Document:

exv10w1

 

Exhibit 10.1

EXECUTION COPY

SEVENTH AMENDMENT TO

FOURTH AMENDED AND RESTATED CREDIT AGREEMENT

     This SEVENTH AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
(this “Amendment”) is entered into as of this 2nd day of March, 2005 among
WILSONS LEATHER HOLDINGS INC., a Minnesota corporation (“Borrower”),
GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, as Lender, Term
Lender, Swing Line Lender and as Agent (“Agent”), the Credit Parties
signatory hereto and the Lenders signatory hereto. Unless otherwise specified
herein, capitalized terms used in this Amendment shall have the meanings
ascribed to them by the Credit Agreement (as hereinafter defined).

RECITALS

     WHEREAS, Borrower, certain Credit Parties, Agent and Lenders have entered
into that certain Fourth Amended and Restated Credit Agreement dated as of
April 23, 2002 (as amended, supplemented, restated or otherwise modified from
time to time, the “Credit Agreement”); and

     WHEREAS, Borrower, the Credit Parties signatories to the Credit Agreement,
the Lenders and Agent wish to amend certain provisions of the Credit Agreement,
as more fully set forth herein.

     NOW THEREFORE, in consideration of the mutual covenants herein and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

Section 1 Amendments to the Credit Agreement. Subject to the
satisfaction of the conditions precedent set forth in Section 3 hereof,
the parties hereto hereby agree to amend the Credit Agreement as
follows:

     (a) The second sentence of clause (iv) of Section 1.1(a) of
the Credit Agreement is hereby amended and restated to read in its entirety as
follows:

     “Furthermore, notwithstanding any provision to contrary set forth
herein, in no event and at no time shall the sum of the aggregate
outstanding Revolving Loan plus the Swing Line Loan plus
the outstanding principal balance of the Term Loan B exceed the sum of
(i) ninety two and one-half percent (92.5%) of the Inventory GOB Value,
(ii) ninety two and one-half percent (92.5%) of the Trade L/C Inventory
GOB Value and (iii) eighty five percent (85%) of the book value of
Eligible Accounts (the “GOB Loans Cap”).”

     (b) Section 1.3(c) of the Credit Agreement is hereby amended by
adding the following new sentence at the end thereof:

1

 

     “In addition, on or prior to February 28, 2006 Borrower may, with
two prepayments (the first of which prepayments shall be in an amount of
at least $5,000,000 and the second of which prepayments shall be in an
amount not to exceed $5,000,000), partially prepay Term Loan B in a
principal amount not to exceed $10,000,000 in the aggregate for all such
prepayments, as long as Borrower shall have delivered to Agent (i) at
least ten (10) days prior to each such prepayment projections, in form
and substance reasonably satisfactory to Agent and taking into account
such prepayment, which demonstrate that the sum of (1) the amount of
unrestricted cash owned and held by Borrower plus (2) the
Borrowing Availability shall be at least $15,000,000 at all times during
the 12-month period commencing on the date of such proposed prepayment
and (ii) at the time of each such prepayment, an officer’s certificate
certifying that no Default or Event of Default exists at the time of such
prepayment (or would occur as a result thereof).”

     (c) Section 1.6 of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:

     “1.6 Applicable Margins. The Applicable Swing Line Margin,
Applicable Index Margin, Applicable LIBOR Margin and Applicable L/C
Margin will be 1.50%, 0.25%, 1.50% and 1.50% per annum, respectively.

     The Applicable Margins shall be adjusted (up or down) prospectively
on a quarterly basis as determined by Ultimate Parent’s and its
Subsidiaries’ consolidated financial performance, commencing with the
first day of the first calendar month that occurs more than one (1) day
after delivery of Ultimate Parent’s quarterly Financial Statements to
Agent and Lenders for the Fiscal Quarter ending on or about the last day
of October, 2005 pursuant to Schedule G hereof. All adjustments
in the Applicable Margins thereafter shall be implemented quarterly on a
prospective basis, for each calendar month commencing at least one (1)
day after the date of delivery to Agent and Lenders of the Ultimate
Parent’s quarterly Financial Statements pursuant to Schedule G
hereof evidencing the need for an adjustment. Adjustments in Applicable
Margins will be determined by reference to the following grids:

