<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1996
REGISTRATION NO. 333-8231
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ABERCROMBIE & FITCH CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5651 31-1469076
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
FOUR LIMITED PARKWAY
REYNOLDSBURG, OHIO 43068
(614) 577-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SAMUEL P. FRIED
THREE LIMITED PARKWAY
COLUMBUS, OHIO 43230
(614) 479-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
JEFFREY SMALL JEAN E. HANSON
DAVIS POLK & WARDWELL FRIED, FRANK, HARRIS, SHRIVER &
450 LEXINGTON AVENUE JACOBSON
NEW YORK, NEW YORK 10017 ONE NEW YORK PLAZA
(212) 450-4000 NEW YORK, NEW YORK 10004
(212) 859-8000
---------------
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 to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please 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 the 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,
please check the following box. [_]
---------------
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 28, 1996
7,000,000 SHARES
ABERCROMBIE & FITCH
CLASS A COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
----------
Of the 7,000,000 shares of Class A Common Stock offered by Abercrombie &
Fitch Co., 5,600,000 shares are being offered hereby in the United States by
the U.S. Underwriters and 1,400,000 shares are being offered in a concurrent
international offering outside the United States by the International
Underwriters. The initial public offering price and the aggregate underwriting
discount per share will be identical for both Offerings. See "Underwriting".
The Company is currently wholly owned by The Limited, Inc. and, upon
completion of the Offerings, The Limited, Inc. will beneficially own 100% of
the Company's outstanding Class B Common Stock, which will represent
approximately 86.0% of the economic interest (or rights of holders of common
equity to participate in distributions in respect of the common equity) in the
Company (84.2% if the Underwriters' over-allotment options are exercised in
full). See "Risk Factors--Control by The Limited".
Holders of Class A Common Stock generally have identical rights to holders of
Class B Common Stock, except that holders of Class A Common Stock are entitled
to one vote per share while holders of Class B Common Stock are entitled to
three votes per share on all matters submitted to a vote of shareholders.
Holders of Class A Common Stock are generally entitled to vote with the holders
of Class B Common Stock as one class on all matters as to which the Class B
Common Stock is entitled to vote. Following the Offerings, the shares of Class
B Common Stock held by The Limited, Inc. will represent approximately 94.9% of
the combined voting power of all classes of voting stock (94.1% if the
Underwriters' over-allotment options are exercised in full) and will be able,
among other things, to elect all of the Company's directors, to approve or
disapprove amendments to the Company's Certificate of Incorporation and Bylaws,
acquisitions and dispositions of assets, mergers and other control decisions
and to control the Company's dividend policy and access to capital. Each share
of Class B Common Stock is convertible into one share of Class A Common Stock
at the option of The Limited, Inc. See "Relationship with The Limited" and
"Description of Capital Stock".
Prior to the Offerings, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
per share will be between $14 and $16. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" ON PAGE 12 OF THIS PROSPECTUS FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE CLASS A COMMON STOCK, INCLUDING CERTAIN DEEMED
CONSENTS OF INVESTORS TO PROVISIONS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION (A COPY OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART) THAT MAY LIMIT THE FIDUCIARY
DUTIES AND, AS A RESULT, THE LIABILITY OF DIRECTORS AND OFFICERS OF THE COMPANY
TO SHAREHOLDERS. AMONG OTHER THINGS, AN INVESTOR IN CLASS A COMMON STOCK IS
DEEMED TO HAVE CONSENTED TO PROVISIONS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION WHICH PERMIT THE OFFICERS AND DIRECTORS OF THE COMPANY, THE
LIMITED, INC. AND CERTAIN SUBSIDIARIES OF THE LIMITED, INC. TO ALLOCATE
CORPORATE OPPORTUNITIES TO THE COMPANY, THE LIMITED, INC. OR SUCH SUBSIDIARIES
AS SUCH OFFICERS OR DIRECTORS DEEM APPROPRIATE.
Application has been made for approval of the listing of the Class A Common
Stock on the New York Stock Exchange under the symbol ANF.
----------
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.
----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total(3).............................. $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting".
(2) Before deducting estimated expenses of $1,700,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 1,050,000 shares of Class A Common Stock at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. If such options are exercised in full,
the total initial public offering price, underwriting discount and
proceeds to the Company will be $ , $ and $ , respectively. See
"Underwriting".
----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1996, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
LAZARD FRERES & CO. LLC
MONTGOMERY SECURITIES
J.P. MORGAN & CO.
----------
The date of this Prospectus is , 1996.
<PAGE>
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
Abercrombie & Fitch has filed with the Commission a registration statement
on Form S-1 (the "Registration Statement") under the Securities Act with
respect to the Class A Common Stock offered hereby. For the purposes hereof,
the term "Registration Statement" means the original Registration Statement
and any and all amendments thereto. 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 with respect to the Company and such Class
A Common Stock, reference is hereby made to such Registration Statement,
including the exhibits and schedules thereto, which can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Regional Offices of the Commission at Seven World Trade Center, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
Upon completion of the Offerings, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports, proxy and information statements and other information with
the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the addresses, and may be accessed
electronically at the URL, set forth above.
The Company intends to furnish to its shareholders annual reports containing
audited consolidated financial statements and an opinion thereon expressed by
the Company's independent auditors as well as quarterly reports for the first
three fiscal quarters of each fiscal year containing unaudited consolidated
condensed financial statements.
Statements contained in this Prospectus as to the contents of any agreement,
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such agreement, contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
----------------
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock in any jurisdiction in which such
offer or solicitation is unlawful. See "Underwriting".
In this Prospectus, references to "Dollars" and to "$" are to United States
dollars.
2
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in this
Prospectus. Reference is made to, and this summary is qualified in its entirety
by, the more detailed information contained in this Prospectus. As used herein,
unless the context otherwise requires, the "Company" or "Abercrombie & Fitch"
means Abercrombie & Fitch Co. and its subsidiaries (which, prior to the
formation of the Company on June 26, 1996, are referred to herein as the
"Abercrombie & Fitch Business"), and "The Limited" means The Limited, Inc. and
its subsidiaries (other than the Company). Unless indicated otherwise, the
information contained in this Prospectus assumes that the Underwriters do not
exercise their over-allotment options. Except as otherwise specified,
references herein to years are to the Company's fiscal year, which ends on the
Saturday closest to January 31 in the following calendar year. For example,
"1995" refers to the fiscal year ended February 3, 1996. All fiscal years for
which financial information is included in this Prospectus had 52 weeks, except
1995 which had 53 weeks. All references to "dollars" or "$" are to U.S.
dollars. Unless otherwise defined herein, capitalized terms used in this
summary have the meanings ascribed to them elsewhere in this Prospectus.
Prospective investors should carefully consider the information set forth under
the heading "Risk Factors".
THE COMPANY
Abercrombie & Fitch is a rapidly growing specialty retailer of high-quality,
casual apparel for men and women approximately 15 to 50 years of age. The
Company's net sales have increased from $85.3 million in 1992 to $235.7 million
in 1995, representing a compound annual growth rate of 40.3%. During this time,
operating income has improved from an operating loss of $10.2 million in 1992
to operating income of $23.8 million in 1995, while the number of Abercrombie &
Fitch stores in operation more than doubled, increasing from 40 at the end of
1992 to 100 at the end of 1995. The Company plans to continue this new store
expansion program by opening 29 new stores in 1996 and by increasing the number
of stores in operation by approximately 20% annually for the next several years
thereafter.
The Abercrombie & Fitch brand was established in 1892 and became well known
as a supplier of rugged, high-quality outdoor gear. Famous for outfitting the
safaris of Teddy Roosevelt and Ernest Hemingway and the expeditions of Admiral
Byrd to the North and South Poles, Abercrombie & Fitch goods were renowned for
their durability and dependability--and Abercrombie & Fitch placed a premium on
complete customer satisfaction with each item sold. In 1992, a new management
team began repositioning Abercrombie & Fitch as a more fashion-oriented casual
apparel business directed at men and women with a youthful lifestyle. In
reestablishing the Abercrombie & Fitch brand, the Company combined its
historical image for quality with a new emphasis on casual American style and
youthfulness. The Company believes that this strategic decision has contributed
to the strong growth and improved profitability it has experienced since 1992.
BUSINESS STRENGTHS
The Company believes that certain business strengths have contributed to its
success in the past and will enable it to continue growing profitably.
ESTABLISHED AND DIFFERENTIATED LIFESTYLE BRAND. Abercrombie & Fitch has
created a focused and differentiated brand image based on quality, youthfulness
and classic American style. This image is consistently communicated through all
aspects of the Company's business, including merchandise assortments, in-store
marketing and print advertising. The Company believes that the strength of the
3
<PAGE>
Abercrombie & Fitch brand provides opportunities for increased penetration of
current merchandise categories and entry into new product categories.
BROAD AND GROWING APPEAL. The Company's merchandise assortment appeals to a
broad range of customers with varying ages and income levels. The Company
believes that both men and women interested in casual, classic American fashion
are attracted to the Abercrombie & Fitch lifestyle image. The Company also
believes that the brand's broad appeal has been augmented by, and should
continue to benefit from, the current trend in fashion toward casual apparel.
PROVEN MANAGEMENT TEAM. Since the current management team assumed
responsibility in 1992, the Company has increased the level of brand awareness
and consistently reported improved financial results. In addition, the
Company's senior management has significant experience, with an aggregate of
over one hundred years in the retail business. The Company believes that
management's substantial experience and demonstrated track record of highly
profitable growth strongly positions the Company for the future.
CONSISTENT STORE LEVEL EXECUTION. Abercrombie & Fitch believes that a major
element of its success is the consistent store level execution of its brand
strategy. Store presentation is tightly controlled by the Company and is based
on a detailed and comprehensive store plan regarding visual merchandising,
marketing and fixtures to ensure that all stores provide a consistent portrayal
of the brand. Store associates are trained as "brand representatives" who
convey and reinforce the brand image through their attitude and enthusiasm.
QUALITY. Since its founding over 100 years ago, Abercrombie & Fitch has
maintained a strong reputation for quality. This reputation has been enhanced
in recent years as management has made quality a defining element of the brand.
The Company sources high quality natural fabrics from around the world and uses
distinctive trim details and specialized washes to achieve a unique style and
comfort in its products. As part of this focus on quality, the Company
establishes on-going relationships with key factories to ensure reliability and
consistency in production.
INTERNAL DESIGN AND MERCHANDISING CAPABILITIES. The cornerstone of the
Company's business is its ability to design products which embody the
Abercrombie & Fitch image. Abercrombie & Fitch develops substantially all of
its merchandise line through its own design group, which allows it to develop
exclusive merchandise and offer a consistent assortment within a season and
from year to year. In addition, because the Company's merchandise is sold
exclusively in its own stores, Abercrombie & Fitch is able to control the
presentation and pricing of its merchandise, provide a higher level of customer
service and closely monitor retail sell-through, which provides competitive
advantages over other brand manufacturers that market their goods through
department stores.
RELATIONSHIP WITH THE LIMITED. Unlike most high growth, specialty apparel
retailers, Abercrombie & Fitch directly benefits from the resources and
expertise of a major retailer such as The Limited. Abercrombie & Fitch has been
able to concentrate the efforts of its management team and associates on
strengthening its brand image by taking advantage of The Limited's capabilities
in the areas of real estate negotiation and acquisition, central distribution,
sourcing, store design and construction and general corporate services. The
Company will continue to receive such services after the Offerings pursuant to
agreements to be entered into with The Limited. See "Relationship with The
Limited".
4
<PAGE>
GROWTH STRATEGY
The Company has implemented a growth strategy designed to permit Abercrombie
& Fitch to capitalize on its business strengths. The Company plans to continue
its store expansion program by opening 29 new stores in 1996 and increasing the
number of stores in operation by approximately 20% annually for the next
several years thereafter. While substantially all stores to be opened in 1996
will be in regional shopping malls, the Company believes that selected street
locations in university and high-traffic urban settings also provide attractive
expansion opportunities. In addition, Abercrombie & Fitch believes that there
are opportunities to expand its customer base and enhance the productivity of
its stores through further penetration of existing merchandise categories and
the introduction of new classifications and categories. Products which are
being introduced or expanded in 1996 include men's and women's underwear and
outerwear, fragrances, sunglasses and decorative home accessories. The Company
believes that its internal design capability will enable it to continue to
develop new merchandise which reflects the Abercrombie & Fitch lifestyle. See
"Business--Growth Strategy".
RISK FACTORS
An investment in the Class A Common Stock also involves certain risks
associated with the Company's business, its relationship with The Limited and
the nature of the Class A Common Stock, including the following: (i) by
purchasing Class A Common Stock in the Offerings, an investor is deemed to have
consented to certain provisions of the Company's Certificate of Incorporation
that limit the potential liability of The Limited, officers and directors of
The Limited and officers and directors of the Company; (ii) following the
Offerings, The Limited will control the Company and will be able, among other
things, to elect all of the Company's directors; (iii) various conflicts of
interest between the Company and The Limited could arise following completion
of the Offerings; (iv) purchasers of Class A Common Stock in the Offerings will
experience an immediate dilution in the net tangible book value of their Class
A Common Stock from the initial public offering price; (v) the Company has
grown rapidly over the past several years, and there can be no assurance that
the Company will continue to be able to grow profitably; (vi) the loss of the
services of certain key individuals could have a material adverse impact on the
Company's business and prospects; and (vii) certain of the Company's
merchandise is sourced from independent foreign factories and is subject to
existing or potential duties, tariffs or quotas.
For a fuller discussion of these and other risk factors affecting the Company
and its business, see "Risk Factors".
The Company currently is wholly owned by The Limited. The Company was
incorporated in Delaware on June 26, 1996 as a holding company for the
Abercrombie & Fitch Business. The Company's principal offices are located at
Four Limited Parkway, Reynoldsburg, Ohio 43068. The Company's telephone number
is (614) 577-6500.
5
<PAGE>
THE OFFERINGS(1)
<TABLE>
<S> <C>
Class A Common Stock Offered by the
Company(2):
United States
Offering..... 5,600,000 shares
International
Offering..... 1,400,000 shares
Total....... 7,000,000 shares
Common Stock
Outstanding
After the
Offerings(3):
Class A Common
Stock........ 7,000 000 shares
Class B Common
Stock........ 43,000,000 shares
Total....... 50,000,000 shares
New York Stock
Exchange Symbol
for Class A
Common Stock... ANF
Use of Pro- All of the net proceeds will be used to repay
ceeds.......... borrowings of certain of the Company's
subsidiaries under a credit agreement entered
into with certain lenders and Chase Manhattan
Bank, as agent (the "Credit Agreement"), which
borrowings were used to fund a dividend to The
Limited and repay certain obligations owed to
The Limited. See "Use of Proceeds".
Voting Rights; The holders of Class A Common Stock, par
Conversion..... value $.01 per share (the "Class A Common
Stock"), generally have rights, including as to
dividends, identical to those of holders of Class
B Common Stock, par value $.01 per share (the
"Class B Common Stock"), except that holders
of Class A Common Stock are entitled to one
vote per share and holders of Class B Common
Stock are entitled to three votes per share.
Holders of the Class A Common Stock and
Class B Common Stock generally vote together
as a single class, except as otherwise required
by Delaware law. See "Description of Capital
Stock --Common Stock--Voting Rights". Under
certain circumstances, Class B Common Stock
converts to Class A Common Stock. See
"Relationship with The Limited".
</TABLE>
- --------
(1) Does not include up to 1,050,000 shares of Class A Common Stock that are
subject to the over-allotment options granted to the Underwriters by the
Company. See "Underwriting".
(2) Includes up to 350,000 shares of Class A Common Stock reserved for purchase
by associates and directors of Abercrombie & Fitch and certain other
businesses operated by The Limited at the initial public offering price set
forth on the cover page of this Prospectus. The offerings of Class A Common
Stock by the U.S. Underwriters and the International Underwriters are
referred to herein as the "Offerings".
(3) Does not include an aggregate of up to 243,000 shares of Class A Common
Stock reserved for issuance in respect of associate and director stock
options granted effective upon consummation of the Offerings with an
exercise price equal to the initial public offering price set forth on the
cover page of this Prospectus. See "Executive Compensation".
6
<PAGE>
DIVIDENDS
The Board of Directors of the Company currently intends to retain future
earnings for the development of its business and does not anticipate paying
regular quarterly dividends on the Class A Common Stock or the Class B Common
Stock (collectively, the "Common Stock") for the foreseeable future. Under
Delaware law, the declaration of dividends is within the discretion of the
Company's Board of Directors and future dividends, if any, will depend upon
various factors, including the Company's net income, current and anticipated
cash needs and any other factors deemed relevant by the Board of Directors. By
virtue of its Common Stock ownership, The Limited will have the ability to
change the size and composition of the Company's Board of Directors and thereby
control the payment of dividends by the Company. Pursuant to restrictions
contained in the Credit Agreement, so long as the Credit Agreement is
outstanding, the Company is prohibited from paying any dividends on its capital
stock, including the Class A Common Stock. See "Description of Certain
Indebtedness--Credit Agreement".
RELATIONSHIP WITH THE LIMITED
On June 26, 1996, The Limited announced that its board of directors had
authorized the filing of a registration statement relating to an initial public
offering of common stock of a subsidiary comprised of its Abercrombie & Fitch
business. The Offerings are part of a reconfiguration plan initiated by The
Limited in 1995 in order to permit the public offering of shares of common
stock in Intimate Brands, Inc., a company consisting of its Victoria's Secret
Stores, Victoria's Secret Catalogue, Bath & Body Works, Cacique, Penhaligon's
and Gryphon businesses ("Intimate Brands"), and other possible sales of
interests in its businesses. The Limited authorized such transactions so as to
effect changes that are intended to encourage entrepreneurial spirit, yield
better performance, develop new growth opportunities for all the businesses
operated by The Limited and, at the same time, indirectly to create new career
opportunities for all of The Limited's associates. The reconfiguration was also
intended to enable certain of The Limited's businesses to operate more
independently while allowing The Limited to focus on inventing new retail brand
concepts.
The Company is currently wholly owned by The Limited. Upon consummation of
the Offerings, The Limited will own 100% of the Class B Common Stock, which
will represent approximately 94.9% of the combined voting power of all classes
of voting stock (94.1% if the Underwriters' over-allotment options are
exercised in full) and thus will continue to have the ability to direct the
election of all of the directors of the Company and otherwise exercise a
controlling influence over the business and affairs of the Company. The Limited
is principally engaged in the purchase, distribution and sale of women's
apparel and had 1995 net sales (including Intimate Brands and the Abercrombie &
Fitch Business) of approximately $7.9 billion. The Limited operates, among
other things, Intimate Brands, and the Express, The Limited Stores, Lerner New
York, Lane Bryant and Henri Bendel women's apparel businesses and the
Structure, The Limited Too and Galyan's retail stores.
The Limited has advised the Company that its current intent is to continue to
hold all of the Class B Common Stock beneficially owned by The Limited.
However, The Limited has no agreement with the Company not to sell or
distribute such shares and, other than pursuant to the Underwriting Agreement
described below, there can be no assurance concerning the period of time during
which The Limited will maintain its beneficial ownership of Common Stock. The
Company has agreed to use its best efforts to effect the registration under the
applicable federal and state securities laws of any of the Class B Common Stock
held by The Limited. Beneficial ownership of at least 80% of the total voting
power and value of the outstanding Common Stock is required in order for The
Limited to continue to include the Company in its consolidated group for
federal income tax purposes and
7
<PAGE>
ownership of at least 80% of the total voting power and 80% of each class of
nonvoting capital stock is required in order for The Limited to be able to
effect a Tax-Free Spin-Off (as hereinafter defined) of the Company. In the
event The Limited decreases its ownership below 80%, all borrowings under the
Credit Agreement must be repaid. See "Description of Certain Indebtedness --
Credit Agreement". Also, the Company and The Limited will agree with the
Underwriters not to sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock (or any security convertible into or exchangeable or
exercisable for Common Stock) for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representatives of the
Underwriters, subject to certain exceptions. See "Underwriting". The Company
does not intend to issue additional shares of Class B Common Stock except in a
manner which would permit The Limited to maintain its proportional beneficial
interest in the value and voting power of the Company upon the issuance of
additional shares of Class A Common Stock. See "Relationship with The Limited--
Corporate Agreement". The Limited has no current plans with respect to a Tax-
Free Spin-Off of Abercrombie & Fitch.
Each share of Class B Common Stock is convertible while held by The Limited
or any of its subsidiaries at such holder's option into one share of Class A
Common Stock. Any shares of Class B Common Stock transferred to a person other
than The Limited or any of its subsidiaries shall automatically convert to
shares of Class A Common Stock upon such disposition, except for a disposition
effected in connection with a transfer of Class B Common Stock to shareholders
of The Limited as a dividend intended to be on a tax-free basis (a "Tax-Free
Spin-Off") under the Internal Revenue Code of 1986, as amended (the "Code").
In the event of a Tax-Free Spin-Off, shares of Class B Common Stock shall
automatically convert into shares of Class A Common Stock on the fifth
anniversary of the Tax-Free Spin-Off, unless prior to such Tax-Free Spin-Off
The Limited delivers to the Company an opinion of counsel (which counsel shall
be reasonably satisfactory to the Company) to the effect that such conversion
would preclude The Limited from obtaining a favorable ruling from the Internal
Revenue Service that the distribution would be a Tax-Free Spin-Off under the
Code. If such an opinion is received, approval of such conversion shall be
submitted to a vote of the holders of Abercrombie & Fitch's Common Stock as
soon as practicable after the fifth anniversary of the Tax-Free Spin-Off,
unless The Limited delivers to the Company an opinion of The Limited's counsel
(which counsel shall be reasonably satisfactory to the Company) prior to such
anniversary that such vote would adversely affect the status of the Tax-Free
Spin-Off. Approval of such conversion will require the affirmative vote of the
holders of a majority of the shares of both the Abercrombie & Fitch's Class A
Common Stock and Class B Common Stock present and voting, voting together as a
single class, with each share entitled to one vote for such purpose. No
assurance can be given that such conversion would be consummated.
The Limited will convert its Class B Common Stock to Class A Common Stock
immediately prior to a Tax-Free Spin-Off if, after such conversion, it would
have beneficial ownership of at least 80% of the voting power of the
outstanding Common Stock. All shares of Class B Common Stock shall
automatically convert into Class A Common Stock if a Tax-Free Spin-Off has not
occurred and the number of outstanding shares of Class B Common Stock falls
below 60% of the aggregate number of outstanding shares of Common Stock. This
will prevent The Limited from decreasing its economic interest in the Company
to less than 60% while still retaining control of approximately 81.8% of
Abercrombie & Fitch's voting power. All conversions will be effected on a
share-for-share basis. For a description of other provisions governing the
conversion of Class B Common Stock, see "Description of Capital Stock--Common
Stock--Conversion".
The requirement that The Limited retain beneficial ownership of at least 80%
of the voting power of the outstanding Common Stock after any conversion prior
to a Tax-Free Spin-Off is intended to ensure that the tax treatment of the Tax-
Free Spin-Off is preserved. Similarly, the requirement to
8
<PAGE>
submit such conversion to a vote of the holders of Common Stock is intended to
preserve such tax treatment should the Internal Revenue Service challenge such
automatic conversion as violating the 80% vote requirement. Automatic
conversion of the Class B Common Stock into Class A Common Stock if a Tax-Free
Spin-Off has not occurred and The Limited decreases its economic interest in
the Company to less than 60% is intended to ensure that The Limited retains
voting control by virtue of its ownership of Class B Common Stock only if it
has a sizable economic interest in the Company. For so long as The Limited
maintains beneficial ownership of a majority of the number of outstanding
shares of Common Stock, the Company may not act in a way which may reasonably
be anticipated to result in a contravention by The Limited of (i) The Limited's
certificate of incorporation or bylaws; (ii) any credit agreement binding upon
The Limited; or (iii) any judgment, order or decree of any governmental body
having jurisdiction over The Limited.
Under agreements to be entered into between the Company and The Limited upon
consummation of the Offerings, The Limited will continue to provide certain
services to the Company and The Limited will make available certain associate
benefit plans to the Company's associates. In addition, the Company and an
affiliate of The Limited have entered into a sublease agreement and, upon
consummation of the Offerings, the Company and The Limited intend to enter into
a number of other intercompany agreements, including corporate and tax-sharing
agreements. With respect to matters covered by the services agreement, the
relationship between The Limited and Abercrombie & Fitch is intended to
continue in a manner generally consistent with past practices. See
"Relationship with The Limited". Although the Company will own all the
trademarks and service marks used in its business, for so long as the Company
remains a subsidiary of The Limited, The Limited will be entitled to use the
Company's trademarks and service marks at no cost to The Limited in The
Limited's annual report to shareholders and publicity material and for other
similar purposes.
Abercrombie & Fitch and certain of its subsidiaries are currently subject to
intercompany notes to The Limited in an aggregate principal amount of $58.6
million. Such indebtedness will remain outstanding after consummation of the
Offerings, of which $50 million is evidenced by a note (the "Mirror Note") that
represents Abercrombie & Fitch's share of certain long-term debt of The Limited
and $8.6 million is evidenced by a note (the "Working Capital Note") payable to
The Limited on January 31, 1997. The long-term Mirror Note bears interest at
the rate of 7.80% per annum and matures on May 15, 2002, paralleling the terms
of the corresponding debt of The Limited. The Working Capital Note bears
interest at a rate of 6.75% per annum. Additionally, the Company maintains an
intercompany balance with The Limited to facilitate intercompany transactions
and centralized cash management services. At August 3, 1996, the Company had an
intercompany payable balance of $8,557,000 (the "Intercompany Payable"). See
"Capitalization" and "Description of Certain Indebtedness--Intercompany Debt".
9
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
Set forth below is summary historical financial and operating data for the
periods indicated for the Abercrombie & Fitch Business. This information should
be read in conjunction with the Abercrombie & Fitch Business' historical and
pro forma consolidated financial statements and notes thereto included
elsewhere in this Prospectus, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information set forth herein. The information for fiscal years 1991 and 1992 is
derived from the Abercrombie & Fitch Business' unaudited consolidated financial
statements. The selected financial data as of and for the twenty-six weeks
ended July 29, 1995 and August 3, 1996 are derived from the unaudited
consolidated financial statements also appearing herein, which, in the opinion
of management, reflect all adjustments (which are of a recurring nature)
necessary to present fairly the financial position and results of operations
and cash flows for the interim periods. Results for the period ended August 3,
1996 are not necessarily indicative of the results of operations to be expected
for the full fiscal year.
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEAR ENDED WEEKS ENDED
------------------------------------------------------------ --------------------
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1992 1993 1994 1995 1996(1) 1995 1996
----------- ----------- ----------- ----------- ----------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE, PER SQUARE FOOT AND NUMBER OF STORES DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $62,583 $85,301 $110,952 $165,463 $235,659 $72,045 $108,451
Gross income(2)........ 9,665 13,413 30,562 56,820 79,794 20,451 32,946
General, administrative
and store operating
expenses(3)........... 21,268 23,603 30,240 43,069 55,996 21,970 31,520
Operating income
(loss)(4)............. (11,603) (10,190) (4,064) 13,751 23,798 (1,519) 1,426
Net income (loss)...... (7,003) (6,090) (2,464) 8,251 14,298 (919) 175
Pro forma net income
(loss)(5)............. 9,404 (3,416) (1,471)
Pro forma weighted
average number of
shares(6)............. 50,000 50,000 50,000
Pro forma net income
(loss) per
share(5)(6)........... $ .19 $ (.07) $ (.03)
BALANCE SHEET DATA:
Inventories............ $11,932 $15,075 $ 10,052 $ 16,551 $ 30,388 $37,880 $ 52,919
Total assets........... 47,967 61,626 48,882 58,018 87,693 81,291 109,394
Long-term debt(7)...... 58,557
Pro forma shareholders'
equity (deficit)(8)... (34,446)
OTHER DATA:
Total net sales
growth................ -- 36.3% 30.1% 49.1% 42.4% 37.4% 50.5%
Gross income
percentage(9)......... 15.4% 15.7% 27.5% 34.3% 33.9% 28.4% 30.4%
Operating income (loss)
percentage(9)......... (18.5%) (11.9%) (3.7%) 8.3% 10.1% (2.1%) 1.3%
Number of stores at
period end............ 36 40 49 67 100 77 106
Total selling square
feet.................. 287 332 405 541 792 617 830
Sales per selling
square foot(10)....... $ 261 $ 276 $ 301 $ 350 $ 354 $ 124 $ 134
</TABLE>
- --------
(1) Represents the 53-week fiscal year ended February 3, 1996.
(2) Gross income equals net sales less cost of goods sold, occupancy and
buying costs.
(3) General, administrative and store operating expenses include charges and
allocations made by The Limited to the Abercrombie & Fitch Business.
10
<PAGE>
(4) Reflects a $4.4 million nonrecurring charge in 1993. See Note 3 to the
Consolidated Financial Statements.
(5) Gives pro forma effect to the interest expense, net of tax benefit, on the
$8.6 million Working Capital Note and the long-term Mirror Note in the
amount of $50 million. Also includes the pro forma effect of interest
expense and certain fees, net of tax benefit (to the extent not reflected
in the historical financial statements) on borrowings under the Credit
Agreement for the twenty-six weeks ended July 29, 1995 and August 3, 1996
and the year ended February 3, 1996. See "Pro Forma Consolidated Financial
Statements".
(6) Pro forma net income (loss) per share is based on pro forma net income
(loss) and the weighted average number of shares of Class A and Class B
Common Stock expected to be outstanding after the Offerings. Pro forma net
income (loss) per share is not necessarily indicative of what actual net
income (loss) per share would have been if the Offerings occurred on the
basis assumed.
(7) Represents the long-term Mirror Note and the Intercompany Payable.
(8) Gives pro forma effect to the issuance and sale of Class A Common Stock in
the Offerings and the application of the net proceeds therefrom to repay
approximately $97 million of borrowings under the Credit Agreement. See
"Pro Forma Consolidated Financial Statements".
(9) Calculated as a percentage of net sales.
(10) Sales per selling square foot is the result of dividing net sales for the
period by average selling square feet, which represents the average of
selling square feet at the beginning and end of each fiscal period. These
amounts are not adjusted to reflect the seasonal nature of the Company's
sales or the impact of opening stores in different periods during the
year. Sales per selling square foot for interim periods are not
representative of results to be expected for a full fiscal year.
A listing of key business statistics follows:
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEAR ENDED WEEKS ENDED
----------------------------------------------------------- ------------------
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1992 1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Number of stores opened
during the period...... 10 4 9 20 33 10 6
Number of stores closed
during the period...... 1 -- -- 2 -- -- --
Number of stores at
period end............. 36 40 49 67 100 77 106
Total selling square
feet (000's)........... 287 332 405 541 792 617 830
Sales per selling square
foot(1)................ $261 $276 $301 $350 $354 $124 $134
Comparable store sales
growth(2).............. 10% 8% 6% 15% 5% 3% 16%
</TABLE>
- --------
(1) See footnote 10 above.
(2) Abercrombie & Fitch includes a store in its comparable store sales
calculation at the beginning of the 53rd week of the store's operation.
Stores that are expanded or downsized more than 20% in square feet are
treated as new stores for purposes of this calculation only.
11
<PAGE>
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider the following specific investment considerations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" for a description of other factors affecting the
business of the Company.
CONSENT TO LIMITATIONS OF LIABILITY
The Company's Certificate of Incorporation includes provisions relating to
potential conflicts of interest that may arise between the Company and The
Limited and its subsidiaries. See "Description of Capital Stock".
The following provisions were adopted in light of the fact that the Company
and The Limited and its subsidiaries are engaged in retail businesses and
intend to enter into contracts and other arrangements after the Offerings. TO
DATE, THE COMPANY AND THE LIMITED HAVE NOT ADOPTED ANY FORMAL PROCEDURES
DESIGNED TO RESOLVE POTENTIAL CONFLICTS OF INTEREST BETWEEN THE TWO COMPANIES.
THE COMPANY INTENDS TO DEVELOP PROCEDURES TO ADDRESS SUCH CONFLICTS. THE
PRECISE NATURE OF ANY CONFLICT RESOLUTION PROCEDURES WILL BE DETERMINED IN
LIGHT OF, AMONG OTHER THINGS, THE NATURE OF THE CONFLICT BEING ADDRESSED. Any
person purchasing or acquiring an interest in shares of capital stock of the
Company, including the Underwriters, will be deemed to have consented to such
provisions relating to conflicts of interest and corporate opportunities, and
such consent may restrict such person's ability to challenge transactions
carried out in compliance with such provisions. In addition, the Company
intends to disclose the existence of such provisions in its Annual Reports on
Form 10-K as well as in certain other filings with the Securities and Exchange
Commission (the "Commission"). The certificate of incorporation of The Limited
does not include comparable provisions relating to conflicts of interest or
corporate opportunities.
The enforceability of the provisions discussed below under Delaware
corporate law has not been established and, due to the absence of relevant
judicial authority, counsel to the Company is not able to deliver an opinion
as to the enforceability of such provisions. Whether or not such provisions
are held to be enforceable, the Company believes its directors will be able to
fulfill their fiduciary duties to its shareholders. In addition, it is the
opinion of the Commission that any indemnification of directors, officers or
controlling persons of the Company for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
TRANSACTIONS WITH INTERESTED PARTIES
The Company's Certificate of Incorporation provides that no contract,
agreement, arrangement or transaction (or any amendment, modification or
termination thereof) between the Company and The Limited or any subsidiary of
The Limited (other than the Company) or between the Company and any entity in
which a director of the Company has a financial interest (a "Related Entity")
or between the Company and any director or officer of the Company, The
Limited, any subsidiary of The Limited or any Related Entity shall be void or
voidable solely for the reason that The Limited or such subsidiary, a Related
Entity or any one or more of the officers or directors of the Company, The
Limited or such subsidiary or any Related Entity are parties thereto, or
solely because any such directors or officers are present at, participate in
or vote (which vote shall be counted) with respect to the authorization of the
contract, agreement, arrangement or transaction (or any amendment,
modification or termination thereof). FURTHER, THE COMPANY'S CERTIFICATE OF
INCORPORATION PROVIDES THAT THE LIMITED, ITS SUBSIDIARIES AND ANY RELATED
ENTITY SHALL NOT BE LIABLE TO THE COMPANY OR ITS SHAREHOLDERS FOR BREACH OF
ANY FIDUCIARY DUTY OR DUTY OF LOYALTY OR FAILURE TO ACT IN (OR NOT OPPOSED TO)
THE BEST INTERESTS OF THE COMPANY OR THE DERIVATION OF ANY IMPROPER PERSONAL
BENEFIT BY REASON OF THE
12
<PAGE>
FACT THAT THE LIMITED, SUCH SUBSIDIARY OR SUCH RELATED ENTITY IN GOOD FAITH
TAKES ANY ACTION OR EXERCISES ANY RIGHTS OR GIVES OR WITHHOLDS ANY CONSENT IN
CONNECTION WITH ANY AGREEMENT OR CONTRACT BETWEEN THE LIMITED, SUCH SUBSIDIARY
OR SUCH RELATED ENTITY AND THE COMPANY. No vote cast or other action taken by
any person who is an officer, director or other representative of The Limited,
such subsidiary or such Related Entity, which vote is cast or action is taken
by such person in his capacity as a director of the Company, shall constitute
an action of or the exercise of a right by or a consent of The Limited, such
subsidiary or such Related Entity for the purpose of any such agreement or
contract.
ALLOCATIONS OF CORPORATE OPPORTUNITIES
The Company's Certificate of Incorporation provides that in the event a
director, officer or associate of the Company who is also a director, officer
or associate of The Limited or its subsidiaries acquires knowledge of a
transaction or other matter that may constitute a corporate opportunity of
either or both the Company and The Limited or its subsidiaries, such corporate
opportunity may be allocated either to the Company or The Limited or its
subsidiaries as such director, officer or associate deems appropriate under
the circumstances.
ACTIONS UNDER INTERCOMPANY AGREEMENTS
The Company's Certificate of Incorporation limits the liability of officers
and directors of The Limited and its subsidiaries for breaches of fiduciary
duty for actions taken or omitted under certain intercompany agreements.
LIMITATIONS ON FIDUCIARY DUTIES
The Company's Certificate of Incorporation generally eliminates the
liability of directors and officers of the Company with respect to certain
matters involving The Limited and its subsidiaries, including matters that may
constitute corporate opportunities of The Limited, its subsidiaries or the
Company. These provisions of the Company's Certificate of Incorporation
eliminate certain rights that might have been available to shareholders under
Delaware law had such provisions not been included in the Certificate of
Incorporation, although the enforceability of such provisions has not been
established.
LIMITATION ON PERSONAL MONETARY LIABILITY, INCLUDING GROSS NEGLIGENCE
Under the Company's Certificate of Incorporation, the directors' personal
monetary liability for breach of their fiduciary duty of care, including
actions involving gross negligence, will also be eliminated to the fullest
extent permitted under Delaware law.
CONTROL BY THE LIMITED
The Limited is currently the only shareholder of the Company. Upon
completion of the Offerings, The Limited will own 100% of the outstanding
Class B Common Stock of the Company (which Class B Common Stock is entitled to
three votes per share on any matter submitted to a vote of the Company's
shareholders). The Class B Common Stock will represent approximately 94.9% of
the combined voting power of all classes of voting stock (94.1% if the
Underwriters' over-allotment options are exercised in full) and thus will be
able to direct the election of all of the members of the Company's Board of
Directors and exercise a controlling influence over the business and affairs
of the Company, including any determinations with respect to mergers or other
business combinations involving the Company, the acquisition or disposition of
assets by the Company, the incurrence of indebtedness by the Company, the
issuance of any additional Common Stock or other equity securities and the
payment of dividends with respect to the Common Stock. Similarly, The Limited
will have the power to determine matters submitted to a vote of the Company's
shareholders without the consent of the Company's other
13
<PAGE>
shareholders, will have the power to prevent a change of control of the
Company and could take other actions that might be favorable to The Limited.
The grant pursuant to associate benefit plans of Common Stock to, or the
acquisition of Common Stock upon the exercise of stock options held by,
associates of the Company would reduce the percentage ownership and voting
interest in the Company of the public shareholders of the Company.
