of its properties is or may be bound, nor will such action conflict with or
violate any law, statute, order, rule or regulation of any court or governmental
agency or body having jurisdiction over any such Selling Shareholder or any of
its properties, except, in any such case, where such breach, violation, default,
or other conflict would not have a material adverse effect on the ability of
such Selling Shareholder to consummate the transactions contemplated by this
Agreement .
13. Each Selling Shareholder has good and valid title to the Stock to
be sold by such Selling Shareholder hereunder, without notice of any adverse
claim, free and clear of all liens, security interest, pledges, charges,
encumbrances, defects, shareholders' agreements, voting trusts, equities or
claims of any nature whatsoever; and, upon delivery of such Stock against
payment therefore as provided herein (assuming that such Stock is purchased in
good faith without notice of adverse claim) good and valid title to such Stock,
free and clear of all liens, security interests, pledges, charges, encumbrances,
defects, shareholders' agreements, voting trusts, equities or claims of any
nature whatsoever, will pass to the several Underwriters.
14. No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company or
by each the Selling Shareholders of the transactions contemplated by the
Underwriting Agreement (except such as may be required by the NASD or as
required by the securities or "Blue Sky" laws of any jurisdiction as to which
such counsel need express no opinion), and in the case of the Selling
Shareholders, the transactions contemplated by the Power of Attorney and the
Custody Agreement, in connection with the purchase and distribution of the Stock
by the Underwriters except such as have been obtained or made, specifying the
same.
15. The Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose is pending or threatened by the Commission.
16. The Registration Statement and the Prospectus and any amendments or
supplements thereto (except for the financial statements and notes thereto and
related schedules and other financial information 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 and Regulations.
17. The documents which are incorporated by reference in the Prospectus
or from
<PAGE>
which information is so incorporated by reference, when they became effective or
were filed with the Commission, as the case may be, complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as
applicable, and the Rules and Regulations, and any documents so filed and
incorporated by reference subsequent to the effective date of the Registration
Statement shall, when they are filed with the Commission, conform in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and the Rules and Regulations.
18. There are no contracts, agreements or other documents, known to
such counsel, required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement which are
not described or filed therein as required. All descriptions of any such
contracts, agreements or documents contained in the Registration Statement are
accurate and complete descriptions of such documents in all material respects.
19. The statements in the Prospectus under the caption "Management
Buyout" to the extent they constitute a summary of documents referred to therein
or matters of law accurately summarize and fairly present in all material
respects the legal and regulatory matters described therein.
20. Neither the Company nor any of its Subsidiaries is an "investment
company," or an entity "controlled" by an "investment company" required to be
registered under the 1940 Act, as such terms are defined in the 1940 Act.
21. To such counsel's knowledge, the Company and each of its
Subsidiaries possess all authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from, and have made all declarations
and filings with, all regulatory or governmental officials, bodies and tribunals
("Permits") to own, lease or operate their respective properties and to conduct
their respective businesses described in the Registration Statement and the
Prospectus, except where the failure to have obtained or made the same would not
have a Material Adverse Effect and to the knowledge of such counsel neither the
Company nor any of its Subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such Permits.
22. To such counsel's knowledge, the Company and each of its
Subsidiaries is in compliance with, and conducts its business in conformity
with, all applicable federal, state, local and foreign laws, rules and
regulations of each court or governmental agency or body having jurisdiction
over the Company or any of its Subsidiaries, except where the failure to be in
compliance would not have a Material Adverse Effect.
In addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement or any amendment
thereto, as of the time it became effective under the Securities Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Securities Act), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein not
<PAGE>
misleading, or (ii) that the Prospectus, or any supplement thereto, on the date
it was filed pursuant to the Rules and Regulations and as of the First Closing
Date or the Option Closing Date, as the case may be, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading (except that such counsel need express no view as to financial
statements and notes thereto and schedules or other financial or statistical
information therein). With respect to such statement, such counsel may state
that their belief is based upon the procedures set forth therein, but is without
independent check and verification.
<PAGE>
Exhibit 3.1
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.