	 	 	 	 	 
	If EBITDA of Ultimate Parent, for the then most	 	Level of	 
	recently completed four Fiscal Quarter period, is:	 	Applicable Margins:	 
	3 25,000,000
	 	Level I
	3 19,000,000, but < 25,000,000
	 	Level II
	< 19,000,000
	 	Level III

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Level I	 	Level II	 	Level III
	Applicable Swing
Line Margin
	 	 	1.25	%	 	 	1.50	%	 	 	1.75	%
	Applicable Index
Margin
	 	 	0.00	%	 	 	0.25	%	 	 	0.50	%

2

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Level I	 	Level II	 	Level III
	Applicable LIBOR
Margin
	 	 	1.25	%	 	 	1.50	%	 	 	1.75	%
	Applicable L/C
Margin
	 	 	1.25	%	 	 	1.50	%	 	 	1.75	%

     Concurrently with the delivery of those Financial Statements,
Borrower shall deliver to Agent and Lenders a certificate, signed by its
chief financial officer, setting forth in reasonable detail the basis for
the continuance of, or any change in, the Applicable Margins. Failure to
timely deliver such Financial Statements shall, in addition to any other
remedy provided for in this Agreement, result in an increase in the
Applicable Margins to the highest level set forth in the foregoing grid,
until the first day of the first calendar month following the delivery of
those Financial Statements demonstrating that such an increase is not
required. If any Default or an Event of Default has occurred and is
continuing at the time any reduction in the Applicable Margins is to be
implemented, that reduction shall be deferred until the first day of the
first calendar month following the date on which all Defaults or Events
of Default are waived or cured.”

     (d) Section 1.9(b) of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:

     ”(b) As additional compensation for the Lenders having Revolving
Loan Commitments, Borrower agrees to pay to Agent, for the ratable
benefit of such Lenders, in arrears, on the first Business Day of each
month prior to the Commitment Termination Date and on the Commitment
Termination Date, a fee for Borrower’s non-use of funds (the “Non-Use
Fee”) in an amount equal to 0.25% per annum (calculated on the basis
of a 360 day year for actual days elapsed) of the difference between (x)
the Maximum Amount (as it may be reduced from time to time) and (y) the
average for the period of the daily closing balances of the Revolving
Loan and the Swing Line Loan outstanding during the period for which the
Non-Use Fee is due.”

     (e) Clause (c) of Schedule I to the Credit Agreement is
hereby amended and restated to read in its entirety as follows:

     ”(c) Minimum EBITDA. If at any time during any Fiscal Month
the sum of (i) the amount of unrestricted cash owned and held by Borrower
at such time plus (ii) the Borrowing Availability at such time, is
less than $15,000,000, Ultimate Parent shall have EBITDA for the twelve
month period ending on the last day of such Fiscal Month, of not less
than the amount set forth opposite such Fiscal Month below:

	 	 	 	 	 
	Month	 	 	EBITDA	 
	February 2005
	 	 	$21,724,000	 
	March 2005
	 	 	$21,737,000	 
	April 2005
	 	 	$20,705,000	 
	May 2005
	 	 	$19,694,000	 

3

 

	 	 	 	 	 
	Month	 	 	EBITDA	 
	June 2005
	 		$19,574,000	 
	July 2005
	 		$18,859,000	 
	August 2005
	 		$18,852,000	 
	September 2005
	 		$18,464,000	 
	October 2005
	 		$17,893,000	 
	November 2005
	 		$18,173,000	 
	December 2005
	 		$17,652,000	 
	January 2006
	 		$19,054,000	 
	Each Fiscal
Month from and including February 2006 and through and including January 2007	 	 	an amount equal to the EBITDA of
Ultimate Parent for the Fiscal Year ending in January, 2006
	Each Fiscal
Month from and including February 2007 and through and including January 2008	 	 	an amount equal to the EBITDA of
Ultimate Parent for the Fiscal Year ending in January, 2007
	February 2008
and each Fiscal Month thereafter	 	 	an amount equal to the EBITDA of
Ultimate Parent for the Fiscal Year ending in January, 2008"