The Limited has advised the Company that its current intent is to continue
to hold all of the Class B Common Stock beneficially owned by it. However, The
Limited has no agreement with the Company not to sell or distribute such
shares, and, except for restrictions in the Underwriting Agreement set forth
below, there can be no assurance concerning the period of time during which
The Limited will maintain its beneficial ownership of Common Stock. Pursuant
to the Underwriting Agreement, The Limited will agree, subject to certain
exceptions, not to sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock (or any security convertible into or exchangeable or
exercisable for Common Stock) owned by it for a period of 180 days after the
date of this Prospectus without the prior written consent of the
Representatives of the Underwriters. The Company has agreed, at the request of
The Limited, to use its best efforts to effect the registration under
applicable federal and state securities laws of any of the Class B Common
Stock held by The Limited. Beneficial ownership of at least 80% of the total
voting power and value of the outstanding Common Stock is required in order
for The Limited to continue to include the Company in its consolidated group
for federal income tax purposes, and ownership of at least 80% of the total
voting power and 80% of each class of nonvoting capital stock is required in
order for The Limited to be able to effect a Tax-Free Spin-Off of the Company.
In the event The Limited decreases its ownership below 80%, all borrowings
under the Credit Agreement must be repaid. See "Description of Certain
Indebtedness--Credit Agreement". Because The Limited may seek to maintain its
beneficial ownership percentage of the Company for tax planning purposes or
otherwise and may not desire to acquire additional shares of Common Stock in
connection with a future issuance of shares by the Company, the Company may be
constrained in its ability to raise equity capital in the future or to issue
Common Stock in connection with acquisitions.
For so long as The Limited maintains beneficial ownership of a majority of
the number of outstanding shares of Common Stock, the Company may not act in a
way which may reasonably be anticipated to result in a contravention by The
Limited of: (i) The Limited's certificate of incorporation or bylaws; (ii) any
credit agreement binding upon The Limited; or (iii) any judgment, order or
decree of any governmental body having jurisdiction over The Limited.
Each member of a consolidated group for federal income tax purposes is
jointly and severally liable for the federal income tax liability of each
other member of the consolidated group. For benefit plan purposes, the Company
will be part of The Limited's controlled group, which includes The Limited and
its other subsidiaries. Under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and federal income tax law, each member of the
controlled group is jointly and severally liable for funding and termination
liabilities of tax qualified defined benefit retirement plans as well as
certain plan taxes. Accordingly, during the period in which the Company is
included in The Limited's consolidated or controlled group, the Company could
be liable under such provisions in the event any such liability or tax is
incurred, and not discharged, by any other member of The Limited's
consolidated or controlled group.
The Company's Board of Directors currently consists of six members, four of
whom serve concurrently as members of the Board of Directors of The Limited
and Intimate Brands and one of whom serves concurrently as a member of the
Board of Directors of Intimate Brands. Mr. Leslie H. Wexner, Chairman,
President and Chief Executive Officer of The Limited, will also serve as
Chairman of the Board of the Company, and Kenneth B. Gilman, Vice Chairman of
The Limited, will also serve as Vice Chairman of the Board of the Company. In
light of its ownership of the Company's Class B Common Stock, The Limited will
have the ability to change the size and composition of the Company's Board of
Directors and committees of the Board of Directors. See "Relationship with The
Limited--Corporate Agreement".
14
<PAGE>
POTENTIAL CONFLICTS OF INTEREST
Various conflicts of interest between the Company and The Limited could
arise following completion of the Offerings. To date, the Company and The
Limited have not adopted any formal procedures designed to resolve potential
conflicts of interest between the two companies. See "--Consent to Limitations
of Liability".
CONTROL OF CERTAIN REAL ESTATE MATTERS
Pursuant to the terms of the services agreement to be entered into between
the Company and The Limited and consistent with past practices, The Limited
will be granted the exclusive right to negotiate all store leases on behalf of
Abercrombie & Fitch. While Abercrombie & Fitch will use The Limited's real
estate division to select store sites and negotiate leases, Abercrombie &
Fitch has the final authority to choose to accept or not to accept a store
site or lease negotiated by The Limited. Similarly, The Limited will be
entitled to allocate store space among Abercrombie & Fitch and other retail
businesses operated by The Limited. Although Abercrombie & Fitch's management
believes that this arrangement provides it with significant advantages, it may
result in conflicts of interest between the Company and The Limited. See
"Relationship with The Limited--Services Agreement" and "Business--Central
Real Estate Management".
CROSS-DIRECTORSHIPS AND STOCK OWNERSHIP
Leslie H. Wexner, Chairman of the Board, and Kenneth B. Gilman, Vice
Chairman of the Board, as well as Michael S. Jeffries, President and Chief
Executive Officer of Abercrombie & Fitch, hold shares of common stock and
options to acquire common stock of The Limited. Such shares and options are
material to the net worth of Mr. Wexner, Mr. Gilman and Mr. Jeffries. See
"Executive Compensation". Cross-directorships and ownership interests of
directors or officers of the Company in common stock of The Limited could
create or appear to create potential conflicts of interest when directors and
officers are faced with decisions that could have different implications for
the Company and The Limited. Nevertheless, the Company believes that such
directors would be able to fulfill their fiduciary duties to its shareholders.
See "Description of Capital Stock--Certain Certificate of Incorporation and
Bylaw Provisions". The certificate of incorporation of The Limited does not
include provisions addressing these potential conflicts.
CONTROL OF CERTAIN PERSONNEL MATTERS
In an effort to promote the career development of senior associates of The
Limited's various businesses and to address its own personnel requirements,
The Limited may reassign associates from positions at one of its businesses to
positions in another business operated by The Limited. Such assignments and
reassignments are within the discretion of The Limited and are made with a
view towards optimizing the allocation of personnel among the different
businesses of The Limited. Although this arrangement may create occasional
difficulties for Abercrombie & Fitch, Abercrombie & Fitch's management
believes that providing senior managers with opportunities for advancement at
other businesses of The Limited is an important advantage in recruiting
associates. In addition, Abercrombie & Fitch believes it has benefitted from
this arrangement, as experienced managers from other businesses operated by
The Limited have been assigned to Abercrombie & Fitch. Although The Limited
has no present intention to relocate any senior Abercrombie & Fitch
merchandising personnel or other senior executive officers from Abercrombie &
Fitch to other businesses controlled by The Limited, there can be no assurance
as to future assignments of senior associates of The Limited's other
businesses to Abercrombie & Fitch or from Abercrombie & Fitch to other
businesses controlled by The Limited.
CONTROL OF TAX MATTERS
By virtue of its controlling beneficial ownership and the terms of the tax-
sharing agreement to be entered into between the Company and The Limited, The
Limited will effectively control all of the
15
<PAGE>
Company's tax decisions. Under the tax-sharing agreement, The Limited will
have sole authority to respond to and conduct all tax proceedings (including
tax audits) relating to Abercrombie & Fitch, to file all returns on behalf of
the Company and to determine the amount of Abercrombie & Fitch's liability to
(or entitlement to payment from) The Limited under the tax-sharing agreement.
See "Relationship with The Limited--Tax-Sharing Agreement". This arrangement
may result in conflicts of interest between the Company and The Limited. For
example, under the tax-sharing agreement, The Limited may choose to contest,
compromise or settle any adjustment or deficiency proposed by the relevant
taxing authority in a manner that may be beneficial to The Limited and
detrimental to the Company. In connection therewith, however, The Limited is
obligated under the tax-sharing agreement to act in good faith with regard to
all members included in the applicable returns.
COMPETITION WITH THE LIMITED
The Limited is one of the largest specialty retailers in the United States.
The Limited is not restricted in any manner from competing with Abercrombie &
Fitch and currently markets merchandise similar to that sold by the Company
through certain of its other subsidiaries. There can be no assurance that The
Limited will not expand, through development of new lines of products or
businesses, acquisition or otherwise, its operations that compete with
Abercrombie & Fitch.
INTERCOMPANY AGREEMENTS NOT SUBJECT TO ARM'S-LENGTH NEGOTIATION
The Limited (or one or more of its subsidiaries) and the Company have
entered and intend to enter into certain intercompany agreements, including
agreements pursuant to which The Limited (or one or more of its subsidiaries)
will provide various services to Abercrombie & Fitch, and a tax-sharing
agreement, that are material to the conduct of the Company's business. With
respect to matters covered by the services agreement, the relationship between
The Limited and Abercrombie & Fitch is intended to continue in a manner
generally consistent with past practices. See "Relationship with The Limited"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Financial Condition--Liquidity and Capital Resources". Because
Abercrombie & Fitch is a wholly-owned subsidiary of The Limited, none of these
agreements will result from arm's-length negotiations and, therefore, the
prices charged to the Company for services provided thereunder may be higher
or lower than prices that may be charged by third parties.
IMMEDIATE AND SUBSTANTIAL DILUTION AND NEGATIVE PRO FORMA NET TANGIBLE BOOK
VALUE
Purchasers of Class A Common Stock in the Offerings will experience an
immediate dilution of $15.69 per share in the net tangible book value of their
Class A Common Stock from the estimated initial public offering price of $15
per share. Prior to completion of the Offerings, the Company's pro forma net
tangible book value per share of Common Stock will be $(3.06), whereas upon
completion of the Offerings, it will be $(.69). This will result in an
increase in net tangible book value of $2.37 per share of Class B Common Stock
that will be received by The Limited attributable to the Offerings. Due to the
negative pro forma net tangible book value of the Company prior to the
completion of the Offerings, purchasers of Class A Common Stock in the
Offerings will have contributed a substantial portion of the Company's total
paid-in capital after the Offerings while receiving only 14% of the economic
interests therein.
SEASONALITY
The Company experiences seasonal fluctuations in its net sales and net
income, with a disproportional amount of the Company's net sales and a
majority of its net income typically realized during the fourth quarter. Net
sales and net income are generally weakest during the first quarter. The
Company's quarterly results of operations may also fluctuate significantly as
a result of a variety of other factors, including the timing of new store
openings and the net sales contributed by new stores, merchandise mix and the
timing and level of markdowns. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality and Quarterly
Fluctuations".
16
<PAGE>
NO ASSURANCE THAT GROWTH MAY BE SUSTAINED
Abercrombie & Fitch has grown rapidly over the past several years. The
Company's future growth prospects are dependent upon a number of factors,
including, among other things, the availability of suitable store locations,
the ability to develop new merchandise and the ability to hire and train
qualified associates. There is no assurance that the Company will be able to
continue to grow profitably.
DEPENDENCE ON KEY PERSONNEL
The Company believes that it has benefitted substantially from the
leadership of Leslie H. Wexner, Chairman, President and Chief Executive
Officer of The Limited and Chairman of the Board of the Company and Michael S.
Jeffries, President and Chief Executive Officer of Abercrombie & Fitch. The
loss of any of the services of these individuals could have a material adverse
effect on the Company's business and prospects. In addition, Mr. Wexner's
service as Chairman, President and Chief Executive Officer of The Limited and
Chairman of the Board of the Company may create or appear to create potential
conflicts of interest. See "--Potential Conflicts of Interest".
COMPANY RESULTS OF OPERATIONS SUBJECT TO VARIABLE INFLUENCES; INTENSE
COMPETITION
Abercrombie & Fitch's business is sensitive to changes in consumer spending
patterns, consumer preferences and overall economic conditions. The Company is
also subject to fashion trends affecting the desirability of its merchandise.
In addition, Abercrombie & Fitch competes with a broad range of other
retailers, some of whom have greater financial resources than the Company. The
Company's future performance will be subject to such factors, which are beyond
its control, and there can be no assurance that such factors would not have a
material adverse effect on the Company's results of operations. See
"Business--Competition".
RELIANCE ON FOREIGN SOURCES OF PRODUCTION
In 1995, approximately 56% of the Company's merchandise was sourced from
independent foreign factories located primarily in the Far East. The Company
has no long-term merchandise supply contracts and many of its imports are
subject to existing or potential duties, tariffs or quotas that may limit the
quantity of certain types of goods which may be imported into the United
States from countries in that region. The Company competes with other
companies for production facilities and import quota capacity. The Company's
business is also subject to a variety of other risks generally associated with
doing business abroad, such as political instability (including issues
concerning the future of Hong Kong following the transfer of Hong Kong to The
People's Republic of China on July 1, 1997), currency and exchange risks and
local political issues. The Company's future performance will be subject to
such factors, which are beyond its control, and there can be no assurance that
such factors would not have a material adverse effect on the Company's results
of operations. See "Business--Sourcing".
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Class A
Common Stock of the Company. There can be no assurance that the initial public
offering price will correspond to the price at which the Class A Common Stock
will trade in the public market subsequent to the Offerings or that an active
public market for the Class A Common Stock will develop and continue after the
Offerings. For a discussion of the factors to be considered in determining the
initial public offering price, see "Underwriting".
POSSIBLE FUTURE SALES OF COMMON STOCK BY THE LIMITED
Subject to applicable federal securities laws and the restrictions set forth
below in the Underwriting Agreement, The Limited may sell any and all of the
shares of Common Stock beneficially owned by it or distribute any or all of
the shares of Common Stock to its shareholders. The Company has agreed to use
its best efforts to effect the registration under applicable federal and state
securities laws of any of the Class B Common Stock held by The Limited. See
"Relationship with the Limited--Corporate Agreement". Pursuant to the
Underwriting Agreement, The Limited will agree, subject to certain
17
<PAGE>
exceptions, not to sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock (or any security convertible into or exchangeable or
exercisable for Common Stock) for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representatives of the
Underwriters. Sales or distributions by The Limited of substantial amounts of
Common Stock in the public market or to its shareholders could adversely
affect prevailing market prices for the Class A Common Stock. See
"Relationship with The Limited" and "Shares Eligible for Future Sale".
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain a number of
provisions that could impede a merger, consolidation, takeover or other
business combination involving the Company or discourage a potential acquiror
from making a tender offer or otherwise attempting to obtain control of the
Company. Those provisions include (i) a requirement that a vote of the holders
of at least 75% of the Common Stock held by stockholders other than any person
or entity owning 5% or more of the Common Stock of the Company (an "Interested
Person") is required to effect a merger or consolidation with an Interested
Person, a sale of all or substantially all of the assets of the Company to an
Interested Person and certain other control transactions (unless such
transaction shall have been approved by a majority of Continuing Directors (as
defined therein)); (ii) a classified board; and (iii) a requirement that
certain provisions of the Company's Certificate of Incorporation and Bylaws
may be amended, and directors may be removed, only with the approval of the
holders of at least 75% of the outstanding Common Stock. The Limited, as owner
of approximately 94.9% of the combined voting power of all classes of voting
stock, could sell or otherwise dispose of a substantial portion of its
holdings and still be able to block any merger, consolidation, takeover or
other business combination with any Interested Person and certain other
material transactions and matters. In addition, the Company is subject to the
provisions of Section 203 of the Delaware General Corporation Law. See
"Description of Capital Stock--Certain Certificate of Incorporation and Bylaw
Provisions" and "--The Delaware General Corporation Law".
USE OF PROCEEDS
The estimated proceeds to the Company from the Offerings, after the
deduction of the underwriting expenses, will be $97 million ($112 million if
the Underwriters' over-allotment options are exercised in full), all of which
proceeds are expected to be used to partially repay borrowings by subsidiaries
of the Company under the Credit Agreement previously entered into with certain
lenders and Chase Manhattan Bank, as agent, under which the Company currently
has $150 million of indebtedness outstanding. The current weighted average
effective interest rate applicable to borrowings under the Credit Agreement is
approximately 5.92% per annum. Pursuant to the Credit Agreement, which has a
scheduled final maturity of June 30, 2001, borrowings thereunder must be
repaid in an amount equal to the Excess Cash Flow (as defined therein) of the
Company, which amount will include the net proceeds of the Offerings.
Borrowings under the Credit Agreement were used to fund a dividend to The
Limited and repay certain obligations owed to The Limited.
DIVIDENDS
The Board of Directors of the Company currently intends to retain future
earnings for the development of its business and does not anticipate paying
regular quarterly dividends on the Common Stock for the foreseeable future.
Under Delaware law, the declaration of dividends is within the discretion of
the Company's Board of Directors and future dividends, if any, will depend
upon various factors, including the Company's net income, current and
anticipated cash needs and any other factors deemed relevant by the Board of
Directors. By virtue of its stock ownership, The Limited will have the ability
to change the size and composition of the Company's Board of Directors and
thereby control the payment of dividends by the Company. Pursuant to
restrictions contained in the Credit Agreement, so long as the Credit
Agreement is outstanding, the Company is prohibited from paying any dividends
on its capital stock, including the Class A Common Stock. See "Description of
Certain Indebtedness--Credit Agreement".
18
<PAGE>
DILUTION
The negative pro forma net tangible book value of the Common Stock at August
3, 1996 would have been $(131) million or $(3.06) per share, based upon
43,000,000 shares of Class B Common Stock outstanding. Assuming the Offerings
were consummated on August 3, 1996, after giving effect to the issuance of
7,000,000 shares of Class A Common Stock in the Offerings (at an assumed
initial public offering price of $15 per share and after deducting anticipated
offering expenses and the underwriting discount and commissions), the negative
pro forma net tangible book value at August 3, 1996 would have been $(34)
million, or $(.69) per share. This represents an immediate increase in net
tangible book value of $2.37 per share of Class B Common Stock to The Limited
and an immediate dilution of net tangible book value of $15.69 per share of
Common Stock to new investors purchasing Class A Common Stock in the
Offerings. Pro forma net tangible book value per share is determined by
subtracting total liabilities from tangible assets and dividing the remainder
by the number of shares of Common Stock outstanding. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $15.00
Pro forma net tangible book value per share of Common Stock
before the Offerings......................................... $(3.06)
Increase per share attributable to new investors(1)........... 2.37
------
Pro forma net tangible book value per share of Common Stock
after the Offerings.......................................... (.69)
------
Dilution per share to Class A Common Stock investors(2)....... $15.69
======
</TABLE>
- --------
(1) After deducting the underwriting discount and commissions and estimated
expenses of the Offerings.
(2) Dilution is determined by subtracting net tangible book value per share
after giving effect to the Offerings from the initial public offering
price paid by a new investor for a share of Class A Common Stock.
The following table summarizes, on a pro forma basis at August 3, 1996, the
differences between the number of shares held by, the voting rights of, the
total investment in the Company of and the average cost per share paid by The
Limited and the investors purchasing shares of Class A Common Stock in the
Offerings:
<TABLE>
<CAPTION>
SHARES HELD TOTAL INVESTMENT
------------------------ ------------- --------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF AVERAGE COST
NUMBER THE COMPANY VOTING RIGHTS AMOUNT INVESTMENT PER SHARE
---------- ------------- ------------- ------ ------------- ------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
The Limited............. 43,000,000 86% 95% * * *
New Investors........... 7,000,000 14% 5% $105 * $15.00
---------- --- --- ---- ---
Total................. 50,000,000 100% 100% * *
========== === === ==== ===
</TABLE>
- --------
* Not meaningful.
The foregoing tables assume no exercise of the Underwriters' over-allotment
options or any outstanding stock options. See "Executive Compensation" for
information regarding stock options.
19
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma (after the Offerings)
capitalization of the Company as of August 3, 1996 based on (a) the
reclassification of 1,000 shares of Common Stock, par value $.10 per share, of
the Company held by The Limited into 43,000,000 shares of Class B Common
Stock; and (b) the issuance and sale of 7,000,000 shares of Class A Common
Stock in the Offerings and the application of the net proceeds therefrom to
repay approximately $97 million of borrowings under the Credit Agreement. The
data should be read in conjunction with the historical Consolidated Financial
Statements and notes thereto and the Pro Forma Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 3, 1996
-----------------------
PRO FORMA
AFTER
HISTORICAL(1) OFFERINGS
------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term borrowings:
Credit Agreement(2)............................. $ 150,000 $ 53,000
Working Capital Note(3)......................... 8,616 8,616
--------- ---------
Total short-term borrowings................... 158,616 61,616
Intercompany payable(4)........................... 8,557 8,557
Long-term Mirror Note(5).......................... 50,000 50,000
--------- ---------
Total debt.................................... 217,173 120,173
--------- ---------
Shareholders' equity (deficit)(6):
Preferred stock, 15,000,000 shares authorized,
no shares issued and outstanding...............
Common stock, par value $.10 per share, 1,000
shares authorized, 1,000 shares issued and
outstanding....................................
Class A Common Stock, par value $.01 per share,
150,000,000 shares authorized, 7,000,000 shares
issued and outstanding......................... 70
Class B Common Stock, par value $.01 per share,
150,000,000 shares authorized, 43,000,000
shares issued and outstanding.................. 430
Paid-in capital................................. 306 96,806
Retained earnings (deficit)..................... (131,752) (131,752)
--------- ---------
Total shareholders' equity (deficit).......... (131,446) (34,446)
--------- ---------
Total capitalization.......................... $ 85,727 $ 85,727
========= =========
</TABLE>
- --------
(1) Represents amounts derived from the Consolidated Financial Statements of
Abercrombie & Fitch Co. included elsewhere in this Prospectus.
(2) On July 2, 1996, two of Abercrombie & Fitch's subsidiaries entered into
the Credit Agreement and then on July 15, 1996, the stock of such entities
was contributed to Abercrombie & Fitch Co. See "Description of Certain
Indebtedness--Credit Agreement".
(3) Represents the Working Capital Note, which bears interest at 6.75% per
annum and matures on January 31, 1997.
(4) Represents an intercompany payable owed to The Limited.
(5) Represents the long-term Mirror Note. See "Description of Certain
Indebtedness--Intercompany Debt".
(6) Does not include an aggregate of up to 243,000 shares of Class A Common
Stock reserved for issuance in respect of associate and director stock
options granted effective upon consummation of the Offerings with an
exercise price equal to the initial public offering price set forth on the
cover page of this Prospectus.
20
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited Pro Forma Consolidated Financial Statements of
Abercrombie & Fitch include the historical Consolidated Financial Statements
of the Abercrombie & Fitch Business (as defined in Note 1 of the Notes to the
Consolidated Financial Statements of the Abercrombie & Fitch Business included
elsewhere in this Prospectus) and give effect to the transactions and events
described in the Notes to Pro Forma Consolidated Financial Statements as if
the transactions and events referred to therein were initiated at the
beginning of fiscal year 1995 in the case of the unaudited Pro Forma
Consolidated Statements of Operations and as of August 3, 1996 in the case of
the unaudited Pro Forma Consolidated Balance Sheet.
The unaudited Pro Forma Consolidated Financial Statements give effect to the
sale and issuance of 7,000,000 shares of Class A Common Stock in the Offerings
and the application of the estimated $97 million net proceeds therefrom to
partially repay borrowings under the Credit Agreement. The unaudited Pro Forma
Consolidated Financial Statements also reflect the following transactions and
events which are included in the August 3, 1996 historical balance sheet: (i)
distribution of a note representing preexisting obligations of Abercrombie &
Fitch's operating subsidiary in respect of certain trademarks (the "Trademark
Obligations") in the amount of $32 million by Abercrombie & Fitch's trademark
subsidiary to The Limited and a resulting dividend to The Limited in a
corresponding amount; (ii) distribution of the long-term Mirror Note in the
amount of $50 million by Abercrombie & Fitch's operating subsidiary to The
Limited and a resulting dividend to The Limited in a corresponding amount;
(iii) $150 million of borrowings under the Credit Agreement which were used to
repay $91 million of long-term debt owed to The Limited, to pay a $27 million
dividend to The Limited and repay in full the Trademark Obligations; and (iv)
conversion of the remaining $8.6 million of intercompany debt into the Working
Capital Note.
Management believes the assumptions used provide a reasonable basis on which
to present the unaudited Pro Forma Consolidated Financial Statements. The
unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the historical Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations". THE PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY
AND SHOULD NOT BE CONSTRUED TO BE INDICATIVE OF THE COMPANY'S RESULTS OF
OPERATIONS OR THE COMPANY'S FINANCIAL POSITION HAD THE TRANSACTIONS AND EVENTS
DESCRIBED ABOVE BEEN CONSUMMATED ON THE DATES ASSUMED AND DO NOT PROJECT THE
COMPANY'S RESULTS OF OPERATIONS OR THE COMPANY'S FINANCIAL POSITION FOR ANY
FUTURE DATE OR PERIOD.
21
<PAGE>
ABERCROMBIE & FITCH
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AT AUGUST 3, 1996
-----------------------------------------------------------
ABERCROMBIE CONSOLIDATED PRO FORMA
& FITCH ABERCROMBIE ABERCROMBIE ADJUST- AFTER
BUSINESS(1) & FITCH CO.(2) & FITCH CO. MENTS(3) OFFERINGS
----------- -------------- ------------ -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................... $ 1,427 $ 1 $ 1,428 $97,000 $ 1,428
(97,000)
Accounts receivable..... 2,553 2,553 2,553
Inventories............. 52,919 52,919 52,919
Store supplies.......... 3,729 3,729 3,729
Deferred income taxes... 1,208 1,208 1,208
Other................... 1,357 1,357 1,357
-------- --- --------- --------
Total current assets... 63,193 1 63,194 63,194
Property and equipment,
net..................... 44,570 44,570 44,570
Deferred income taxes.... 1,624 1,624 1,624
Other assets............. 7 7 7
-------- --- --------- --------
Total assets........... $109,394 $ 1 $ 109,395 $109,395
======== === ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES
Accounts payable........ $ 6,730 $ 6,730 $ 6,730
Accrued expenses........ 15,754 15,754 15,754
Credit agreement........ 150,000 150,000 (97,000) 53,000
Working capital note.... 8,616 8,616 8,616
Income taxes payable.... 500 500 500
-------- --------- --------
Total current
liabilities........... 181,600 181,600 84,600
Intercompany payable..... 8,557 8,557 8,557
Long-term mirror note.... 50,000 50,000 50,000
Other long-term
liabilities............. 684 684 684
SHAREHOLDERS' EQUITY
(DEFICIT)
Common stock............ 500 500
Paid-in capital......... 305 $ 1 306 96,500 96,806
Retained earnings
(deficit).............. (131,752) (131,752) (131,752)
-------- --- --------- --------
Total shareholders'
equity (deficit)...... (131,447) 1 (131,446) (34,446)
-------- --- --------- --------
Total liabilities and
shareholders' equity
(deficit)........... $109,394 $ 1 $ 109,395 $109,395
======== === ========= ========
</TABLE>
The accompanying notes are an integral part of the unaudited Pro Forma
Consolidated Financial Statements.
22
<PAGE>
ABERCROMBIE & FITCH
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 3, 1996
-----------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
------------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C>
Net sales..................... $ 235,659 $ 235,659
Cost of goods sold, occupancy
and buying costs............. 155,865 155,865
------------- -------------
Gross income.................. 79,794 79,794
General, administrative and
store operating expenses..... 55,996 55,996
------------- -------------
Operating income.............. 23,798 23,798
Interest expense.............. -- $ 8,094 (1) 8,094
------------- ------------ -------------
Income before income taxes.... 23,798 (8,094) 15,704
Provision for income taxes.... 9,500 (3,200)(2) 6,300
------------- ------------ -------------
Net income.................... $ 14,298 $ (4,894) $ 9,404
============= ============ =============
Pro forma net income per
share........................ $ .19
=============
</TABLE>
The accompanying notes are an integral part of the unaudited Pro Forma
Consolidated Financial Statements.
23
<PAGE>
ABERCROMBIE & FITCH
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE TWENTY-SIX
WEEKS ENDED AUGUST 3, 1996
-----------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
------------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C>
Net sales.................... $ 108,451 $ 108,451
Cost of goods sold, occupancy
and buying costs............ 75,505 75,505
------------- -------------
Gross income................. 32,946 32,946
General, administrative and
store operating expenses.... 31,520 31,520
------------- -------------
Operating income............. 1,426 1,426
Interest expense............. 1,151 $ 2,746(1) 3,897
------------- ------------ -------------
Income (loss) before income
taxes....................... 275 (2,746) (2,471)
Provision for (benefit from)
income taxes................ 100 (1,100)(2) (1,000)
------------- ------------ -------------
Net income (loss)............ $ 175 $ (1,646) $ (1,471)
============= ============ =============
Pro forma net loss per
share....................... $ (.03)
=============
</TABLE>
The accompanying notes are an integral part of the unaudited Pro Forma
Consolidated Financial Statements.
24
<PAGE>
ABERCROMBIE & FITCH
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE TWENTY-SIX
WEEKS ENDED JULY 29, 1995
--------------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
------------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C>
Net sales................ $ 72,045 $ 72,045
Cost of goods sold,
occupancy and buying
costs................... 51,594 51,594
------------- -------------
Gross income............. 20,451 20,451
General, administrative
and store operating
expenses................ 21,970 21,970
------------- -------------
Operating loss........... (1,519) (1,519)
Interest expense......... -- $ 4,197 (1) 4,197
------------- ------------- -------------
Loss before income
taxes................... (1,519) (4,197) (5,716)
Benefit from income
taxes................... (600) (1,700)(2) (2,300)
------------- ------------- -------------
Net loss................. $ (919) $ (2,497) $ (3,416)
============= ============= =============
Pro forma net loss per
share................... $ (.07)
=============
</TABLE>
The accompanying notes are an integral part of the unaudited Pro Forma
Consolidated Financial Statements.
25
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The following pro forma adjustments are based on available information and
certain estimates and assumptions. Therefore, it is likely that the actual
adjustments will differ from the pro forma adjustments. The Company believes
that such assumptions provide a reasonable basis for presenting all of the
significant effects of the following transactions and events and that the pro
forma adjustments give appropriate effect to those assumptions and are
properly applied in the unaudited pro forma consolidated financial statements.
2. ADJUSTMENTS TO PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Represents amounts derived from the historical Consolidated Financial
Statements of the Abercrombie & Fitch Business included elsewhere in this
Prospectus.
(2) Represents the initial capitalization of Abercrombie & Fitch Co.
(3) The issuance and sale of 7,000,000 shares of Class A Common Stock in the
Offerings and the application of the estimated $97 million net proceeds
therefrom to partially repay borrowings under the Credit Agreement.
3. ADJUSTMENTS TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
YEAR ENDED ----------------------------
FEBRUARY 3, 1996 JULY 29, 1995 AUGUST 3, 1996
---------------- ------------- --------------
<S> <C> <C> <C>
(1) Reflects interest expense
as follows:
$150 million Credit Agree-
ment due June 30,
2001 (a).................. $3,312 $1,656 $1,656
$8.6 million Working
Capital Note due January
31, 1997 (b).............. 582 291 291
$50 million Mirror Note due
May 15, 2002 (c).......... 3,900 1,950 1,950
Financing fees............. 300 300 --
------ ------ ------
8,094 4,197 3,897
Less amounts in historical
statements of
operations................ -- -- (1,151)
------ ------ ------
$8,094 $4,197 $2,746
====== ====== ======
</TABLE>
- --------
(a) Represents interest calculated at an effective rate of 6.25% on $53
million in debt outstanding on the $150 million Credit Agreement for
the periods indicated. The interest is calculated as if the transaction
took place at the beginning of fiscal 1995 after recognizing the
partial repayment of the Credit Agreement from the assumed net proceeds
of the Offerings.
(b) Interest is calculated at an effective interest rate of 6.75% for the
periods indicated.
(c) Interest is calculated based upon 7.80% for the periods indicated.
(2) Estimated income tax effects of the pro forma adjustments at the
effective annual rate.
No adjustment has been made for additional costs of Abercrombie & Fitch
operating as a public company as management believes that the incremental
costs will not be significant. In addition, no adjustments have been made for
changes in costs from the service and lease agreements described herein
between Abercrombie & Fitch and The Limited since management believes the
aggregate net changes in costs will not be material.
26
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is the selected historical financial and operating data for
the periods indicated. This information should be read in conjunction with the
Abercrombie & Fitch Business' historical and pro forma consolidated financial
statements and notes thereto included elsewhere in this Prospectus,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the other financial information set forth herein. The
information for fiscal years 1991 and 1992 is derived from the Abercrombie &
Fitch Business' unaudited consolidated financial statements. The selected
financial data as of and for the twenty-six weeks ended July 29, 1995 and
August 3, 1996 are derived from the unaudited consolidated financial
statements also appearing herein, which, in the opinion of management, reflect
all adjustments (which are of a recurring nature) necessary to present fairly
the financial position and results of operations and cash flows for the
interim periods. Results for the period ended August 3, 1996 are not
necessarily indicative of the results of operations to be expected for the
full fiscal year.
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEAR ENDED WEEKS ENDED
-------------------------------------------------------------- --------------------
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1992 1993 1994 1995 1996(1) 1995 1996
----------- ----------- ----------- ----------- ----------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE, PER SQUARE FOOT AND NUMBER OF STORES DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............. $ 62,583 $ 85,301 $110,952 $165,463 $235,659 $72,045 $108,451
Gross income(2)....... 9,665 13,413 30,562 56,820 79,794 20,451 32,946
General,
administrative and
store operating
expenses(3).......... 21,268 23,603 30,240 43,069 55,996 21,970 31,520
Operating income
(loss)(4)............ (11,603) (10,190) (4,064) 13,751 23,798 (1,519) 1,426
Net income (loss)..... (7,003) (6,090) (2,464) 8,251 14,298 (919) 175
Pro forma net income
(loss)(5)............ 9,404 (3,416) (1,471)
Pro forma weighted
average number of
shares(6)............ 50,000 50,000 50,000
Pro forma net income
(loss) per
share(5)(6).......... $ .19 $ (.07) $ (.03)
BALANCE SHEET DATA:
Inventories........... $ 11,932 $ 15,075 $ 10,052 $ 16,551 $ 30,388 $37,880 $ 52,919
Total assets.......... 47,967 61,626 48,882 58,018 87,693 81,291 109,394
Long-term debt(7)..... 58,557
Pro forma
shareholders' equity
(deficit)(8)......... (34,446)
OTHER DATA:
Total net sales
growth............... -- 36.3% 30.1% 49.1% 42.4% 37.4% 50.5%
Gross income
percentage(9)........ 15.4% 15.7% 27.5% 34.3% 33.9% 28.4% 30.4%
Operating income
(loss)
percentage(9)........ (18.5%) (11.9%) (3.7%) 8.3% 10.1% (2.1%) 1.3%
Number of stores at
period end........... 36 40 49 67 100 77 106
Total selling square
feet................. 287 332 405 541 792 617 830
Sales per selling
square foot(10)...... $ 261 $ 276 $ 301 $ 350 $ 354 $ 124 $ 134
Comparable store sales
growth(11)........... 10% 8% 6% 15% 5% 3% 16%
</TABLE>
27
<PAGE>
- --------
(1) Represents the 53-week fiscal year ended February 3, 1996.
(2) Gross income equals net sales less cost of goods sold, occupancy and
buying costs.
(3) General, administrative and store operating expenses include charges and
allocations made by The Limited to the Abercrombie & Fitch Business.
(4) Reflects a $4.4 million nonrecurring charge in 1993. See Note 3 to the
Consolidated Financial Statements.
(5) Gives pro forma effect to the interest expense, net of tax benefit, on
the $8.6 million Working Capital Note and the long-term Mirror Note in
the amount of $50 million. Also includes the pro forma effect of interest
expense and certain fees, net of tax benefit (to the extent not reflected
in the historical financial statements) on borrowings under the Credit
Agreement for the twenty-six weeks ended July 29, 1995 and August 3, 1996
and the year ended February 3, 1996. See "Pro Forma Consolidated
Financial Statements".
(6) Pro forma net income (loss) per share is based on pro forma net income
(loss) and the weighted average number of shares of Class A and Class B
Common Stock expected to be outstanding after the Offerings. Pro forma
net income (loss) per share is not necessarily indicative of what actual
net income (loss) per share would have been if the Offerings occurred on
the basis assumed.
(7) Represents the long-term Mirror Note and the Intercompany Payable.
(8) Gives pro forma effect to the issuance and sale of Class A Common Stock
in the Offerings and the application of the net proceeds therefrom to
repay approximately $97 million of borrowings under the Credit Agreement.
See "Pro Forma Consolidated Financial Statements".
(9) Calculated as a percentage of net sales.
(10) Sales per selling square foot is the result of dividing net sales for the
period by average selling square feet, which represents the average of
selling square feet at the beginning and end of each fiscal period. These
amounts are not adjusted to reflect the seasonal nature of the Company's
sales or the impact of opening stores in different periods during the
year. Sales per selling square foot for interim periods are not
representative of results to be expected for a full fiscal year.
(11) Abercrombie & Fitch includes a store in its comparable store sales
calculation at the beginning of the 53rd week of the store's operation.
Stores that are expanded more than 20% in square feet are treated as new
stores for purposes of this calculation only.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of Abercrombie & Fitch's financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements and the Pro Forma Consolidated Financial
Statements included elsewhere in this Prospectus. For the purposes of the
Management's Discussion and Analysis, unless the context otherwise requires,
the "Company" or "Abercrombie & Fitch" refers to the Abercrombie & Fitch
Business as defined in Note 1 of the Notes to the Consolidated Financial
Statements.
GENERAL
Since the current management team assumed responsibility for Abercrombie &
Fitch in 1992, the Company has consistently improved its financial
performance. In the period from 1993 to 1995, the Company increased net sales
from $111.0 million to $235.7 million and grew operating income from $(4.1)
million to $23.8 million. The strong growth during this period resulted from
expansion of the number of stores in operation and increased comparable store
sales as the Company improved its merchandise assortment and strengthened its
brand awareness. From 1993 to 1995, the Company improved sales per selling
square foot from $301 to $354. The Company has also improved operating income
as a percent of sales from (3.7%) in 1993 to 10.1% in 1995 by increasing sales
volume and gross income at a faster rate than general, administrative and
store operating expenses. The momentum evidenced by the Company's financial
performance from 1993 to 1995 continued into 1996 as net sales, driven by 16%
comparable store sales growth, increased to $108.5 million in the first
twenty-six weeks of 1996 from $72.0 million in the first twenty-six weeks of
1995.