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". The 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 and restrictions granted to or imposed upon the
shares of Common Stock or, to the extent set forth herein, other capital stock,
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.
(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.
<PAGE>
(iii) 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.
ARTICLE 4 - 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. 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.
<PAGE>
Exhibit 3.2
Amendments to By-Laws
of
Wilsons The Leather Experts Inc.
authorized
June 16, 1998
The following Sections of the By-Laws of Wilsons the Leather Experts Inc.
were amended to read as follows:
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 or at such other time and place as the Board of Directors
shall determine at a previous meeting of the Board of Directors, or as the Chief
Executive Officer or President shall fix in a notice given to all directors not
less than two days before the meeting, provided that when notice is mailed, at
least four days' notice shall be given.
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 preside at all meetings of the shareholders and Board or shall designate
another officer of the Corporation to preside; (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.
<PAGE>
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 6
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 7
2.13 Committees 7
2.14 Special Litigation Committee 7
2.15 Compensation 7
-i-
<PAGE>
Section Page
- ------- ----
OFFICERS 8
3.01 Number and Designation 8
3.02 Chief Executive Officer 8
3.03 Chief Financial Officer 8
3.04 President 8
3.05 Vice Presidents 8
3.06 Secretary 9
3.07 Treasurer 9
3.08 Authority and Duties 9
3.09 Term 9
3.10 Salaries 9
INDEMNIFICATION 10
4.01 Indemnification 10
4.02 Insurance 10
SHARES 10
5.01 Certificated and Uncertificated Shares 10
5.02 Declaration of Dividends and Other Distributions 11
5.03 Transfer of Shares 11
5.04 Record Date 11
MISCELLANEOUS 11
6.01 Execution of Instruments 11
6.02 Advances 11
6.03 Corporate Seal 11
6.04 Fiscal Year 12
6.05 Amendments 12
6.06 Inapplicability of Control Share Acquisition Statute 12
6.07 Limited Applicability of Business Combination Statute 12
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>
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 egular 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 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.
<PAGE>
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 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
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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 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
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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, 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.
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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 or at such other time and place as the Board of Directors
shall determine at a previous meeting of the Board of Directors, or as the Chief
Executive Officer or President shall fix in a notice given to all directors not
less than two days before the meeting, provided that when notice is mailed, at
least four days' notice shall be given.
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 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
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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 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
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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 preside at all meetings of the shareholders and Board or shall designate
another officer of the Corporation to preside; (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.
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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.
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.
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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
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.
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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 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,
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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 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.
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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
August 19, 1998
Wilsons The Leather Experts Inc.
7401 Boone Avenue North
Brooklyn Park, Minnesota 55428
Ladies and Gentlemen:
In connection with the proposed registration under the Securities Act of
1933, as amended, of 2,300,000 shares of Common Stock, par value $.01 per share
("Common Stock"), of Wilsons The Leather Experts Inc., a Minnesota corporation
(the "Company"), we have examined such corporate records and other documents,
including the Registration Statement on Form S-3 relating to such shares (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 21.1
DIRECT AND INDIRECT SUBSIDIARIES
OF
WILSONS THE LEATHER EXPERTS INC.
DIRECT SUBSIDIARY OF WILSONS THE LEATHER EXPERTS INC.:
Wilsons Center, Inc.
DIRECT SUBSIDIARY OF WILSONS CENTER, INC.:
Rosedale Wilsons, Inc.
DIRECT SUBSIDIARY OF ROSEDALE WILSONS, INC.:
River Hills Wilsons, Inc.
DIRECT SUBSIDIARIES OF RIVER HILLS WILSONS, INC.:
Bermans The Leather Experts Inc. Wilsons Leather of Missouri Inc.
Wilsons Leather Holdings Inc. Wilsons Leather of New Jersey Inc.
Wilsons International Inc. Wilsons Leather of New York Inc.
Wilsons Leather of Alabama Inc. Wilsons Leather of North Carolina Inc.
Wilsons Leather of Arkansas Inc. Wilsons Leather of Ohio Inc.
Wilsons Leather of Connecticut Inc. Wilsons Leather of Pennsylvania Inc.