Section 2 Representations and Warranties. Borrower and the Credit
Parties who are party hereto represent and warrant that:

     (a) the execution, delivery and performance by Borrower and such Credit
Parties of this Amendment have been duly authorized by all necessary corporate
action and this Amendment is a legal, valid and binding obligation of Borrower
and such Credit Parties enforceable against Borrower and such Credit Parties in
accordance with its terms, except as the enforcement thereof may be subject to
(i) the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors’ rights generally and (ii)
general principles of equity (regardless of whether such enforcement is sought
in a proceeding in equity or at law);

     (b) each of the representations and warranties contained in the Credit
Agreement is true and correct in all material respects on and as of the date
hereof as if made on the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date;

     (c) neither the execution, delivery and performance of this Amendment nor
the consummation of the transactions contemplated hereby does or shall
contravene, result in a breach of, or violate (i) any provision of Borrower’s
or Credit Parties’ certificate or articles of incorporation or bylaws, (ii) any
law or regulation, or any order or decree of any court or government
instrumentality or (iii) indenture, mortgage, deed of trust, lease, agreement
or other instrument to which Borrower, the Credit Parties or any of their
Subsidiaries is a party or by

4

 

which Borrower, the Credit Parties or any of their Subsidiaries or any of
their property is bound, except in any such case to the extent such conflict or
breach has been waived by a written waiver document a copy of which has been
delivered to Agent on or before the date hereof; and

     (d) no Default or Event of Default will exist or result after giving
effect hereto.

Section 3 Conditions to Effectiveness. This Amendment will be effective
only upon execution and delivery of this Amendment by Borrower, the Credit
Parties that are listed on the signature pages hereto, the Agent and each
Lender.

Section 4 Reference to and Effect Upon the Credit Agreement.

     (a) Except as specifically set forth herein, the Credit Agreement and the
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.

     (b) The execution, delivery and effectiveness of this Amendment shall not
operate as a waiver of any right, power or remedy of Agent or any Lender under
the Credit Agreement or any Loan Document, nor constitute a waiver of any
provision of the Credit Agreement or any Loan Document, except as specifically
set forth herein. Upon the effectiveness of this Amendment, each reference in
the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or
words of similar import shall mean and refer to the Credit Agreement as amended
hereby.

Section 5 Waiver and Release.

     In consideration of the foregoing, each of Borrower and each Credit Party
hereby waives, releases and covenants not to sue Agent or any Lender with
respect to, any and all claims it may have against Agent or any Lender, whether
known or unknown, arising in tort, by contract or otherwise prior to the date
hereof relating to one or more Loan Documents.

Section 6 Costs and Expenses.

     As provided in Section 11.3 of the Credit Agreement, Borrower
agrees to reimburse Agent for all fees, costs and expenses, including the fees,
costs and expenses of counsel or other advisors for advice, assistance, or
other representation in connection with this Amendment.

Section 7 Governing Law.

     THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF ILLINOIS.

Section 8 Headings.

     Section headings in this Amendment are included herein for convenience of
reference only and shall not constitute a part of this Amendment for any other
purposes.

Section 9 Counterparts.

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     This Amendment may be executed in any number of counterparts, each of
which when so executed shall be deemed an original but all such counterparts
shall constitute one and the same instrument.

Section 10 Confidentiality.

     The matters set forth herein are subject to Section 11.18 of the Credit
Agreement, which is incorporated herein by reference.

[signature pages follow]

6

 

     IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first written above.

	 	 	 	 	 
	 	BORROWER:

WILSONS LEATHER HOLDINGS INC.