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items in the Company's consolidated
statements of operations for the fiscal periods shown below:
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEAR ENDED WEEKS ENDED
----------------------------------- -------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
----------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold,
occupancy and buying
costs.................. 72.5 65.7 66.1 71.6 69.6
----- ----- ----- ----- -----
Gross income............ 27.5 34.3 33.9 28.4 30.4
General, administrative
and store operating
expenses............... 27.3 26.0 23.8 30.5 29.1
Special and nonrecurring
items.................. 4.0 -- -- -- --
----- ----- ----- ----- -----
Operating income
(loss)................. (3.7) 8.3 10.1 (2.1) 1.3
Interest expense........ -- -- -- -- (1.0)
Provision for (benefit
from) income taxes..... (1.4) 3.3 4.0 (0.8) 0.1
----- ----- ----- ----- -----
Net income (loss)....... (2.2)% 5.0% 6.1% (1.3)% 0.2%
===== ===== ===== ===== =====
</TABLE>
29
<PAGE>
FINANCIAL SUMMARY
The following table sets forth certain summarized financial data for the
fiscal periods shown:
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEAR ENDED % CHANGE WEEKS ENDED
----------------------------------- ------------ ------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, 1993- 1994- JULY 29, AUGUST 3,
1994 1995 1996 1994 1995 1995 1996 % CHANGE
----------- ----------- ----------- ----- ----- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales
($ in millions)........ $111.0 $165.5 $235.7 49% 42% $ 72.0 $108.5 51%
Increase in comparable
store sales............ 6% 15% 5% 3% 16%
Sales increase
attributable to new and
remodeled stores....... 24% 34% 37% 34% 35%
Sales per selling square
foot................... $ 301 $ 350 $ 354 16% 1% $ 124 $ 134 8%
Sales per average store
(thousands)............ $2,493 $2,853 $2,823 14% (1%) $1,001 $1,053 5%
Average store size at
period end (selling
square feet)........... 8,265 8,075 7,920 (2%) (2%) 8,013 7,830 (2%)
Selling square feet at
period end
(thousands)............ 405 541 792 34% 46% 617 830 35%
Number of stores:
beginning of period... 40 49 67 67 100
opened................ 9 20 33 10 6
closed................ -- (2) -- -- --
------ ------ ------ ------ ------
end of period......... 49 67 100 77 106
====== ====== ====== ====== ======
</TABLE>
NET SALES
For the first twenty-six weeks of 1996, net sales increased to $108.5
million from $72.0 million, an increase of $36.5 million, or 51%. The increase
was due to a comparable store sales increase of 16%, combined with the
addition of 29 new stores as compared to the year-earlier period. Total
selling square footage increased by 213,000 square feet, or 35%. Comparable
store sales increases were strong in both the men's and women's businesses,
with women's knits and shorts and men's pants and outerwear among the best
performing categories. Net sales per selling square foot for the total company
increased 8%.
For the 53-week fiscal year 1995, net sales were $235.7 million, an increase
of 42% from $165.5 million in 1994. Sales growth came primarily from the
addition of 33 new stores, with comparable store sales increasing 5%.
Management believes that comparable store sales were negatively affected by
overall softness in the retail industry. The fifty-third week accounted for
1.7% of the total sales increase. During 1995, the Company allocated more
selling square footage per store to women's apparel, resulting in a
significant increase in total sales of the women's business. Significant
growth was achieved in women's shirts, knits and shorts. The total volume of
the men's business increased, but to a lesser extent than the women's business
due to this reallocation. A very strong increase in men's outerwear was
partially offset by a continuing deemphasis of dress shirts and ties as the
Company previously decided such merchandise was not consistent with the
Company's focus on casual apparel. Net sales per selling square foot for the
total Company increased 1%.
30
<PAGE>
In 1994, net sales increased to $165.5 million from $111.0 million, an
increase of $54.5 million, or 49%. Comparable store sales increased 15%, and
there was a net increase in number of stores of 18. Square footage increased
by 136,000 selling square feet, or 34%. Sales in the women's business more
than doubled from the prior year due to a broader merchandise assortment,
particularly in women's sweaters, shorts and shirts. The men's business
achieved sales increases as a result of strong growth in men's outerwear,
knits, shorts and accessories. The increases were partially offset by the
Company's decision to deemphasize dress shirts and ties. Net sales per selling
square foot for the total Company increased 16%.
In 1993, net sales increased to $111.0 million from $85.3 million in 1992,
an increase of $25.7 million, or 30%. Comparable store sales increased 6%.
Nine new stores were opened during the year, increasing the number of stores
to 49. The men's business increased primarily due to strong increases in sport
shirts, knits and outerwear. The women's business achieved a very strong
performance in women's knits, jeans and shirts, which was somewhat offset by
decreases in skirts, jackets and shorts. Net sales per selling square foot for
the total Company increased 9%.
GROSS INCOME
In the first twenty-six weeks of 1996, gross income, expressed as a
percentage of net sales, was 30.4%, which represented a 2.0% increase from the
28.4% level in the same period in 1995. The increase was attributable to a
decrease in buying and occupancy costs, as a percentage of net sales, due to
favorable expense leveraging associated with increased comparable store sales,
which more than offset a slight decline in merchandise margins (representing
gross income before the deduction of buying and occupancy costs).
In 1995, gross income, expressed as a percentage of net sales, was 33.9%,
which represented a 0.4% decrease from the 34.3% level in 1994. The decrease
was primarily attributable to an increase in buying and occupancy cost of 1.3%
which represented asset writeoffs associated with the renovation and
relocation of two stores. Merchandise margins were up slightly for the period.
In 1994, gross income, expressed as a percentage of net sales, was 34.3%,
which represented a 6.8% increase from the 27.5% level in 1993. Merchandise
margins improved 4.2% from the previous year due to higher initial markups
(IMU) and fewer markdowns. Buying and occupancy costs as a percentage of net
sales declined 2.3% as a result of strong comparable store net sales growth
and a 16% increase in net sales per selling square foot.
In 1993, gross income, expressed as a percentage of net sales, was 27.5%,
which represented an 11.8% increase from the level in 1992. Merchandise
margins improved 10.4% as the Company incurred fewer markdowns and
significantly increased IMU.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES
General, administrative and store operating expenses, expressed as a
percentage of net sales, were 29.1% in the first twenty-six weeks of 1996 and
30.5% in the comparable period in 1995. The decline is attributable to the
strong comparable sales growth and improved management of store payrolls.
General, administrative and store operating expenses, expressed as a
percentage of net sales, were 23.8%, 26.0% and 27.3% for 1995, 1994 and 1993,
respectively. The improvement during the three-year period resulted from
management's continued emphasis on expense control and the favorable
leveraging of store and home office expenses over higher sales volume.
Additionally, improvements have been made to increase the distribution center
productivity and as a result, the cost of operating the distribution center
has declined, as a percentage of net sales, each year.
31
<PAGE>
SPECIAL AND NONRECURRING ITEMS
As described in Note 3 to the Consolidated Financial Statements appearing
elsewhere herein, in 1993 the Company participated in The Limited's plan which
provided for the closure, downsizing and remodeling of under-performing stores
of the Company. In developing the plan, specific stores were identified based
upon a number of criteria, including the quality and location of the real
estate, historical financial results, other business factors and management's
assessment of future potential. A total of seven under-performing stores were
identified for this plan. The Company continuously evaluates its stores
against these criteria, and charges for stores that meet the criteria for
downsizing or closing are taken in the appropriate period. There are no stores
currently operated by the Company that have been identified for downsizing or
closure based upon the program's criteria. The provision for store closure,
downsizing and remodeling aggregated approximately $4.4 million and includes
the net book value of abandoned fixed assets and lease termination payments.
There was no material cash outflow as a result of the charge. The Company
completed the program on October 28, 1995.
OPERATING INCOME
The improvement in operating income, as a percentage of net sales, for the
twenty-six weeks ended August 3, 1996 to 1.3% compared to (2.1%) in the same
period last year is a result of both higher gross income and reduced general,
administrative and store operating expenses as a percentage of net sales.
Operating income, as a percentage of net sales, was 10.1%, 8.3% and (3.7%)
for 1995, 1994 and 1993, respectively. Operating income improved from a loss
in 1993 as higher merchandise margins were coupled with lower general,
administrative and store operating expenses as a percentage of net sales.
Sales volume and gross income have increased at a faster rate than general,
administrative and store operating expenses as the Company continues to
emphasize cost controls.
FOREIGN SOURCING AND INTERNATIONAL EXPANSION
The Company sources a substantial amount of its merchandise from independent
foreign factories located primarily in the Far East. The Company's business is
subject to a variety of risks generally associated with doing business abroad,
such as political instability, currency and exchange risks and local political
issues. The Company has no long-term merchandise supply contracts and many of
its imports are subject to existing or potential duties, tariffs or quotas
that may limit the quantity of certain types of goods which may be imported
into the United States from countries in that region. The Company's future
performance will be subject to such factors, which are beyond its control, and
there can be no assurance that such factors would not have a material adverse
effect on the Company's results of operations.
SEASONALITY AND QUARTERLY FLUCTUATIONS
As illustrated in the table below, the Company's business is highly
seasonal, with significantly higher sales, gross income and net income
realized during the fourth quarter, which includes the Christmas selling
season. See "Risk Factors--Seasonality".
<TABLE>
<CAPTION>
1994 QUARTER FIRST SECOND THIRD FOURTH
------------ ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................. $23,399 $29,045 $38,584 $74,435
% of full year........................... 14.1% 17.6% 23.3% 45.0%
Gross income.............................. $ 5,643 $ 8,285 $11,815 $31,077
% of full year........................... 9.9% 14.6% 20.8% 54.7%
Net income (loss)......................... $(1,225) $ (530) $ 466 $ 9,540
% of full year........................... (14.8%) (6.4%) 5.6% 115.6%
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
1995 QUARTER FIRST SECOND THIRD FOURTH
------------ ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................. $33,377 $38,668 $57,222 $106,392
% of full year........................... 14.2% 16.4% 24.3% 45.1%
Gross income.............................. $ 8,428 $12,023 $19,503 $ 39,840
% of full year........................... 10.6% 15.1% 24.4% 49.9%
Net income (loss)......................... $(1,169) $ 250 $ 2,583 $ 12,634
% of full year........................... (8.2%) 1.7% 18.1% 88.4%
</TABLE>
FINANCIAL CONDITION
The Company's consolidated balance sheet at August 3, 1996 provides
continuing evidence of financial strength and flexibility. A more detailed
discussion of liquidity, capital resources and capital requirements follows:
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities totaled $(18.7) million in the first
twenty-six weeks of 1996 and $(18.3) million in the comparable period in 1995.
In 1996, net cash used for inventories increased by $1.2 million over 1995 to
support increased sales. Net income adjusted for depreciation in the first
twenty-six weeks of 1996 provided cash as both these categories increased over
the comparable period in 1995.
Net cash provided by operating activities totaled $12.7 million, $20.2
million and $20.6 million for 1995, 1994 and 1993, respectively.
Net income increased consistently over the period while inventory levels
also increased. Inventories increased 84% to $30.4 million in 1995 and 65% to
$16.6 million in 1994, supporting the sales growth in those periods. Due to
the Company's timing of payments, accounts payable increased only slightly
over each of the three fiscal years, despite the increase in inventory. In
addition, as more fully described in Note 3 to the Consolidated Financial
Statements appearing elsewhere herein, the Company recorded a $4.4 million
charge in 1993 related to special and nonrecurring items.
Investing activities include capital expenditures, primarily for new,
relocated and expanded stores.
Financing activities were primarily due to intercompany transactions as
discussed in Note 10 to the Consolidated Financial Statements appearing
elsewhere herein. In addition, financing activities in the twenty-six weeks
ended August 3, 1996 included proceeds of $150 million from the Credit
Agreement which were used to repay $91 million of intercompany debt and $32
million of Trademark Obligations and fund a $27 million dividend to The
Limited. See Note 16 to the Consolidated Financial Statements.
Abercrombie & Fitch's operations are seasonal in nature and are comprised of
two principal selling seasons: Spring (the first and second quarters) and Fall
(the third and fourth quarters), with the fourth quarter, including the
holiday season, accounting for approximately 45% of net sales in each of the
last two years. Accordingly, cash requirements are highest in the third
quarter as the Company's inventory builds in anticipation of the holiday
selling season.
Historically, the Company has participated in The Limited's centralized cash
management system whereby cash received from operations is transferred to The
Limited's centralized cash accounts and cash disbursements are funded from the
centralized cash accounts on a daily basis. See "Relationship with The
Limited". The receipt and disbursement of cash is tracked in an intercompany
cash management account. Accordingly, cash requirements for operating purposes
during the year and for capital expenditures were met from this source. The
Company will continue to utilize the centralized cash management system after
the consummation of the Offerings. At July 11, 1996, after the initial
capitalization of Abercrombie & Fitch, the intercompany cash management
account became an interest earning asset or interest bearing liability of the
Company, depending on the level of cash receipts and disbursements. Interest
on this intercompany cash management account is calculated based on the
Federal Reserve AA composite 30-day rate. After the consummation of the
Offerings and use of the
33
<PAGE>
net proceeds therefrom as described elsewhere herein, the Company's
capitalization on a pro forma basis will include the long-term Mirror Note in
the amount of $50 million, the $8.6 million Working Capital Note, the $8.6
million Intercompany Payable and $(34.4) million of shareholders' equity
(deficit). In addition, approximately $53 million of indebtedness will remain
outstanding under the Credit Agreement following the consummation of the
Offerings and the use of proceeds received therefrom. As the Company has fully
borrowed the amount available under the Credit Agreement and may not reborrow
any amounts repaid thereunder, the Company does not expect the Credit
Agreement to be a source of liquidity in the future. For a description of the
Company's indebtedness, see "Description of Certain Indebtedness". Management
believes cash provided by operations will be sufficient to service debt,
finance capital expenditures and meet working capital needs. Management
believes that initially, due to seasonal working capital needs, the Company
will be in a liability and interest paying status with respect to the
intercompany cash management account. Management believes the availability of
funds from The Limited and The Limited's ability to repay in the event the
Company may be in an asset position with respect to the intercompany cash
management account do not pose significant risks to the Company.
CAPITAL EXPENDITURES
Capital expenditures, primarily for new and remodeled stores, amounted to
$2.8 million in the first twenty-six weeks of 1996 and $5.3 million in the
comparable period in 1995. Capital expenditures amounted to $24.5 million,
$12.6 million and $4.7 million for 1995, 1994 and 1993, respectively, of which
$22.3 million, $11.6 million and $4.5 million, respectively, was for new
stores and remodeling and expanding existing stores.
The Company has announced its intention to open approximately 29 new stores
and to remodel one store in 1996, which would add approximately 235,000 square
feet of selling space and represent a 30% increase over year-end 1995. The
Company anticipates spending $21 to $25 million for capital expenditures in
1996, of which $18 to $22 million will be for new stores, the relocation and
expansion of existing stores and related improvements. The Company anticipates
spending $22 to $26 million in 1997 for capital expenditures, of which $19 to
$23 million will be for new stores, the relocation and expansion of existing
stores and related improvements. The Company expects that substantially all
future capital expenditures will be funded by net cash provided by operating
activities.
IMPACT OF INFLATION
The Company's results of operations and financial condition are presented
based upon historical cost. While it is difficult to accurately measure the
impact of inflation due to the imprecise nature of the estimates required, the
Company believes that the effects of inflation, if any, on its results of
operations and financial condition have been minor.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this Prospectus or made by management of the Company involve risks and
uncertainties, and are subject to change based on various important factors.
The following factors, among others, in some cases have affected and in the
future could affect the Company's financial performance and actual results and
could cause actual results for 1996 and beyond to differ materially from those
expressed or implied in any such forward-looking statements: changes in
consumer spending patterns, consumer preferences and overall economic
conditions, the impact of competition and pricing, changes in weather
patterns, political stability, currency and exchange risks and changes in
existing or potential duties, tariffs or quotas, availability of suitable
store locations at appropriate terms, ability to develop new merchandise and
ability to hire and train associates.
34
<PAGE>
BUSINESS
Abercrombie & Fitch is a rapidly growing specialty retailer of high-quality,
casual apparel for men and women approximately 15 to 50 years of age. The
Company's net sales have increased from $85.3 million in 1992 to $235.7
million in 1995, representing a compound annual growth rate of 40.3%. During
this time, operating income has improved from an operating loss of $10.2
million in 1992 to operating income of $23.8 million in 1995, while the number
of Abercrombie & Fitch stores in operation more than doubled, increasing from
40 at the end of 1992 to 100 at the end of 1995. The Company plans to continue
this new store expansion program by opening 29 new stores in 1996 and by
increasing the number of stores in operation by approximately 20% annually for
the next several years thereafter.
The Abercrombie & Fitch brand was established in 1892 and became well known
as a supplier of rugged, high-quality outdoor gear. Famous for outfitting the
safaris of Teddy Roosevelt and Ernest Hemingway and the expeditions of Admiral
Byrd to the North and South Poles, Abercrombie & Fitch goods were renowned for
their durability and dependability--and Abercrombie & Fitch placed a premium
on complete customer satisfaction with each item sold. In 1992, a new
management team began repositioning Abercrombie & Fitch as a more fashion-
oriented casual apparel business directed at men and women with a youthful
lifestyle. In reestablishing the Abercrombie & Fitch brand, the Company
combined its historical image for quality with a new emphasis on casual
American style and youthfulness. The Company believes that this strategic
decision has contributed to the strong growth and improved profitability it
has experienced since 1992.
Industry sources estimate that the men's and women's apparel market
generated approximately $127 billion in retail purchases in 1995. These
sources estimate that men's and women's apparel total sales volume grew at a
compound annual rate of approximately 3.9% between 1992 and 1995. Abercrombie
& Fitch's compound annual growth of 40.3% during this period has outpaced that
of the industry. The Company believes that the size of Abercrombie & Fitch's
market, coupled with its business strengths and growth strategies, should
provide significant opportunities for growth and increased market share in the
future.
BUSINESS STRENGTHS
The Company believes that certain business strengths have contributed to its
success in the past and will enable it to continue growing profitably.
ESTABLISHED AND DIFFERENTIATED LIFESTYLE BRAND. Abercrombie & Fitch has
created a focused and differentiated brand image based on quality,
youthfulness and classic American style. This image is consistently
communicated through all aspects of the Company's business, including
merchandise assortments, in-store marketing and print advertising. The Company
believes that the strength of the Abercrombie & Fitch brand provides
opportunities for increased penetration of current merchandise categories and
entry into new product categories.
BROAD AND GROWING APPEAL. The Company's merchandise assortment appeals to a
broad range of customers with varying ages and income levels. The Company
believes that both men and women interested in casual, classic American
fashion are attracted to the Abercrombie & Fitch lifestyle image. The Company
also believes that the brand's broad appeal has been augmented by, and should
continue to benefit from, the current trend in fashion toward casual apparel.
PROVEN MANAGEMENT TEAM. Since the current management team assumed
responsibility in 1992, the Company has increased the level of brand awareness
and consistently reported improved financial results. In addition, the
Company's senior management has significant experience, with an aggregate of
over one hundred years in the retail business. The Company believes that
management's
35
<PAGE>
substantial experience and demonstrated track record of highly profitable
growth strongly positions the Company for the future.
CONSISTENT STORE LEVEL EXECUTION. Abercrombie & Fitch believes that a major
element of its success is the consistent store level execution of its brand
strategy. Store presentation is tightly controlled by the Company and is based
on a detailed and comprehensive store plan regarding visual merchandising,
marketing and fixtures to assure that all stores provide a consistent
portrayal of the brand. Store associates are trained as "brand
representatives" who convey and reinforce the brand image through their
attitude and enthusiasm.
QUALITY. Since its founding over 100 years ago, Abercrombie & Fitch has
maintained a strong reputation for quality. This reputation has been enhanced
in recent years as management has made quality a defining element of the
brand. The Company sources high quality natural fabrics from around the world
and uses distinctive trim details and specialized washes to achieve a unique
style and comfort in its products. As part of this focus on quality, the
Company establishes on-going relationships with key factories to ensure
reliability and consistency of production.
INTERNAL DESIGN AND MERCHANDISING CAPABILITIES. The cornerstone of the
Company's business is its ability to design products which embody the
Abercrombie & Fitch image. Abercrombie & Fitch develops substantially all of
its merchandise line through its own design group, which allows it to develop
exclusive merchandise and offer a consistent assortment within a season and
from year to year. In addition, because the Company's merchandise is sold
exclusively in its own stores, Abercrombie & Fitch is able to control the
presentation and pricing of its merchandise, provide a higher level of
customer service and closely monitor retail sell-through, which provides
competitive advantages over other brand manufacturers that market their goods
through department stores.
RELATIONSHIP WITH THE LIMITED. Unlike most high growth, specialty apparel
retailers, Abercrombie & Fitch directly benefits from the resources and
expertise of a major retailer such as The Limited. Abercrombie & Fitch has
been able to concentrate the efforts of its management team and associates on
strengthening its brand image by taking advantage of The Limited's
capabilities in the areas of real estate negotiation and acquisition, central
distribution, sourcing, store design and construction and general corporate
services. The Company will continue to receive such services after the
Offerings pursuant to agreements to be entered into with The Limited. See
"Relationship with The Limited".
GROWTH STRATEGY
The Company has implemented a growth strategy designed to permit Abercrombie
& Fitch to capitalize on its business strengths. The principal elements of the
Company's growth strategy are summarized below:
NEW STORE GROWTH. Beginning in 1993, the Company began its store
expansion program, opening 9, 20 and 33 stores in 1993, 1994 and 1995,
respectively. The Company plans to continue this store expansion program by
opening 29 new stores in 1996 and increasing the number of stores in
operation by approximately 20% annually for the next several years
thereafter. While substantially all stores to be opened in 1996 will be in
regional shopping malls, the Company believes that selected street
locations in university and high-traffic urban settings also provide
attractive expansion opportunities. Given the strength of the Abercrombie &
Fitch brand and its customer demographics, management believes that, in the
current format, there will be approximately 250 to 350 additional mall and
street location sites available for new stores.
FURTHER PENETRATION OF EXISTING MERCHANDISE CATEGORIES. Management
believes that Abercrombie & Fitch's ability to design and market new
merchandise quickly and effectively has been a key element of its success.
In recent years the Company has significantly broadened its
36
<PAGE>
assortment in existing categories in order to increase volume and
productivity. Since 1993 the number of items offered in the Company's
assortment has increased approximately 75%. In 1996, the Company is
continuing to expand key categories. For example, the number of items in
the Fall 1996 men's outerwear line is approximately double the prior year's
highly successful offering, and the women's outerwear assortment has also
been expanded significantly. In addition, the Company recently introduced a
new line of men's underwear and loungewear, with a women's
underwear/sleepwear line planned for the 1996 holiday season. As a result
of the Company broadening its product mix, it has been able to flow fresh
merchandise to the stores on a more frequent basis. The Company has also
begun to offer a targeted assortment in its stores in the sunbelt in order
to better respond to differences in climate.
INTRODUCTION OF NEW MERCHANDISE CATEGORIES. The Company believes it can
successfully extend the Abercrombie & Fitch brand into new merchandise
categories and further increase sales productivity and growth. For the
holiday season in 1996, Abercrombie & Fitch will introduce a new line of
personal care products, including fragrances and soaps, as well as a
limited number of decorative home accessories. In addition, the Company
will offer its own uniquely designed line of sunglasses. The Company
believes that its internal design capability will continue to develop new
merchandise categories to capitalize on the Abercrombie & Fitch brand.
ABERCROMBIE & FITCH STORES
STORE ENVIRONMENT
Abercrombie & Fitch stores and point-of-sale marketing are designed to
convey the principal elements and personality of the brand--quality, casual
American fashion, and a youthful lifestyle. The store design, furniture,
fixtures and music are all carefully planned and coordinated to create a
shopping experience that is consistent with the Abercrombie & Fitch lifestyle.
The Company's in-store photographs are also principal components in creating
and enhancing the casual, energized environment of the stores. These
photographs, which are enlarged and displayed prominently throughout the
stores, contain distinctive black and white images of men and women engaged in
activities identified with an active, fun lifestyle. The Company believes that
its customers experience the Abercrombie & Fitch stores as entertaining
destinations, in which they feel welcomed and comfortable.
The Company's sales associates, or brand representatives, are a central
element in creating the entertaining, yet comfortable, atmosphere of the
stores. In addition to providing a high level of customer service, the brand
representatives reflect the casual, energetic attitude of the Abercrombie &
Fitch brand and culture. In conjunction with other components of the store
environment, the Company believes its brand representatives significantly
contribute to a store atmosphere that is consistent with a gathering among
friends.
Abercrombie & Fitch maintains a uniform appearance throughout its store
base, in terms of merchandise display and location on the selling floor. Store
managers receive detailed store plans that dictate fixture and merchandise
placement to ensure uniform execution of the merchandising strategy at the
store level. Standardization of store design and merchandise presentation also
creates cost savings in store furnishings, maximizes usage and productivity of
selling space and allows Abercrombie & Fitch to efficiently open new stores.
The Company has developed a new, more sophisticated store prototype that seeks
to further stress the casual, youthful nature of the Abercrombie & Fitch
brand. This is accomplished in part through the use of lighter colors
throughout the store and wood floors. The Company plans to introduce this
prototype in new stores and remodel selected existing stores beginning in Fall
1996.
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STORE EXPANSION PROGRAM
Abercrombie & Fitch stores are located principally in regional shopping
malls. At August 21, 1996, Abercrombie & Fitch operated 109 stores nationwide,
averaging 7,817 selling square feet. See "--Properties" for a listing of store
locations by state. The table below highlights the store expansion strategy
pursued by Abercrombie & Fitch:
<TABLE>
<CAPTION>
AVERAGE STORE
SELLING SPACE
STORES OPEN STORES STORES STORES OPEN TOTAL SELLING AT END OF
FISCAL AT BEGINNING OF OPENED DURING CLOSED DURING AT END OF SPACE FISCAL YEAR
YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR (000'S SQ. FT.) (SQ. FT.)
------ --------------- ------------- ------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1991.................... 27 10 1 36 287 7,972
1992.................... 36 4 -- 40 332 8,300
1993.................... 40 9 -- 49 405 8,265
1994.................... 49 20 2 67 541 8,075
1995.................... 67 33 -- 100 792 7,920
</TABLE>
Abercrombie & Fitch plans to open 29 stores in 1996 (of which nine have been
opened at August 21, 1996) and increase the number of stores in operation by
approximately 20% annually for the next several years thereafter. The Company
has identified the stores remaining to be opened in 1996, and expects them all
to be in operation before the holiday season. While substantially all stores
to be opened in 1996 will be in regional shopping malls, the Company believes
that selected street locations in university and high-traffic urban settings
also provide attractive expansion opportunities. In evaluating real estate
locations the Company considers a variety of criteria. Regional malls are
measured based on strength of anchor stores, the fashion and quality mix of
other specialty tenants and population and income characteristics of the
surrounding area. Non-mall locations are assessed in terms of strength of
other nearby specialty stores, and whether the shopping area attracts a
customer mix consistent with the lifestyle characteristics targeted by the
brand.
A key element of Abercrombie & Fitch's new store strategy is to open new
stores with trained managers in place. The Company targets that all managers
of new stores have prior experience in other Abercrombie & Fitch stores in
either the manager or assistant manager position.
NEW STORE ECONOMICS
The Company's stores that were open during all of 1995 averaged $2.9 million
in net sales and produced net sales per selling square foot of approximately
$365. The average cost for leasehold improvements, furniture and fixtures for
these stores was approximately $858,000 per store, after giving effect to
landlord allowances. Inventory purchases for such stores averaged $302,000 per
store. These stores generated an average after-tax return on investment
(after-tax four wall contribution divided by capital investment and average
inventory) of approximately 39% in 1995, or 65% on a pre-tax basis.
The Company estimates that the average cost for leasehold improvements,
furniture and fixtures for stores to be opened in 1996 will be approximately
$660,000 per store, after giving effect to landlord allowances. Average pre-
opening costs per store, which will be expensed as incurred, are expected to
be less than $25,000. In addition, inventory purchases are expected to average
approximately $300,000 per store.
Abercrombie & Fitch's stores have typically exceeded management's store
operating profitability and return on asset targets during the first year of
operation.
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MERCHANDISING
PRODUCT MIX
The Company designs and sells all of its merchandise under its proprietary
Abercrombie & Fitch brand. The merchandise assortment covers a broad range of
classifications in men's and women's casual apparel. In addition, the Company
offers a broad range of accessories that includes belts, socks, caps, boxers,
underwear and personal care products. Although the Company currently markets
dress shirts and ties, it has deemphasized these categories as the Company
decided such merchandise was not consistent with the Company's focus on casual
apparel.
The following table sets forth the Company's merchandise mix by major
category as a percentage of net sales for the years 1993-1995.
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Men's................................................ 76.0% 67.6% 60.2%
Women's.............................................. 24.0 32.4 39.8
----- ----- -----
Total Company...................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Over the past several years, the Company has increased the square footage
and the size of the merchandise offering devoted to women's sportswear, which
has resulted in an increase in the women's business as a percentage of total
net sales.
Abercrombie & Fitch believes that there are major opportunities to increase
volume through both increased penetration of the existing classifications and
adding new merchandise classifications. Management believes that Abercrombie &
Fitch's ability to design and market new merchandise quickly and effectively
has been a key element of its success. In recent years the Company has
significantly broadened its assortment in existing categories in order to
increase volume and productivity. Since 1993 the number of items offered in
the Company's assortment has increased approximately 75%. In 1996, the Company
is continuing to expand key categories. For example, the number of items in
the Fall 1996 men's outerwear line is approximately double the prior year's
highly successful offering, and the women's outerwear assortment has also been
expanded significantly. In addition, the Company recently introduced a new
line of men's underwear and loungewear, with a women's underwear/sleepwear
line planned for the 1996 holiday season. As a result of the Company
broadening its product mix, it has been able to flow fresh merchandise to the
stores on a more frequent basis. The Company has also begun to offer a
targeted assortment in its stores in the sunbelt in order to better respond to
differences in climate.
The Company believes it can extend the Abercrombie & Fitch brand into new
merchandise categories and further increase sales productivity and growth. For
the holiday season in 1996, Abercrombie & Fitch will introduce a new line of
personal care products, including fragrances and soaps, as well as a limited
number of decorative home accessories. In addition, the Company will offer its
own uniquely designed line of sunglasses. The Company believes that its
internal design capability will continue to develop new merchandise categories
to reflect the Abercrombie & Fitch image.
The Company's point-of-sale information system allows management to track
the performance of merchandise items on a stock-keeping unit, or SKU, basis.
Reorder "triggers" are used to replenish inventory of strong selling items. In
addition, performance by store at a SKU level is tracked to allow inventory to
be replenished based on differences in selling trends by store.
PRODUCT DESIGN
The cornerstone of the Company's business is its ability to design products
which embody the Abercrombie & Fitch image of a casual, youthful lifestyle.
Since the new management team joined the
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<PAGE>
Company in 1992, a major strategy has been to build an internal design group.
From the end of 1992, the design group has grown from a staff of three to more
than 30. The men's and women's businesses each maintain separate design and
merchant groups. The product development process begins with senior management
in the merchandising and design areas, who develop seasonal merchandise themes
and concepts. These concepts are used to create line lists of items that are
then developed by the designers. Designs cover not only fabric content,
specifications and colors, but also labels, hangtags, and other descriptive
marketing. In developing concepts and designs, the Company's executives
identify trends through domestic and foreign travel, retail shopping, and
awareness of activities favored by the young, active segment of the
population.
PRODUCT QUALITY
Throughout its over 100 year history, quality has been a major element of
the Abercrombie & Fitch brand. The Company strives to offer distinct, high
quality merchandise in order to enhance customer satisfaction and increase
brand loyalty. The Company emphasizes natural fibers and uses a number of
different washes to achieve the desired comfort and hand-feel in its products.
The Company's designers also place significant importance on developing
distinctive trim details. Many of the products have unique buttons, pocket
detailing, labels, graphic designs and hangtags. As part of this focus on
quality, the Company establishes on-going relationships with key factories to
ensure reliability and consistency of production. All factories used for the
Company's production are approved for quality and dependability by senior
management before orders are placed.
MARKETING AND PROMOTION
The Company's marketing and promotional strategies are consistent with its
established and differentiated lifestyle brand. The significant brand equity
in the Abercrombie & Fitch name enables the Company to maintain a non-
promotional price strategy in most of its merchandise classifications
throughout the year. The Company conducts two major season-end promotional
events each year. These events are intended to clear seasonal goods in advance
of introducing new full-priced assortments and returning the stores to their
generally non-promotional status. The Company's pricing strategy is designed
to deliver the quality consistent with designer brands at price points below
those typically associated with such designers.
The Company focuses its advertising efforts on in-store displays and print
media. In-store advertising includes a series of distinctive black and white
photographs that are enlarged and prominently displayed throughout the stores.
These photographs portray men and women engaged in activities identified with
an active and spirited lifestyle and connote the timeless quality associated
with the Abercrombie & Fitch brand. Print media advertising is focused on
selected national publications and, as with the in-store photographs,
communicates and reinforces the Abercrombie & Fitch brand image.
The Company has a proprietary credit card available to its customers,
representing in 1995 approximately 6% of net sales.
ASSOCIATES
Customer service is a defining feature of the Abercrombie & Fitch corporate
culture. The Company believes that knowledgeable and enthusiastic sales
associates have a direct impact on a customer's perception of the brand.
Accordingly, Abercrombie & Fitch focuses significant resources on the
selection and training of sales associates. Abercrombie & Fitch stresses the
role of these sales associates as "brand representatives" and they are
expected to reflect the lifestyle image of the brand. Brand representatives
are required to be familiar with the full range of Abercrombie & Fitch
merchandise and to have the ability to assist customers with merchandise
selection. The Company
40
<PAGE>
minimizes brand representatives' time spent on administrative functions by
centrally determining merchandise display and replenishment, markdowns and
labor scheduling. By emphasizing friendliness, product knowledge and personal
attention, management believes that Abercrombie & Fitch has established a
reputation for excellent customer service.
The typical management of an Abercrombie & Fitch store consists of one store
manager and three to five assistant managers. The Company compensates its
district and store managers with a base salary plus a performance bonus based
primarily on store sales. The Company's store, district and regional managers
spend a majority of their work week on Abercrombie & Fitch selling floors,
providing leadership through coaching the staff and assisting customers.
At August 3, 1996, the Company had approximately 3,800 associates, of whom
approximately 300 were full-time salaried associates and approximately 400
were full-time hourly associates. A significant number of associates are hired
on a seasonal basis to meet demand during holiday gift-buying seasons. The
balance were part-time hourly associates. None of the Company's associates is
represented by a labor union. The Company believes that its relationship with
its associates is good.
SOURCING
Abercrombie & Fitch utilizes a variety of sourcing arrangements. Mast
Industries, Inc. ("Mast"), a wholly owned subsidiary of The Limited, supplied
approximately 28% of the apparel purchased by the Company in 1995. The Company
believes all transactions entered into with Mast are on anarm's-length basis,
and Abercrombie & Fitch is not obligated to source product through Mast.
In 1995, approximately 56% of the Company's merchandise was sourced from
independent foreign factories located primarily in the Far East. The Company
has no long-term merchandise supply contracts and many of its imports are
subject to existing or potential duties, tariffs or quotas that may limit the
quantity of certain types of goods which may be imported into the United
States from countries in those regions. The Company competes with other
companies for production facilities and import quota capacity. In addition,
although the General Agreement on Tariffs and Trade ("GATT") adopted on
December 8, 1994 requires the elimination of duties, tariffs and quotas on
apparel and textile products by January 1, 2005, the GATT treaty is not
expected to have any meaningful effect on the import of merchandise used in
Abercrombie & Fitch's business for several years. Abercrombie & Fitch attempts
to monitor manufacturing to ensure that no one company or country is
responsible for a disproportionate amount of the Company's merchandise. The
Company typically transacts business on an order-by-order basis and does not
maintain any long-term or exclusive commitments or arrangements to purchase
from any vendor. The Company believes that it has good relationships with its
vendors and that, as the number of its stores increases, there will be
adequate sources to produce a sufficient supply of quality goods in a timely
manner and on satisfactory economic terms. See "Risk Factors--Factors
Affecting Abercrombie & Fitch's Business; Foreign Sourcing".
CENTRAL STORE PLANNING
The Company's store design and construction operations are handled centrally
by the store planning division of The Limited ("Limited Store Planning").
Limited Store Planning is organized into teams comprised of designers,
construction managers, architects, purchasing agents and financial personnel
who are responsible for all phases of store design and construction. Teams are
assigned to work with the senior management of a specific retail business
(including Abercrombie & Fitch) to develop and implement store designs that
are consistent with and promote the image of a given retail business.
Abercrombie & Fitch and The Limited intend to enter into an agreement pursuant
to which The Limited would continue to provide such services to Abercrombie &
Fitch on a basis consistent with past practices. The Limited will charge
Abercrombie & Fitch for such services on a basis consistent with amounts
charged by The Limited from time to time to its other businesses for
comparable services. See "Relationship with The Limited--Services Agreement".
41
<PAGE>
CENTRAL REAL ESTATE MANAGEMENT
The Company's real estate operations, including all aspects of lease
negotiations, are handled centrally by the real estate division of The
Limited. Abercrombie & Fitch and The Limited intend to enter into an agreement
pursuant to which The Limited would continue to provide such services to
Abercrombie & Fitch on a basis consistent with past practices. The Limited
will charge Abercrombie & Fitch for such services on a basis consistent with
amounts charged by The Limited from time to time to its other businesses for
comparable services. See "Relationship With The Limited--Services Agreement".
Potential new stores, locations, expansions and relocations are identified
by Abercrombie & Fitch and by The Limited's real estate division. In choosing
new sites for retail stores, The Limited's real estate division provides
financial details regarding the proposed lease arrangement to Abercrombie &
Fitch, which then evaluates the net required investment and potential rates of
return relative to the Company's established hurdle rates before the store is
approved for construction. The actual construction of the store is managed by
Limited Store Planning. Although the real estate division retains control over
the allocation of space within a given mall among the various retail
businesses of The Limited, including Abercrombie & Fitch, each individual
business is entitled to reject any transaction negotiated by the real estate
division of The Limited. See "Risk Factors--Potential Conflicts of Interest".
Real estate decisions are based on a number of factors, including consistency
with a given business image, sales and profit potential, the overall economic
condition and demographic characteristics of the market, the identity of the
other tenants in close proximity and the availability of acceptable lease
terms.
Although Abercrombie & Fitch's arrangement with The Limited may raise the
potential for conflicts of interest, Abercrombie & Fitch's management believes
the arrangement provides it with a significant competitive strength. Given The
Limited's substantial size, Abercrombie & Fitch's management believes that The
Limited is able to obtain lease terms and store sites on Abercrombie & Fitch's
behalf that are more favorable than those that Abercrombie & Fitch could
obtain on its own. Substantially all leases entered into by Abercrombie &
Fitch are guaranteed by The Limited. Abercrombie & Fitch's management believes
that its size and financial strength should allow it to enter into leases on
attractive terms without guarantees from The Limited, and it is the intent of
both The Limited and Abercrombie & Fitch that future Abercrombie & Fitch
leases will not be guaranteed by The Limited.
MERCHANDISE DISTRIBUTION
The Company's distribution operations are managed in a distribution center
owned by The Limited and subleased to Abercrombie & Fitch. See "Relationship
with The Limited--Sublease Agreement". The distribution center is located in
Reynoldsburg, Ohio. Once received at the distribution center, merchandise is
inspected, packed for delivery to the stores and forwarded to a central
shipping facility operated by Limited Distribution Services ("LDS"), a
subsidiary of The Limited, which also provides certain engineering services to
the distribution center.