Wilsons Leather of Delaware Inc. Wilsons Leather of Rhode Island Inc.
Wilsons Leather of Florida Inc. Wilsons Leather of South Carolina Inc.
Wilsons Leather of Georgia Inc. Wilsons Leather of Tennessee Inc.
Wilsons Leather of Indiana Inc. Wilsons Leather of Texas Inc.
Wilsons Leather of Iowa Inc. Wilsons Leather of Vermont Inc.
Wilsons Leather of Louisiana Inc. Wilsons Leather of Virginia Inc.
Wilsons Leather of Maryland Inc. Wilsons Leather of West Virginia Inc.
Wilsons Leather of Massachusetts Inc. Wilsons Leather of Wisconsin Inc.
Wilsons Leather of Michigan Inc. Wilsons (UK) Limited
Wilsons Leather of Mississippi Inc.
DIRECT SUBSIDIARIES OF WILSONS INTERNATIONAL INC.:
Wilsons Leather of Canada Ltd.
Wilsons Leather of Hong Kong Ltd.
DIRECT SUBSIDIARY OF WILSONS LEATHER OF DELAWARE INC.:
Wilsons Leather of Airports Inc.
<PAGE>
DIRECT SUBSIDIARIES OF WILSONS (UK) LIMITED:
Wilsons Leather Gatsland Limited
Wilsons Leather Gatsair Limited
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, 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
August 19, 1998
<PAGE>
Exhibit 23.2
Consent of KPMG Peat Marwick LLP
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 headings "Selected Historical Consolidated Financial and Other
Data" and "Experts" in the prospectus.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 19, 1998
<PAGE>
Exhibit 24.1
WILSONS THE LEATHER EXPERTS INC.
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of WILSONS THE LEATHER EXPERTS
INC., a Minnesota corporation, does hereby make, constitute, and appoint Joel N.
Waller, David L. Rogers and Douglas J. Treff, and each or any of them, the
undersigned's true and lawful attorneys-in-fact and agent, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place, and stead, to sign and affix the undersigned's name as such
director and/or officer of said Corporation to a Registration Statement on Form
S-3 or other applicable form, and any or all amendments, including
post-effective amendments, thereto, and all registration statements for the same
offering that are to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), to be filed by said Corporation
with the Securities and Exchange Commission, Washington, D.C. in connection with
the registration under the Act of equity securities proposed to be sold by said
Corporation, and file the same, with all exhibits thereto and other supporting
documents pertaining to the registration of the securities covered thereby, with
said Commission, granting unto said attorneys-in-fact and agents, and each or
any of them, full power and authority to do and perform each and every act and
thing requisite and necessary or incidental to the performance and execution of
the powers herein expressly granted, to be done in and about the premises, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 11th day of August, 1998.
/s/ Joel N. Waller
-------------------------------
Joel N. Waller
<PAGE>
Exhibit 24.1
WILSONS THE LEATHER EXPERTS INC.
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of WILSONS THE LEATHER EXPERTS
INC., a Minnesota corporation, does hereby make, constitute, and appoint Joel N.
Waller, David L. Rogers and Douglas J. Treff, and each or any of them, the
undersigned's true and lawful attorneys-in-fact and agent, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place, and stead, to sign and affix the undersigned's name as such
director and/or officer of said Corporation to a Registration Statement on Form
S-3 or other applicable form, and any or all amendments, including
post-effective amendments, thereto, and all registration statements for the same
offering that are to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), to be filed by said Corporation
with the Securities and Exchange Commission, Washington, D.C. in connection with
the registration under the Act of equity securities proposed to be sold by said
Corporation, and file the same, with all exhibits thereto and other supporting
documents pertaining to the registration of the securities covered thereby, with
said Commission, granting unto said attorneys-in-fact and agents, and each or
any of them, full power and authority to do and perform each and every act and
thing requisite and necessary or incidental to the performance and execution of
the powers herein expressly granted, to be done in and about the premises, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 11th day of August, 1998.
/s/ David L. Rogers
--------------------------
David L. Rogers
<PAGE>
Exhibit 24.1
WILSONS THE LEATHER EXPERTS INC.