 	 
	 	By:  	 /s/
Stacy Kruse	 
	 	Title:  	 Vice
President Finance, Treasurer	 
	 

	 	 	 	 	 
	Revolving Loan
Commitment:
$41,666,667 (including $10,000,000
Swing Line
Commitment)
	 	GENERAL ELECTRIC
CAPITAL CORPORATION,
as Agent, Lender and Swing Line Lender
	 
	Term Loan B Commitment:
	 	By:  	 /s/ Kristina
M. Miller	 
	$25,000,000
	 
	Title:  
	 Duly
Authorized Signatory	 
	
	 	 
	 
	Revolving Loan Commitment:

$20,833,333
	 	LASALLE RETAIL FINANCE,
a
division of LaSalle Business
Credit, as agent for Standard
Federal Bank National
Association, as Lender
	 
	
	 	By:  	 /s/ Matthew
Potter	 
	
	 	Title:  	 Assistant
Vice President	 
	 
	Revolving Loan Commitment:

$31,250,000
	 	THE CIT GROUP/BUSINESS
CREDIT, INC.,
as Lender and Documentation Agent
	 
	
	 	By:  	 /s/ Deborah
Rogut	 
	
	 	Title:  	 Vice
President	 
	 
	Revolving Loan Commitment:

$31,250,000
	 	WELLS FARGO RETAIL
FINANCE II, LLC,

as Lender and Syndication Agent
	 
	
	 	By:  	 /s/ Eileen
Quinn	 
	
	 	Title:  	 Senior
Vice President	 

[Signature Page to Seventh Amendment]

7

 

     The undersigned are executing this Amendment in their capacity as Credit
Parties:

Wilsons The Leather Experts Inc.

	 	 	 	 	 	 
	By:  	 /s/
Stacy Kruse	 
	 
	Title:  	 Vice
President Finance, Treasurer	 
	 
	Wilsons Center, Inc.

	 
	By:  	 /s/
Stacy Kruse	 
	 
	Title:  	 Vice
President Finance, Treasurer	 
	 
	Rosedale Wilsons, Inc.

	 
	By:  	 /s/
Stacy Kruse	 
	 
	Title:  	 Vice
President Finance, Treasurer	 
	 
	River Hills Wilsons, Inc.

	 
	By:  	 /s/
Stacy Kruse	 
	 
	Title:  	 Vice
President Finance, Treasurer	 
	 
	Bermans The Leather Experts Inc.

	 
	By:  	 /s/
Stacy Kruse	 
	 
	Title:  	 Vice
President Finance, Treasurer	 

[Signature Page to Seventh Amendment]

8exv10w2

 

Exhibit 10.2

 

 

Corporate Leadership Team

Incentive Plan

 

 

 

 

As adopted effective March 2, 2005

 

 

Wilsons Leather

Corporate Leadership Team Incentive Plan

A.       INTRODUCTION AND PURPOSE

     This Plan has been developed to provide opportunities for Wilsons The
Leather Experts Inc. (hereinafter “Wilsons Leather”) to motivate and reward
associates through annual incentive awards. Eligible participants include the
Executive Officers, all Vice Presidents, Directors and all associates below the
Director level that are designated by the Incentive Committee. Cash awards are
based on actual results measured against pre-established corporate financial
objectives (the “Annual Corporate Financial Objectives”). In addition to the
Annual Corporate Financial Objectives, all Executive Officers and eligible
associates on the merchant staff (“Merchant Associates”) also will be subject
to position-specific measures (“Annual Individual Performance Measures”) and
eligible participants other than Executive Officers and Merchant Associates
also may be subject to Annual Individual Performance Measures. Awards are paid
in cash to provide an immediate reward and supplement the Wilsons Leather base
compensation program. Generally, payments are made in March or April following
the end of each Plan Year.

     This plan is intended to be as simple as possible so that the goals are
very clear to all parties. Important features of the Plan are described in
this document. Any questions regarding the interpretation of this Plan, or any
details not covered in this document, will be determined by the Incentive
Committee in its sole discretion.

B.       INCENTIVE PLAN PROVISIONS

     1.       ADMINISTRATION

     The Human Resources group administers the Plan. An Incentive
Committee, consisting of the Vice President-Human Resources and the Chief
Executive Officer, selects the participants in the Plan, establishes
Targeted Award Amounts, as defined below, for participants who are not
Executive Officers, resolves disputes on interpretation and application
of the Plan except as otherwise provided in the Plan, and determines
which participants, in addition to Executive Officers and Merchant
Associates, shall have Annual Individual Performance Measures. The Chief
Executive Officer shall determine the Annual Individual Performance
Measures for each participant (other than the Chief Executive Officer)
subject to Annual Individual Performance Measures. The Compensation
Committee establishes Targeted Award Amounts for participants at the
Executive Officer level and shall determine the Annual Individual
Performance Measures for the Chief Executive Officer. The Annual
Corporate Financial Objectives for each Plan Year will be established by
the Compensation Committee.