LDS also maintains a worldwide logistics network of agents and space
availability arrangements to support the in-bound movement of merchandise into
the distribution center. The out-bound shipping system consists of common
carrier line haul routes connecting the distribution complex to a network of
delivery agents. This system allows each store operated by the Company to
receive several deliveries each week and daily during the peak holiday
shopping season, which the Company believes is more frequent than the
Company's smaller competitors. LDS does not own or operate trucks or trucking
facilities. Abercrombie & Fitch and The Limited intend to enter into an
agreement pursuant to which LDS would continue to provide such services to
Abercrombie & Fitch on a basis consistent with past practices. The Limited
will charge Abercrombie & Fitch for such services on a basis consistent with
amounts charged by The Limited from time to time to its other businesses for
comparable services. See "Relationship with The Limited--Services Agreement".
42
<PAGE>
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems and electronic data processing
systems consist of a full range of retail, financial, and merchandising
systems, including credit, inventory distribution and control, sales
reporting, accounts payable, merchandise reporting and distribution.
Abercrombie & Fitch has an information system that is uniquely structured to
the needs of its particular business. Certain of the equipment used in the
management information systems is owned by The Limited. Abercrombie & Fitch
and The Limited intend to enter into an agreement pursuant to which
Abercrombie & Fitch would continue to use such equipment on a basis consistent
with past practices. The Limited will charge Abercrombie & Fitch for such use
on a basis consistent with amounts charged by The Limited from time to time to
its other businesses for comparable services. See "Relationship with The
Limited--Services Agreement".
Sales are updated daily in the merchandise reporting systems by polling
sales information from each store's point-of-sale ("POS") terminals. The
Company's POS system consists of registers providing price look-up, scanning
of bar-coded tickets and credit authorization. Through automated nightly two-
way electronic communication with each store, sales information, payroll hours
and store initiated transfers are uploaded to the host system, and price
changes are downloaded through the POS devices. The nightly communication with
the stores also enables the Company to receive store transfer and physical
inventory details and send electronic mail. The Company evaluates information
obtained through daily reporting to implement merchandising decisions
regarding markdowns and allocation of merchandise.
TRADEMARKS AND SERVICEMARKS
A subsidiary of the Company is the owner in the United States of the
trademark Abercrombie & Fitch (the "Name Mark"). The Name Mark of the Company
is registered in the United States Patent and Trademark Office. The term of
this registration is ten years, and it is renewable for additional ten-year
periods indefinitely, so long as the mark is still in use at the time of
renewal. The Company's rights in its Name Mark are a significant part of the
Company's business. The Company, therefore, intends to maintain its Name Mark
and its registration. The Company is not aware of any claims of infringement
or other challenges to the Company's right to register or use its Name Mark in
the United States.
Another subsidiary is also the owner in the United States of trademarks and
service marks used to identify its merchandise and services, other than its
Name Mark (the "Merchandise Marks"). Many of the Merchandise Marks of the
Company are registered in the United States Patent and Trademark Office. The
Merchandise Marks are important to the Company, and, therefore, the Company
intends to, directly or indirectly, maintain these marks and their
registrations. However, the Company may choose not to renew a registration of
one or more of its Merchandise Marks if it determines that the mark is no
longer important to its business. The Company does not believe any material
claims of infringement or other challenges to the Company's right to register
or use its Merchandise Marks in the United States in a manner consistent with
its current practices are pending.
The Company also conducts business in foreign countries principally as a
result of the fact that a substantial portion of its merchandise is
manufactured outside the United States. The Company believes its subsidiaries
own registrations of its Name Mark and Merchandise Marks in numerous foreign
countries to the degree necessary to protect such marks, although there may be
restrictions on the use of certain of Abercrombie & Fitch's marks in a limited
number of foreign jurisdictions.
The Company has not licensed any of its trademarks or service marks to any
other entity, although, for so long as the Company remains a subsidiary of The
Limited, The Limited will be entitled to use the Company's trademarks and
service marks at no cost to The Limited in The Limited's annual report to
shareholders and publicity materials and for other similar purposes.
43
<PAGE>
COMPETITION
All aspects of the Company's businesses are highly competitive. The Company
competes primarily with department stores, mass merchandisers and other
specialty retailers, including The Limited. See "Risk Factors--Potential
Conflicts of Interest--Competition with The Limited". The Company believes
that the principal bases upon which it competes are quality, fashion, service,
selection and price.
The Company believes that it has significant competitive advantages because
of high consumer recognition and acceptance of its brand name and its strong
presence in the major shopping malls in the United States, its relationship
with The Limited and the experience of its management team. Certain of the
Company's competitors in selected product lines are larger and have greater
financial, marketing and other resources than the Company, however, and there
can be no assurance that the Company will be able to compete successfully with
them in the future.
PROPERTIES
The main offices of Abercrombie & Fitch are located in Reynoldsburg, Ohio.
These headquarters are owned by The Limited and subleased to Abercrombie &
Fitch. Abercrombie & Fitch also has a distribution center located in
Reynoldsburg, Ohio which is owned by The Limited and subleased to Abercrombie
& Fitch. Abercrombie & Fitch believes that its facilities are well maintained,
in good operating condition and adequate for its current needs. See
"Relationship with The Limited--Sublease Agreement".
As of August 21, 1996, Abercrombie & Fitch operated 109 stores, which are
located primarily in shopping malls throughout the United States. Of these
stores, 106 were leased directly from third parties (principally shopping mall
developers) and three were leased from retail stores operated by other
businesses of The Limited. See "Relationship with The Limited--Shared
Facilities Agreement". The Company believes that, as approximately 95% of its
stores are located in shopping malls, there are growth opportunities for
expansion to free-standing locations.
Leases with third parties are typically between 10 and 15 years in duration.
In most cases, the business unit pays an annual base rent plus a contingent
rent based on the store's annual sales in excess of a specified threshold.
Leases with other businesses of The Limited are on terms that represent the
proportionate share of the base rent payable in accordance with the underlying
lease plus the portion of any contingent rent payable in accordance with the
underlying lease attributable to the performance of Abercrombie & Fitch. Many
of the leases entered into by Abercrombie & Fitch are guaranteed by The
Limited. Abercrombie & Fitch management believes that its size and financial
strength should allow it to enter into leases on attractive terms without
guarantees from The Limited, and it is the intent of both The Limited and
Abercrombie & Fitch that future Abercrombie & Fitch leases will not be
guaranteed by The Limited.
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The map and store list below set forth the number of stores by state operated
by Abercrombie & Fitch in the United States and the cities in which Abercrombie
& Fitch stores are located as of August 21, 1996:
[GRAPHIC OF MAP]
ARIZONA--1 GEORGIA--5 MICHIGAN--5
Scottsdale Atlanta (4) Ann Arbor NEW MEXICO--1 OREGON--1
Savannah Detroit (3) Albuquerque Portland
CALIFORNIA--7
Grand Rapids NEW YORK--10
Los Angeles (2) ILLINOIS--6 PENNSYLVANIA--
5
Albany (2)
Sacramento Chicago (6) MINNESOTA--2 Buffalo
Langhorne
San Diego
Minneapolis- Manhasset
San Francisco (2) INDIANA--3 St. Paul (2) Philadelphia
Evansville (2)
New York City (2)
San Mateo
Rochester (2)
Pittsburgh
(2)
Indianapolis (2)
MISSOURI--3 Staten Island
COLORADO--4
Kansas City White Plains
Boulder KANSAS--2 St. Louis (2)
Denver (3) Kansas City (2) TENNESSEE--2
NORTH CAROLINA--3
Knoxville
NEBRASKA--1 Greensboro
CONNECTICUT--3 KENTUCKY--2 Omaha Raleigh Nashville
Hartford Lexington
Winston-Salem
Milford Louisville NEVADA--1 TEXAS--10
Austin (2)
Stamford
Las Vegas OHIO--4
LOUISIANA--1 Dallas (3)
Cincinnati
New Orleans Fort Worth
DISTRICT OF COLUMBIA--1 NEW HAMPSHIRE--1 Cleveland
Houston (3)
MASSACHUSETTS--6 Salem Columbus
FLORIDA--3 San Antonio
Boston (5)
Dayton
Orlando Holyoke NEW JERSEY--4
VIRGINIA--4
Tampa
Cherry Hill OKLAHOMA--2
W. Palm Beach MARYLAND--3 Edison Oklahoma City Arlington
Baltimore(2) Freehold Tulsa Fairfax
Towson Short Hills Tysons
Corner
Virginia
Beach
WASHINGTON--2
Seattle (2)
WISCONSIN--1
Green Bay
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LITIGATION
The Company is a defendant in lawsuits arising in the ordinary course of
business. Although the amount of any liability that could arise with respect
to any such lawsuit cannot be accurately predicted, in the opinion of
management, the resolution of these matters is not expected to have a material
adverse effect on the financial position or results of operations of the
Company.
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RELATIONSHIP WITH THE LIMITED
Upon completion of the Offerings, The Limited will own 100% of the
outstanding Class B Common Stock of Abercrombie & Fitch which will represent
approximately 94.9% of the combined voting power of all of the outstanding
Common Stock (or approximately 94.1% if the Underwriters' over-allotment
options are exercised in full). For so long as The Limited continues to own
shares of Common Stock representing more than 50% of the combined voting power
of the Common Stock of Abercrombie & Fitch, The Limited will be able, among
other things, to determine any corporate action requiring approval of holders
of Common Stock representing a majority of the combined voting power of the
Common Stock, including the election of the entire Board of Directors of
Abercrombie & Fitch, without the consent of the other shareholders of
Abercrombie & Fitch. Similarly, for so long as The Limited continues to own
shares of Common Stock representing more than 75% of the combined voting power
of the Common Stock of Abercrombie & Fitch, The Limited will be able, among
other things, to determine any corporate action requiring approval of holders
of Common Stock representing 75% of the combined voting power of the Common
Stock, including certain amendments to Abercrombie & Fitch's Certificate of
Incorporation and Bylaws and approval of certain mergers and other control
transactions, without the consent of the other shareholders of Abercrombie &
Fitch. Furthermore, for so long as The Limited holds 25% of the combined
voting power of the Common Stock of Abercrombie & Fitch it will be able to
block any corporate action requiring the approval of holders of Common Stock
representing more than 75% of the combined voting power of the Common Stock.
See "Description of Capital Stock". In addition, through its control of the
Board of Directors and beneficial ownership of Common Stock, The Limited will
be able to control certain decisions, including decisions with respect to
Abercrombie & Fitch's dividend policy, Abercrombie & Fitch's access to capital
(including borrowing from third-party lenders and the issuance of additional
equity securities), mergers or other business combinations involving
Abercrombie & Fitch, the acquisition or disposition of assets by Abercrombie &
Fitch and any change in control of Abercrombie & Fitch. The Limited has
advised Abercrombie & Fitch that its current intent is to continue to hold all
of the Class B Common Stock beneficially owned by it. However, The Limited has
no agreement with Abercrombie & Fitch not to sell or distribute such shares,
and, other than pursuant to the Underwriting Agreement, in which The Limited
will agree not to sell or otherwise dispose of any shares of Common Stock (or
any security convertible into or exchangeable or exercisable for Common Stock)
owned by it for a period of 180 days following the date of this Prospectus
without the prior written consent of the Representatives of the Underwriters,
subject to certain exceptions, there can be no assurance concerning the period
of time during which The Limited will maintain its beneficial ownership of
Common Stock. Beneficial ownership of at least 80% of the total voting power
and value of the outstanding Common Stock is required in order for The Limited
to continue to include Abercrombie & Fitch in its consolidated group for
federal income tax purposes and ownership of at least 80% of the total voting
power and 80% of each class of nonvoting capital stock is required in order
for The Limited to be able to effect a Tax-Free Spin-Off of Abercrombie &
Fitch. In the event The Limited's ownership decreases below 80%, all
borrowings under the Credit Agreement must be repaid. See "Description of
Certain Indebtedness--Credit Agreement".
Abercrombie & Fitch's relationship with The Limited will also be governed by
agreements to be entered into in connection with the Offerings, including a
services agreement, a corporate agreement, a shared facilities agreement and a
tax-sharing agreement, the material terms of which are described below. It is
anticipated that such agreements will be entered into concurrently with the
consummation of the Offerings. With respect to matters covered by the services
agreement, the relationship between The Limited and Abercrombie & Fitch is
intended to continue in a manner generally consistent with past practices.
BECAUSE ABERCROMBIE & FITCH IS A WHOLLY OWNED SUBSIDIARY OF THE LIMITED, NONE
OF THESE ARRANGEMENTS WILL RESULT FROM ARM'S-LENGTH NEGOTIATIONS AND,
THEREFORE, THE PRICES CHARGED TO THE COMPANY FOR SERVICES PROVIDED THEREUNDER
MAY BE HIGHER OR LOWER THAN PRICES THAT MAY BE CHARGED BY THIRD PARTIES.
47
<PAGE>
The descriptions set forth below are intended to be summaries and, while
material terms of the agreements are set forth herein, the descriptions are
qualified in their entirety by reference to the forms of the relevant
agreement filed with the Registration Statement of which this Prospectus forms
a part. Abercrombie & Fitch's Certificate of Incorporation also contains
provisions relating to the allocation of business opportunities that may be
suitable for either of The Limited or Abercrombie & Fitch and to the approval
of transactions between Abercrombie & Fitch and The Limited.
For additional information concerning the above-mentioned provisions of
Abercrombie & Fitch's Certificate of Incorporation and circumstances under
which the Class A Common Stock and Class B Common Stock may be converted, see
"Description of Capital Stock". For a description of certain intercompany
debt, see "Description of Certain Indebtedness--Intercompany Debt".
SERVICES AGREEMENT
The Company and The Limited intend to enter into an intercompany services
and operating agreement (the "Services Agreement") with respect to services to
be provided by The Limited (or subsidiaries of The Limited) to the Company.
The Services Agreement will provide that such services will be provided in
exchange for fees which (based on current costs for such services) management
believes would not exceed fees that would be paid if such services were
provided by an independent third party and which are consistent in all
material respects with the allocation of the costs of such services set forth
in the historical financial statements of Abercrombie & Fitch. See the
Consolidated Financial Statements included elsewhere herein. Management's
estimate of the net charge for services that would have been payable by the
Company in 1995 if the Services Agreement had been in effect during that
period is approximately $4.0 million, which is approximately the amount
included in the 1995 Consolidated Financial Statements. Such fees will be paid
monthly in arrears. The Company may request an expansion or termination of
services, in which case the parties will discuss, without obligation, the
provision or termination of such services and an appropriate change or
reduction in charges for such services, provided, however, that Abercrombie &
Fitch may not terminate a service if the termination of such service would
adversely affect the cost to The Limited of providing such service to other
businesses operated by The Limited. Services will be provided to Abercrombie &
Fitch based on several billing methodologies. Pursuant to one of such billing
methodologies, specified services will be provided to Abercrombie & Fitch at
costs comparable to those charged to other businesses operated by The Limited
from time to time, and Abercrombie & Fitch is obligated to purchase those
services at the specified costs. The billing methodologies with respect to
store design/planning and real estate services are based on a combination of
new and remodeled store construction projects and open selling square feet,
while the methodology with respect to import and shipping services is based on
a percentage of cartons shipped. Aircraft costs will be billed based on usage.
The billing methodology with respect to costs for services not specifically
attributable to the Company will be based on a percentage of sales. In the
event The Limited proposes changes in billing methodology which would result
in a significant increase (being the greater of a 10% increase in costs or $1
million) in costs for the affected services, the Company may terminate such
services.
The purpose of the Services Agreement is to ensure that The Limited
continues to provide to Abercrombie & Fitch the range of services that The
Limited provided to the Company prior to the Offerings. With respect to
matters covered by the Services Agreement, the relationship between The
Limited and Abercrombie & Fitch is intended to continue in a manner generally
consistent with current practices. The services initially to be provided by
The Limited to the Company include, among other things, certain accounting,
aircraft, associate benefit plan administration, audit, cash management,
corporate development, corporate secretary, governmental affairs, human
resources and compensation, investor and public relations, legal, risk
management, tax and treasury services. Pursuant to the Services Agreement, The
Limited will also continue to perform the store design/planning, real estate
and import and shipping services provided to Abercrombie & Fitch prior to the
Offerings. See "Business--Central Store Planning", "--Central Real Estate
Management" and "--Merchandise Distribution".
48
<PAGE>
In addition to the identified services, The Limited intends to agree to
continue coverage of the Company under The Limited's umbrella liability,
property, casualty and fiduciary insurance policies. The Company intends to
agree to reimburse The Limited for the portion of The Limited's premium cost
with respect to such insurance that is attributable to coverage of the
Company. Either The Limited or the Company may terminate such coverage under
The Limited's policies at any time upon prior written notice during the 90
days prior to the anniversary date of the policy; provided that termination of
coverage by Abercrombie & Fitch may only be for nonpayment and only if a
replacement policy, acceptable to The Limited, is entered into by Abercrombie
& Fitch.
Also, in addition to the identified services, The Limited intends to agree
to allow eligible associates of the Company to participate in The Limited's
associate benefit plans. In addition to a monthly services fee, under the
Services Agreement, the Company intends to agree to reimburse The Limited for
The Limited's costs (including any contributions and premium costs and
including certain third-party expenses and allocations of certain personnel
expenses of The Limited), generally in accordance with past practice, relating
to participation by the Company's associates in any of The Limited's benefit
plans.
The Services Agreement will have an initial term of five years and will be
renewed automatically thereafter for successive one-year terms unless either
Abercrombie & Fitch or The Limited elects not to renew the Services Agreement.
After the initial five-year term, the Services Agreement may be terminated at
any time by either party upon six months' written notice. The Services
Agreement will also provide that the Agreement will be subject to early
termination by either Abercrombie & Fitch or The Limited upon six months'
written notice if The Limited ceases to own shares of Common Stock
representing more than 50% of the combined voting power of the Common Stock of
Abercrombie & Fitch, whether as a result of a Tax-Free Spin-Off or otherwise.
Pursuant to the Services Agreement, each party will agree to indemnify the
other, except in certain limited circumstances, against liabilities that the
other may incur that are caused by or arise in connection with such party's
failure to fulfill its material obligations under the Services Agreement.
SUBLEASE AGREEMENT
Abercrombie & Fitch has entered into a sublease agreement with an affiliate
of The Limited (the "Sublease Agreement") pursuant to which such affiliate
subleases to Abercrombie & Fitch the distribution center and headquarters
office space currently used by Abercrombie & Fitch. The Sublease Agreement
provides that the lessee will lease space at an average annual rental rate
equal to $11.00 per square foot in the case of office space and $2.85 per
square foot in the case of the distribution center, subject to adjustment
based on the Consumer Price Index every third year. Abercrombie & Fitch's
management believes that these rental rates are commensurate with market
rates, although the Company did not seek bids from third parties. The net
charge paid by the Company in 1995 under the Sublease Agreement was
approximately $1.8 million, which is the amount included in the 1995
Consolidated Financial Statements.
The Sublease Agreement will have an initial term of fifteen years and will
be renewed automatically thereafter for eight successive five-year terms
unless either the lessor or the lessee (or sublessor or sublessee) elects not
to renew the Sublease Agreement upon at least one year's notice.
SHARED FACILITIES AGREEMENT
At August 21, 1996, three of the Company's stores were located in space
leased by other businesses controlled by The Limited. The Company and the
relevant businesses operated by The Limited intend to enter into shared
facilities agreements (collectively, the "Shared Facilities Agreement")
pursuant to which the Company will sublease such facilities from the relevant
subsidiary of The Limited. Under the Shared Facilities Agreement, the Company
will be responsible for its pro rata share (based on square feet occupied) of
all costs and expenses (principally fixed rent) under the
49
<PAGE>
relevant lease plus the portion of any performance based rent attributable to
the Company. This method of allocating such costs and expenses is consistent
in all material respects with the allocation of such costs and expenses set
forth in the historical financial statements of Abercrombie & Fitch. See the
Consolidated Financial Statements included elsewhere herein. Management's
estimate of the store lease and other occupancy costs charge that would have
been payable by the Company in 1995 if the Shared Facilities Agreement had
been in effect during that period is approximately $1.4 million.
TAX-SHARING AGREEMENT
Abercrombie & Fitch is, and after the Offerings will continue to be,
included in The Limited's federal consolidated income tax group and
Abercrombie & Fitch's tax liability will be included in the consolidated
federal income tax liability of The Limited and its subsidiaries. In certain
circumstances, certain Abercrombie & Fitch subsidiaries may be included with
certain subsidiaries of The Limited in combined, consolidated or unitary
income tax groups for state and local tax purposes. Abercrombie & Fitch and
The Limited intend to enter into a tax-sharing agreement (the "Tax-Sharing
Agreement"). Pursuant to the Tax-Sharing Agreement, Abercrombie & Fitch and
The Limited will make payments between them such that, with respect to any
period, the amount of taxes to be paid by Abercrombie & Fitch, subject to
certain adjustments, will be determined as though Abercrombie & Fitch were to
file separate federal, state and local income tax returns (including, except
as provided below, any amounts determined to be due as a result of a
redetermination of the tax liability of The Limited arising from an audit or
otherwise) as the common parent of an affiliated group of corporations filing
combined, consolidated or unitary (as applicable) federal, state and local
returns rather than a consolidated subsidiary of The Limited with respect to
federal, state and local income taxes. Abercrombie & Fitch will be reimbursed,
however, for tax attributes that it generates, such as net operating losses,
if and when they are used on a consolidated basis.
In determining the amount of tax-sharing payments under the Tax-Sharing
Agreement, The Limited will prepare for Abercrombie & Fitch pro forma returns
with respect to federal and applicable state and local income taxes that
reflect the same positions and elections used by The Limited in preparing the
returns for The Limited's consolidated group and other applicable groups. The
Limited will continue to have all the rights of a parent of a consolidated
group (and similar rights provided for by applicable state and local law with
respect to a parent of a combined, consolidated or unitary group), will be the
sole and exclusive agent for Abercrombie & Fitch in any and all matters
relating to the income, franchise and similar tax liabilities of Abercrombie &
Fitch, will have sole and exclusive responsibility for the preparation and
filing of consolidated federal and consolidated or combined state income tax
returns (or amended returns), and will have the power, in its sole discretion,
to contest or compromise any asserted tax adjustment or deficiency and to
file, litigate or compromise any claim for refund on behalf of Abercrombie &
Fitch. In addition, The Limited has agreed to undertake to provide the
aforementioned services with respect to Abercrombie & Fitch's separate state
and local returns and Abercrombie & Fitch's foreign returns. Under the Tax-
Sharing Agreement, Abercrombie & Fitch will pay The Limited a fee intended to
reimburse The Limited for all direct and indirect costs and expenses incurred
with respect to Abercrombie & Fitch's share of the overall costs and expenses
incurred by The Limited with respect to tax related services.
In general, the Company will be included in The Limited's consolidated group
for federal income tax purposes for so long as The Limited beneficially owns
at least 80% of the total voting power and value of the outstanding Common
Stock. Each member of a consolidated group is jointly and severally liable for
the federal income tax liability of each other member of the consolidated
group. Accordingly, although the Tax-Sharing Agreement allocates tax
liabilities between Abercrombie & Fitch and The Limited, during the period in
which the Company is included in The Limited's consolidated group, the Company
could be liable in the event that any federal tax liability is incurred, but
not discharged, by any other member of The Limited's consolidated group. See
"Risk Factors--Control by The Limited".
50
<PAGE>
CORPORATE AGREEMENT
The Company and The Limited intend to enter into a corporate agreement (the
"Corporate Agreement") under which the Company will grant to The Limited a
continuing option, transferable to any of its subsidiaries, to purchase, under
certain circumstances, additional shares of Class B Common Stock or shares of
nonvoting capital stock of the Company (the "Stock Option"). The Stock Option
may be exercised by The Limited simultaneously with the issuance of any equity
security of the Company (other than in the Offerings or upon the exercise of
the Underwriters' over-allotment options), with respect to Class B Common
Stock, only to the extent necessary to maintain its then-existing percentage
of the total voting power and value of the Company and, with respect to shares
of nonvoting capital stock, to the extent necessary to own 80% of each
outstanding class of such stock. The purchase price of the shares of Class B
Common Stock purchased upon any exercise of the Stock Option, subject to
certain exceptions, will be based on the market price at which such stock may
be purchased by third parties. The Stock Option expires in the event that The
Limited reduces its beneficial ownership of Common Stock in the Company to
Common Stock representing less than 60% of the number of outstanding shares of
Common Stock. The Company does not intend to issue additional shares of Class
B Common Stock except pursuant to the exercise of the Stock Option.
The Corporate Agreement will further provide that, upon the request of The
Limited, the Company will use its best efforts to effect the registration
under the applicable federal and state securities laws of any of the shares of
Class B Common Stock and nonvoting capital stock (and any other securities
issued in respect of or in exchange for either) held by The Limited for sale
in accordance with The Limited's intended method of disposition thereof, and
will take such other actions necessary to permit the sale thereof in other
jurisdictions, subject to certain limitations specified in the Corporate
Agreement. The Limited will also have the right, which it may exercise at any
time and from time to time, to include the shares of Class B Common Stock and
nonvoting capital stock (and any other securities issued in respect of or in
exchange for either) held by it in certain other registrations of common
equity securities of the Company initiated by the Company on its own behalf or
on behalf of its other shareholders. The Company will agree to pay all out-of-
pocket costs and expenses in connection with each such registration that The
Limited requests or in which The Limited participates. Subject to certain
limitations specified in the Corporate Agreement, such registration rights
will be assignable by The Limited and its assigns. The Corporate Agreement
will contain indemnification and contribution provisions: (i) by The Limited
and its permitted assigns for the benefit of the Company and related persons;
and (ii) by the Company for the benefit of The Limited and the other persons
entitled to effect registrations of Common Stock (and other securities)
pursuant to its terms and related persons.
For so long as The Limited maintains beneficial ownership of a majority of
the number of outstanding shares of Common Stock, the Company may not take any
action or enter into any commitment or agreement which may reasonably be
anticipated to result, with or without notice and with or without lapse of
time, or otherwise, in a contravention (or an event of default) by The Limited
of: (i) any provision of applicable law or regulation, including but not
limited to provisions pertaining to the Code or ERISA; (ii) any provision of
The Limited's certificate of incorporation or bylaws; (iii) any credit
agreement or other material instrument binding upon The Limited; or (iv) any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over The Limited or any of its respective assets. Except for
those provisions relating to corporate opportunities and limitations on
liabilities, the requirements for approval of certain business combinations
and other control transactions, as well as the capital structure of the two
companies, the Certificates of Incorporation and Bylaws of The Limited and
Abercrombie & Fitch are substantially similar. See "Description of Capital
Stock--Certain Certificate of Incorporation and Bylaw Provisions". The
Limited's certificate of incorporation and bylaws are filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
51
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning the executive
officers of the Company, each of whom assumed their position with the Company
on July 15, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Leslie H. Wexner........ 58 Chairman of the Board
Kenneth B. Gilman....... 50 Vice Chairman of the Board
Michael S. Jeffries..... 52 President and Chief Executive Officer and Director
Michele S. Donnan-Mar- 32 Vice President--General Merchandising Manager-Women's
tin....................
Seth R. Johnson......... 42 Vice President--Chief Financial Officer
</TABLE>
Mr. Wexner has been President and Chief Executive Officer of The Limited
since he founded The Limited in 1963 and Chairman of the Board for more than
five years. Mr. Wexner has also been the Chairman of the Board and Chief
Executive Officer of Intimate Brands since 1995. Mr. Wexner is also a director
of Hollinger International, Inc. and Hollinger International Publishing, Inc.
Mr. Gilman has been Vice Chairman and Chief Financial Officer of The Limited
since June 1993. For more than five years prior thereto, Mr. Gilman was
executive Vice President and Chief Financial Officer of The Limited. Mr.
Gilman has also been the Vice Chairman of the Board of Intimate Brands since
1995.
Mr. Jeffries has been President and Chief Executive Officer of Abercrombie &
Fitch since February 1992. For one and one-half years prior thereto, Mr.
Jeffries held the position of Executive Vice President--Merchandising for Paul
Harris Stores, Inc. For five years prior thereto, Mr. Jeffries held the
position of President and Chief Executive Officer of Alcott & Andrews.
Ms. Donnan-Martin has been Vice President--General Merchandising Manager--
Women's at Abercrombie & Fitch since February 1996. For three and one-half
years prior thereto, Ms. Donnan-Martin held the position of Vice President
Women's Merchandising at Abercrombie & Fitch. Prior to joining Abercrombie &
Fitch in June 1992, she held the position of Divisional Merchandise Manager
for J. Crew Group, Inc. for two years.
Mr. Johnson has been Vice President--Chief Financial Officer of Abercrombie
& Fitch since June 1992. Prior to 1992, Mr. Johnson held the position of
Director, Financial Analysis from 1989 to 1992 for The Limited.
The following table sets forth certain information concerning the members of
the Board of Directors of Abercrombie & Fitch, who in addition to Mr. Wexner,
Mr. Gilman and Mr. Jeffries, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
E. Gordon Gee................................................ 52 Director
Donald B. Shackelford........................................ 64 Director
Roger D. Blackwell........................................... 56 Director
</TABLE>
Dr. Gee has been President of The Ohio State University since September 1990
and was President of The University of Colorado for five years prior thereto.
Dr. Gee is also a director of ASARCO, Inc., Intimate Brands, Inc. and Banc One
Corporation.
Mr. Shackelford has been Chairman of the Board of State Savings Bank, a
banking business, for more than five years. Mr. Shackelford is also a director
of Progressive Corporation, Intimate Brands, Inc. and Worthington Foods, Inc.
52
<PAGE>
Dr. Blackwell has been a Professor of Marketing at The Ohio State University
for more than five years and is also President of Roger D. Blackwell
Associates, Inc., a consulting firm in Columbus, Ohio. Dr. Blackwell is also a
director of Worthington Foods, Inc., Checkpoint Systems, Inc., Intimate
Brands, Inc., Cheryl & Co., Inc., Max & Erma's Restaurants, Inc. and The Flex-
Funds.
Messrs. Wexner, Gilman, Gee and Shackelford are also members of the Board of
Directors of The Limited and Intimate Brands. Dr. Blackwell is also a director
of Intimate Brands. In addition to the foregoing directors, The Limited
intends to cause the appointment as director of Abercrombie & Fitch of one
additional director not associated with the Company or any of its affiliates
(such individual, the "Additional Independent Director").
In light of its voting power in the Company, The Limited has the ability to
change the size and composition of the Board of Directors.
Members of the Board of Directors are divided into three classes and serve
staggered three-year terms. Of the current members of the Board of Directors,
the term of Mr. Jeffries, Dr. Blackwell and Dr. Gee expires at the next annual
meeting of shareholders (expected to occur in the second quarter of 1997), the
term of Mr. Gilman and Mr. Shackelford expires at the annual meeting of
shareholders to be held in 1998 and the term of Mr. Wexner and the Additional
Independent Director expires at the annual meeting of shareholders to be held
in 1999.
The Board of Directors will have an audit committee consisting of Dr.
Blackwell and the Additional Independent Director which will review the
results and scope of the audit and other services provided by Abercrombie &
Fitch's independent auditors. The Board of Directors of Abercrombie & Fitch
also has a compensation committee consisting of Dr. Gee and Mr. Shackelford,
who are also the members of the compensation committee of the Board of
Directors of The Limited and Intimate Brands.
COMPENSATION OF DIRECTORS
Directors who are not associates of the Company receive an annual retainer
of $10,000 (increased by $1,500 for each committee chair held) plus a fee of
$800 for each Board of Directors' meeting attended ($400 for a telephonic
meeting) and, as committee members, receive $600 per committee meeting
attended ($200 for each telephonic meeting). Each action in writing taken by
the Board of Directors or any committee entitles each outside member to be
paid $200. In addition, pursuant to the Abercrombie & Fitch 1996 Stock Plan
for Non-Associate Directors (the "1996 Non- Associate Director Stock Plan")
described below, each non-associate director will receive annual grants of
options to acquire 2,000 shares of Class A Common Stock at an exercise price
equal to the fair market value of the underlying shares on the date of grant.
The annual retainer will be paid 50% in cash and 50% in Class A Common Stock
pursuant to the 1996 Non-Associate Director Stock Plan described below.
Associates and officers of the Company who are directors receive no additional
compensation for services rendered as directors.
53
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY
The information set forth below describes the components of the total
compensation paid by The Limited during its last completed fiscal year (the
last three completed fiscal years in the cases of Messrs. Wexner and Gilman)
to Mr. Wexner, who is the Chairman of the Board of Abercrombie & Fitch, and
Messrs. Gilman, Jeffries and Johnson and Ms. Donnan-Martin (the "named
executive officers"). Prior to the named individuals becoming executive
officers of Abercrombie & Fitch on July 15, 1996, such executive officers were
associates of The Limited. Messrs. Wexner and Gilman will continue their
employment with The Limited following the Offerings. It is expected that
Messrs. Wexner and Gilman will receive no cash compensation from Abercrombie &
Fitch, although they will be eligible for participation in the Abercrombie &
Fitch 1996 Stock Option and Performance Incentive Plan (the "Stock Plan")
discussed below. The annual base salary and annual bonus opportunity for
Messrs. Wexner and Gilman in respect of their service with The Limited and its
affiliates will continue to be determined by The Limited's compensation
committee and will be paid by The Limited. The compensation set forth below
was paid by The Limited to such individuals in respect of their employment
with The Limited.
The principal components of each such named executive officer's cash
compensation from The Limited have been the annual base salary and bonus as
set forth in the Summary Compensation Table. The bonus amounts represent
amounts that the compensation committee of the Board of Directors of The
Limited approved for each named individual based on the performance of The
Limited and Abercrombie & Fitch during 1995. The long-term compensation shown
in the Summary Compensation Table was provided under The Limited's 1993 Stock
Option and Performance Incentive Plan, which provides for various types of
awards such as options to acquire common stock of The Limited and restricted
common stock of The Limited. Messrs. Jeffries and Johnson and Ms. Donnan-
Martin will continue to be eligible to participate in such plan following the
Offerings. It is intended that substantially all the compensation to be paid
to Messrs. Jeffries and Johnson and Ms. Donnan-Martin after the Offerings will
be paid by the Company, not The Limited.
Immediately following the Offerings, the annual base salaries and annual
bonus opportunities of Messrs. Jeffries and Johnson and Ms. Donnan-Martin will
be at the levels as was determined by the compensation committee of The
Limited. Subsequently, the annual base salary and the annual bonus opportunity
of Messrs. Jeffries and Johnson and Ms. Donnan-Martin will be determined by
the compensation committee of the Company (the "Compensation Committee"). It
is anticipated that the base salary paid by the Company to Messrs. Jeffries
and Johnson and Ms. Donnan-Martin, and to all other executive officers
compensated by the Company rather than The Limited, will initially be
generally comparable to present levels of base salary received from The
Limited, subject to such adjustments as may be determined in the normal course
of business. In addition, in connection with the Offerings it is anticipated
that the Company will adopt three compensation plans. Pursuant to the 1996
Non-Associate Director Stock Plan, described more fully below, the Company
will grant on the effective date of the Offerings and on the first business
day of each fiscal year of the Company options to purchase 2,000 shares of
Class A Common Stock to each non-associate director of the Company. Pursuant
to the Abercrombie & Fitch Incentive Compensation Plan (the "Incentive Plan"),
described more fully below, eligible associates of the Company will be
eligible to receive cash bonuses based on attainment by the Company of certain
performance goals.
All of the named executive officers will be eligible to participate in the
Stock Plan and the Incentive Plan, pursuant to which it is anticipated that
incentive compensation awards will be granted after the Offerings. Effective
upon the consummation of the Offerings, it is expected that the Compensation
Committee will grant certain executive officers options to purchase 15,000
shares of the Company's Class A Common Stock under the Stock Plan with an
exercise price equal to the initial public offering
54
<PAGE>
price set forth on the cover page of this Prospectus. In addition, it is
anticipated that the Compensation Committee will grant, and in consideration
for the cancellation of certain previously granted options to purchase shares
of The Limited's common stock will offer to grant, to certain executive
officers and to non-executive officer associates options to purchase an
aggregate of up to 220,000 shares of the Company's Class A Common Stock under
the Stock Plan with an exercise price equal to the initial public offering
price set forth on the cover page of this Prospectus. These options would vest
in annual increments of 25% commencing on various dates beginning with the
first anniversary of the original grant date, other than the options offered
to be granted to Mr. Jeffries composed of three approximately equal tranches
which will vest generally in four equal annual installments commencing on the
first, second and third anniversaries of February 9, 1996, respectively,
subject in all cases to continued employment with the Company. See "--
Abercrombie & Fitch 1996 Stock Option and Performance Incentive Plan".
In addition, subject to the cancellation of the grants of restricted shares
of The Limited's common stock made on March 1, 1994 and February 2, 1996 to
certain executive officers, it is expected that such executive officers will
be granted, effective upon the consummation of the Offerings, an aggregate of
49,500 restricted shares of the Company's Class A Common Stock under the Stock
Plan, which shares will vest on March 1, 1999 and February 2, 2001,
respectively, subject to continued employment with the Company. See Note 3 to
the Summary Compensation Table below and "--Abercrombie & Fitch 1996 Stock
Option and Performance Incentive Plan". Effective upon the consummation of the
Offerings, it is expected that the Compensation Committee will grant certain
executive officers up to 5,500 restricted shares of the Company's Class A
Common Stock, which will vest 100% on the fifth anniversary of such
consummation, subject to continued employment with the Company.
The following table presents certain specific information regarding the
compensation paid by The Limited for the periods indicated to Mr. Wexner, the
Chairman of the Board of Abercrombie & Fitch, and to Messrs. Gilman, Jeffries
and Johnson and Ms. Donnan-Martin who have become executive officers of
Abercrombie & Fitch.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------- ---------------------------
SECURITIES ALL OTHER
NAME & RESTRICTED STOCK UNDERLYING COMPENSATION($)
PRINCIPAL POSITION YEAR(1) SALARY($) BONUS($)(2) AWARD(S)($)(3) OPTIONS(#) (4)
------------------ ------- ---------- ----------- ---------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Leslie H. Wexner(5)..... 1995 $1,150,000 $768,315 -- 100,000 $148,436
Chairman of the Board 1994 1,150,000 832,370 556,562 50,000 149,066
1993 1,150,000 660,100 2,150,000 0 147,836
Kenneth B. Gilman(5).... 1995 941,935 449,620 -- 25,000 190,772
Vice Chairman of the
Board 1994 896,144 473,760 278,281 25,000 185,736
1993 796,154 390,320 1,075,000 -- 157,926
Michael S. Jeffries..... 1995 491,700 426,300 159,393 12,000 104,772
President and Chief
Executive Officer
Michele S. Donnan-
Martin................. 1995 217,510 107,184 76,816 5,000 36,051
Vice President--General
Merchandising Manager-
Women's
Seth R. Johnson......... 1995 198,340 97,440 26,566 5,000 39,854
Vice President--Chief
Financial Officer
</TABLE>
- --------
(1) Under rules promulgated by the Commission, since the Company was not a
reporting company during the three immediately preceding fiscal years,
only the information with respect to the most recent completed fiscal year
is noted in the Summary Compensation Table except for such information
that was previously required to be filed with the Commission.