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of WILSONS THE LEATHER EXPERTS
INC., a Minnesota corporation, does hereby make, constitute, and appoint Joel N.
Waller, David L. Rogers and Douglas J. Treff, and each or any of them, the
undersigned's true and lawful attorneys-in-fact and agent, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place, and stead, to sign and affix the undersigned's name as such
director and/or officer of said Corporation to a Registration Statement on Form
S-3 or other applicable form, and any or all amendments, including
post-effective amendments, thereto, and all registration statements for the same
offering that are to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), to be filed by said Corporation
with the Securities and Exchange Commission, Washington, D.C. in connection with
the registration under the Act of equity securities proposed to be sold by said
Corporation, and file the same, with all exhibits thereto and other supporting
documents pertaining to the registration of the securities covered thereby, with
said Commission, granting unto said attorneys-in-fact and agents, and each or
any of them, full power and authority to do and perform each and every act and
thing requisite and necessary or incidental to the performance and execution of
the powers herein expressly granted, to be done in and about the premises, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 11th day of August, 1998.
/s/ Douglas J. Treff
---------------------------
Douglas J. Treff
<PAGE>
Exhibit 24.1
WILSONS THE LEATHER EXPERTS INC.
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of WILSONS THE LEATHER EXPERTS
INC., a Minnesota corporation, does hereby make, constitute, and appoint Joel N.
Waller, David L. Rogers and Douglas J. Treff, and each or any of them, the
undersigned's true and lawful attorneys-in-fact and agent, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place, and stead, to sign and affix the undersigned's name as such
director and/or officer of said Corporation to a Registration Statement on Form
S-3 or other applicable form, and any or all amendments, including
post-effective amendments, thereto, and all registration statements for the same
offering that are to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), to be filed by said Corporation
with the Securities and Exchange Commission, Washington, D.C. in connection with
the registration under the Act of equity securities proposed to be sold by said
Corporation, and file the same, with all exhibits thereto and other supporting
documents pertaining to the registration of the securities covered thereby, with
said Commission, granting unto said attorneys-in-fact and agents, and each or
any of them, full power and authority to do and perform each and every act and
thing requisite and necessary or incidental to the performance and execution of
the powers herein expressly granted, to be done in and about the premises, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 14th day of August, 1998.
/s/ Morris Goldfarb
--------------------------
Morris Goldfarb
<PAGE>
Exhibit 24.1
WILSONS THE LEATHER EXPERTS INC.
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of WILSONS THE LEATHER EXPERTS
INC., a Minnesota corporation, does hereby make, constitute, and appoint Joel N.
Waller, David L. Rogers and Douglas J. Treff, and each or any of them, the
undersigned's true and lawful attorneys-in-fact and agent, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place, and stead, to sign and affix the undersigned's name as such
director and/or officer of said Corporation to a Registration Statement on Form
S-3 or other applicable form, and any or all amendments, including
post-effective amendments, thereto, and all registration statements for the same
offering that are to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), to be filed by said Corporation
with the Securities and Exchange Commission, Washington, D.C. in connection with
the registration under the Act of equity securities proposed to be sold by said
Corporation, and file the same, with all exhibits thereto and other supporting
documents pertaining to the registration of the securities covered thereby, with
said Commission, granting unto said attorneys-in-fact and agents, and each or
any of them, full power and authority to do and perform each and every act and
thing requisite and necessary or incidental to the performance and execution of
the powers herein expressly granted, to be done in and about the premises, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 14th day of August, 1998.
/s/ Lyle Berman
--------------------------
Lyle Berman
<PAGE>
Exhibit 24.1
WILSONS THE LEATHER EXPERTS INC.
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of WILSONS THE LEATHER EXPERTS
INC., a Minnesota corporation, does hereby make, constitute, and appoint Joel N.