 

 

     2.       TERMS OF PARTICIPATION AND PRORATIONS

     Incentive-eligible positions, Targeted Award Amounts, the Annual
Corporate Financial Objectives and any applicable Annual Individual
Performance Measures will be established and communicated, as early as
practicable after the beginning of each Plan Year.

     a.       Eligibility Requirements.

     You must be actively employed by Wilsons Leather or one of
its direct or indirect subsidiaries as of the last day of the Plan
Year (not the calendar year) in order to receive an incentive
award payment (“Incentive Award Payment”) for that year. In
addition, in order to receive an Incentive Award Payment for a
Plan Year, you must be in an incentive eligible position as of the
last day of the Plan Year, so that associates who transfer during
a Plan Year from an incentive eligible position to an ineligible
position will receive no Incentive Award Payment for that year.
Incentive Award Payments generally will be distributed in March or
April following the close of financial records for the Plan Year.

     Associates on written warning status either at the end of the
Plan Year or on the date the Incentive Award Payment otherwise
would be made will receive no Incentive Award Payment for that
Plan Year. Further, associates terminated on or after the last
day of a Plan Year but prior to the date of the Incentive Award
Payment for such Plan Year for a reason that Wilsons Leather
determines to be for cause will receive no Incentive Award Payment
for that Plan Year.

     b.       Pro-rated Awards.

     Part-time associates designated by Wilsons Leather as
eligible participants will be eligible to receive a pro-rata
Incentive Award Payment reflecting their part-time status.

     Associates who become participants during a Plan Year will be
eligible to receive a pro-rated Incentive Award Payment for that
year reflecting their time as an eligible participant.

     Associates who transfer from an eligible position to another
eligible position during a Plan Year will receive a pro-rata
Incentive Award Payment based on the time spent in each of the
eligible positions. In this situation, and any other situation
where adjustments in base salary occur throughout the year, the
base salary in, and Targeted Award Amount for, each position will
be used to calculate the pro-rata Incentive Award Payment
reflecting time and pay in each situation.

     In each case, a pro-rated Incentive Award Payment will be
paid for a Plan Year only if all the requirements of Section
B.2.a. are satisfied for that year. For purposes of pro-rating
Incentive Award Payments under the preceding two paragraphs, a
transfer or other event that occurs prior to the 15th day of a
month will be deemed to have occurred on the first

2

 

day of that month, and a transfer or other event that occurs
on or after the 15th day of a month will be deemed to occur on the
first day of the following month.

     A Company—paid leave-of-absence which exceeds eight weeks
will result in the Incentive Award Payment being pro-rated to
reflect time on leave which is greater than eight weeks. An
unpaid leave-of-absence will result in the Incentive Award Payment
being pro-rated for time on unpaid-leave status.

     3.       PERFORMANCE MEASURES

     a.       The Annual Corporate Financial Objectives

     The Annual Corporate Financial Objectives shall be established by
the Compensation Committee after the beginning of each Plan Year and
shall be based on operating profit as determined in accordance with
generally accepted accounting principles (after reduction for bonus
expense and related taxes) or on such alternative performance measures as
the Compensation Committee shall determine after the beginning of the
Plan Year.

     b.       Annual Individual Performance Measures.

     The Chief Executive Officer shall establish Annual Individual
Performance Measures after the beginning of the Plan Year for each other
Executive Officer and each eligible Merchant Associate and, in addition,
for each eligible participant other than an Executive Officer or Merchant
Associate that the Incentive Committee determines should be subject to
Annual Individual Performance Measures. The Compensation Committee shall
establish Annual Individual Performance Measures after the beginning of
the Plan Year for the Chief Executive Officer. The Annual Individual
Performance Measures may be objective, subjective or a combination of
objective and subjective Annual Individual Performance Measures that
shall be weighted in such manner as shall be determined by the Chief
Executive Officer (or, with respect to Annual Individual Performance
Measures for the Chief Executive Officer, as shall be determined by the
Compensation Committee), provided that Annual Individual Performance
Measures for Merchant Associates shall be based on performance against
Wilsons Leather’s gross margin plan (as described in Section B.4.d.).

     c.       Purpose of Performance Measures

     The performance measures will be established with the intent to
motivate and reward our associates for contributions that successfully
drive Wilsons Leather’s businesses.

     d.       Communication

     A personalized award sheet will be provided to each participant,
which outlines the basis upon which incentives will be awarded.