55
<PAGE>
(2) Represents, for each fiscal year, the aggregate of the performance-based
cash incentive compensation paid for the Spring and Fall selling seasons
occurring in that fiscal year.
(3) On February 1, 1996, 9,516, 1,586 and 1,586, restricted common stock
performance awards of The Limited were made to executive officers
Jeffries, Donnan-Martin and Johnson, respectively. The per share value of
the common stock of The Limited on such date was $16.75. These awards vest
10% on February 1, 1996, an additional 20% on February 1, 1997, an
additional 30% on February 1, 1998, and the remaining 40% on February 1,
1999, in each case subject to the holder's continued employment with The
Limited. On February 2, 1996, 3,000 restricted shares of The Limited were
awarded to Ms. Donnan-Martin. The per share value of the common stock of
The Limited on such date was $16.75. This award vests 100% on the fifth
anniversary of the award, subject to continued employment with The
Limited. As of February 2, 1996, the aggregate restricted stock holdings
in The Limited stock and the market value of such holdings for each of the
named executive officers were: Mr. Wexner, 132,500 shares, $2,219,375; Mr.
Gilman 66,250 shares; $1,109,688; Mr. Jeffries, 61,516 shares, $1,030,393;
Ms. Donnan-Martin, 6,586 shares, $110,316; Mr. Johnson, 3,586 shares,
$60,066 (based on the $16.75 fair market value of The Limited's common
stock on such date).
(4) Represents, for each named executive officer, the amount of employer
matching and supplemental contributions allocated to his/her account under
certain qualified and non-qualified defined contribution plans maintained
by The Limited during the calendar year in which the 1995 fiscal year
commenced. It is anticipated that after the Offerings the named executive
officers will continue to participate in such plans.
(5) Messrs. Wexner and Gilman are also employed by The Limited and received no
direct cash compensation from the Company. The annual base salary and
annual bonus opportunity for Messrs. Wexner and Gilman in respect of their
service with The Limited and its affiliates was determined by The
Limited's Compensation Committee and was paid by The Limited.
The following table sets forth certain information regarding options to
acquire common stock of The Limited granted to the named executive officers
during the 1995 fiscal year of The Limited.
OPTION GRANTS IN FISCAL YEAR 1995 INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
SECURITIES % OF ASSUMED ANNUAL RATES OF
UNDERLYING TOTAL OPTIONS STOCK PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(3)
GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------------------
NAME (#)(1) FISCAL YEAR(2) ($/SH) DATE 5.0%($) 10.0%($)
---- ---------- -------------- -------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Leslie H. Wexner...... 100,000 4.69% $17.50 3/1/05 $ 1,100,565 $ 2,789,049
Kenneth B. Gilman..... 5,714 0.27% 17.50 2/27/05 62,886 159,366
19,286 0.90% 17.50 3/1/05 212,255 537,896
Michael S. Jeffries... 5,800 0.27% 17.50 2/27/05 63,945 161,385
6,200 0.29% 17.50 3/1/05 68,355 172,515
Michele S. Donnan-
Martin............... 4,282 0.20% 17.50 2/27/05 47,209 119,147
718 0.03% 17.50 3/1/05 7,916 19,978
Seth R. Johnson....... 4,742 0.22% 17.50 2/27/05 52,281 131,946
258 0.01% 17.50 3/1/05 2,844 7,179
</TABLE>
- --------
(1) All options granted relate to shares of common stock of The Limited.
(2) All options listed were granted to the named executive officers pursuant
to The Limited's 1993 Stock Option and Performance Incentive Plan. All
such options become exercisable in four equal
56
<PAGE>
annual portions commencing on the first anniversary of the grant date. The
table above indicates that each named executive officer, other than Mr.
Wexner, received two such stock option grants during 1995. One grant
represents options intended to qualify as "incentive stock options" within
the meaning of Section 422 of the Code and the other represents non-
qualifying stock options. All such stock option grants were made on the
same day, February 28, 1995.
(3) The assumed rates of growth are prescribed by the Commission for
illustrative purposes only and are not intended to predict or forecast
future stock prices.
The following table provides information relating to the number and value of
shares of common stock of The Limited subject to options held by the named
executive officers as of February 2, 1996.
AGGREGATED OPTION EXERCISES IN 1995 FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) HELD AT FY-END ($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leslie H. Wexner........ -- -- 12,500 137,500 -- --
Kenneth B. Gilman....... -- -- 200,000 68,750 $376,562 --
Michael S. Jeffries..... -- -- 27,750 33,250 -- --
Michele S. Donnan-Mar-
tin.................... -- -- 10,500 12,500 -- --
Seth R. Johnson......... -- -- 20,750 14,250 29,250 --
</TABLE>
- --------
(1) Calculated on the basis of the number of shares of common stock of The
Limited subject to each such option multiplied by the excess of the $16.75
fair market value of a share of The Limited's common stock at fiscal year-
end over the per share exercise price of such option.
LONG-TERM INCENTIVE PLANS--AWARDS IN FISCAL YEAR 1995
No awards were granted in respect of the 1995 fiscal year to the named
executive officers other than the restricted stock performance awards granted
in The Limited, Inc. stock on February 1, 1996 to corporate officers Jeffries,
Donnan-Martin and Johnson, as disclosed in the Summary Compensation Table.
ABERCROMBIE & FITCH INCENTIVE COMPENSATION PLAN
It is anticipated that, prior to the consummation of the Offerings, the
Company's Board of Directors will adopt, and The Limited, as the Company's
sole shareholder, will approve, effective on the consummation of the
Offerings, the Incentive Plan. The Incentive Plan is intended to satisfy the
applicable provisions of Section 162(m) of the Code. Under the Incentive Plan,
approximately 30 key executives of the Company, other than Messrs. Wexner and
Gilman, with significant operating and financial responsibility are eligible
to earn seasonal cash incentive compensation payments that are paid twice each
year.
Prior to the beginning of each spring and fall selling season, operating
income and/or gross margin and/or sales objectives may be established by the
Compensation Committee of the Company. Any objectives set would expect a
stretch performance level, and be based on an analysis of historical
performance and growth expectations for the business, financial results of
other comparable businesses, and progress towards achieving the long-range
strategic plan for the business. These objectives and determination of results
are based entirely on financial measures, and discretion may not be used to
modify award results.
Annual incentive compensation targets established for eligible executives
will range from 10% to 110% of base salary, as established by the Company's
pay guidelines. Executives earn their target
57
<PAGE>
incentive compensation if the business achieves the established operating
income and/or gross margin and/or sales objectives. The target incentive
compensation percentage for each executive is based on the level and
functional responsibility of his or her position and competitive practices, in
that order of priority. For the named executive officers, annual incentive
compensation targets can range from 40% to 110% of base salary. The amount of
incentive compensation paid to executives can range from zero to double their
targets, based upon the extent to which operating income and/or gross margin
and/or sales objectives are achieved. The minimum level at which an executive
would earn any incentive payment, and the level at which an executive would
earn the maximum incentive payment of double the target, are established by
the Compensation Committee of the Company prior to the commencement of each
bonus period, and actual payouts are based on a straight-line interpolation
based on these minimum and maximum levels and the target operating income
objectives.
The maximum dollar amount to be paid for any year under the Incentive Plan
to each participant may not exceed $2 million.
ABERCROMBIE & FITCH 1996 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
It is anticipated that, prior to the consummation of the Offerings, the
Company's Board of Directors will adopt, and The Limited, as the Company's
sole shareholder, will approve, effective on the consummation of the
Offerings, the Stock Plan.
PURPOSE OF PLAN
The purpose of the Stock Plan is to attract and retain the best available
executive and key management associates for the Company and its subsidiaries
and to encourage the highest level of performance by such associates, thereby
enhancing the value of the Company for the benefit of its shareholders. The
Stock Plan is also intended to motivate executive and key management
associates to contribute to the Company's future growth and profitability and
to reward their performance in a manner that provides them with a means to
increase their holdings of the Class A Common Stock of the Company and aligns
their interests with the interests of the shareholders of the Company.
ADMINISTRATION OF THE STOCK PLAN
The Stock Plan will be administered by a committee of two or more members of
the Company's Board of Directors (the "Plan Committee"). The Plan Committee
will be composed of directors who qualify as "non-employee directors" within
the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and as "outside directors" within the meaning of
Section 162(m) of the Code. The Plan Committee has the power in its discretion
to grant awards under the Stock Plan, to determine the terms thereof, to
interpret the provisions of the Stock Plan and to take such action as it deems
necessary or advisable for the administration of the Stock Plan.
NUMBER OF AUTHORIZED SHARES
The Stock Plan provides for awards with respect to a maximum of 3,500,000
shares of Class A Common Stock, including any tax offset payments awarded at
the discretion of the Plan Committee, to associates of the Company and its
subsidiaries and to associates of The Limited and its subsidiaries during the
term of the Stock Plan. The number and class of shares available under the
Stock Plan and/or subject to outstanding awards may be adjusted by the Plan
Committee to prevent dilution or enlargement of rights in the event of various
changes in the capitalization of the Company.
ELIGIBILITY AND PARTICIPATION
Eligibility to participate in the Stock Plan is limited to the named
executive officers and full-time executive and key management associates of
the Company and its subsidiaries and to associates of The Limited and its
subsidiaries who are selected by the Plan Committee. Currently, approximately
500 associates of the Company and its subsidiaries, and approximately 250
associates of The Limited, are
58
<PAGE>
within the classes eligible to participate in the Stock Plan. The Company
anticipates that approximately 20% of those eligible associates will
participate in the Stock Plan. Participation in the Stock Plan is at the
discretion of the Plan Committee and shall be based upon the associate's
present and potential contributions to the success of the Company and its
subsidiaries and such other factors as the Plan Committee deems relevant. No
associate may be granted in any calendar year awards covering more than
400,000 shares of Class A Common Stock.
TYPE OF AWARDS UNDER THE STOCK PLAN
The Stock Plan provides that the Plan Committee may grant awards to eligible
associates in any of the following forms, subject to such terms, conditions
and provisions as the Plan Committee may determine to be necessary or
desirable: (i) incentive stock options; (ii) nonstatutory stock options;
(iii) stock appreciation rights; (iv) restricted shares; (v) performance
shares; (vi) performance units; (vii) shares of unrestricted Class A Common
Stock; and (viii) tax offset payments.
TERM OF STOCK PLAN
Unless earlier terminated by the Company's Board of Directors, the Stock
Plan will terminate on the tenth anniversary of the earlier of the adoption of
the Stock Plan by the Company's Board of Directors or the date of the
consummation of the Offerings.
AMENDMENT AND TERMINATION
The Company's Board of Directors may suspend, amend, modify or terminate the
Stock Plan.
ABERCROMBIE & FITCH 1996 STOCK PLAN FOR NON-ASSOCIATE DIRECTORS
It is anticipated that, prior to the consummation of the Offerings, the
Company's Board of Directors will adopt and The Limited, as the Company's sole
shareholder will approve, effective on the consummation of the Offerings, the
1996 Non-Associate Director Stock Plan. The following is a summary of the
material terms of the 1996 Non-Associate Director Stock Plan, a copy of which
is filed as an exhibit to the registration statement of which this Prospectus
is a part. The following summary does not purport to be complete and is
qualified in its entirety by the terms of the 1996 Non-Associate Director
Stock Plan.
PURPOSE OF PLAN
The purpose of the 1996 Non-Associate Director Stock Plan is to promote the
interests of the Company and its shareholders by increasing the proprietary
interest of non-associate directors in the growth and performance of the
Company.
ELIGIBILITY
The 1996 Non-Associate Director Stock Plan provides for awards of
nonqualified options to directors of the Company who are not associates of the
Company or its affiliates ("Eligible Directors").
TYPES OF AWARDS
Pursuant to the 1996 Non-Associate Director Stock Plan, on the effective
date of the Offerings each Eligible Director will be granted an option to
purchase 2,000 shares of Class A Common Stock at the price at which such
shares are offered to the public. Subsequently, on the first business day of
each fiscal year of the Company, commencing following the Offerings, each
Eligible Director will be granted an option to purchase 2,000 shares of Class
A Common Stock as of the first business day of such fiscal year at a per share
exercise price equal to the fair market value of a share of Class A Common
Stock on such date. Each option will: (i) vest in annual 25% increments
commencing on the first anniversary of the grant date; and (ii) expire on the
earlier of the tenth anniversary of the date of
59
<PAGE>
grant and one year from the date on which an optionee ceases to be an Eligible
Director. The exercise price per share of Class A Common Stock shall be 100%
of the fair market value per share on the date the option is granted. The
exercise price of options must be satisfied in cash.
In addition, the 1996 Non-Associate Director Stock Plan provides that each
Eligible Director will receive 50% of such Eligible Director's annual retainer
in unrestricted shares of Class A Common Stock, valued as of the last business
day of each fiscal quarter commencing hereafter.
NUMBER OF AUTHORIZED SHARES
The maximum number of shares of Class A Common Stock in respect of which
options may be granted and shares awarded in lieu of 50% of the annual
retainer under the 1996 Non-Associate Director Stock Plan is 100,000. Shares
of Class A Common Stock subject to options that are forfeited, terminated or
canceled will again be available for awards. The shares of Class A Common
Stock to be delivered under the 1996 Non-Associate Director Stock Plan will be
made available from the authorized but unissued shares of Class A Common Stock
or from treasury shares. The number and class of shares available under the
1996 Non-Associate Director Stock Plan and/or subject to outstanding options
may be adjusted by the Board of Directors to prevent dilution or enlargement
of rights in the event of various changes in the capitalization of the
Company.
ADMINISTRATION
The 1996 Non-Associate Director Stock Plan will be administered by the Board
of Directors. Subject to the provisions of the 1996 Non-Associate Director
Stock Plan, the Board shall be authorized to interpret the 1996 Non-Associate
Director Stock Plan, to establish, amend, and rescind any rules and
regulations relating to it and to make all other determinations necessary or
advisable for its administration; provided, however, that the Board shall have
no discretion with respect to the selection of directors to receive options,
the number of shares of Class A Common Stock subject to any such options, the
purchase price thereunder or the timing or term of grants of options. The
determinations of the Board in the administration of the 1996 Non-Associate
Director Stock Plan, as described herein, shall be final and conclusive. The
Secretary of the Company shall be authorized to implement the 1996 Non-
Associate Director Stock Plan in accordance with its terms and to take such
actions of a ministerial nature as shall be necessary to effectuate the intent
and purposes thereof. The validity, construction and effect of the 1996 Non-
Associate Director Stock Plan and any rules and regulations relating to it
shall be determined in accordance with the laws of the State of Delaware.
TRANSFERABILITY
The options granted under the 1996 Non-Associate Director Stock Plan may not
be assigned or transferred, except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order.
Shares issued under the 1996 Non-Associate Director Stock Plan in respect of
50% of the annual retainer may be assigned or transferred.
TERM OF PLAN
No option may be granted under the 1996 Non-Associate Director Stock Plan
after the tenth annual meeting of the Company's shareholders following the
consummation of the Offerings.
AMENDMENTS
The 1996 Non-Associate Director Stock Plan may be amended by the Company's
Board of Directors, as it shall deem advisable or to conform to any change in
any law or regulation applicable thereto; provided, that the Company's Board
of Directors may not, except in the limited circumstances
60
<PAGE>
described above, without the authorization and approval of shareholders: (i)
increase the number of shares of Class A Common Stock which may be purchased
pursuant to options, either individually or in the aggregate; (ii) change the
requirement that option grants be priced at fair market value; (iii) modify in
any respect the class of individuals who constitute Eligible Directors; or
(iv) materially increase benefits thereunder. The provisions governing
eligibility, the grant, terms and conditions of the options and the award of
shares of Class A Common Stock in respect of the annual retainer and, for
purposes of the 1996 Non-Associate Director Stock Plan, the amount of the
annual retainer, may not be amended more often than once every six months,
other than to comport with changes in the Code, ERISA or the rules under
either such statute.
AWARDS UNDER THE PLAN
The following table sets forth amounts to be paid to the Non-Associate
Director group in 1996 under the 1996 Non-Associate Director Stock Plan.
1996 NON-ASSOCIATE DIRECTOR STOCK PLAN BENEFITS TABLE
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE($) NUMBER OF UNITS
----------------- --------------- ---------------
<S> <C> <C>
Non-Associate Director Group (assuming four
non-associate directors)..................... $20,000(1) 8,000(2)
</TABLE>
- --------
(1) Consists of restricted shares of the Company's Class A Common Stock to be
issued in respect of 50% of each such director's annual retainer, valued
as of the date such retainer is paid.
(2) Consists of options to purchase shares of the Company's Class A Common
Stock at an exercise price equal to the fair market value on the date of
grant. Each such option will vest in 25% increments commencing on the
first anniversary of the date of grant.
FEDERAL INCOME TAX CONSEQUENCES.
There are no federal income consequences to an Eligible Director or to the
Company upon the grant of an option to an Eligible Director under the 1996
Non-Associate Director Stock Plan.
Eligible Directors, all of whom are subject to Section 16 of the Exchange
Act, who receive shares of Class A Common Stock either by reason of the
exercise of an option under the 1996 Non-Associate Director Stock Plan or in
respect of 50% of the annual retainer will not recognize ordinary income at
that time unless (i) an election is made by such Eligible Director under
Section 83(b) of the Code or (ii) the sale of such shares by such optionee at
a profit is no longer subject to Section 16(b) of the Exchange Act. Such
Eligible Director will instead recognize ordinary income equal to the fair
market value of such shares received (less the exercise price paid for the
shares, if any) on the first day that such a sale is no longer subject to
Section 16(b) of the Exchange Act, and the Company will generally be entitled
to a deduction of an equal amount for federal income tax purposes at that
time, provided that, applicable tax withholding requirements are satisfied.
In the alternative, such Eligible Director may elect under Section 83(b) of
the Code, within 30 days of the transfer of such shares to the Eligible
Director, to recognize income as summarized below at the time of receipt of
such shares. In the case of an option exercise, the amount so recognized will
be taxed as ordinary income to the Eligible Director in an amount the
difference between the option price and any higher fair market value of the
shares of Class A Common Stock, generally on the date of exercise, and the
Company will generally be entitled to a deduction of an equal amount for
federal income tax purposes at that time, provided that applicable tax
withholding requirements are satisfied. In the case of shares transferred to
an Eligible Director in respect of 50% of the annual retainer, the amount so
recognized will be taxed as ordinary income at the time of receipt in an
amount equal to the difference between the price paid, if any, for such shares
and any higher fair market value of such
61
<PAGE>
shares on the date of receipt, and the Company will generally be entitled to a
deduction of an equal amount for federal income tax purposes at that time,
provided that applicable tax withholding requirements are satisfied.
Any gain or loss realized by an Eligible Director on disposition of the
Class A Common Stock so acquired generally will be taxed as capital gain or
loss to such optionee, long-term or short-term depending on the holding
period, and will not result in any additional tax consequences to the Company.
The Eligible Director's basis in the shares for determining gain or loss on
the disposition will generally be the fair market value of such shares
determined under either of the procedures set forth above.
PRINCIPAL SHAREHOLDER
All of the 43,000,000 shares of Class B Common Stock outstanding prior to
the completion of the Offerings are beneficially owned by The Limited. Upon
consummation of the Offerings, The Limited will beneficially own 100% of the
Class B Common Stock and, accordingly, will own Common Stock representing
approximately 86.0% of the economic interest in the Company (84.2% if the
Underwriters' over-allotment options are exercised in full) and representing
approximately 94.9% of the combined voting power of the Company's outstanding
Common Stock (or 94.1% if the Underwriters' over-allotment options are
exercised in full). As of March 18, 1996 Leslie H. Wexner, Chairman of the
Company and Chairman of the Board, Chief Executive Officer and President of
The Limited, beneficially owned approximately 25.2% of the outstanding common
stock of The Limited. The address of The Limited is Three Limited Parkway,
Columbus, Ohio 43230.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have 7,000,000 shares of
Class A Common Stock issued and outstanding (8,050,000 if the Underwriters'
over-allotment options are exercised in full) and 43,000,000 shares of Class B
Common Stock issued and outstanding. All of the shares of Class A Common Stock
to be sold in the Offerings will be freely transferable and tradeable without
restrictions under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (as that term is defined in Rule 144 adopted under
the Securities Act ("Rule 144")), which will be subject to the resale
limitations of Rule 144. All of the outstanding shares of Class B Common Stock
are owned by The Limited and have not been registered under the Securities Act
and may not be sold in the absence of an effective registration statement
under the Securities Act other than in accordance with Rule 144 or another
exemption from registration. The Limited has certain rights to require the
Company to effect registration of shares of Class B Common Stock owned by The
Limited, which rights may be assigned. See "Relationship with The Limited--
Corporate Agreement".
In general, under Rule 144 as currently in effect, a person (including an
affiliate) who beneficially owns shares that are "restricted securities" as to
which at least two years have elapsed since the later of the date of
acquisition of such securities from the issuer or from an affiliate of the
issuer, and any affiliate who owns shares that are not "restricted
securities", is entitled to sell within any three-month period, a number of
shares that does not exceed (together with the sales by other persons required
to be aggregated) the greater of one percent of the total number of
outstanding shares of the class of stock being sold or the average weekly
reported trading volume of the class of stock being sold during the four
calendar weeks preceding the filing of the required notice of such sale. A
person (or persons whose shares are aggregated) who is not deemed an
"affiliate" of the Company and who has beneficially owned restricted
securities as to which at least three years have elapsed since the later of
the date of the acquisition of such securities from the issuer or from an
affiliate of the issuer is entitled to sell such shares without regard to the
volume limitations described above. As defined in Rule 144,
62
<PAGE>
an "affiliate" of an issuer is a person that directly or indirectly through
the use of one or more intermediaries controls, is controlled by, or is under
common control with, such issuer. The Commission has proposed reducing the
periods of beneficial ownership of "restricted securities" required by Rule
144. Under the proposal, persons who have beneficially owned restricted
securities for at least one year, instead of two years as currently required,
would be able to resell such securities by complying with the volume
limitations described above. In the case of a person who is not deemed to be
an affiliate of the Company during the preceding three months, the proposal
would permit sales without regard to the limitations described above as long
as at least two years have elapsed since the later of the date of the
acquisition of such securities from the issuer or from an affiliate of the
issuer, instead of three years as currently required. There can be no
assurance that the proposed revisions to Rule 144 will be adopted by the
Commission.
Rule 144A under the Securities Act ("Rule 144A") provides a non-exclusive
safe harbor exemption from the registration requirements of the Securities Act
for specified resales of restricted securities to certain institutional
investors. In general, Rule 144A allows unregistered resales of restricted
securities to a "qualified institutional buyer", which generally includes an
entity, acting for its own account or for the account of other qualified
institutional buyers, that in the aggregate owns or invests at least $100
million in securities of unaffiliated issuers. Rule 144A does not extend an
exemption to the offer or sale of securities that, when issued, were of the
same class as securities listed on a national securities exchange or quoted on
an automated quotation system.
Prior to the Offerings, there has been no market for the Class A Common
Stock. No predictions can be made of the effect, if any, that market sales of
currently outstanding shares of Class B Common Stock or the availability of
such shares for sale will have on the market price of Class A Common Stock
prevailing from time to time. Nevertheless, sales of substantial amounts of
Class B Common Stock in the public market, or the perception that such sales
could occur, could adversely affect prevailing market prices for Class A
Common Stock. Although The Limited in the future may effect or direct sales or
other dispositions of Common Stock that would reduce its beneficial ownership
interest in the Company, The Limited has advised the Company that its current
intention is to continue to hold all of the Class B Common Stock beneficially
owned by it immediately after the completion of the Offerings. However, The
Limited has no agreement with the Company not to sell or distribute such
shares and, other than pursuant to the Underwriting Agreement described below,
there can be no assurance concerning the period of time during which The
Limited will maintain its beneficial ownership of Common Stock. Beneficial
ownership of at least 80% of the total voting power and value of the
outstanding Common Stock is required in order for The Limited to continue to
include the Company in its consolidated group for federal tax purposes and
ownership of at least 80% of the total voting power and 80% of each class of
nonvoting capital stock is required in order for The Limited to be able to
effect a Tax-Free Spin-Off of the Company. The Limited has indicated to the
Company that any decision by The Limited to reduce such beneficial ownership
interest would be made in the future on the basis of all of the circumstances
existing at such time, including the effect of any such reduction on The
Limited (including any benefit to The Limited from the removal from The
Limited's consolidated balance sheet of the Company's indebtedness (and
assets) in the event The Limited's interest in the Common Stock is reduced
below 50%), the needs of The Limited, the performance of The Limited, stock
market conditions and other factors. In connection with the Offerings, subject
to certain exceptions, the Company and The Limited will agree with the
Underwriters not to sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock (or any security convertible into or exchangeable or
exercisable for Common Stock) for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representatives of the
Underwriters.
63
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company will consist of (a) 300,000,000
shares of Common Stock, par value $0.01 per share, of which: (i)150,000,000
shares will be designated as Class A Common Stock; and (ii) 150,000,000 shares
will be designated as Class B Common Stock; and (b) 15,000,000 shares of
Preferred Stock, of which no shares are outstanding as of the date hereof. Of
the 150,000,000 shares of Common Stock designated as Class A Common Stock,
7,000,000 shares are being offered hereby and 43,000,000 shares are reserved
for issuance upon conversion of Class B Common Stock into Class A Common
Stock. Of the 150,000,000 shares of Common Stock designated as Class B Common
Stock, 43,000,000 shares will be outstanding and held by The Limited upon
consummation of the Offerings. Each of the Class A Common Stock and Class B
Common Stock constitutes a series of Common Stock under the General
Corporation Law of the State of Delaware (the "DGCL"). A description of the
material terms and provisions of the Company's Certificate of Incorporation
affecting the relative rights of the Class A Common Stock, the Class B Common
Stock and the Preferred Stock is set forth below. The description is intended
as a summary and is qualified in its entirety by reference to the form of the
Company's Certificate of Incorporation filed with the Registration Statement
of which this Prospectus forms a part.
COMMON STOCK
VOTING RIGHTS
The holders of Class A Common Stock and Class B Common Stock generally have
identical rights except that holders of Class A Common Stock are entitled to
one vote per share while holders of Class B Common Stock are entitled to three
votes per share on all matters to be voted on by shareholders. Holders of
shares of Class A Common Stock and Class B Common Stock are not entitled to
cumulate their votes in the election of directors. Generally all matters to be
voted on by shareholders must be approved by a majority of the votes entitled
to be cast by all shares of Class A Common Stock and Class B Common Stock
present in person or represented by proxy, voting together as a single class,
subject to any voting rights granted to holders of any Preferred Stock.
However, the Company's Certificate of Incorporation includes, among other
things: (i) a requirement that a vote of at least 75% of the Common Stock held
by stockholders other than an Interested Person (as defined therein) is
required to effect a merger or consolidation with an Interested Person, a sale
of all or substantially all of the assets of the Company to an Interested
Person and certain other control transactions (unless such transaction shall
have been approved by a majority of Continuing Directors (as defined
therein)); and (ii) a provision specifying that certain provisions of the
Company's Certificate of Incorporation and Bylaws may be amended, and
directors may be removed, only with the approval of 75% of the outstanding
Common Stock.
DIVIDENDS
The Board of Directors of the Company currently intends to retain future
earnings for the development of its business and does not anticipate paying
regular quarterly dividends on the Class A Common Stock or Class B Common
Stock for the foreseeable future. Under Delaware law, the declaration of
dividends is within the discretion of the Board of Directors and future
dividends, if any, will depend upon various factors, including the Company's
net income, current and anticipated cash needs and any other factors deemed
relevant by the Board of Directors. By virtue of its stock ownership, The
Limited will have the ability to change the size and composition of the
Company's Board of Directors and thereby control the payments of dividends by
the Company. Pursuant to restrictions contained in the Credit Agreement, so
long as the Credit Agreement is outstanding, the Company is prohibited from
paying any dividends on its capital stock, including the Class A Common Stock.
See "Description of Certain Indebtedness--Credit Agreement".
CONVERSION
Prior to the earliest to occur of the date on which shares of Class B Common
Stock are issued to shareholders of The Limited or its successor in a Tax-Free
Spin-Off and the date on which the number
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of shares of Class B Common Stock outstanding is less than a majority of the
aggregate number of shares of Common Stock outstanding and a Tax-Free Spin-Off
has not occurred, each share of Class B Common Stock is convertible while held
by The Limited or any of its subsidiaries at such holder's option into one
share of Class A Common Stock. Any shares of Class B Common Stock transferred
to a person other than The Limited or any of its subsidiaries shall
automatically convert to shares of Class A Common Stock upon such disposition,
except for a disposition effected in connection with a transfer of Class B
Common Stock to shareholders of The Limited as a dividend intended to be a
Tax-Free Spin-Off. In the event of a Tax-Free Spin-Off, shares of Class B
Common Stock shall automatically convert into shares of Class A Common Stock
on the fifth anniversary of the Tax-Free Spin-Off unless prior to such Tax-
Free Spin-Off, The Limited delivers to the Company an opinion of counsel
(which counsel shall be reasonably satisfactory to the Company) to the effect
that such conversion would preclude The Limited from obtaining a favorable
ruling from the Internal Revenue Service that the distribution would be a Tax-
Free Spin-Off under the Code. If such an opinion is received, approval of such
conversion shall be submitted to a vote of the holders of the Abercrombie &
Fitch Common Stock as soon as practicable after the fifth anniversary of the
Tax-Free Spin-Off unless The Limited delivers to the Company an opinion of The
Limited's counsel (which counsel shall be reasonably satisfactory to the
Company) prior to such anniversary that such vote would adversely affect the
status of the Tax-Free Spin-Off. Approval of such conversion will require the
affirmative vote of the holders of a majority of the shares of both
Abercrombie & Fitch's Class A Common Stock and Class B Common Stock present
and voting, voting together as a single class, with each share entitled to one
vote for such purpose. No assurance can be given that such conversion would be
consummated. The Limited has no current plans with respect to a Tax-Free Spin-
Off of Abercrombie & Fitch.
The Limited will convert its Class B Common Stock to Class A Common Stock
immediately prior to a Tax-Free Spin-Off if, after such conversion, it would
have beneficial ownership of at least 80% of the value as well as the voting
power of the outstanding Common Stock. All shares of Class B Common Stock
shall automatically convert into Class A Common Stock if a Tax-Free Spin-Off
has not occurred and the number of outstanding shares of Class B Common Stock
falls below 60% of the aggregate number of outstanding shares of Common Stock.
This will prevent The Limited from decreasing its economic interest in the
Company to less than 60% while still retaining control of approximately 81.8%
of Abercrombie & Fitch's voting power. All conversions will be effected on a
share-for-share basis.
The requirement that The Limited retain beneficial ownership of at least 80%
of the voting power of the outstanding Common Stock after any conversion prior
to a Tax-Free Spin-Off is intended to ensure that the tax treatment of the
Tax-Free Spin-Off is preserved. Similarly, the requirement to submit such
conversion to a vote of the holders of Common Stock is intended to preserve
such tax treatment should the Internal Revenue Service challenge such
automatic conversion as violating the 80% vote requirement. Automatic
conversion of the Class B Common Stock into Class A Common Stock if a Tax-Free
Spin-Off has not occurred and The Limited decreases its economic interest in
the Company to less than 60% is intended to ensure that The Limited retains
voting control by virtue of its ownership of Class B Common Stock only if it
has a sizable economic interest in the Company.
In addition, in order to give any holder of the Class A Common Stock or
Class B Common Stock the right to participate in any offer for a significant
amount of the shares of the other class that is not similarly offered for the
shares of such holder's class, following a Tax-Free Spin-Off shares of Common
Stock of each class will be convertible, at the option of the registered
holder thereof, on a share-for-share basis, into shares of the other class if
any person (other than The Limited or any of its consolidated subsidiaries),
or any group of persons (other than The Limited or any one or more of its
subsidiaries), agreeing to act together for the purpose of acquiring, holding,
voting or disposing of shares of Common Stock, makes an offer which the
Company's Board of Directors deems to be a bona fide offer, to purchase 5% or
more of the other class of Common Stock for cash and/or other
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securities or property without making a similar offer for the shares of such
class. The shares of Common Stock of a class may only be so converted during
the period in which such bona fide offer is in effect. Any share of Common
Stock so converted and not acquired by the offeror prior to the termination,
rescission or completion of the offer will automatically reconvert to a share
of the class from which it was converted upon such termination, rescission or
completion.
OTHER RIGHTS
On liquidation, dissolution or winding up of the Company after payment in
full of the amounts required to be paid to holders of Preferred Stock, all
holders of Common Stock, regardless of class, are entitled to share ratably in
any assets available for distribution to holders of shares of Common Stock.
No shares of either class of Common Stock are subject to redemption or have
preemptive rights to purchase additional shares of Common Stock. However, see
"Relationship with The Limited--Corporate Agreement".
Upon consummation of the Offerings, all the outstanding shares of Class A
Common Stock and Class B Common Stock will be legally issued, fully paid and
nonassessable.
PREFERRED STOCK
The Preferred Stock is issuable from time to time in one or more series and
with such designations and preferences for each series as shall be stated in
the resolutions providing for the designation and issue of each such series
adopted by the Board of Directors of Abercrombie & Fitch. The Board of
Directors is authorized by Abercrombie & Fitch's Certificate of Incorporation
to determine the voting, dividend, redemption and liquidation preferences and
limitations pertaining to such series. The Board of Directors, without
shareholder approval, may issue Preferred Stock with voting and other rights
that could adversely affect the voting power of the holders of the Common
Stock and could have certain antitakeover effects. Abercrombie & Fitch has no
present plans to issue any shares of Preferred Stock. The ability of the Board
of Directors to issue Preferred Stock without shareholder approval could have
the effect of delaying, deferring or preventing a change in control of
Abercrombie & Fitch or the removal of existing management.
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
TRANSACTIONS WITH INTERESTED PARTIES
The Company's Certificate of Incorporation includes certain provisions
addressing potential conflicts of interest between the Company and The Limited
and its subsidiaries and regulating and defining the conduct of certain
affairs of the Company as they may involve the Company, The Limited and their
subsidiaries, directors and officers. The Company's Certificate of
Incorporation provides that no contract, agreement, arrangement or transaction
(or any amendment, modification or termination thereof) between the Company
and The Limited or any subsidiary of The Limited (other than the Company) or
between the Company and any entity in which a director of the Company has a
financial interest (a "Related Entity") or between the Company and any
director or officer of the Company, The Limited, any subsidiary of The Limited
or any Related Entity shall be void or voidable solely for the reason that The
Limited or such subsidiary, a Related Entity or any one or more of the
officers or directors of the Company, The Limited or such subsidiary or any
Related Entity are parties thereto, or solely because any such directors or
officers are present at, participate in or vote (which vote shall be counted)
with respect to the authorization of the contract, agreement, arrangement or
transaction (or any amendment, modification or termination thereof). FURTHER,
THE COMPANY'S CERTIFICATE OF INCORPORATION PROVIDES THAT THE LIMITED, ITS
SUBSIDIARIES AND ANY RELATED ENTITY SHALL NOT BE
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LIABLE TO THE COMPANY OR ITS SHAREHOLDERS FOR BREACH OF ANY FIDUCIARY DUTY OR
DUTY OF LOYALTY OR FAILURE TO ACT IN (OR NOT OPPOSED TO) THE BEST INTERESTS OF
THE COMPANY OR THE DERIVATION OF ANY IMPROPER PERSONAL BENEFIT BY REASON OF
THE FACT THAT THE LIMITED, SUCH SUBSIDIARY OR SUCH RELATED ENTITY IN GOOD
FAITH TAKES ANY ACTION OR EXERCISES ANY RIGHTS OR GIVES OR WITHHOLDS ANY
CONSENT IN CONNECTION WITH ANY AGREEMENT OR CONTRACT BETWEEN THE LIMITED, SUCH
SUBSIDIARY OR SUCH RELATED ENTITY AND THE COMPANY. No vote cast or other
action taken by any person who is an officer, director or other representative
of The Limited, such subsidiary or such Related Entity, which vote is cast or
action is taken by such person in his capacity as a director of the Company,
shall constitute an action of or the exercise of a right by or a consent of
The Limited, such subsidiary or such Related Entity for the purpose of any
such agreement or contract. See "Risk Factors".
CORPORATE OPPORTUNITIES
The Company's Certificate of Incorporation provides that except as The
Limited may otherwise agree in writing:
(i) neither The Limited nor any subsidiary of The Limited (other than the
Company) shall have a duty to refrain from engaging directly or indirectly
in the same or similar business activities or lines of business as the
Company; and
(ii) neither The Limited nor any subsidiary (other than the Company),
officer or director of The Limited (except as provided below) will be
liable to the Company or to its shareholders for breach of any fiduciary
duty by reason of any such activities or of such person's participation
therein.
The Company's Certificate of Incorporation also provides that if The Limited
or any subsidiary of The Limited (other than the Company) acquires knowledge
of a potential transaction or matter which may be a corporate opportunity both
for The Limited or such subsidiary and for the Company, neither The Limited
nor such subsidiary shall have a duty to communicate or offer such corporate
opportunity to the Company and shall not be liable to the Company or its
shareholders for breach of fiduciary duty as a shareholder of the Company or
controlling person of a shareholder by reason of the fact that The Limited or
such subsidiary pursues or acquires such opportunity for itself, directs such
corporate opportunity to another person, or does not communicate information
regarding such corporate opportunity to the Company.
Further, the Company's Certificate of Incorporation provides that in the
event that a director, officer or associate of the Company who is also a
director, officer or associate of The Limited or its subsidiaries acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for the Company, The Limited or its subsidiaries (whether such
potential transaction or matter is proposed by a third party or is conceived
of by such director, officer or associate of the Company), such director,
officer or associate shall be entitled to offer such corporate opportunity to
the Company, The Limited or such subsidiary as such director, officer or
associate deems appropriate under the circumstances in his or her sole
discretion, and no such director, officer or associate shall be liable to the
Company or its shareholders for breach of any fiduciary duty or duty of
loyalty or failure to act in (or not opposed to) the best interests of the
Company or the derivation of any improper personal benefit by reason of the
fact that (i) such director, officer or associate offered such corporate
opportunity to The Limited or such subsidiary (rather than the Company) or did
not communicate information regarding such corporate opportunity to the
Company or (ii) The Limited or such subsidiary pursues or acquires such
corporate opportunity for itself or directs such corporate opportunity to
another person or does not communicate information regarding such corporate
opportunity to the Company. The enforceability of the provisions discussed
above under Delaware corporate law has not been established and, due to the
absence of relevant judicial authority, counsel to the Company is not able to
deliver an opinion as to the enforceability of such provisions. These
provisions of the Company's Certificate of Incorporation eliminate certain
rights that might have been available to
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shareholders under Delaware law had such provisions not been included in the
Certificate of Incorporation, although the enforceability of such provisions
has not been established.
