8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)		March 2, 2005
Wilsons The Leather Experts Inc.
(Exact name of registrant as specified in its charter)
Minnesota	0-21543	41-1839933
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)
7401 Boone Ave. N.
Brooklyn Park, Minnesota		55428
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code		(763) 391-4000

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 1.01. Entry into a Material Definitive Agreement.
	Item 9.01. Financial Statements and Exhibits
SIGNATURES
Index to Exhibits
Seventh Amendment to Fourth Amended and Restated Credit Agreement
Corporate Leadership Team Incentive Plan

Item 1.01. Entry into a Material Definitive Agreement.

Amendment to Credit Agreement

     On March 2, 2005, Wilsons The Leather Experts Inc. (the “Company”), as a credit party, entered into a Seventh Amendment to Fourth Amended and Restated Credit Agreement (the “Amendment”) with Wilsons Leather Holdings Inc. (the “Borrower”), General Electric Capital Corporation, as Lender, Term Lender, Swing Line Lender and Agent (“GE Capital”), the credit parties signatory thereto and the Lenders signatory thereto. The Amendment amends the Fourth Amended and Restated Credit Agreement, dated as of April 23, 2002, as amended from time to time, among the Borrower, GE Capital, The CIT Group/Business Credit, Inc., as documentation agent and as Lender, Wells Fargo Retail Finance LLC, as syndication agent and as Lender, and the other Lenders signatory thereto from time to time (the “Credit Agreement”).

     The Amendment, among other things, allows the Borrower to prepay, without premium, up to $10.0 million dollars on the Term B portion of the credit facility on or prior to February 28, 2006, subject to certain restrictions and requirements, and sets the minimum EBITDA for the remainder of the term of the Credit Agreement. The Amendment also (1) lowers the applicable per annum margins which are subject to upward or downward adjustments on a quarterly basis, commencing with the Company’s fiscal quarter ending on or about October 31, 2005, based on the Company’s and its subsidiaries’ consolidated EBITDA, and (2) reduces the fee for non-use of the revolving portion of the credit facility. The Borrower immediately paid down $5.0 million of the Term B portion of the credit facility on March 2, 2005.

     The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the Amendment, a copy of which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.

Corporate Leadership Team Incentive Plan

     On March 2, 2005, the Compensation Committee approved the Wilsons Leather Corporate Leadership Team Incentive Plan (the “Plan”) and established targeted bonus awards (as a percentage of base salary) that may be earned by executive officers for fiscal year 2005 under the Plan. The Plan provides for cash bonuses to executive officers, director-level employees and all other employees designated by the Company’s incentive committee based upon the achievement of annual corporate financial objectives set by the Compensation Committee. The Compensation Committee determined that the corporate financial objective for fiscal 2005 will be based on the Company’s operating profit. If 100% of the targeted operating profit is achieved, executive officers will receive a targeted award amount based upon a percentage of their respective base salaries. That percentage for executive officers is established by the Compensation Committee and is 75% for Michael Searles, Chief Executive Officer, 50% for Peter Michielutti, Executive Vice President, Chief Financial Officer and Chief Operating Officer, and 40% for each Vice President for fiscal 2005. If at least 90% but less than 100% of the annual corporate financial objective is achieved, the participants will receive a percentage of what they would receive if 100% of the annual corporate financial objective is achieved. That percentage is 10% if 90% of the annual corporate financial objective is achieved and increases on a sliding scale to 100% if 100% of the annual corporate financial objective is achieved. No

more than 100% of the targeted award can be received, but achievement of more than 100% of the annual corporate financial objective does entitle participants to share in an incentive pool pursuant to the Plan. Even if 100% of the annual corporate financial objective is achieved, 40% of what each executive officer would otherwise receive is subject to risk based upon the achievement of position-specific objectives.

     In addition to the targeted award amounts, the Plan provides an incentive pool for performance in excess of the annual corporate financial objectives. Payments from the pool cannot exceed 20% of the excess. The amount an executive officer could receive from the incentive pool for each $1,000,000 in excess of the annual corporate financial objective has not been determined. However, the annual total combined payments to any participant from the Plan of targeted amounts and distributions from the incentive pool cannot exceed 200% of a participant’s annual base salary.

     The foregoing description of the Plan does not purport to be complete and is qualified in its entirety by reference to such document, a copy of which is filed as Exhibit 10.2 hereto and is incorporated herein by reference.

     The Compensation Committee authorized the payment of bonuses for fiscal 2004 under the Company’s Executive and Key Management Incentive Plan (which is being replaced by the Plan for fiscal 2005) and approved a $50,000 special cash bonus for Michael Searles.

Item 9.01. Financial Statements and Exhibits

     (c) Exhibits

10.1	Seventh Amendment to Fourth Amended and Restated Credit Agreement, dated as of March 2, 2005, among Wilsons Leather Holdings Inc., a Minnesota corporation, General Electric Capital Corporation, a Delaware corporation, as Lender, Term Lender, Swing Line Lender and as Agent, the Credit Parties signatory thereto and the Lenders signatory thereto.
10.2	Corporate Leadership Team Incentive Plan.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	WILSONS THE LEATHER EXPERTS INC.
Date: March 8, 2005	By /s/ Peter G. Michielutti
	Peter G. Michielutti
	Executive Vice President, Chief Financial Officer and Chief Operating Officer

Index to Exhibits

Exhibit
No.	Description	Method of Filing
10.1	Seventh Amendment to Fourth Amended and Restated Credit Agreement, dated as of March 2, 2005, among Wilsons Leather Holdings Inc., a Minnesota corporation, General Electric Capital Corporation, a Delaware corporation, as Lender, Term Lender, Swing Line Lender and as Agent, the Credit Parties signatory thereto and the Lenders signatory thereto.	Electronic Transmission
10.2	Corporate Leadership Team Incentive Plan.	Electronic Transmission

EX-10.1

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:

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     “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	%

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	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

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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

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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]

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     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]

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     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]

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EX-10.2

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

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day of that month, and a transfer or other event that occurs on or after the 15^th 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.

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     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.

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     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

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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

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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 31^st 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.

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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.

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