3

 

     4.       INCENTIVE AWARD PAYMENTS

     a.       Targeted Award Amount

     A targeted award amount (“Targeted Award Amount”) shall be
established as provided in Section B.1. for each participant each Plan
Year, expressed as a percentage of base salary, as early as practicable
after the beginning of the Plan Year. While your Targeted Award Amount
communicated to you as early as practicable after the beginning of each
Plan Year is based on your base salary established during the annual
review process conducted by Wilsons Leather as early as practicable after
the beginning of the Plan Year, your actual Incentive Award Payment will
reflect any changes in your base salary during the Plan Year (subject to
the pro-ration provisions set forth in Section B.2.b).

     Your Targeted Award Amount is the amount of your Incentive Award
Payment which will be earned by you with respect to a Plan Year (assuming
no change in your base salary and no transfer between positions during
the year) if 100% of the Annual Corporate Financial Objectives are
achieved, 100% of your Annual Individual Performance Measures, if any,
are met, and if the other conditions to your receipt of your Incentive
Award Payment set forth in or established pursuant to this Plan are
satisfied.

     b.       Effect on Incentive Award Payments if Annual
Corporate Financial Objectives are Not Achieved

     If less than 90% of the Annual Corporate Financial Objectives are
achieved, no Incentive Award Payment will be made under the Plan to any
participant other than eligible Merchant Associates, whose Incentive
Award Payment shall be determined pursuant to Section B.4.d. If 90% or
more, but less than 100%, of the Annual Corporate Financial Objectives
are achieved, the percentage of the Targeted Award Amount that an
eligible participant will receive for that Plan Year as an Incentive
Award Payment shall be determined on a sliding scale established by the
Chief Executive Officer and approved by the Compensation Committee as
early as practicable after the beginning of the Plan Year, subject to
reduction as provided in Section B.4.c. and, with respect to Merchant
Associates, subject to reduction or addition as provided in Section
B.4.d. If 100% or more of the Annual Corporate Financial Objectives are
achieved, an eligible participant will receive as an Incentive Award
Payment 100% of the Targeted Award Amount, subject to reduction as
provided in Section B.4.c. and, with respect to Merchant Associates,
subject to reduction or addition as provided in Section B.4.d. In no
event will the Incentive Award Payment to a participant for a Plan Year
exceed the Participant’s Targeted Award Amount for the Plan Year (except
as otherwise provided in Section B.4.d. with respect to Merchant
Associates) and all Incentive Award Payments shall be subject to
reduction as provided in Section B.4.c. if the Annual Individual
Performance Measures of the applicable participant, if any, are not
achieved, or to reduction or addition as provided in Section B.4.d. with
respect to Merchant Associates, and to Section B.2. The Compensation
Committee shall determine the percentage of the Annual Corporate
Financial Objectives that have been achieved for a Plan Year, which
determination shall be final and binding.

4

 