The Company's Board of Directors currently consists of six members, four of
whom serve concurrently as members of the Board of Directors of The Limited
and Intimate Brands and one of whom serves concurrently as a member of the
Board of Directors of Intimate Brands. In addition, a significant number of
associates and officers of the Company will also be associates or officers of
The Limited or its subsidiaries.
The foregoing provisions of the Company's Certificate of Incorporation shall
expire on the date that The Limited ceases to own beneficially Common Stock
representing at least 20% of the number of outstanding shares of Common Stock
and no person who is a director or officer of the Company is also a director
or officer of The Limited or its subsidiaries.
The affirmative vote of the holders of more than 75% of the aggregate voting
power of the Common Stock is required to alter, amend or repeal in a manner
adverse to the interests of The Limited, or adopt any provision adverse to the
interests of The Limited including provisions with respect to the interested
party and corporate opportunity provisions described above. Accordingly, so
long as The Limited beneficially owns Common Stock representing at least 25%
of the number of outstanding shares of Common Stock, it can prevent any such
alteration, amendment, repeal or adoption. See "Risk Factors--Control by The
Limited".
ACTIONS UNDER INTERCOMPANY AGREEMENTS
The Company's Certificate of Incorporation also limits the liability of The
Limited and its subsidiaries for certain breaches of their fiduciary duties in
connection with action that may be taken or not taken in good faith under the
intercompany agreements. See "Relationship with The Limited".
Any person purchasing or acquiring an interest in shares of capital stock of
the Company is deemed to have consented to the foregoing provisions relating
to intercompany agreements and the provisions set forth above relating to
transactions with interested parties and corporate opportunities. The
Certificate of Incorporation of The Limited does not include comparable
provisions relating to intercompany agreements, transactions with interested
parties or corporate opportunities.
ADVANCE NOTICE PROVISION
Abercrombie & Fitch's Bylaws provide for an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as for other shareholder
proposals to be considered at annual meetings of shareholders. In general,
notice of intent to nominate a director or raise matters at such meetings will
have to be received by Abercrombie & Fitch not less than 120 or more than 150
days prior to the first anniversary of Abercrombie & Fitch's proxy statement
in connection with the previous year's annual meeting, and must contain
certain information concerning the person to be nominated or the matters to be
brought before the meeting and concerning the shareholder submitting the
proposal.
THE DELAWARE GENERAL CORPORATION LAW
The Company is a Delaware corporation subject to Section 203 of the DGCL.
Section 203 provides that, subject to certain exceptions specified therein, a
corporation shall not engage in any business combination with any "interested
shareholder" for a three-year period following the date that such shareholder
becomes an interested shareholder unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder; (ii) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested shareholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction
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commenced (excluding certain shares); or (iii) on or subsequent to such date,
the business combination is approved by the Board of Directors of the
corporation and by the affirmative vote of at least 66% of the outstanding
voting stock which is not owned by the interested shareholder. Except as
specified in Section 203 of the DGCL, an interested shareholder is defined to
include (x) any person that is the owner of 15% or more of the outstanding
voting stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation, at any time within three years immediately prior to the
relevant date and (y) the affiliates and associates of any such person. Under
certain circumstances, Section 203 of the DGCL makes it more difficult for an
"interested shareholder" to effect various business combinations with the
Company for a three-year period, although the shareholders of the Company may
elect to exclude the Company from the restrictions imposed thereunder. By
virtue of its beneficial ownership of Class B Common Stock, The Limited is in
a position to elect to exclude the Company from the restrictions under Section
203 and currently has no intention to do so.
TRANSFER AGENT
The Company's transfer agent and registrar for its Common Stock is First
Chicago Trust Company of New York.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Following is a discussion of the material terms of certain indebtedness of
the Company.
INTERCOMPANY DEBT
Abercrombie & Fitch's subsidiaries have intercompany obligations to The
Limited in an aggregate amount of approximately $58.6 million. The long-term
Mirror Note in the amount of $50 million bears interest at the rate of 7.80%
per annum and matures on May 15, 2002. The interest rate and maturity of the
long-term Mirror Note parallel those of the corresponding debt of The Limited.
The Working Capital Note, representing indebtedness of $8.6 million, matures
on January 31, 1997 and bears interest at a rate of 6.75% per annum.
Additionally, the Company maintains an intercompany balance with The Limited
to facilitate intercompany transactions and centralized cash management
services. At August 3, 1996, the Company had an intercompany payable balance
of $8,557,000. The Company and The Limited's intention is that the
intercompany balance will be a long-term source of financing or investment.
The intercompany payable balance will bear interest based on the Federal
Reserve AA composite 30-day rate.
CREDIT AGREEMENT
Two subsidiaries of the Company, Abercrombie & Fitch Stores, Inc. and A & F
Trademark, Inc. (each a "Borrower" and together, the "Borrowers"), are parties
to the Credit Agreement with the banks listed therein and Chase Manhattan
Bank, as agent, pursuant to which such subsidiaries entered into a five-year
term loan facility. Under the Credit Agreement, such subsidiaries borrowed an
aggregate amount of $150 million. The amounts borrowed are repayable in nine
consecutive semi-annual installments, commencing on June 30, 1997 and ending
on June 30, 2001, provided, that borrowings must be repaid in an amount equal
to the Excess Cash Flow (as defined therein) of the Company, which amount will
include the net proceeds of the Offerings. The aggregate amount payable on
each June 30 and December 31 is $10 million and $25 million, respectively.
Interest on borrowings under the Credit Agreement accrues, at each of the
Borrowers' option, at either a base rate or a rate based on the London
Interbank Offered Rate ("LIBOR"). Base rate borrowings accrue interest at the
higher of the prime rate (announced by Chase Manhattan Bank in New York), or
the Federal Funds Rate plus .5%. LIBOR borrowings accrue interest at the rate
of interest published by the Telerate Service (or if such rate is not
available, then the rate of interest at which dollar deposits of $5 million
are available to the Agent in the London interbank market) plus a certain
margin. Optional prepayments of the borrowings shall be applied to the
repayment installments pro rata and may not be reborrowed.
Borrowings under the Credit Agreement are guaranteed by the Company and by
Abercrombie & Fitch Holding Corporation ("Holdings"), a wholly-owned
subsidiary of the Company and the holding company parent of Abercrombie &
Fitch Stores, Inc. In addition, each of the Borrowers have guaranteed all
obligations of the other Borrower. In the event that (a) A & F Trademark, Inc.
or Holdings is neither a direct, wholly-owned subsidiary of the Company, (b)
Abercrombie & Fitch Stores, Inc. ceases to be a direct, wholly-owned
subsidiary of Holdings nor a direct wholly-owned subsidiary of the Company or
(c) The Limited ceases to own directly at least 80% of the outstanding capital
stock of the Company or the Company and its consolidated subsidiaries cease to
be consolidated subsidiaries of The Limited, all borrowings will be subject to
mandatory prepayment.
The Credit Agreement contains financial covenants including an interest and
rental expense coverage ratio and a maximum ratio of debt to EBITDA (as
defined therein). The Credit Agreement also provides for limitations on
mergers, consolidations, acquisitions, sale of assets, transactions with
affiliates, sale and lease-back transactions, liens, capital expenditures,
debt and investments. The Credit Agreement also prohibits the payment by the
Company of dividends on its capital stock, including the Class A Common Stock.
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CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of the
Common Stock applicable to Non-United States Holders of such Common Stock. For
the purpose of this discussion, a "Non-United States Holder" is any holder
that is, as to the United States, a foreign corporation, a non-resident alien
individual, a foreign partnership or a non-resident fiduciary of a foreign
estate or trust as such terms are defined in the Code. This discussion does
not deal with all aspects of United States federal income and estate taxation
and does not deal with foreign, state and local tax consequences that may be
relevant to Non-United States Holders in light of their personal
circumstances. Furthermore, the following discussion is based on current
provisions of the Code and administrative and judicial interpretations as of
the date hereof, all of which are subject to change. Prospective foreign
investors are urged to consult their tax advisors regarding the United States
federal, state, local and non-United States income and other tax consequences
of owning and disposing of Common Stock.
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, would affect the United States
taxation of dividends paid to a Non-United States Holder on Common Stock. The
Proposed Regulations are generally proposed to be effective with respect to
dividends paid after December 31, 1997, subject to certain transition rules.
The discussion below is not intended to be a complete discussion of the
provisions of the Proposed Regulations, and prospective investors are urged to
consult their tax advisors with respect to the effect the Proposed Regulations
would have if adopted.
DIVIDENDS
Generally, any dividend paid to a Non-United States Holder of Common Stock
will be subject to United States withholding tax either at a rate of 30% of
the gross amount of the dividend or such lower rate as may be specified by an
applicable tax treaty. Under current United States Treasury regulations,
dividends paid to an address outside the United States are presumed to be paid
to a resident of such country (absent knowledge that such presumption is not
warranted) for purposes of the withholding discussed above and, under the
current interpretation of United States Treasury regulations, for purposes of
determining applicability of a tax treaty rate.
Under the Proposed Regulations, to obtain a reduced rate of withholding
under a treaty, a Non-United States Holder would generally be required to
provide an Internal Revenue Service Form W-8 certifying such Non-United States
Holder's entitlement to benefits under a treaty. The Proposed Regulations
would also provide special rules to determine whether, for purposes of
determining the applicability of a tax treaty, dividends paid to a Non-United
States Holder that is an entity should be treated as paid to the entity or
those holding an interest in that entity.
Dividends received by a Non-United States Holder that are effectively
connected with a United States trade or business conducted by such Non-United
States Holder are exempt from such withholding tax. However, such effectively
connected dividends, net of certain deductions and credits, are taxed at the
same graduated rates applicable to United States persons. A Non-United States
Holder may claim exemption from withholding under the effectively connected
income exception by filing Form 4224 (Statement Claiming Exemption from
Withholding of Tax on Income Effectively Connected With the Conduct of
Business in the United States) each year with the Company or its paying agent
prior to the payment of the dividends for such year. In addition to the
graduated tax described above, dividends received by a corporate Non-United
States Holder that are effectively connected with a United States trade or
business of the corporate Non-United States Holder may also be subject to a
branch profits tax at a rate of 30% or such lower rate as may be specified by
an applicable tax treaty.
A Non-United States Holder of Common Stock eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for
refund with the U.S. Internal Revenue Service.
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GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
his Common Stock unless: (i) such gain is effectively connected with a United
States trade or business of the Non-United States Holder; (ii) the Non-United
States Holder is an individual who holds such Common Stock as a capital asset
and who is present in the United States for a period or periods aggregating
183 days or more during the calendar year in which such sale or disposition
occurs and certain other conditions are met; or (iii) the Company is or has
been a "United States real property holding corporation" for federal income
tax purposes at any time within the shorter of the five-year period preceding
such disposition or such holder's holding period. The Company has determined
that it is not and does not believe that it will become a "United States real
property holding corporation" for federal income tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the
amount, if any, of tax withheld. A similar report is sent to the holder.
Pursuant to tax treaties or other agreements, the U.S. Internal Revenue
Service may make its reports available to tax authorities in the recipient's
country of residence.
Dividends paid to a Non-United States Holder at an address within the United
States may be subject to backup withholding at a rate of 31% if the Non-United
States Holder fails to establish that it is entitled to an exemption or to
provide a correct taxpayer identification number and other information to the
payor. Backup withholding will generally not apply to dividends paid to Non-
United States Holders at an address outside the United States (unless the
payor has knowledge that the payee is a U.S. person).
The payment of the proceeds of the disposition of Common Stock to or through
the United States office of a broker is subject to information reporting and
backup withholding at a rate of 31% unless the holder certifies its non-United
States status under penalties of perjury or otherwise establishes an
exemption. Generally, the payment of the proceeds of the disposition by a Non-
United States Holder of Common Stock outside the United States to or through a
foreign office of a broker will not be subject to backup withholding. However,
information reporting requirements (but not backup withholding) will apply to
a payment of disposition proceeds outside the United States through an office
outside the United States of a broker that is (a) a United States person, (b)
a United States "controlled foreign corporation" for U.S. tax purposes or (c)
a foreign person 50% or more of whose gross income for certain periods is from
the conduct of a United States trade or business unless such broker has
documentary evidence in its files of the owner's foreign status and has no
actual knowledge to the contrary or the holder otherwise establishes an
exemption.
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-United States Holder would be subject
to backup withholding and information reporting unless the Company receives
certification from the holder of non-U.S. status.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
ESTATE TAX
An individual Non-United States Holder who owns Common Stock at the time of
his death or has made certain lifetime transfers of an interest in Common
Stock will be required to include the value of such Stock in his gross estate
for United States federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
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LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
by Davis Polk & Wardwell, New York, New York. Certain legal matters in
connection with the Class A Common Stock offered hereby will be passed upon
for the Underwriters by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), New York, New York.
EXPERTS
The balance sheet of Abercrombie & Fitch Co. as of July 11, 1996 and the
consolidated balance sheet of the Abercrombie & Fitch Business as of January
28, 1995 and February 3, 1996, and the related consolidated statements of
operations and cash flows for each of the three fiscal years in the period
ended February 3, 1996 included in this Prospectus have been audited by
Coopers & Lybrand L.L.P., independent auditors, as stated in their reports
appearing herein, and have been included in reliance upon such reports given
upon the authority of that firm as experts in accounting and auditing.
73
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Abercrombie & Fitch Co. Financial Statements:
Report of Independent Accountants......................................... F-2
Balance Sheet............................................................. F-3
Notes to Balance Sheet.................................................... F-4
Abercrombie & Fitch Business Financial Statements:
Report of Independent Accountants......................................... F-5
Consolidated Statements of Operations..................................... F-6
Consolidated Balance Sheets............................................... F-7
Consolidated Statements of Cash Flows..................................... F-8
Notes to Consolidated Financial Statements................................ F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Abercrombie & Fitch Co.
We have audited the accompanying balance sheet of Abercrombie & Fitch Co. as
of July 11, 1996. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Abercrombie & Fitch Co. as of
July 11, 1996, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, OhioJuly 11, 1996
F-2
<PAGE>
ABERCROMBIE & FITCH CO.
BALANCE SHEET
JULY 11, 1996
($ IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash.................................................................... $ 1
===
SHAREHOLDER'S EQUITY
Common Stock, $.10 par value; 1,000 shares authorized; 1,000 shares issued
and outstanding..........................................................
Paid-in capital........................................................... $ 1
Retained earnings......................................................... --
---
Total shareholder's equity.............................................. $ 1
===
</TABLE>
The accompanying notes are an integral part of the balance sheet.
F-3
<PAGE>
ABERCROMBIE & FITCH CO.
NOTES TO BALANCE SHEET
1. ORGANIZATION
Abercrombie & Fitch Co. was incorporated on June 26, 1996, and, except for
organizational matters and activities undertaken in connection with the
proposed initial public offering of its common shares, has been inactive since
that date. As a result, the Company has not had any income or expenses. On
July 11, 1996 the Company issued 1,000 common shares to its sole shareholder,
The Limited, Inc. ("The Limited") for cash.
2. PLANNED TRANSACTIONS
As a result of a Board Resolution by the directors of The Limited, Inc., The
Limited will contribute the stock of Abercrombie & Fitch Holdings, the parent
company of the Abercrombie & Fitch Business, and A&F Trademark, Inc. to
Abercrombie & Fitch Co. Prior to the public offering of its shares, the
Company's certificate of incorporation will be amended to authorize 15,000,000
shares of preferred stock and 150,000,000 shares of Class A common stock and
150,000,000 shares of Class B common stock, each with a par value of $.01 per
share. Holders of Class A common stock generally will have identical rights to
holders of Class B common stock except that holders of Class A common stock
will be entitled to one vote per share while holders of Class B common stock
will be entitled to three votes per share on all matters submitted to a vote
of shareholders. Each share of Class B common stock will be convertible while
held by The Limited or any of its subsidiaries into one share of Class A
common stock.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of the Abercrombie & Fitch Business
We have audited the accompanying consolidated balance sheets of the
Abercrombie & Fitch Business as of January 28, 1995 and February 3, 1996, and
the related consolidated statements of operations and cash flows for each of
the three fiscal years in the period ended February 3, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 consolidated 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the
Abercrombie & Fitch Business as of January 28, 1995 and February 3, 1996 and
the consolidated results of its operations and its cash flows for each of the
three fiscal years in the period ended February 3, 1996 in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, OhioJuly 11, 1996
F-5
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEAR ENDED WEEKS ENDED
----------------------------------- -------------------
(UNAUDITED)
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
----------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $110,952 $165,463 $235,659 $72,045 $108,451
Cost of goods sold,
occupancy and buying
costs.................. 80,390 108,643 155,865 51,594 75,505
-------- -------- -------- ------- --------
Gross income............ 30,562 56,820 79,794 20,451 32,946
General, administrative
and store operating
expenses............... 30,240 43,069 55,996 21,970 31,520
Special and nonrecurring
items.................. 4,386 -- -- -- --
-------- -------- -------- ------- --------
Operating income (loss)
....................... (4,064) 13,751 23,798 (1,519) 1,426
Interest expense........ -- -- -- -- 1,151
-------- -------- -------- ------- --------
Income (loss) before
income taxes (4,064) 13,751 23,798 (1,519) 275
Provision for (benefit
from) income taxes..... (1,600) 5,500 9,500 (600) 100
-------- -------- -------- ------- --------
Net income (loss)....... $ (2,464) $ 8,251 $ 14,298 $ (919) $ 175
======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
CONSOLIDATED BALANCE SHEETS
(THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3, AUGUST 3,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash..................................... $ 592 $ 874 $ 1,427
Accounts receivable...................... 3,632 3,617 2,553
Inventories.............................. 16,551 30,388 52,919
Store supplies........................... 1,974 3,529 3,729
Deferred income taxes.................... -- -- 1,208
Other.................................... 357 448 1,357
-------- -------- ---------
Total current assets................... 23,106 38,856 63,193
Property and equipment, net................ 34,904 47,203 44,570
Deferred income taxes...................... -- 1,624 1,624
Other assets............................... 8 10 7
-------- -------- ---------
Total assets......................... $ 58,018 $ 87,693 $ 109,394
======== ======== =========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFI-
CIT)
CURRENT LIABILITIES
Accounts payable......................... $ 4,379 $ 4,359 $ 6,730
Accrued expenses......................... 10,411 14,500 15,754
Intercompany debt........................ -- 86,045 --
Credit agreement......................... -- -- 150,000
Working capital note..................... -- -- 8,616
Income taxes payable..................... 3,434 4,892 500
-------- -------- ---------
Total current liabilities.............. 18,224 109,796 181,600
-------- -------- ---------
Intercompany payable....................... 74,101 -- 8,557
Long-term mirror note...................... -- -- 50,000
Deferred income taxes...................... 2,359 -- --
Other long-term liabilities................ 404 519 684
SHAREHOLDER'S EQUITY (DEFICIT)
Paid-in capital.......................... 155 305 305
Retained earnings (deficit).............. (37,225) (22,927) (131,752)
-------- -------- ---------
Total shareholder's equity (deficit)... (37,070) (22,622) (131,447)
-------- -------- ---------
Total liabilities and shareholder's
equity
(deficit)........................... $ 58,018 $ 87,693 $ 109,394
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEAR ENDED WEEKS ENDED
----------------------------------- ------------------
JULY
JANUARY 29, JANUARY 28, FEBRUARY 3, 29, AUGUST 3,
1994 1995 1996 1995 1996
----------- ----------- ----------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES
Net income (loss)..... $ (2,464) $ 8,251 $ 14,298 $ (919) $ 175
IMPACT OF OTHER OPERAT-
ING ACTIVITIES ON CASH
FLOWS
Depreciation and amor-
tization............. 7,054 7,799 9,104 4,406 5,487
Special and nonrecur-
ring items........... 4,386 -- -- -- --
CHANGE IN ASSETS AND LI-
ABILITIES
Accounts receivable... (171) (2,058) 15 1,270 1,064
Inventories........... 5,023 (6,499) (13,837) (21,329) (22,531)
Accounts payable and
accrued expenses..... 4,809 4,117 4,069 3,912 3,625
Income taxes.......... 2,770 5,914 1,458 (5,300) (5,600)
Other assets and lia-
bilities............. (768) 2,631 (2,393) (343) (962)
-------- -------- -------- ------- -------
NET CASH PROVIDED BY
(USED FOR)
OPERATING
ACTIVITIES......... 20,639 20,155 12,714 (18,303) (18,742)
-------- -------- -------- ------- -------
INVESTING ACTIVITIES
Capital expenditures.. (4,694) (12,603) (24,526) (5,255) (2,833)
-------- -------- -------- ------- -------
CASH USED FOR
INVESTING
ACTIVITIES......... (4,694) (12,603) (24,526) (5,255) (2,833)
-------- -------- -------- ------- -------
FINANCING ACTIVITIES
Change in intercompany
balances............. (15,796) (7,387) 11,944 23,515 22,128
Dividend paid to
parent............... -- -- -- -- (27,000)
Proceeds from credit
agreement............ -- -- -- -- 150,000
Repayment of trademark
obligations.......... -- -- -- -- (32,000)
Repayment of
intercompany debt.... -- -- -- -- (91,000)
Other changes in
shareholder's equity
(deficit)............ -- 20 150 150 --
-------- -------- -------- ------- -------
NET CASH PROVIDED BY
(USED FOR)
FINANCING
ACTIVITIES......... (15,796) (7,367) 12,094 23,665 22,128
-------- -------- -------- ------- -------
NET INCREASE IN CASH.... 149 185 282 107 553
Cash, beginning of peri-
od..................... 258 407 592 592 874
-------- -------- -------- ------- -------
Cash, end of period..... $ 407 $ 592 $ 874 $ 699 $ 1,427
======== ======== ======== ======= =======
</TABLE>
In the twenty-six weeks ended August 3, 1996, non-cash financing activities
included the distribution of a note representing preexisting obligations of
Abercrombie & Fitch's operating subsidiary in respect of certain trademarks in
the amount of $32 million by Abercrombie & Fitch's trademark subsidiary to The
Limited, distribution of the $50 million long-term mirror note and the
conversion of $8.6 million of intercompany debt into the working capital note.
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying financial statements include the accounts of the
Abercrombie & Fitch Business and its subsidiaries. The Abercrombie & Fitch
Business is a direct subsidiary of The Limited, Inc. ("The Limited").
The Abercrombie & Fitch Business is a specialty retailer of high-quality,
casual apparel for men and women with an active, youthful lifestyle. The
business was established in 1892 and was subsequently acquired by The Limited
in 1988.
The accompanying consolidated financial statements include the historical
financial statements of and transactions applicable to the Abercrombie & Fitch
Business and reflect the assets, liabilities, results of operations and cash
flows on a historical cost basis, including the fair value acquisition
adjustments related to the acquisition, primarily the recognition of
beneficial leaseholds on certain store locations. Certain investment assets
unrelated to the Company have been excluded from the historical financial
statements and will not be retained by the Abercrombie & Fitch Business.
The consolidated financial statements are prepared for inclusion in a
registration statement relating to the public offering of Class A common
shares of Abercrombie & Fitch Co., a wholly-owned subsidiary of The Limited.
Prior to the aforementioned public offering, The Limited will contribute the
stock of Abercrombie & Fitch Holdings, the parent company of the Abercrombie &
Fitch Business, and A&F Trademark, Inc. to Abercrombie & Fitch.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Abercrombie and Fitch Business and all significant subsidiaries which are more
than 50% owned and controlled. All significant intercompany balances and
transactions have been eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
years are designated in the financial statements and notes by the calendar
year in which the fiscal year commences. The results for fiscal year 1995
represent the 53-week period ended February 3, 1996 and the results for fiscal
years 1993 and 1994 represents the 52-week periods ended January 29, 1994 and
January 28, 1995.
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements as of and for the periods ended July
29, 1995 and August 3, 1996 are unaudited and are presented pursuant to the
rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying consolidated financial statements
reflect all adjustments (which are of normal recurring nature) necessary to
present fairly the financial position and results of operations and cash flows
for the interim periods, but are not necessarily indicative of the results of
operations for a full fiscal year.
STORE SUPPLIES
The initial inventory of supplies for new stores including, but not limited
to, hangers, signage, sensormatic tags and point-of-sale supplies are
capitalized at the store opening date. Subsequent shipments are expensed
except for new merchandise presentation programs which are capitalized.
F-9
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INVENTORY
Inventories are principally valued at the lower of average cost or market,
on a first-in first-out basis, utilizing the retail method.
PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment are computed for
financial reporting purposes on a straight-line basis, using service lives
ranging principally from 10-15 years for building improvements and 3-10 years
for other property and equipment. Beneficial leaseholds represent the present
value of the excess of fair market rent over contractual rent of existing
stores at the 1988 purchase of the Company by The Limited and are being
amortized over the lives of the related leases. The cost of assets sold or
retired and the related accumulated depreciation or amortization are removed
from the accounts with any resulting gain or loss included in net income.
Maintenance and repairs are charged to expense as incurred. Major renewals and
betterments that extend service lives are capitalized. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate
that full recoverability is questionable. Factors used in the valuation
include, but are not limited to, management's plans for future operations,
recent operating results and projected cash flows.
REVENUE RECOGNITION
Sales are recorded upon purchase by customers.
PROVISION FOR INCOME TAXES
Income taxes are calculated using the liability method. Deferred tax assets
and liabilities are recognized based on the difference 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 in the years in which those temporary differences
are expected to reverse.
The Company is included in The Limited's consolidated federal and certain
state income tax groups for income tax reporting purposes and is responsible
for its proportionate share of income taxes calculated upon its federal
taxable income at a current estimate of the annual effective tax rate.
ADVERTISING
Advertising costs consist of in-store photographs and advertising in
selected national publications and are expensed when the photographs or
publications first appear. Advertising costs amounted to $519 thousand in
1993, $1.215 million in 1994, $3.121 million in 1995 and $977 thousand and
$1.140 million for the twenty-six weeks ended July 29, 1995 and August 3,
1996.
STORE PRE-OPENING EXPENSES
Pre-opening expenses related to new store openings are charged to operations
as incurred.
STORE CLOSING COSTS
When a store is relocated or closed, estimated unrecoverable costs are
charged to operations.
F-10
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded values of financial instruments, including cash, accounts
receivable and accounts payable, approximate fair value due to the short
maturity and because the average interest rate approximates current market
origination rates.
EARNINGS PER SHARE
Historical earnings per share data is omitted from the consolidated
statements of operations as it is not meaningful.
ADOPTION OF NEW ACCOUNTING STANDARDS
The Company will make the new disclosures for SFAS No. 123, "Accounting for
Stock-Based Compensation" beginning with fiscal year-end 1996.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Since actual results may differ from
those estimates, the Company revises its estimates and assumptions as new
information becomes available.
3. SPECIAL AND NONRECURRING ITEMS
During 1993, the Abercrombie & Fitch Business participated in a plan of The
Limited which provided for the closure, downsizing and remodeling of seven
under-performing stores of the Abercrombie & Fitch Business. In developing
this program, specific stores were identified based upon historical operating
results of such stores and assessment of the quality of real estate. The
provision for store closure, downsizing and remodeling aggregated
approximately $4.4 million and included the net book value of abandoned fixed
assets and lease termination payments. As of October 28, 1995, the Abercrombie
& Fitch Business had completed the program.
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of (thousands):
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3, AUGUST 3,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture, fixtures and equipment...... $50,871 $71,590 $73,678
Beneficial leaseholds.................. 9,387 7,925 7,925
Building improvements and leaseholds... 2,565 1,267 1,850
Construction in progress............... 212 85 219
------- ------- -------
63,035 80,867 83,672
Less--accumulated depreciation and am-
ortization............................ 28,131 33,664 39,102
------- ------- -------
Property and equipment, net............ $34,904 $47,203 $44,570
======= ======= =======
</TABLE>
F-11
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LEASED FACILITIES AND COMMITMENTS
Annual store rent is comprised of a fixed minimum amount, plus contingent
rent based upon percentage of sales exceeding a stipulated amount. Store lease
terms generally require additional payments covering taxes, common area costs
and certain other expenses.
A summary of rent expense for fiscal year 1993, 1994 and 1995 and the
twenty-six weeks ended July 29, 1995 and August 3, 1996 follows (thousands):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
----------- ----------- ----------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Store rent
Fixed minimum......... $8,112 $11,308 $17,465 $7,693 $11,102
Contingent............ 1,010 1,475 1,322 420 716
------ ------- ------- ------ -------
Total store rent........ 9,122 12,783 18,787 8,113 11,818
Buildings, equipment and
other.................. 643 613 1,058 370 604
------ ------- ------- ------ -------
Total rent expense.... $9,765 $13,396 $19,845 $8,483 $12,422
====== ======= ======= ====== =======
</TABLE>
Rent expense includes charges from The Limited and other divisions of The
Limited for space used. The Abercrombie & Fitch Business intends to execute
formal agreements for use of such space (see Note 10). The Abercrombie & Fitch
Business was committed to noncancelable leases with remaining terms of one to
twenty years. These commitments include store leases with initial terms
ranging from ten to fifteen years and offices and a distribution center leased
from an affiliate of The Limited with an initial term of 15 years.
Substantially all of the Abercrombie & Fitch Business store leases are
guaranteed by The Limited. A summary of minimum rent commitments under
noncancelable leases follows (thousands):
<TABLE>
<S> <C>
1996............................ $ 23,949
1997............................ 22,824
1998............................ 22,848
1999............................ 23,153
2000............................ 23,193
Thereafter...................... 139,615
</TABLE>
6. SHORT-TERM BORROWINGS (UNAUDITED)
The Abercrombie & Fitch Business is party to a bank credit agreement
pursuant to which it borrowed $150 million on July 2, 1996. The agreement has
interest rates which are based on either the lender's "Base Rate," as defined,
or a LIBOR-related rate. The agreement places restrictions on mergers,
consolidations, acquisitions, sales of assets, transactions with affiliates,
sale and leaseback transactions, liens, restricted payments, debt and
investments. It also contains an interest and rental expense coverage ratio
and a maximum ratio of debt to EBITDA. The scheduled final maturity of the
borrowings under the credit agreement is June 30, 2001 although such amounts
must be repaid by the excess cash flow of the Abercrombie & Fitch Business,
which includes the net proceeds of any public offering. It is anticipated that
a substantial portion of the borrowings under the credit agreement will be
repaid in connection with the proposed public offering and by cash provided by
operations in the second half of the 1996 fiscal year. Such amounts are
considered short-term borrowings.
F-12
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. ACCRUED EXPENSES
Accrued expenses consisted of the following (thousands):
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3, AUGUST 3,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued taxes, other than income........ $ 1,252 $ 1,882 $ 2,087
Accrued compensation.................... 2,185 3,025 3,509
Accrued rent............................ 2,071 2,872 3,507
Other................................... 4,903 6,721 6,651
------- ------- -------
Total................................. $10,411 $14,500 $15,754
======= ======= =======
</TABLE>
8. INCOME TAXES
The Abercrombie & Fitch Business consolidated financial statements reflect a
charge for federal and state income taxes as if the Abercrombie & Fitch
Business had been subject to tax on a separate company basis during the
periods presented. The charge is based on the then current tax rates.
This provision for (benefit from) income taxes consisted of (thousands):
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
FISCAL YEAR ENDED ENDED
----------------------------------- ------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, JULY 29, AUGUST 3,
1994 1995 1996 1995 1996
----------- ----------- ----------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............... $(1,400) $4,300 $6,900 $(600) $100
State................. (400) 1,100 1,700 (100) --
------- ------ ------ ----- ----
(1,800) 5,400 8,600 (700) 100
------- ------ ------ ----- ----
Deferred:
Federal............... 200 100 700 100 --
State................. -- -- 200 -- --
------- ------ ------ ----- ----
200 100 900 100 --
------- ------ ------ ----- ----
Total provision (bene-
fit)................... $(1,600) $5,500 $9,500 $(600) $100
======= ====== ====== ===== ====
</TABLE>
For the twenty-six weeks ended July 29, 1995 and August 3, 1996, the
statements of operations reflect a provision for federal and state income
taxes based on the Company's expected annual tax rates.
A reconciliation between the statutory federal income tax rate and the
effective income tax rate follows:
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------------
1993 1994 1995 JULY 29, 1995 AUGUST 3, 1996
---- ---- ---- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal income tax rate..... 35.0 % 35.0 % 35.0 % 35.0 % 35.0 %
State income tax, net of
federal income tax effect.. 5.2 % 5.2 % 5.2 % 5.2 % 5.2 %
Other items, net............ (1.1)% (0.2)% (0.3)% (0.7)% (3.8)%
---- ---- ---- ---- ----
39.1 % 40.0 % 39.9 % 39.5 % 36.4 %
==== ==== ==== ==== ====
</TABLE>
F-13
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes payable included current deferred tax assets of $1.566 million
and $1.208 million at January 28, 1995 and February 3, 1996.
Current income tax obligations are treated as having been settled through
the intercompany accounts as if the Company were filing its income tax returns
on a separate company basis. Such amounts were $.8 million and $7.5 million in
fiscal years 1994 and 1995 and were $4.6 million and $5.7 million for the
twenty-six weeks ended July 29, 1995 and August 3, 1996.
The effect of temporary differences which give rise to deferred income tax
balances was as follows (thousands):
<TABLE>
<CAPTION>
1994 1995
-------------------------- -------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
------ ----------- ------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Fixed assets............ $ -- $(2,765) $(2,765) $1,159 $ -- $1,159
Accrued expenses........ 1,469 -- 1,469 1,504 -- 1,504
Other, net.............. 503 -- 503 169 -- 169
------ ------- ------- ------ ----- ------
Total deferred income
taxes.................. $1,972 $(2,765) $ (793) $2,832 $ -- $2,832
====== ======= ======= ====== ===== ======
</TABLE>
No valuation allowance has been provided for deferred tax assets because
management believes that it is more likely than not that the full amount of
the net deferred tax assets will be realized in the future.
The Internal Revenue Service has assessed The Limited for additional taxes
and interest for the years 1989-1992. The portion of the assessment relating
to the Company was based on treatment of construction allowances. Although The
Limited made a deposit to mitigate further interest being assessed, the
Company strongly disagrees with the assessment and is vigorously contesting
the matter. Management believes resolution of this matter will not have a
material adverse effect on the Company's results of operations or financial
condition. The Limited has allocated a portion of the deposit to the Company
which is included in deferred tax assets.
9. LONG-TERM MIRROR NOTE (UNAUDITED)
Long-term mirror note consists of an unsecured note in the amount of $50
million that matures May 15, 2002, and bears interest at 7.80% per annum. The
note was distributed by Abercrombie & Fitch's operating subsidiary to The
Limited on July 2, 1996. The interest rate and maturity of the note parallels
that of corresponding debt of The Limited. The note is to be automatically
prepaid concurrently with any prepayment of the corresponding debt of The
Limited. The note is not subject to early redemption by The Limited.
10. RELATED PARTY TRANSACTIONS
Transactions between the Abercrombie & Fitch Business, The Limited, and its
subsidiaries and affiliates, commonly occur in the normal course of business
and principally consist of the following:
Merchandise purchases
Real estate management and leasing
Capital expenditures
Inbound and outbound shipping
Corporate services
F-14
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information with regard to these transactions is as follows:
Significant purchases are made from Mast, a wholly owned subsidiary of The
Limited. Purchases are also made from Gryphon, an indirect subsidiary of The
Limited. Mast is a contract manufacturer and apparel importer while Gryphon is
a developer of fragrance and personal care products and also a contract
manufacturer. Prices are negotiated on a competitive basis by merchants of the
Abercrombie & Fitch Business with Mast, Gryphon and the manufacturers.
The Abercrombie & Fitch Business' real estate operations, including all
aspects of lease negotiations and ongoing dealings with landlords and
developers, are handled centrally by the real estate division of The Limited
("Real Estate Division"). Real Estate Division expenses are allocated to the
Abercrombie & Fitch Business based on a combination of new and remodeled store
construction projects and open selling square feet.
The Abercrombie & Fitch Business' store design and construction operations
are coordinated centrally by the store planning division of The Limited
("Store Planning Division"). The Store Planning Division facilitates the
design and construction of the stores and upon completion transfers the stores
to the Abercrombie & Fitch Business at actual cost. Store Planning Division
expenses are charged to the Abercrombie & Fitch Business based on a
combination of new and remodeled store construction projects and open selling
square feet.
The Abercrombie & Fitch Business' inbound and outbound freight is managed
centrally by Limited Distribution Services ("LDS"), a wholly owned subsidiary
of The Limited. Inbound freight is charged to the Abercrombie & Fitch Business
based on actual receipts, which is in turn charged back to Abercrombie &
Fitch's FOB Columbus suppliers. Outbound freight is charged on percentage of
cartons shipped.
The Limited provides certain services to the Abercrombie & Fitch Business
including, among other things, certain tax, treasury, legal, corporate
secretary, accounting, auditing, corporate development, risk management,
associate benefit plan administration, human resource and compensation,
government affairs and public relation services. Identifiable costs are
charged directly to the Abercrombie & Fitch Business. Aircraft costs are
charged based on usage and, effective January 29, 1995, include minimum usage
charges. All other services-related costs not specifically attributable to an
operating business have been allocated to the Abercrombie & Fitch Business
based upon a percentage of sales.
The Abercrombie & Fitch Business participates in The Limited's centralized
cash management system. Under this system, cash received from The Abercrombie
& Fitch Business' operations is transferred to The Limited's centralized cash
accounts and cash disbursements are funded from the centralized cash accounts
on a daily basis. For all periods presented intercompany transactions have
been reported as financing activities in the accompanying consolidated
statements of cash flows. Effective July 11, 1996, the intercompany accounts
became an interest earning asset (interest bearing liability).
The Abercrombie & Fitch Business is charged rent expense, common area
maintenance charges and utilities for stores shared with other consolidated
subsidiaries of The Limited. The charges are based on square footage and
represent the proportionate share of the underlying leases with third parties.
The Abercrombie & Fitch Business is also charged rent expense and utilities
for the distribution and home office space occupied (which approximates fair
market value).
F-15
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Abercrombie & Fitch Business and The Limited plan to enter into
intercompany agreements in connection with the Offerings pursuant to which The
Limited will continue to provide the services on similar terms as those
described above. The prices charged to the Company for services provided under
these agreements may be higher or lower than prices that may be charged by
third parties. It is not practicable therefore, to estimate what these costs
would be if The Limited were not providing these services and the Abercrombie
& Fitch Business was required to purchase these services from outsiders or
develop internal expertise. Management believes the charges and allocations
described above are fair and reasonable.