Waller, David L. Rogers and Douglas J. Treff, and each or any of them, the
undersigned's true and lawful attorneys-in-fact and agent, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place, and stead, to sign and affix the undersigned's name as such
director and/or officer of said Corporation to a Registration Statement on Form
S-3 or other applicable form, and any or all amendments, including
post-effective amendments, thereto, and all registration statements for the same
offering that are to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), to be filed by said Corporation
with the Securities and Exchange Commission, Washington, D.C. in connection with
the registration under the Act of equity securities proposed to be sold by said
Corporation, and file the same, with all exhibits thereto and other supporting
documents pertaining to the registration of the securities covered thereby, with
said Commission, granting unto said attorneys-in-fact and agents, and each or
any of them, full power and authority to do and perform each and every act and
thing requisite and necessary or incidental to the performance and execution of
the powers herein expressly granted, to be done in and about the premises, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either or any of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 17th day of August, 1998.
/s/ Thomas J. Brosig
--------------------------------
Thomas J. Brosig
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WILSONS THE
LEATHER EXPERTS INC. AND SUBSIDIARIES AS OF AUGUST 1, 1998 AND FOR THE QUARTER
AND SIX MONTH PERIOD ENDED AUGUST 1, 1998 AND IS QUALIFIED IN ITS ENTIRELY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JAN-30-1999 JAN-30-1999
<PERIOD-START> MAY-03-1998 FEB-01-1998
<PERIOD-END> AUG-01-1998 AUG-01-1998
<CASH> 42,287 42,287
<SECURITIES> 0 0
<RECEIVABLES> 13,565 13,565
<ALLOWANCES> 4,583 4,583
<INVENTORY> 101,495 101,495
<CURRENT-ASSETS> 154,331 154,331
<PP&E> 36,394 36,394
<DEPRECIATION> 4,893 4,893
<TOTAL-ASSETS> 190,000 190,000
<CURRENT-LIABILITIES> 49,149 49,149
<BONDS> 75,000 75,000
0 0
0 0
<COMMON> 108 108
<OTHER-SE> 63,425 63,425
<TOTAL-LIABILITY-AND-EQUITY> 190,000 190,000
<SALES> 45,724 113,735
<TOTAL-REVENUES> 45,724 113,735
<CGS> 41,304 92,745
<TOTAL-COSTS> 62,210 135,597
<OTHER-EXPENSES> 969 1,722
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,821 2,972
<INCOME-PRETAX> (19,276) (26,556)
<INCOME-TAX> (7,398) (10,141)
<INCOME-CONTINUING> (11,878) (16,415)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (11,878) (16,415)
<EPS-PRIMARY> (1.16) (1.66)
<EPS-DILUTED> (1.16) (1.66)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WILSONS THE
LEATHER EXPERTS INC. AND SUBSIDIARIES AS OF AUGUST 2, 1997 AND FOR THE QUARTER
AND SIX MONTH PERIOD ENDED AUGUST 2, 1997
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998
<PERIOD-START> MAY-04-1997 FEB-02-1997
<PERIOD-END> AUG-02-1997 AUG-02-1997
<CASH> 24,091 24,091
<SECURITIES> 0 0
<RECEIVABLES> 12,334 12,334
<ALLOWANCES> 4,843 4,843
<INVENTORY> 87,177 87,177
<CURRENT-ASSETS> 119,578 119,578
<PP&E> 20,622 20,622
<DEPRECIATION> 1,911 1,911
<TOTAL-ASSETS> 140,041 140,041
<CURRENT-LIABILITIES> 43,281 43,281
<BONDS> 61,311 61,311
0 0
0 0
<COMMON> 95 95
<OTHER-SE> 33,358 33,358
<TOTAL-LIABILITY-AND-EQUITY> 140,041 140,041
<SALES> 36,471 93,422
<TOTAL-REVENUES> 36,471 93,422
<CGS> 36,957 84,222
<TOTAL-COSTS> 54,250 120,713
<OTHER-EXPENSES> 955 1,842
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,248 1,919
<INCOME-PRETAX> (19,982) (31,052)
<INCOME-TAX> (7,401) (11,208)
<INCOME-CONTINUING> (12,581) (19,844)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (12,581) (19,844)
<EPS-PRIMARY> (1.41) (2.39)
<EPS-DILUTED> (1.41) (2.39)
</TABLE>