     c.       Reductions if Annual Individual Performance
Measures Are Not Achieved

     This Section B.4.c. applies only to Executive Officers and any other
eligible participant (except Merchant Associates) who is subject to
Annual Individual Performance Measures. With respect to each Executive
Officer (other than the Chief Executive Officer) and each other eligible
participant (other than a Merchant Associate) that the Incentive
Committee determines should be subject to Annual Individual Performance
Measures, the Chief Executive Officer after the beginning of each Plan
Year shall establish Annual Individual Performance Measures and a
weighting of the Annual Individual Performance Measures. After the end
of the Plan Year, the Chief Executive Officer shall determine the
composite percentage of the Annual Individual Performance Measures that a
participant achieved, which determination shall be final and binding.
The Chief Executive Officer’s Annual Individual Performance Measures
shall be established by the Compensation Committee after the beginning of
each Plan Year and weighted by the Compensation Committee. After the end
of the Plan Year, the Compensation Committee shall determine the
composite percentage of the Annual Individual Performance Measures that
the Chief Executive Officer achieved, which determination shall be final
and binding. That percentage so determined by the Chief Executive
Officer (or, with respect to the Annual Individual Performance Measures
for the Chief Executive Officer, by the Compensation Committee) shall be
multiplied by 40% of the Incentive Award Payment that participant would
have received under Section B.4.b. (i.e., based upon the extent to which
the Annual Corporate Financial Objectives were achieved) if 100% of the
Annual Individual Performance Measures had been achieved, and the product
of such multiplication shall be added to 60% of the Incentive Award
Payment that participant would have received under Section B.4.b. (i.e.,
based upon the extent to which the Annual Corporate Financial Objectives
were achieved) if 100% of the Annual Individual Performance Measures had
been achieved (subject to further pro-ration or elimination, if any,
provided for in Section B.2.) to determine the participant’s Incentive
Award Payment for that Plan Year.

     d.       Modification of Incentive Award Payments for Merchant Associates

     This Section B.4.d. applies only to Merchant Associates. With
respect to eligible Merchant Associates, the Incentive Award Payment
shall be determined pursuant to this Section B.4.d., and Section B.4.c.
shall not be applicable notwithstanding anything to the contrary provided
in any other Section or Subsection of this Plan. The Chief Executive
Officer after the beginning of the Plan Year shall establish Annual
Individual Performance Measures for the Merchant Associates based on
performance against Wilsons Leather’s gross margin plan, which gross
margin plan may be based on gross margin dollars, gross margin return on
inventory or such other gross margin objectives as the Compensation
Committee may determine and may be a Company gross margin plan or a
business unit gross margin plan applicable to Merchant Associates in that
unit, as determined by the Compensation Committee. As soon as practical
after the beginning of the Plan Year, the Incentive Committee shall
determine the

5

 

percentage of the Incentive Award Payment for Merchant Associates
that shall be based on the achievement of Annual Corporate Financial
Objectives (the “Corporate Objectives Percentage”) and the percentage of
the Incentive Award Payment for Merchant Associates that shall be based
on the achievement of the Annual Individual Performance Measures (the
“Gross Margin Percentage”). The sum of the Corporate Objectives
Percentage and the Gross Margin Percentage shall equal 100%. The
Incentive Award Payment for each eligible Merchant Associate for a Plan
Year shall consist of two components: (i) the Corporate Objectives
Percentage multiplied by 100% of the Incentive Award Payment the Merchant
Associate would have received pursuant to Section B.4.b. (i.e., based
upon the extent to which the Annual Corporate Financial Objectives were
achieved) if the Merchant Associate had not been subject to Annual
Individual Performance Measures, and (ii) the Gross Margin Percentage
multiplied by the Merchant Specific Amount. For this purpose, the
Merchant Specific Amount shall be 0 if Wilsons Leather’s gross margin
plan is not achieved for the Plan Year, 100% of the participant’s
Targeted Award Amount if Wilsons Leather’s gross margin plan is achieved
but not exceeded for the Plan Year and a percentage of the Targeted Award
Amount determined pursuant to the sliding scale established by the Chief
Executive Officer and approved by the Compensation Committee as early as
practical after the beginning of the Plan Year (not less than 100% of the
participant’s Targeted Award Amount and not to exceed 150% of the
participant’s Targeted Award Amount) if Wilsons Leather’s gross margin
plan is exceeded for the Plan Year. Notwithstanding the foregoing, the
Merchant Specific Amount may be reduced in the discretion of the
Incentive Committee after the end of the Plan Year to the extent
determined by the Incentive Committee if Wilsons Leather’s inventory
levels exceed those provided in Wilsons Leather’s plan.

     e.       Incentive Award Payments in Addition to Pool Payments

     The Incentive Award Payments made pursuant to this Section B.4. are
in addition to the Incentive Pool payments to be made pursuant to Section
B.5.