The following table summarizes the related party transactions between the
Abercrombie & Fitch Business and The Limited and its other wholly owned
subsidiaries, for the periods indicated (thousands):
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEAR ENDED WEEKS ENDED
----------------------------------- -----------
JANUARY 29, JANUARY 28, FEBRUARY 3, AUGUST 3,
1994 1995 1996 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Mast and Gryphon purchases.... $11,019 $25,325 $35,167 $23,178
Capital expenditures.......... 4,139 10,519 20,280 2,117
Inbound and outbound freight.. 646 2,153 2,869 1,618
Corporate charges............. 2,086 2,865 4,019 1,704
Store leases and other occu-
pancy........................ 289 380 1,397 747
Distribution center, MIS and
home office expense.......... 1,566 1,676 2,564 1,417
Centrally managed benefits.... 1,239 1,289 2,417 1,722
Interest charges.............. -- -- -- 342
------- ------- ------- -------
$20,984 $44,207 $68,713 $32,845
======= ======= ======= =======
</TABLE>
The following is a summary of the activity in the long-term intercompany
debt account (thousands):
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEAR ENDED WEEKS ENDED
----------------------------------- -----------
JANUARY 29, JANUARY 28, FEBRUARY 3, AUGUST 3,
1994 1995 1996 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance............. $ 97,284 $ 80,084 $ 74,101 $ 86,045
Transactions with related par-
ties......................... 20,984 44,207 68,713 32,845
Centralized cash management... (36,784) (50,990) (64,269) (16,417)
Settlement of current period
income taxes................. (1,400) 800 7,500 5,700
Payment to The Limited........ -- -- -- (91,000)
Conversion to Working Capital
Note......................... -- -- -- (8,616)
-------- -------- -------- --------
Ending balance................ $ 80,084 $ 74,101 $ 86,045 $ 8,557
======== ======== ======== ========
</TABLE>
The Company has no arrangements with The Limited which result in the
Company's guarantee, pledge of assets or stock to provide security for The
Limited's debt obligations.
F-16
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. SHAREHOLDER'S EQUITY (DEFICIT)
A reconciliation of shareholder's equity (deficit) follows (thousands):
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEAR ENDED WEEKS ENDED
----------------------------------- -----------
JANUARY 29, JANUARY 28, FEBRUARY 3, AUGUST 3,
1994 1995 1996 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance............. $(42,877) $(45,341) $(37,070) $ (22,622)
Net income (loss)............. (2,464) 8,251 14,298 175
Dividend paid to parent....... -- -- -- (27,000)
Transfer of equity to debt.... -- -- -- (82,000)
Other changes in shareholder's
equity....................... -- 20 150 --
-------- -------- -------- ---------
Ending balance................ $(45,341) $(37,070) $(22,622) $(131,447)
======== ======== ======== =========
</TABLE>
12. RETIREMENT BENEFITS (THOUSANDS)
The Abercrombie & Fitch Business participated in a defined contribution
retirement plan sponsored by The Limited. Participation in this plan is
available to all associates who have completed 1,000 or more hours of service
with the Abercrombie & Fitch Business during certain 12 month periods and
attained the age of 21. The Abercrombie & Fitch Business' contributions to
this plan are based on a percentage of the associates' annual compensation.
The cost of this plan was $257 in 1993, $343 in 1994 and $549 in 1995.
13. EMPLOYEE BENEFITS (THOUSANDS)
Officers and key employees were granted options to participate in The
Limited's stock option and restricted stock plans. Compensation expense
related to these awards has been reflected in the financial statements and
amounted to $26 in 1993, $224 in 1994 and $437 in 1995.
It is anticipated that prior to the consummation of the Offerings,
Abercrombie & Fitch Co. will establish a stock option plan for officers and
key associates. The stock plan provides for awards with respect to a maximum
of 3,500,000 shares of Class A Common Stock during the term of the Stock plan.
No associate may be granted in any calendar year awards covering more than
400,000 shares of Class A Common Stock.
The Company may grant awards to eligible associates in a number of forms,
including: (i) incentive stock options; (ii) nonstatutory stock options; (iii)
stock appreciation rights; and (iv) restricted shares.
Effective upon the consummation of the Offerings, it is expected that
certain executive officers and non-executive officer associates will receive
options to purchase an aggregate of up to 220,000 shares of the Company's
Class A Common Stock under the stock plan. Certain of these options will be
composed of three equal tranches which will vest generally in four equal
annual installments commencing on the first, second and third anniversaries of
February 9, 1996. The remaining options would vest in annual increments of 25%
commencing on various dates beginning with the first anniversary of the
original grant date. The exercise price of these options will be equal to the
initial public offering price of the Class A Common Stock to the public.
F-17
<PAGE>
THE ABERCROMBIE & FITCH BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition, in consideration for the cancellation of certain previously
granted restricted shares of The Limited's common stock, it is expected that
certain executive officers and non-executive officer associates will be
granted, effective upon the consummation of the Offerings, an aggregate of
49,500 restricted shares of the Company's Class A Common Stock under the stock
plan. These restricted shares would vest on the fifth anniversary of such
consummation.
14. LEGAL MATTERS
There are various claims, lawsuits and pending actions against the
Abercrombie & Fitch Business incident to the operations of its business. It is
the opinion of management that the ultimate resolution of these matters will
not have a material effect on the Abercrombie & Fitch Business' results of
operations or financial position.
15. QUARTERLY FINANCIAL DATA (UNAUDITED) (THOUSANDS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- --------
<S> <C> <C> <C> <C>
1994 Quarter
Net sales.................................... $23,399 $29,045 $38,584 $ 74,435
Gross income................................. 5,643 8,285 11,815 31,077
Net income (loss)............................ (1,225) (530) 466 9,540
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- --------
<S> <C> <C> <C> <C>
1995 Quarter
Net sales.................................... $33,377 $38,668 $57,222 $106,392
Gross income................................. 8,428 12,023 19,503 39,840
Net income (loss)............................ (1,169) 250 2,583 12,634
</TABLE>
16. SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to February 3, 1996, Abercrombie & Fitch Co. was incorporated and
The Limited contributed the stock of Abercrombie & Fitch Holdings, the parent
company of the Abercrombie & Fitch Business, and A&F Trademark, Inc. to
Abercrombie & Fitch Co. effective July 15, 1996.
The historical balance sheet as of August 3, 1996 reflects the following
transactions:
(1) Borrowings by the Abercrombie & Fitch Business of $150 million under
the credit agreement on July 2, 1996.
(2) Transfer of the Trademark Obligations to The Limited in the amount of
$32 million.
(3) Distribution to The Limited of the $50 million long-term Mirror Note,
which is an unsecured note in the amount of $50 million that matures May
15, 2002 and bears interest at 7.8% per annum. The note was distributed by
Abercrombie & Fitch's operating subsidiary to The Limited on July 2, 1996.
The interest rate and maturity of the note parallels certain debt of The
Limited and will be automatically prepaid concurrently with any prepayment
of the corresponding debt of The Limited. The note is not subject to early
redemption by The Limited.
(4) Payment of the $32 million Trademark Obligations, payment of $91
million of intercompany debt owed to The Limited and a $27 million dividend
to The Limited.
(5) Conversion of $8.6 million of intercompany debt into the Working
Capital Note.
F-18
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., Lazard Freres &
Co. LLC, Montgomery Securities and J.P. Morgan Securities Inc. are acting as
representatives (the "Representatives of the Underwriters"), has severally
agreed to purchase from the Company, the respective number of shares of Class
A Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
U.S. UNDERWRITER CLASS A COMMON STOCK
---------------- --------------------
<S> <C>
Goldman, Sachs & Co.......................................
Lazard Freres & Co. LLC...................................
Montgomery Securities.....................................
J.P. Morgan Securities Inc................................
---------
Total................................................... 5,600,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Class A Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Class A Common Stock
are released for sale to the public, the offering price and the other selling
terms may from time to time be varied by the Representatives of the
Underwriters.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters") providing for the concurrent offer and sale
of 1,400,000 shares of Class A Common Stock in an International Offering
outside the United States. The initial public offering price and aggregate
underwriting discounts and commissions per share for the Offerings are
identical. The closing of the offering made hereby is a condition to the
closing of the International Offering, and vice versa. The representatives of
the International Underwriters are Goldman Sachs International, Lazard Capital
Markets, Montgomery Securities and J.P. Morgan Securities Ltd.
Pursuant to the agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the Offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution
of the shares offered as a part of the U.S. Offering and subject to certain
exceptions, it will offer, sell or deliver the shares of Class A Common Stock,
directly or indirectly, only in the United States of America (including the
States and the District of Columbia), its territories, its possessions and
other areas subject to its jurisdiction (the "United States") and to U.S.
persons, which term shall mean, for purposes of this paragraph: (i) any
individual who is a resident of the United States or (ii) any corporation,
partnership or other entity organized in or under the laws of the United
States or any political subdivision thereof and whose office most directly
involved with the purchase is located in the United States. Each of the
International Underwriters has agreed or will agree pursuant to the Agreement
Between that, as a part of the distribution of the shares offered as a
U-1
<PAGE>
part of the International Offering, and subject to certain exceptions, it will
(i) not, directly or indirectly, offer, sell or deliver shares of Class A
Common Stock (a) in the United States or to any U.S. persons or (b) to any
person who it believes intends to reoffer, resell or deliver the shares in the
United States or to any U.S. persons, and (ii) cause any dealer to whom it may
sell such shares at any concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Class A Common Stock as may be mutually agreed. The price of any shares so
sold shall be the initial public offering price, less an amount not greater
than the selling concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
840,000 additional shares of Class A Common Stock solely to cover over-
allotments, if any. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 5,600,000 shares of Class A Common Stock offered hereby.
The Company has granted the International Underwriters a similar option
exercisable for up to an aggregate of 210,000 additional shares of Class A
Common Stock.
The Company and The Limited have agreed that, during the period beginning
from the date of this Prospectus and continuing to and including the date 180
days after the date of this Prospectus, they will not offer, sell, contract to
sell or otherwise dispose of, except as provided in the U.S. Underwriting
Agreement and the International Underwriting Agreement, any securities of the
Company that are substantially similar to the shares of Class A Common Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, shares of Class A
Common Stock or any such substantially similar securities (other than any
issuances or sales of any of the foregoing securities (i) in connection with
the acquisition of or merger with any other corporation or other entity or the
acquisition of any assets or properties thereof provided that, prior to the
issuance of such securities, the Company shall obtain and deliver to the
Underwriters executed copies of an agreement from any such corporation or
entity substantially to the effect set forth in the Underwriting Agreement in
form satisfactory to the Representatives, (ii) pursuant to employee stock
option, or other employee benefit plans existing on the date of the
Underwriting Agreement or (iii) to The Limited or its subsidiaries in
accordance with the terms of the Corporate Agreement between the Company and
The Limited or its subsidiaries) without the prior written consent of the
Representatives.
The Representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which they exercise discretionary
authority to exceed five percent of the total number of shares of Class A
Common Stock offered by them.
The Underwriters have reserved for sale, at the initial public offering
price, 350,000 shares of Class A Common Stock for associates and directors of
the Company and certain other businesses operated by The Limited who have
expressed an interest in purchasing such shares of Class A Common Stock in the
Offerings. It is expected that such associates will purchase, in the
aggregate, less than 5% of the Class A Common Stock offered in the Offerings.
The number of shares available for sale to the general public in the Offerings
will be reduced to the extent such persons purchase such reserved shares. Any
reserved shares not so purchased will be offered by the Underwriters to the
general public on the same basis as the other shares offered hereby.
Prior to the Offerings, there has been no public market for the shares of
Class A Common Stock. The initial public offering price will be negotiated
between the Company and the Representatives of the U.S. Underwriters and the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Class A Common Stock, in addition to
prevailing
U-2
<PAGE>
market conditions, are the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of Class A Common Stock, including shares initially sold in
the International Offering, to persons located in the United States.
Application has been made for approval of the listing of the Class A Common
Stock on the New York Stock Exchange under the symbol ANF. In order to meet
one of the requirements for listing the Class A Common Stock on the New York
Stock Exchange, the U.S. Underwriters will undertake to sell lots of 100 or
more shares to a minimum of 2,000 beneficial holders.
The Company has agreed to indemnify the several U.S. Underwriters against
certain liabilities, including liabilities under the Securities Act.
Certain of the Underwriters have provided from time to time, and expect to
provide in the future, investment banking services to The Limited, the Company
and their subsidiaries, for which such Underwriters have received and will
receive customary fees and commissions. In addition, from time to time, in the
ordinary course of their respective businesses, J.P. Morgan Securities Inc.
and certain of its affiliates engage and may in the future engage in
investment banking and commercial banking transactions with The Limited and
certain of its affiliates. Morgan Guaranty Trust Company of New York ("MGT"),
an affiliate of J.P. Morgan Securities Inc., is the agent bank on The
Limited's $1 billion Revolving Credit Facility maturing December 14, 2000. MGT
is also a lender under the Credit Agreement and, as lender, will receive in
excess of 10% of the net proceeds of the Offerings. Accordingly, this offering
will be conducted in accordance with Rule 2710(c)(8) of the National
Association of Securities Dealers, Inc. ("NASD") which requires that the
public offering price of an equity security be no higher than the price
recommended by a "qualified independent underwriter" meeting the requirements
of NASD Rule 2720(b)(15) which has participated in the preparation of the
registration statement and performed its usual standard of due diligence with
respect thereto. Goldman, Sachs & Co. has agreed to act as "qualified
independent underwriter" for the Offerings, and the public offering price of
the Class A Common Stock will be no higher than the price recommended by
Goldman, Sachs & Co.
U-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURI-
TIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SALE IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 12
Use of Proceeds............................................................ 18
Dividends.................................................................. 18
Dilution................................................................... 19
Capitalization............................................................. 20
Pro Forma Consolidated Financial Statements................................ 21
Selected Financial Data.................................................... 27
Management's Discussion and
Analysis of Financial Condition
and Results of Operations................................................. 29
Business................................................................... 35
Relationship with The Limited.............................................. 47
Management................................................................. 52
Executive Compensation..................................................... 54
Principal Shareholder...................................................... 62
Shares Eligible for Future Sale............................................ 62
Description of Capital Stock............................................... 64
Description of Certain Indebtedness........................................ 70
Certain United States Tax Consequences to Non-United States Holders........ 71
Legal Matters.............................................................. 73
Experts.................................................................... 73
Index to Consolidated Financial Statements................................. F-1
Underwriting............................................................... U-1
</TABLE>
-----------
THROUGH AND INCLUDING , 1996 (THE 25TH DAY AFTER THE DATE OF THIS PROSPEC-
TUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPEC-
TUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,000,000 SHARES
ABERCROMBIE & FITCH
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-----------
PROSPECTUS
-----------
GOLDMAN, SACHS & CO.
LAZARD FRERES & CO. LLC
MONTGOMERY SECURITIES
J.P. MORGAN & CO.
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the issuance
and distribution of the Class A Common Stock being registered, other than the
underwriting discount. All of the amounts shown are estimates, except the SEC
and NASD registration fees.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 44,415
National Association of Securities Dealers, Inc. Registration
Fee............................................................ 13,380
New York Stock Exchange Listing Fee............................. 98,600
Blue Sky fees and expenses...................................... 25,000
Printing and engraving expenses................................. 250,000
Legal fees and expenses......................................... 500,000
Accounting fees and expenses.................................... 300,000
Transfer Agent and Registrar expenses........................... 15,000
Miscellaneous................................................... 453,605
----------
Total......................................................... $1,700,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person was an officer or
director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation
or enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such officer or director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe
his conduct was illegal. A Delaware corporation may indemnify officers and
directors against expenses (including attorneys' fees) in connection with the
defense or settlement of an action by or in the right of the corporation under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director actually and
reasonably incurred.
In accordance with the Delaware Law, the Certificate of Incorporation of the
Company contains a provision to limit the personal liability of the directors
of the Company for violations of their fiduciary duty. This provision
eliminates each director's liability to the Company or its shareholders for
monetary damages except (i) for any breach of the director's duty of loyalty
to the Company or its shareholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware Law providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which a director derived an
improper personal benefit. The effect of this provision is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence.
Article V of the Bylaws of the Company provides for indemnification of the
officers and directors of the Company to the full extent permitted by
applicable law.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Except for the issuance of common stock to The Limited, the Company has not
issued any securities in unregistered transactions. The issuance of such
securities is exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
1.1 Form of Underwriting Agreement (U.S. Version).**
3.1 Form of Amended and Restated Certificate of Incorporation of
Abercrombie & Fitch Co.**
3.2 Form of Bylaws of Abercrombie & Fitch Co.*
4.1 Specimen Certificate of Class A Common Stock of Abercrombie &
Fitch Co.**
4.2 Certificate of Incorporation of The Limited, Inc.*
4.3 Bylaws of The Limited, Inc.*
5.1 Opinion of Davis Polk & Wardwell regarding the legality of the
securities being registered.**
10.1 Credit Agreement, dated as of June 28, 1996, among Abercrombie &
Fitch Stores, Inc., Abercrombie & Fitch Trademark, Inc., the banks
listed therein and Chase Manhattan Bank, N.A., as Agent.*
10.2 Form of Services Agreement between Abercrombie & Fitch Co. and The
Limited, Inc.*
10.3 Sublease Agreement, dated June 1, 1995, between Abercrombie &
Fitch Stores, Inc. and Victoria's Secret Stores, Inc.*
10.4 Form of Shared Facilities Agreement between Abercrombie & Fitch
Co. and The Limited, Inc.*
10.5 Form of Tax-Sharing Agreement between Abercrombie & Fitch Co. and
The Limited, Inc.*
10.6 Form of Corporate Agreement between Abercrombie & Fitch Co. and
The Limited, Inc.*
10.7 Form of Abercrombie & Fitch Co. 1996 Stock Option and Performance
Incentive Plan.*
10.8 Form of Abercrombie & Fitch Co. Incentive Compensation Plan.**
10.9 Form of Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate
Directors.*
21.1 Subsidiaries of Abercrombie & Fitch Co.*
23.1 Consent of Coopers & Lybrand L.L.P.**
23.2 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)**
24.1 Power of Attorney (included on the signature pages of this
Registration Statement)*
27.1 Financial Data Schedule*
</TABLE>
- --------
* Previously filed.
** Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) To provide to the underwriters at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
(b) (1) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in
II-2
<PAGE>
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) under the Securities Act of
1933 shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions referred
to in Item 15 of this Registration Statement, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant 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
Registrant 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 Securities Act of 1933 and will be
governed by the final adjudication of such issue.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF REYNOLDSBURG, STATE OF OHIO, ON
AUGUST 27, 1996.
Abercrombie & Fitch Co.
/s/ Seth R. Johnson
By: _________________________________
SETH R. JOHNSON VICE PRESIDENT--
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
SIGNATURE TITLE DATE
* Chairman of the
- ------------------------------------- Board of Directors August 27, 1996
LESLIE H. WEXNER
* Vice Chairman of the
- ------------------------------------- Board of Directors August 27, 1996
KENNETH B. GILMAN
* Chief Executive
- ------------------------------------- Officer, President August 27, 1996
MICHAEL S. JEFFRIES and Director
(principal
executive officer)
* Vice President and
- ------------------------------------- Chief Financial August 27, 1996
SETH R. JOHNSON Officer (principal
financial and
accounting officer)
/s/ E. Gordon Gee Director August 27, 1996
- -------------------------------------
E. GORDON GEE
- -------------------------------------
Director August 27, 1996
DONALD B. SHACKELFORD
/s/ Roger D. Blackwell Director August 27, 1996
- -------------------------------------
ROGER D. BLACKWELL
/s/ William K. Gerber
*By__________________________________
WILLIAM K. GERBER
ATTORNEY-IN-FACT
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<PAGE>
EXHIBIT 1.1
ABERCROMBIE & FITCH CO.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
(U.S. VERSION)
____________, 1996
Goldman, Sachs & Co.
Lazard Freres & Co. LLC
Montgomery Securities
J.P. Morgan Securities Inc.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Abercrombie & Fitch Co., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
[________] shares (the "Firm Shares") and, at the election of the Underwriters,
up to [__________] additional shares (the "Optional Shares") of Class A Common
Stock, par value $.01 per share ("Stock"), of the Company (the Firm Shares and
the Optional Shares that the Underwriters elect to purchase pursuant to Section
2 hereof being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of [________]
shares of Stock (the "International Shares"), including the overallotment option
thereunder, through arrangements with certain underwriters outside the United
States (the "International Underwriters"), for whom Goldman Sachs International,
Lazard Brothers & Co., Limited, Montgomery Securities and J.P. Morgan Securities
Ltd. are acting as lead managers. Anything herein or therein to the contrary
notwithstanding, the respective closings under this Agreement and the
International Agreement are hereby expressly made conditional on one another.
The Underwriters hereunder and the International Underwriters are simultaneously
entering into an Agreement between U.S. and International
<PAGE>
Underwriting Syndicates (the "Agreement between Syndicates") which provides,
among other things, for the transfer of shares of Stock between the two
syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one relating
to the Shares hereunder and the other relating to the International Shares. The
latter form of prospectus will be identical to the former except for certain
substitute pages and amendments thereto as mentioned below. Except as used in
Sections 2, 4, 5, 11 and 13 herein, and except as the context may otherwise
require, references hereinafter to the Shares shall include all the shares of
Stock which may be sold pursuant to either this Agreement or the International
Underwriting Agreement, and references herein to any prospectus whether in
preliminary or final form, and whether as amended or supplemented, shall include
both the U.S. and the international versions thereof.
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-08231) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you, and, excluding exhibits thereto, to
you for each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act"), which became effective upon filing, no other
document with respect to the Initial Registration Statement has heretofore
been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has
been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the
Initial Registration Statement or filed with the Commission pursuant to
Rule 424(a) of the rules and regulations of the Commission under the Act,
is hereinafter called a "Preliminary Prospectus"; the various parts of the
Initial Registration Statement and the Rule 462(b) Registration Statement,
if any, including all exhibits thereto and including the information
contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 6(a)
hereof and deemed by virtue of Rule 430A under the Act to be part of the
Initial Registration Statement at the time it was declared effective or
such part of the Rule 462(b) Registration Statement, if any, became or
hereafter becomes effective, each as amended at the time such part of the
registration statement became effective, are hereinafter collectively
called the "Registration Statement"; and such final prospectus, in the form
first filed pursuant to Rule 424(b) under the Act, is hereinafter called
the "Prospectus");
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an 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, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and
2
<PAGE>
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through any of you expressly for use therein;
(iii) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an 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; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through any of you expressly for use therein;
(iv) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, except to
the extent that any such loss or interference would not have a material
adverse effect on the financial condition or results of operations of the
Company and its subsidiaries, considered as a whole, otherwise than as set
forth or contemplated in the Prospectus; and, since the respective dates as
of which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or long-term
debt of the Company or any of its subsidiaries (except for changes in the
capital stock of any subsidiary of the Company to the extent such
subsidiary remains a direct or indirect wholly owned subsidiary of the
Company after giving effect to such change) or any material adverse change,
or any development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, considered as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(v) The pro forma balance sheet and pro forma statement of income and
the related notes thereto set forth in the Registration Statement and the
Prospectus with respect to the Company have been prepared in accordance
with the applicable requirements of Rule 11-02 of Regulation S-X
promulgated under the Securities Exchange Act of 1934, as amended, have
been compiled on the pro forma basis described therein, and in the opinion
of the Company, the assumptions used in the preparation thereof were
reasonable at the time made and the adjustments used therein are based on
good faith estimates and assumptions believed by the Company to be
reasonable at the time made;
(vi) The Company and each of its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to
all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the
3
<PAGE>
financial condition or results of operation of the Company and its
subsidiaries, considered as a whole; and any real property and buildings
held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as do not
materially affect the financial condition or results of operations of the
Company and its subsidiaries, considered as a whole;
(vii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with all requisite corporate power and authority to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases property of a nature, or conducts business of a type, that would
make such qualification necessary, except to the extent that the failure to
so qualify or be in good standing would not have a material adverse effect
on the financial condition or results of operations of the Company and its
subsidiaries, considered as a whole. Each of the subsidiaries of the
Company has been duly incorporated and is validly existing as a corporation
in good standing under the laws of its jurisdiction of incorporation, with
all requisite corporate power and authority to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases property of a nature, or conducts business of a type, that would
make such qualification necessary, except to the extent that the failure to
so qualify or be in good standing would not have a material adverse effect
on the financial condition or results of operations of the Company and its
subsidiaries, considered as a whole;
(viii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description of the Stock contained in
the Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims, except for any such
encumbrances, equities or claims that do not materially affect the
financial condition or results of operations of the Company and its
subsidiaries, considered as a whole;
(ix) The Shares have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein and in the
International Underwriting Agreement, will be duly and validly issued and
fully paid and non-assessable and will conform to the description of the
Stock contained in the Prospectus;
(x) The issue and sale of the Shares by the Company hereunder and
under the International Underwriting Agreement and the compliance by the
Company with all of the provisions of this Agreement and the International
Underwriting Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
4
<PAGE>
agreement or instrument to which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company or any of
its subsidiaries is subject, except for such conflicts, breaches,
violations or defaults that would not have a material adverse effect on the
financial condition or results of operations of the Company and its
subsidiaries, considered as a whole nor will such action result in any
violation of the provisions of the Certificate of Incorporation or By-laws
of the Company nor will such action result in any violation of any statute
or any 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 for such violations that would not have a
material adverse effect on the financial condition or results of operations
of the Company and its subsidiaries, considered as a whole; and no consent,
approval, authorization, order, registration or qualification of or with
any such court or governmental agency or body is required for the issue and
sale of the Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as may
be required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters and the
International Underwriters;
(xi) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation 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
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or any of its
properties may be bound, except for such defaults that would not have a
material adverse effect on the financial condition or results of operations
of the Company and its subsidiaries, considered as a whole;
(xii) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock are accurate and complete in all material
respects;
(xiii) Other than as set forth or contemplated in the Prospectus,
there are no legal or governmental proceedings pending to which the Company
or any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is subject where there is a material
risk that such proceeding will be determined adversely to the Company or
any of its subsidiaries which, if so determined, would individually or in
the aggregate have a material adverse effect on the current or future
consolidated financial position or results of operations of the Company and
its subsidiaries, considered as a whole; and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(xiv) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
5
<PAGE>
(xv) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes; and
(xvi) Coopers & Lybrand L.L.P., who have certified certain financial
statements of the Company and its subsidiaries are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder.
(xvii) The Company and its subsidiaries own or possess adequate
licenses or other valid rights to all patents, patent rights, and
confidential business information, whether patentable or unpatentable
(including ideas, research and development, manufacturing and production
processes, customer and supplier lists, know how, trade secrets and
designs, drawings, patterns), all copyrightable works, all trademarks,
service marks, trade names, trade dress, logos and corporate names, all
such existing worldwide, together with all registrations, applications and
renewals thereof and including all goodwill associated therewith and all
other proprietary rights used or presently employed by the Company or its
subsidiaries in connection with the business now operated by them, except
for exceptions to the foregoing that would not have a material adverse
effect on the Company and its subsidiaries, considered as a whole (the
"Intellectual Property"). The Company and its subsidiaries have taken all
necessary and desirable action to maintain and protect the Intellectual
Property that they own or use, including, registration in the name of the
Company or its subsidiaries in the United States Patent and Trademark
Office or any foreign equivalent, state registrations, and/or by rights
accorded by virtue of the common or civil law in the United States and all
foreign jurisdictions in which the Company and its subsidiaries currently
conduct their business, except for exceptions to the foregoing that would
not have a material adverse effect on the Company and its subsidiaries,
considered as a whole. Such Intellectual Property that the Company and its
subsidiaries own or under which they are licensed, are valid, enforceable,
in good standing and uncontested and not subject to any liens or
encumbrances or rights thereto or therein by third parties, other than the
license agreements entered into by the Company and its subsidiaries, except
for exceptions to the foregoing that would not have a material adverse
effect on the Company and its subsidiaries, considered as a whole. Except
as otherwise disclosed in the Prospectus, other than exceptions that would
not have a material adverse effect on the Company and its subsidiaries,
considered as a whole, (i) the Company and its subsidiaries have the sole
and exclusive right to use the Intellectual Property, and there are no
claims, actions, suits, oppositions, cancellations or other proceedings,
challenging or questioning the legality, validity, enforceability, use or
ownership of the Intellectual Property or of any license or agreement
related thereto, nor to the best knowledge of the Company is any such claim
threatened or is there a valid basis for any such claim; (ii) neither the
Company nor any of its subsidiaries have infringed, misappropriated, or
received notice of infringement with respect to any patent, trademark,
copyright, trade dress or related right of others, and to the best
knowledge of the Company, there is no infringement by others of any
Intellectual Property owned or used by the Company and its subsidiaries;
(iii) there are no intellectual property rights as described generally in
(ii) above, held by others which may in the future have any material
adverse effect on the business, financial condition or results of
operations of the Company and its subsidiaries; (iv) all license and other
agreements pertaining to the Intellectual Property and to which the Company
and its subsidiaries are a party, are in compliance in all
6
<PAGE>
respects with all applicable laws and regulations in those jurisdictions
worldwide in which the Company and its subsidiaries conduct the business,
including, without limitation, those pertaining to remittance of foreign
exchange and taxation.
(b) The Limited represents and warrants to, and agrees with, each of the
Underwriters that the Registration Statement and the Prospectus and any
amendments or supplements thereto did not and will not, as of their respective
dates, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading which, in each case, to the extent, but only
to the extent, that such untrue statement or omission is in respect of
information relating solely to The Limited or its subsidiaries (other than the
Company or its subsidiaries) or was made in the Registration Statement, the
Preliminary Prospectus or the Prospectus, in reliance upon and in conformity
with written information furnished by or on behalf of The Limited for use
therein.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of [$_________], the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to issue and sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction, the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to [__________] Optional Shares, at the purchase price per
share set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 5
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. The Company hereby confirms its engagement of Goldman, Sachs & Co. as,
and Goldman, Sachs & Co. hereby confirms its agreement with the Company to
render services as, a "qualified independent underwriter" within the meaning of
Section 2(o) of Rule 2720 of the National Association of Securities Dealers,
Inc. (the "NASD") with respect to the offering and sale of the Shares. Goldman,
Sachs & Co., in its capacity as qualified independent underwriter and not
otherwise, is referred to herein as the "QIU". The compensation to Goldman,
Sachs & Co. for acting as QIU hereunder, shall be deemed to be $10,000, the
payment of which Goldman, Sachs & Co. hereby agrees to waive.
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<PAGE>
4. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
5. (a) Certificates for the Shares to be purchased by each Underwriter
hereunder, in definitive or temporary form, and in such authorized denominations
and registered in such names as Goldman, Sachs & Co. may request upon at least
forty-eight hours' prior notice to the Company, shall be delivered by or on
behalf of the Company to Goldman, Sachs & Co., for the account of such
Underwriter, against payment by or on behalf of such Underwriter of the purchase
price therefor by wire transfer, payable to the order of the Company in Federal
(same day) funds. The Company will cause the certificates representing the
Shares to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below) with respect thereto at
the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 8:30 a.m., New York City time, on
[__________], 1996 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional Shares,
8:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the
written notice given by Goldman, Sachs & Co. of the Underwriters' election to
purchase such Optional Shares, or such other time and date as Goldman, Sachs &
Co. and the Company may agree upon in writing. Such time and date for delivery
of the Firm Shares is herein called the "First Time of Delivery", such time and
date for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 8 hereof, including the cross receipt
for the Shares and any additional documents reasonably requested by the
Underwriters pursuant to Section 8(i) hereof, will be delivered at the offices
of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New
York 10004 (the "Closing Location"), and the Shares will be delivered at the
Designated Office, all at such Time of Delivery. A meeting will be held at the
Closing Location at 2:30 p.m., New York City time, on the New York Business Day
next preceding such Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 5, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
6. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus, prior to the last date
on which the Underwriters may be required to deliver a Prospectus, which shall
be reasonably disapproved by you promptly after reasonable notice thereof; to
advise you, promptly after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or becomes effective or
any supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you with copies thereof; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or
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of any order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to obtain
the withdrawal of such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business Day
next succeeding the date of this Agreement and from time to time, to use its
reasonable best efforts to furnish the Underwriters with copies of the
Prospectus in New York City in such quantities as you may reasonably request,
and, if the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time any event
shall have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be necessary
during such period to amend or supplement the Prospectus in order to comply with
the Act, to notify you and upon your request to prepare and furnish without
charge to each Underwriter and to any dealer in securities as many copies as you
may from time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement or omission or
effect such compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time nine months
or more after the time of issue of the Prospectus, upon your request but at the
expense of such Underwriter, to prepare and deliver to such Underwriter as many
copies as you may request of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to and
including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder and
under the International Underwriting Agreement, any securities of the Company
that are substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, Stock or any such substantially similar securities (other than
any issuances or sales of any of the foregoing securities (i) in connection with
the acquisition of or merger with any other corporation or other entity or the
acquisition of any assets or properties thereof provided that, prior to the
issuance of such securities, the Company shall obtain and deliver to
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the Underwriters executed copies of an agreement from any such corporation or
entity substantially to the effect set forth in this Section 6(e) in form
satisfactory to you, (ii) pursuant to employee stock option, or other employee
benefit plans existing on the date of this Agreement or (iii) to The Limited or
its subsidiaries accordance with the terms of the Corporate Agreement between
the Company and The Limited or its subsidiaries), without your prior written
consent;
(f) During a period of three years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to shareholders, and to deliver to
you such additional information concerning the business and financial condition
of the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
shareholders generally or to the Commission), provided that the foregoing shall
not obligate the Company to furnish projections or any other forward-looking
information;
(g) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement and the International Underwriting Agreement in the
manner specified in the Prospectus under the caption "Use of Proceeds"; and
(h) To use its best efforts to list, subject to notice of issuance, the
Shares on the New York Stock Exchange (the "Exchange").
7. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements thereto
and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the International Underwriting Agreement, the
Agreement between Syndicates, the Selling Agreement, the Blue Sky Memorandum,
closing documents (including compilations thereof) and any other documents in
connection with the offering, purchase, sale and delivery of the Shares; (iii)
all expenses in connection with the qualification of the Shares for offering and
sale under state securities laws as provided in Section 6(b) hereof, including
the reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky
Memorandum; (iv) all fees and expenses in connection with listing the Shares on
the Exchange; (v) the filing fees incident to securing any required review by
the NASD of the terms of the sale of the Shares; (vi) the cost of preparing
stock certificates; (vii) the cost and charges of any transfer agent or
registrar; and (viii) all other reasonable costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section. It is understood, however, that, except as
provided in this Section, and Sections 9 and 13 hereof, the Underwriters will
pay all of their own costs and expenses, including the fees of their counsel,
stock transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
8. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and The Limited herein are, at and as of such Time of Delivery, true
and correct, the condition that the Company shall
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have performed all of its obligations hereunder theretofore to be performed in
all material respects, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
6(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Underwriters, shall have furnished to you such opinion or opinions (a draft
of such opinion is attached as Annex II(a) hereto), dated such Time of
Delivery, with respect to the incorporation of the Company, the validity of
the Shares being delivered at such Time of Delivery, the Registration
Statement, the Prospectus and such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) Samuel P. Fried, general counsel for the Company, shall have
furnished to you his written opinion (a draft of such opinion is attached
as Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with all requisite corporate power and authority to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (other than the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and nonassessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, except for any such failure so to qualify or be in good
standing as would not have a material adverse effect on the financial
condition or results of operations of the Company and its
subsidiaries, considered as a whole (such counsel being entitled to
rely in respect of the opinion in this clause upon opinions of local
counsel and in respect of matters of fact upon certificates of
officers of the Company, provided that such counsel shall state that
they believe that both you and they are justified in relying upon such
opinions and certificates);
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(iv) Each material subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and all of the
issued shares of capital stock of each such subsidiary have been duly
and validly authorized and issued, are fully paid and non-assessable,
and (except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims, except for any such encumbrances, equities or
claims that do not materially affect the financial condition or
results of operations of the Company and its subsidiaries, considered
as a whole, or of any Significant Subsidiary or any of its
subsidiaries, considered as a whole (such counsel being entitled to
rely in respect of the opinion in this clause upon opinions of local
counsel and in respect to matters of fact upon certificates of
officers of the Company or its subsidiaries, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(v) The Company and its subsidiaries have good and marketable
title in fee simple to all real property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect
the financial condition or results of operation of the Company and its
subsidiaries, considered as a whole; and any real property and
buildings held under lease by the Company and its subsidiaries are
held by them under valid, subsisting and enforceable leases with such
exceptions as do not materially affect the financial condition or
results of operations of the Company and its subsidiaries, considered
as a whole (in giving the opinion in this clause, such counsel may
state that no examination of record titles for the purpose of such
opinion has been made, and that they are relying upon a general review
of the titles of the Company and its subsidiaries, upon opinions of
local counsel and abstracts, reports and policies of title companies
rendered or issued at or subsequent to the time of acquisition of such
property by the Company or its subsidiaries, upon opinions of counsel
to the lessors of such property and, in respect to matters of fact,
upon certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that both you
and they are justified in relying upon such opinions, abstracts,
reports, policies and certificates);
(vi) To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is
a party or of which any property of the Company or any of its
subsidiaries is subject where there is a material risk that such
proceeding will be determined adversely to the Company or any of its
subsidiaries which, if so determined, individually or in the aggregate
is expected to have a material adverse effect on the current or future
consolidated financial position, shareholders' equity or results of
operations of the Company and its subsidiaries, considered as a whole;
and, to the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others;
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(vii) This Agreement and the International Underwriting Agreement
have been duly authorized, executed and delivered by the Company;
(viii) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company with
all of the provisions of this Agreement and the International
Underwriting Agreement and the consummation of the transactions herein
and therein contemplated will not conflict with or result in a breach
or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, except
for such conflicts, breaches, violations or defaults that would not
have a material adverse effect on the financial condition or results
of operations of the Company and its subsidiaries, considered as a
whole, nor will such action result in any violation of the provisions
of the Certificate of Incorporation or By-laws of the Company, nor
will such action result in any violation of any statute or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties, except for such violations
that would not have a material adverse effect on the financial
condition or results of operations of the Company and its
subsidiaries, considered as a whole;
(ix) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Shares or the consummation
by the Company of the transactions contemplated by this Agreement and
the International Underwriting Agreement, except the registration
under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters and the
International Underwriters;
(x) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws. Neither the
Company nor any of its subsidiaries is in default in the performance
or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound, except for
such defaults that would not have a material adverse effect on the
financial condition or results of operations of the Company and its
subsidiaries, considered as a whole;
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute
a summary of the terms of the Stock are accurate and complete in all
material respects;
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(xii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act;
(xiii) The Company and its subsidiaries own or possess adequate
licenses or other valid rights to all Intellectual Property, except
for exceptions to the foregoing that would not have a material adverse
effect on the Company and its subsidiaries, considered as a whole.