     5.       Pool Payments

     a.       Total Pool

     To the extent that more than 100% of the Annual Corporate Financial
Objectives are achieved in a Plan Year, 20% of the excess shall
constitute the incentive pool (the “Incentive Pool”). Not more than the
amount of the Incentive Pool shall be distributed among the eligible
participants pursuant to this Section B.5. For purposes of this Section
B.5.a., the amount of the distributions among the eligible participants
shall be deemed to include all payroll taxes of Wilsons Leather. The
only participants who shall receive distributions from the Incentive Pool
for a Plan Year are participants who also receive Incentive Award
Payments for that Plan Year under Section B.4.

     b.       Distribution Among Participants

     As soon as practicable after the later of beginning of the Plan Year
or the date a person becomes an eligible participant, the Incentive
Committee shall establish an amount in dollars that the eligible
participant shall be entitled to

6

 

receive from the Incentive Pool for that Plan Year for each $1,000,000 in
excess of Annual Corporate Financial Objectives for that Plan Year
(pro-rated for amounts that are less than $1,000,000). With respect to
Executive Officers, such amounts shall be approved by the Compensation
Committee. The Incentive Committee shall have discretion to adjust such
dollar amounts in the event of promotions, changes from part-time status
to full-time status, from full-time status to part-time status or changes
in part-time status, but shall not be required to do so. The initial
dollar amounts for distribution from the Incentive Pool to each eligible
participant in the event the Annual Corporate Financial Objectives are
exceeded shall be included in the personalized award sheet provided to
each participant. Notwithstanding anything herein stated, (i) no
participant will be entitled to any distribution from the Incentive Pool
for a Plan Year in which the participant does not receive an Incentive
Award Payment, (ii) if the total distributions to be made pursuant to
this Section B.5. would otherwise exceed the amount of the Incentive
Pool, the distributions will be pro-rated among the eligible participants
based on ratios equal to what they would have received if the Incentive
Pool had not been capped at 20% of the amount in excess of 100% of the
Annual Corporate Financial Objectives, and (iii) distributions to a
participant from the Incentive Pool shall be limited by Section B.6.
Total distributions pursuant to this Section B.5. may be less than, but
not more than, the total amount of the Incentive Pool.

     6.       Maximum Payment

     Notwithstanding anything to the contrary provided in this Plan, the
total payment for any Plan Year to any participant under this Plan (the
sum of the participant’s Incentive Plan Award and the payment to the
participant from the Incentive Pool) shall not exceed 200% of the
participant’s base salary established during the annual review process
conducted by Wilsons Leather as early as practicable after the beginning
of the year, adjusted to reflect any changes in a participant’s base
salary during the Plan Year (subject to the pro-ration provisions set
forth in Section B.2.b.).

     7.       General Provisions

     a.       Plan Year

     This Plan operates on a “Plan Year” that ends on the Saturday
nearest January 31st of each year.

     b.       Tax Withholding

     Wilsons Leather may withhold from any payment to a participant under
this Plan an amount sufficient to cover any required withholding taxes,
including the participant’s social security and Medicare taxes (FICA) and
federal, state and local income taxes with respect to income arising from
the payment. All amounts withheld shall be treated for purposes of this
Plan as payments or distributions to the participant with respect to whom
the withholding was made by Wilsons Leather.

7

 

C.       RIGHTS OF THE PARTICIPANT

     This Plan is not an employment agreement and does not ensure or evidence
to any degree the continued employment of any participant for any time, period
or position. If a participant is covered by a written employment agreement
that specifically refers to this Plan, the participant’s rights and benefits
shall be governed by the terms of the employment agreement to the extent
inconsistent with this Plan.

     No participant shall, by virtue of this Plan, have any interest in any
specific asset or assets of Wilsons Leather or any of its direct or indirect
subsidiaries. A participant has only an unsecured right to receive an
Incentive Award Payment and payment from the Incentive Pool, if any, in
accordance with, and at the time specified by, the Plan.

D.       RIGHTS OF WILSONS LEATHER

     Wilsons Leather reserves the right to change, amend, or terminate this
Plan at any time, with or without notice to participants. Any changes,
amendments or Plan termination may be made only by the Board of Directors of
Wilsons Leather (the “Board”) or delegated by the Board by express delegation
to the Compensation Committee.

8

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