The Company and its subsidiaries have taken all necessary and
desirable action to maintain and protect the Intellectual Property
that they own or use, including, registration in the name of the
Company or its subsidiaries in the United States Patent and Trademark
Office or any foreign equivalent, state registrations, and/or by
rights accorded by virtue of the common or civil law in the United
States and all foreign jurisdictions in which the Company and its
subsidiaries currently conduct their business, except for exceptions
to the foregoing that would not have a material adverse effect on the
Company and its subsidiaries, considered as a whole. Such
Intellectual Property that the Company and its subsidiaries own or
under which they are licensed, are valid, enforceable, in good
standing and uncontested and not subject to any liens or encumbrances
or rights thereto or therein by third parties, other than the license
agreements entered into by the Company and its subsidiaries, except
for exceptions to the foregoing that are not expected to have a
material adverse effect on the Company and its subsidiaries,
considered as a whole. Except as otherwise disclosed in the
Prospectus, other than exceptions that are not expected to have a
material adverse effect on the Company and its subsidiaries,
considered as a whole, (i) the Company and its subsidiaries have the
sole and exclusive right to use the Intellectual Property, and there
are no claims, actions, suits, oppositions, cancellations or other
proceedings, challenging or questioning the legality, validity,
enforceability, use or ownership of the Intellectual Property or of
any license or agreement related thereto, nor to the best knowledge of
the Company is any such claim threatened or is there a valid basis for
any such claim; (ii) neither the Company nor any of its subsidiaries
have infringed, misappropriated, or received notice of infringement
with respect to any patent, trademark, copyright, trade dress or
related right of others, and to the best knowledge of the Company,
there is no infringement by others of any Intellectual Property owned
or used by the Company and its subsidiaries; (iii) there are no
intellectual property rights as described generally in (ii) above,
held by others which in the future are expected to have any material
adverse effect on the business, financial condition or results of
operations of the Company and its subsidiaries; (iv) all license and
other agreements pertaining to the Intellectual Property and to which
the Company and its subsidiaries are a party, are in compliance in all
material respects with all applicable laws and regulations in those
jurisdictions worldwide in which the Company and its subsidiaries
conduct the business, including, without limitation, those pertaining
to remittance of foreign exchange and taxation; and
(xiv) Such counsel has no reason to believe that, as of its
effective date, the Registration Statement or any further amendment
thereto made by the Company prior to such Time of Delivery (except for
finaicial statements and schedules and other financial data included
therein as to which such counsel
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need not express any belief) contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that, as of its date or such Time of Delivery, the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (except for financial
statements and schedules and other financial data included therein as
to which such counsel need not express any belief) contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
In rendering such opinion, such counsel may rely as to certain
matters of fact on certificates of officers of the Company and of
public officials and may state that he expresses no opinion as to the
laws of any jurisdiction outside the United States. With respect to
paragraph (xiv) above, such counsel may state that such counsel's
opinion and belief are based upon such counsel's participation in the
preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verificiation,
except as specified.
(d) Davis Polk & Wardwell, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached
as Annex II(c) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Shares to be delivered at such Time of Delivery have been
duly and validly authorized and, upon payment and delivery in
accordance herewith and with the International Underwriting Agreement,
the Shares will be validly issued, fully paid and non-assessable;
(ii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with all requisite corporate power and authority to own
its properties and conduct its business as described in the
Prospectus;
(iii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (other than the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and nonassessable;
(iv) This Agreement and the International Underwriting Agreement
have been duly authorized, executed and delivered by the Company;
(v) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Shares or the consummation
by the Company of the transactions contemplated by this Agreement and
the International Underwriting Agreement, except the registration
under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the
purchase
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and distribution of the Shares by the Underwriters and the
International Underwriters;
(vi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute
a summary of the terms of the Stock are accurate and complete in all
material respects;
(vii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act; and
(viii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
schedules and other financial data therein, as to which such counsel
need express no opinion), as of their respective effective dates or
issue dates, as the case may be, comply as to form in all material
respects with the requirements of the Act and the rules and
regulations thereunder;
In passing on the form of the Registration Statement and the
Prospectus and each amendment and supplement thereto, such counsel may
state that it has not independently verified the accuracy or
completeness of the statements made or included therein and takes no
responsibility therefor and that such opinion is based upon such
counsel's examination of the Registration Statement, the Prospectus as
amended or supplemented and its participation in conferences with
certain officers and employees of the Company and its subsidiaries and
with representatives of Coopers & Lybrand L.L.P. and any others
referred to in such opinion; subject to the same qualifications, such
counsel shall also state that they have no reason to believe that, as
of its effective date, the Registration Statement or any further
amendment thereto made by the Company prior to such Time of Delivery
(except for financial statements and schedules and other financial
data included therein as to which such counsel need not express any
belief) contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of its date or
such Time of Delivery, the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of Delivery
(except for financial statements and schedules and other financial
data included therein as to which such counsel need not express any
belief) contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
In rendering such opinion, such counsel may rely as to certain
matters of fact on certificates of officers of the Company and of
public officials and may state that they express no opinion as to the
laws of any jurisdiction other than the State of New York, the federal
law of the United States and the Delaware General Corporation Law.
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(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery, Coopers &
Lybrand L.L.P. shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to
you, to the effect set forth in Annex I hereto (the executed copy of the
letter delivered prior to the execution of this Agreement is attached as
Annex I(a) hereto and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(f)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of any of the Company or any of its subsidiaries or any
change, or any development involving a prospective change, in or affecting
the general affairs, management, financial position, shareholders' equity
or results of operations of the Company and its subsidiaries, considered as
a whole, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in Clause (i) or (ii), is in
the judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the Exchange; (ii) a suspension or material
limitation in trading in the Company's securities on the Exchange; (iii) a
general moratorium on commercial banking activities declared by either
Federal or New York State authorities; or (iv) the outbreak or escalation
of hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event
specified in this Clause (iv) in the judgment of the Representatives makes
it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have been
duly listed, subject to notice of issuance, on the Exchange;
(i) The Company shall have obtained and delivered to the Underwriters
executed copies of an agreement from The Limited, substantially to the
effect set forth in Section 6(e) hereof in form satisfactory to you;
(j) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you to the effect that (i) the representations and
warranties of the Company herein are true and correct in all material
respects at and as of such Time of Delivery, (ii) the Company has
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performed all of its material obligations hereunder to be performed at or
prior to such Time of Delivery as well as a certificate of an officer of
the Company, as to the matters set forth in subsection (a) of this Section
and as to such other matters as you may reasonably request;
(k) The Company shall own all such assets and shall have entered into
all such agreements necessary to enable the Company to operate its
businesses as set forth in the Prospectus in all material respects;
(l) The Company shall have complied with the provisions of Section
6(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(m) The Tax-Sharing Agreement as described in the Prospectus under
the caption "Tax-Sharing Agreement" shall have been duly authorized and
executed by the Company and The Limited.
9. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through any of you expressly for use therein; and provided, further, that the
Company shall not be liable to any Underwriter under the indemnity agreement in
this subsection (a) with respect to any Preliminary Prospectus to the extent
that any such loss, claim, damage or liability of such Underwriter results from
the fact that such Underwriter sold Shares to a person as to whom it shall be
established that there was not sent or given, at or prior to written
confirmation of such sale, a copy of the Prospectus or of the Prospectus as then
amended or supplemented in any case where such delivery is required by the Act
if the Company previously furnished copies thereof in the quantity requested in
accordance with Section 6(c) hereof to such Underwriter and the loss, claim,
damage or liability of such Underwriter results from an untrue statement or
omission of a material fact contained in the Preliminary Prospectus and
corrected in the Prospectus or the Prospectus as then amended or supplemented.
(b) The Limited will indemnify and hold harmless against each Underwriter
losses, claims, damages or liabilities to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the
18
<PAGE>
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission is in respect of
information relating solely to The Limited and its subsidiaries (other than the
Company and its subsidiaries) or was made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to any
Underwriter by or on behalf of The Limited expressly for use therein; and will
reimburse any Underwriter for any legal or other expenses reasonably incurred by
such Underwriter in connection with investigating or defending any such action
or claim as such expenses are incurred; provided, however, that The Limited
shall not be liable to any Underwriter under the indemnity agreement in this
subsection (b) with respect to any Preliminary Prospectus to the extent that any
such loss, claim, damage or liability of such Underwriter results from the fact
that such Underwriter sold Shares to a person as to whom it shall be established
that there was not sent or given, at or prior to written confirmation of such
sale, a copy of the Prospectus or of the Prospectus as then amended or
supplemented in any case where such delivery is required by the Act if the
Company previously furnished copies thereof in the quantity requested in
accordance with Section 6(c) hereof to such Underwriter and the loss, claim,
damage or liability of such Underwriter results from an untrue statement or
omission of a material fact contained in the Preliminary Prospectus and
corrected in the Prospectus or the Prospectus as then amended or supplemented.
(c) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through any of you expressly for
use therein; and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the
19
<PAGE>
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. If the
indemnifying party does not assume the defense of such action, it is understood
that the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
one separate firm of local attorneys in each such jurisdiction) at any time for
all such indemnified parties, which firms shall be designated in writing by you,
if the indemnified parties under this Section consist of any Underwriter or any
of their respective controlling persons, or by the Company, if the indemnified
parties under this Section consist of the Company or any of the Company's
directors, officers or controlling persons. The indemnifying party shall not be
liable for any settlement of an action or claim for monetary damages which an
indemnified party may effect without the consent of the indemnifying party,
which consent shall not be unreasonably withheld. No indemnifying party shall,
without the written consent of the indemnified party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an
actual or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 9 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, 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 of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares purchased under this Agreement (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters with respect to the
Shares purchased under this Agreement, 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 on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if
20
<PAGE>
contributions pursuant to this subsection (e) 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 in this subsection (e). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (e) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection
(e), no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares 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. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company under this Section 9 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 9 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company [(including
any person who, with his or her consent, is named in the Registration Statement
as about to become a director of the Company)] and to each person, if any, who
controls the Company within the meaning of the Act.
10. (a) The Company will indemnify and hold harmless Goldman, Sachs &
Co., in its capacity as QIU, against any losses, claims, damages or liabilities,
joint or several, to which the QIU may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilties (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or neceessary to
make the statements therein not misleading, and will reimburse the QIU for any
legal or other expenses reasonably incurred by the QIU in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(b) Promptly after receipt by the QIU under subsection (a) above of
notice of the commencement of any action, the QIU shall, if a claim in respect
thereof is to be made against the Company under such subsection, notify the
Company in writing of the commencement thereof; but the omission so to notify
the Company shall not relieve it from any liability which it may have to the QIU
otherwise than under such subsection. In case any such action shall be brought
against the QIU and it shall notify the Company of the commencement thereof, the
Company shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to the QIU (who shall not,
except with the consent of the QIU, be counsel to the Company), and, after
notice from the indemnifying party to the QIU of its election so to assume the
defense thereof, the indemnifying party shall not be liable to the QIU under
such
21
<PAGE>
subsection for any legal expenses of other counsel or any other expenses,
in each case subsequently incurred by the QIU, in connection with the defense
thereof other than reasonable costs of investigation. The Company shall not,
without the written consent of the indemnified party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the QIU is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the QIU from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
QIU.
(c) If the indemnification provided for in this Section 10 is
unavailable to or insufficient to hold harmles Goldman, Sachs & Co., in its
capacity as QIU, under subsection (a) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
the Company shall contribute to the amount paid or payable by the QIU as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the QIU on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the QIU failed to
give the notice required under subsection (b) above, then the Company shall
contribute to such amount paid or payable by the QIU in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the QIU on the other in connection with
the statements or omisions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the QIU on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company, as set forth in the table on the cover page of the Prospectus,
bear to the fee deemed payable to the QIU pursuant to Section 3 hereof. 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 on the one hand or the QIU on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the QIU agree that it would not be
just and equitabe if contributions pursuant to this subsection (c) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
subsection (c). The amount paid or payable by the QIU as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this subsection (c) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(d) The obligations of the Company under this Section 10 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the QIU
within the meaning of the Act.
11. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms
22
<PAGE>
contained herein. If within thirty-six hours after such default by any
Underwriter you do not arrange for the purchase of such Shares, then the Company
shall be entitled to a further period of thirty-six hours within which to
procure another party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the respective prescribed
periods, you notify the Company that you have so arranged for the purchase of
such Shares, or the Company notifies you that it has so arranged for the
purchase of such Shares, you or the Company shall have the right to postpone
such Time of Delivery for a period of not more than seven days, in order to
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 to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 7 hereof and the
indemnity and contribution agreements in Section 9 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
12. The respective indemnities, agreements, representations, warranties
and other statements of the Company, The Limited and the several Underwriters,
as set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation (or any statement as to the results thereof) made by or on
behalf of any Underwriter or any controlling person of any Underwriter, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Shares.
13. If this Agreement shall be terminated pursuant to Section 11 hereof or
as a result of the failure of any condition set forth in Section 8(g) hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 7 and 9 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided
23
<PAGE>
herein, the Company will reimburse the Underwriters through you for all out-of-
pocket expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter in respect of the
Shares not so delivered except as provided in Sections 7 and 9 hereof.
14. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 9(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof.
15. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 9 and
12 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
16. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
17. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
18. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
24
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us eight counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters (U.S. Version), the form of which shall be
submitted to the Company for examination upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
ABERCROMBIE & FITCH CO.
By: _______________________________
Name: Seth Johnson
Title: Vice President-Finance
AS TO SECTIONS 1(B), 9 AND 12 ONLY
THE LIMITED, INC.
By: _______________________________
Name: Kenneth B. Gilman
Title: Vice Chairman and
Chief Financial Officer
Accepted as of the date hereof:
Goldman, Sachs & Co.
Lazard Freres & Co. LLC
Montgomery Securities
J.P. Morgan Securities Inc.
By: _____________________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
25
<PAGE>
SCHEDULE I
TOTAL NUMBER NUMBER OF OPTIONAL
OF SHARES TO BE
FIRM SHARES PURCHASED IF
TO BE MAXIMUM OPTION
UNDERWRITER PURCHASED EXERCISED
----------- ------------ ------------------
Goldman, Sachs & Co. ...............
Lazard Freres & Co. LLC.............
Montgomery Securities...............
J.P. Morgan Securities Inc. ........
============ ==================
Total __ Underwriters
============ ==================
============ ==================
26
<PAGE>
ANNEX I
FORM OF COMFORT LETTER OF
COOPERS & LYBRAND L.L.P.
Pursuant to Section 8(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been furnished separately to the
representatives of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have been
separately furnished to the Representatives or included herein or attached
hereto and on the basis of specified procedures including inquiries of
officials of the Company who have responsibility for financial and
accounting matters regarding whether the unaudited condensed consolidated
financial statements referred to in paragraph (vi)(A)(i) below comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations, nothing came to
their attention that caused them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding
<PAGE>
amounts (after restatements where applicable) in the
audited consolidated financial statements for such five fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301 and 302, respectively, of
Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
2
<PAGE>
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the consolidated long-
term debt of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described
in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there were any decreases in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
3
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
ABERCROMBIE & FITCH CO.
* * * * *
Abercrombie & Fitch Co. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware does hereby amend the Certificate of Incorporation of the Corporation,
which was originally filed on June 26, 1996, under the name Abercrombie & Fitch,
Inc.
FIRST. The name of the Corporation is:
-----
ABERCROMBIE & FITCH CO.
SECOND. The address of the registered office of the Corporation in
------
the State of Delaware is Corporation Service Company, 1013 Centre Road, City of
Wilmington, County of New Castle, Delaware 19805. The name of its registered
agent at such address is Corporation Service Company.
THIRD. The purpose of the Corporation is to engage in any lawful act
-----
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as the same exists or may hereafter be
amended ("Delaware Law").
FOURTH.
------
Section 1. Capital Stock. (a) The total number of shares of stock
-------------
which the Corporation shall have authority to issue is 315,000,000, consisting
of 300,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), and 15,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"). The Common Stock of the Corporation shall be all of one
class, and shall be divided into two classes, consisting of Class A Common Stock
and Class B Common Stock. The Preferred Stock
<PAGE>
may be issued in one or more series having such designations as may be fixed by
the Board of Directors.
(b) The Board of Directors is expressly authorized to provide for the
issue of all or any shares of the Common Stock and the Preferred Stock, to
determine the number of shares of each class and to fix for each class of Common
Stock and for any series of Preferred Stock such voting powers, full or limited,
or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors or a duly authorized
committee thereof providing for the issue of such series and as may be permitted
by Delaware Law.
(c) The number of authorized shares of any class or classes of stock
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of a majority of the Common Stock of the
Corporation irrespective of the provisions of Section 242(b)(2) of Delaware Law.
Section 2. Common Stock. (a) Issuance and Consideration. Any
------------ --------------------------
unissued or treasury shares of the Common Stock may be issued for such
consideration as may be fixed in accordance with applicable law from time to
time by the Board of Directors.
(b) Dividends. Subject to the rights of holders of the Preferred
---------
Stock, the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of the assets of the Corporation which
are by law available therefor, dividends payable either in cash, in property, or
in shares of stock and the holders of the Preferred Stock shall not be entitled
to participate in any such dividends (unless otherwise provided by the Board of
Directors in any resolution providing for the issue of a series of Preferred
Stock).
(c) Number of Shares. Of the 300,000,000 shares of Common Stock of
----------------
the Corporation, 150,000,000 shares are initially designated as shares of Class
A Common Stock and 150,000,000 shares are initially designated as shares of
Class B Common Stock. The number of shares designated as Class A Common Stock
or Class B Common Stock may be increased or decreased from
2
<PAGE>
time to time by a resolution or resolutions adopted by the Board of Directors or
any duly authorized committee thereof and in accordance with paragraph (d)(5)(E)
below without the consent of the holders of any outstanding shares of Common
Stock or Preferred Stock.
(d) Powers, Preferences, Etc. The following is a statement of the
------------------------
powers, preferences, and relative participating, optional or other special
rights and qualifications, limitations and restrictions of the Class A Common
Stock and Class B Common Stock of the Corporation:
(1) Except as otherwise set forth below in this ARTICLE FOURTH, the
powers, preferences and relative participating, optional or other special rights
and qualifications, limitations or restrictions of the Class A Common Stock and
Class B Common Stock shall be identical in all respects.
(2) Subject to the rights of the holders of Preferred Stock, and subject
to any other provisions of this Amended and Restated Certificate of
Incorporation, holders of Class A Common Stock and Class B Common Stock shall be
entitled to receive such dividends and other distributions in cash, stock of any
corporation (other than Common Stock of the Corporation) or property of the
Corporation as may be declared thereon by the Board of Directors from time to
time out of assets or funds of the Corporation legally available therefor and
shall share equally on a per share basis in all such dividends and other
distributions. In the case of dividends or other distributions payable in
Common Stock, including distributions pursuant to stock splits or divisions of
Common Stock of the Corporation, only shares of Class A Common Stock shall be
paid or distributed with respect to Class A Common Stock and only shares of
Class B Common Stock shall be paid or distributed with respect to Class B Common
Stock. The number of shares of Class A Common Stock and Class B Common Stock so
distributed shall be equal in number on a per share basis. Neither the shares
of Class A Common Stock nor the shares of Class B Common Stock may be
reclassified, subdivided or combined unless such reclassification, subdivision
or combination occurs simultaneously and in the same proportion for each class.
3
<PAGE>
(3)(A) At every meeting of the stockholders of the Corporation every
holder of Class A Common Stock shall be entitled to one vote in person or by
proxy for each share of Class A Common Stock standing in his or her name on the
transfer books of the Corporation, and every holder of Class B Common Stock
shall be entitled to three votes in person or by proxy for each share of Class B
Common Stock standing in his or her name on the transfer books of the
Corporation in connection with the election of directors and all other matters
submitted to a vote of stockholders; provided, however, that with respect to any
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proposed conversion of the shares of Class B Common Stock into shares of Class A
Common Stock pursuant to paragraph (d)(5)(B), every holder of a share of Common
Stock, irrespective of class, shall have one vote in person or by proxy for each
share of Common Stock standing in his or her name on the transfer books of the
Corporation. Except as may be otherwise required by law or by this ARTICLE
FOURTH, the holders of Class A Common Stock and Class B Common Stock shall vote
together as a single class, subject to any voting rights which may be granted to
holders of Preferred Stock, on all matters submitted to a vote of the holders of
Common Stock.
(B) Every reference in this Amended and Restated Certificate of
Incorporation to a majority or other proportion of shares of Common Stock, Class
A Common Stock or Class B Common Stock, shall refer to such majority or other
proportion of the votes to which such shares of Common Stock, Class A Common
Stock or Class B Common Stock are entitled.
(4) In the event of any dissolution, liquidation or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after payment in
full of the amounts required to be paid to the holders of Preferred Stock, the
remaining assets and funds of the Corporation shall be distributed pro rata to
the holders of Class A Common Stock and Class B Common Stock. For the purposes
of this paragraph (d)(4), the voluntary sale, conveyance, lease, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all
or substantially all of the assets of the Corporation or a
4
<PAGE>
consolidation or merger of the Corporation with one or more other corporations
(whether or not the Corporation is the corporation surviving such consolidation
or merger) shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary.
(5)(A) Prior to the earliest to occur of the date on which shares of Class
B Common Stock are issued to stockholders of The Limited, Inc. or its successors
("The Limited") in a Tax-Free Spin-Off (as defined in paragraph (d)(5)(B)) and
the date on which the number of shares of Class B Common Stock outstanding is
less than 60% of the aggregate number of shares of Common Stock outstanding and
a Tax-Free Spin-Off has not occurred, each share of Class B Common Stock is
convertible at the option of the holder thereof into one share of Class A Common
Stock. At the time of a voluntary conversion, the holder of shares of Class B
Common Stock shall deliver to the office of the Corporation or any transfer
agent for the Class B Common Stock (i) the certificate or certificates
representing the shares of Class B Common Stock to be converted, duly endorsed
in blank or accompanied by proper instruments of transfer, and (ii) written
notice to the Corporation stating that such holder elects to convert such share
or shares and stating the name and address in which each certificate for shares
of Class A Common Stock issued upon such conversion is to be issued. To the
extent permitted by law and subject to the taking of any necessary action or
making any filing contemplated by paragraph (d)(5)(E), such voluntary conversion
shall be deemed to have been effected at the close of business on the date when
such delivery is made to the Corporation or such transfer agent of the shares to
be converted, and the person exercising such voluntary conversion shall be
deemed to be the holder of record of the number of shares of Class A Common
Stock issuable upon such conversion at such time. The Corporation shall
promptly deliver certificates evidencing the appropriate number of shares of
Class A Common Stock to such person.
(B) Each share of Class B Common Stock shall automatically convert into
one share of Class A Common Stock upon the transfer of such share if,
5
<PAGE>
after such transfer, such share is not beneficially owned by The Limited, unless
such transfer is effected in connection with a transfer of Class B Common Stock
to stockholders of The Limited as a dividend intended to be on a tax-free basis
under the Internal Revenue Code of 1986, as amended from time to time (the
"Code"), (a "Tax-Free Spin-Off"). For purposes of this paragraph (d)(5), the
term "beneficially owned" with respect to shares of Class B Common Stock means
ownership by a person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise controls the voting power
(which includes the power to vote or to direct the voting of) of such Class B
Common Stock. In the event of a Tax-Free Spin-Off, shares of Class B Common
Stock shall automatically convert into shares of Class A Common Stock on the
fifth anniversary of the date on which shares of Class B Common Stock are first
transferred to stockholders of The Limited in a Tax-Free Spin-Off unless, prior
to such Tax-Free Spin-Off, The Limited delivers to the Corporation an opinion of
The Limited's counsel (which counsel shall be reasonably satisfactory to the
Corporation) to the effect that such conversion would preclude The Limited from
obtaining a favorable ruling from the Internal Revenue Service that the
distribution would be a Tax-Free Spin-Off under the Code. If such an opinion is
received, approval of such conversion shall be submitted to a vote of the
holders of the Common Stock as soon as practicable after the fifth anniversary
of the Tax-Free Spin-Off unless The Limited delivers to the Corporation an
opinion of The Limited's counsel (which counsel shall be reasonably satisfactory
to the Corporation) prior to such anniversary to the effect that such vote would
adversely affect the status of the Tax-Free Spin-Off. At the meeting of
stockholders called for such purpose, every holder of Common Stock shall be
entitled to one vote in person or by proxy for each share of Common Stock
standing in his or her name on the transfer books of the Corporation. Approval
of such conversion shall require the approval of a majority of the votes
entitled to be cast by the holders of the Class A Common Stock and Class B
Common Stock present and voting, voting together as a single class, and the
holders of the Class B Common Stock shall not be entitled to a separate
6
<PAGE>
class vote. Such conversion shall be effective on the date on which such
approval is given at a meeting of stockholders called for such purpose.
Each share of Class B Common Stock shall automatically convert into one
share of Class A Common Stock on the date on which the number of shares of Class
B Common Stock outstanding is less than 60% of the aggregate number of shares of
Common Stock outstanding and a Tax-Free Spin-Off has not occurred.
The Corporation shall at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued Common
Stock and its issued Common Stock held in its treasury for the purpose of
effecting any conversion of the Class B Common Stock pursuant to this paragraph
(d)(5)(B), the full number of shares of Class A Common Stock then deliverable
upon any such conversion of all outstanding shares of Class B Common Stock.
The Corporation will provide notice of any automatic conversion of shares
of Class B Common Stock to holders of record of the Common Stock not less than
30 nor more than 60 days prior to the date fixed for such conversion; provided,
--------
however, that if the timing or nature of the effectiveness of an automatic
- -------
conversion makes it impracticable to provide at least 30 days' notice, the
Corporation shall provide such notice as soon as practicable. Such notice shall
be provided by mailing notice of such conversion first class postage prepaid, to
each holder of record of the Common Stock, at such holder's address as it
appears on the transfer books of the Corporation; provided, however, that no
-------- -------
failure to give such notice nor any defect therein shall affect the validity of
the automatic conversion of any shares of Class B Common Stock. Each such
notice shall state, as appropriate, the following:
(i) the automatic conversion date;
(ii) the number of outstanding shares of Class B Common Stock that are to be
converted automatically;
7
<PAGE>
(iii) the place or places where certificates for such shares are to be
surrendered for conversion; and
(iv) that no dividends will be declared on the shares of Class B Common
Stock converted after such conversion date.
Immediately upon such conversion, the rights of the holders of shares of
Class B Common Stock as such shall cease and such holders shall be treated for
all purposes as having become the record owners of the shares of Class A Common
Stock issuable upon such conversion; provided, however, that such persons shall
-------- -------
be entitled to receive when paid any dividends declared on the Class B Common
Stock as of a record date preceding the time of such conversion and unpaid as of
the time of such conversion.
As promptly as practicable after the time of conversion, upon the delivery
to the Corporation of certificates formerly representing shares of Class B
Common Stock, the Corporation shall deliver or cause to be delivered, to or upon
the written order of the record holder of the surrendered certificates formerly
representing shares of Class B Common Stock, a certificate or certificates
representing the number of fully paid and nonassessable shares of Class A Common
Stock into which the shares of Class B Common Stock formerly represented by such
certificates have been converted in accordance with the provisions of this
paragraph (d)(5)(B).
(C) Subject to the provisions of this paragraph (d)(5)(C), from and after
the date on which shares of Class B Common Stock are transferred to the
stockholders of The Limited in a Tax-Free Spin-Off, (i) each share of Class A
Common Stock shall be convertible at the option of the holder thereof into one
share of Class B Common Stock on the date on which any person (other than The
Limited or any of its consolidated subsidiaries) or any group of persons (other
than a group composed of The Limited and/or one or more of its consolidated
subsidiaries) agreeing to act together for the purpose of acquiring, holding,
voting or disposing of shares of Class B Common Stock, shall make an offer,
which the Board of
8
<PAGE>
Directors determines in its sole discretion to be "bona fide", to holders of
Class B Common Stock to purchase 5% or more of the issued and outstanding shares
of such Class B Common Stock for cash or a combination of cash and other
securities or property and (ii) each share of Class B Common Stock shall be
convertible at the option of the holder thereof into one share of Class A Common
Stock on the date on which any person (other than The Limited or any of its
consolidated subsidiaries) or any group of persons (other than a group composed
of The Limited and/or one or more of its consolidated subsidiaries) agreeing to
act together for the purpose of acquiring, holding, voting or disposing of
shares of Class A Common Stock, shall make an offer, which the Board of
Directors determines in its sole discretion to be "bona fide", to holders of
Class A Common Stock to purchase 5% or more of the issued and outstanding shares
of Class A Common Stock for cash or a combination of cash and other securities
or property. The Corporation will provide notice in writing to all holders of
Common Stock of any offer referred to in the foregoing clauses (i) and (ii).
Such notice shall be provided by mailing notice of such offer, first class
postage prepaid, to each holder of the class of Common Stock then entitled to be
converted, at such holder's address as it appears on the transfer books of the
Corporation. The Common Stock shall be convertible under this paragraph
(d)(5)(C) as long as such offer shall remain in effect and shall not be
terminated, rescinded or completed, as determined by the Board of Directors in
its sole discretion. Notwithstanding the foregoing, each share of Common Stock
converted into a share of the other class of Common Stock pursuant to this
paragraph (d)(5)(C) and not purchased pursuant to such offer prior to the
termination, rescission or completion thereof, as determined by the Board of
Directors in its sole discretion, shall automatically be reconverted into a
share of Common Stock of the class from which it was converted pursuant to this
paragraph (d)(5)(C) upon the earliest to occur of the termination, rescission or
completion of such offer, as so determined by the Board of Directors.
9
<PAGE>
Any conversion pursuant to this paragraph (d)(5)(C) may be effected at
the office of the Corporation or any transfer agent for the Common Stock and at
such other place or places, if any, as the Board of Directors may designate.
Upon conversion pursuant to this paragraph (d)(5)(C), the Corporation shall make
no payment or adjustment on account of dividends accrued or in arrears on Common
Stock surrendered for conversion or on account of any dividends on Common Stock
issuable on such conversion. Before any holder of Common Stock shall be
entitled to convert the same into any other class of stock pursuant to this
paragraph (d)(5)(C), such holder shall surrender the certificate or certificates
for such Common Stock at the office of said transfer agent (or other place as
provided above). Such certificate(s), if the Corporation shall so request,
shall be duly endorsed to the Corporation or in blank or accompanied by proper
instruments of transfer to the Corporation or in blank (such endorsements or
instruments of transfer to be in form satisfactory to the Corporation). Such
certificate(s) shall be accompanied by a written notice to the Corporation at
said office stating that such holder elects to convert all or a specified number
of Common Stock represented by such certificate(s) in accordance with this
paragraph (d)(5)(C) and stating the name(s) in which such holder desires the
certificate(s) representing the stock to be issued. Such written notice shall
also state the name(s) of the person(s) making the offer entitling such holder
to convert such Common Stock. The Corporation will, as soon as practicable
after deposit of the certificate(s) for the class of Common Stock to be
converted, accompanied by the written notice and the statements prescribed
above, issue and deliver at the office of said transfer agent (or other place as
provided above) to the person for whose account such Common Stock was so
surrendered, or to such person's nominee or nominees, a certificate or
certificates for the number of shares of such other class of Common Stock to
which such holder shall be entitled as aforesaid.
Any certificate of Common Stock issued in connection with a conversion
pursuant to this paragraph (d)(5)(C) shall bear a legend substantially to the
effect of the last sentence
10
<PAGE>
of the first subparagraph of this paragraph (d)(5)(C) until such certificate
shall be transferred to the person(s) making the offer entitling a holder of
Common Stock to convert such Common Stock pursuant to this paragraph (d)(5)(C),
or the nominee or nominees of such person(s).
Any conversion pursuant to this paragraph (d)(5)(C) shall be deemed to have
been made as of the date of surrender of the Common Stock to be converted; and
the person or persons entitled to receive the Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock on such date.
(D) The Corporation will pay any and all documentary, stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares of
one class of Common Stock on the conversion of shares of the other class of
Common Stock pursuant to this paragraph (d)(5); provided, however, that the
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Corporation shall not be required to pay any tax which may be payable in respect
of any registration of transfer involved in the issue or delivery of shares of
one class of Common Stock in a name other than that of the registered holder of
the other class of Common Stock converted, and no such issue or delivery shall
be made unless and until the person requesting such issue has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid.
(E) Concurrently with any conversion of one class of Common Stock into the
other class of Common Stock effected pursuant to paragraphs (d)(5)(A) and (B)
above and, in the case of a conversion pursuant to paragraph (d)(5)(C) above,
concurrently with the purchase of shares so converted, each share of a class of
Common Stock that is converted (i) shall be retired and canceled and shall not
be reissued and (ii) shall proportionally decrease the number of shares of
Common Stock of such class designated hereby. The Secretary of the Corporation
shall be, and hereby is, authorized and directed to file with the Secretary of
State of the State of Delaware one or more Certificates of Decrease of
Designated Shares
11
<PAGE>
to record any such decrease in designated shares of Common Stock. No
undesignated shares of Common Stock shall be designated shares of Class B Common
Stock following an automatic conversion of shares of Class B Common Stock
pursuant to paragraph (d)(5)(B) above.
(F) Immediately upon the effectiveness of this Amended and Restated
Certificate of Incorporation each share of common stock of the Corporation, par
value $.10 per share, that is issued and outstanding immediately prior to such
effectiveness, shall be changed into and reclassified as 43,000 shares of
Class B Common Stock.
Section 3. Preferred Stock.
---------------
(a) Series and Limits of Variations between Series. Any unissued or
----------------------------------------------
treasury shares of the Preferred Stock may be issued from time to time in one or
more series for such consideration as may be fixed from time to time by the
Board of Directors and each share of a series shall be identical in all respects
with the other shares of such series, except that, if the dividends thereon are
cumulative, the date from which they shall be cumulative may differ. Before any
shares of Preferred Stock of any particular series shall be issued, a
certificate shall be filed with the Secretary of State of Delaware setting forth
the designation, rights, privileges, restrictions, and conditions to be attached
to the Preferred Stock of such series and such other matters as may be required,
and the Board of Directors shall fix and determine, and is hereby expressly
empowered to fix and determine, in the manner provided by law, the particulars
of the shares of such series (so far as not inconsistent with the provisions of
this ARTICLE FOURTH applicable to all series of Preferred Stock), including, but
not limited to, the following:
(1) the distinctive designation of such series and the number of shares
which shall constitute such series, which number may be increased (except where
otherwise provided by the Board of Directors in creating such series) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by like action of the Board of Directors;
12
<PAGE>
(2) the annual rate of dividends payable on shares of such series, the
conditions upon which such dividends shall be payable and the date from which
dividends shall be cumulative in the event the Board of Directors determines
that dividends shall be cumulative;
(3) whether such series shall have voting rights, in addition to the voting
rights provided by law and, if so, the terms of such voting rights;
(4) whether such series shall have conversion privileges and, if so, the
terms and conditions of such conversion, including, but not limited to,
provision for adjustment of the conversion rate upon such events and in such
manner as the Board of Directors shall determine;
(5) whether or not the shares of such series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(6) whether such series shall have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amount of such
sinking fund;
(7) the rights of the shares of such series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
(8) any other relative rights, preferences and limitations of such series.
Section 4. No Preemptive Rights. Except as otherwise set forth above
--------------------
in this ARTICLE FOURTH, no holder of shares of this Corporation of any class
shall be entitled, as such, as a matter of right, to subscribe for or purchase
shares of any class now or hereafter authorized, or to purchase or subscribe for
securities convertible into or exchangeable for shares of the Corporation or to
which there shall be attached
13
<PAGE>
or appertain any warrants or rights entitling the holders thereof to purchase or
subscribe for shares.
FIFTH.
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Section 1. Amendment of Bylaws by Directors. In furtherance and not
--------------------------------
in limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to make, repeal, alter, amend and rescind the bylaws of the
Corporation.
Section 2. Amendment of Bylaws by the Stockholders. The bylaws shall
---------------------------------------
not be made, repealed, altered, amended or rescinded by the stockholders of the
Corporation except by the vote of not less than 75 percent of the outstanding
shares of the Corporation entitled to vote thereon. Any amendment to the
Certificate of Incorporation which shall contravene any bylaw in existence on
the record date of the stockholders meeting at which such amendment is to be
voted upon by the stockholders shall require the vote of not less than 75
percent of the outstanding shares entitled to vote thereon.
SIXTH.
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Section 1. Classified Board. Effective immediately upon the issuance
----------------
of more than 1,000 shares of Common Stock of the Corporation, the Board of
Directors (exclusive of directors to be elected by the holders of any one or
more series of Preferred Stock voting separately as a class or classes) shall be
divided into three classes, Class A, Class B, and Class C. The number of
directors in each class shall be the whole number contained in the quotient
arrived at by dividing the authorized number of directors by three, and if a
fraction is also contained in such quotient, then if such fraction is one-third,
the extra director shall be a member of Class A and if the fraction is two-
thirds, one of the extra directors shall be a member of Class A and the other
shall be a member of Class B. Each director shall serve for a term ending on
the date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, that the directors first elected to
Class A shall serve for a term ending on the date of the annual meeting next
following the end of the calendar year 1996, the directors first elected to
Class B shall serve for a term ending on the date of the second annual meeting
next following the end of the
14
<PAGE>
calendar year 1996, and the directors first elected to Class C shall serve for a
term ending on the date of the third annual meeting next following the end of
the calendar year 1996. Notwithstanding the foregoing formula provisions, in
the event that, as a result of any change in the authorized number of directors,
the number of directors in any class would differ from the number allocated to
that class under the formula provided in this ARTICLE SIXTH immediately prior to
such change, the following rules shall govern:
(a) each director then serving as such shall nevertheless continue as
a director of the class of which such director is a member until the expiration
of his current term, or his prior death, resignation or removal;
(b) at each subsequent election of directors, even if the number of
directors in the class whose term of office then expires is less than the number
then allocated to that class under said formula, the number of directors then
elected for membership in that class shall not be greater than the number of
directors in that class whose term of office then expires, unless and to the
extent that the aggregate number of directors then elected plus the number of
directors in all classes then duly continuing in office does not exceed the then
authorized number of directors of the Corporation;
(c) at each subsequent election of directors, if the number of
directors in the class whose term of office then expires exceeds the number then
allocated to that class under said formula, the Board of Directors shall
designate one or more of the directorships then being elected as directors of
another class or classes in which the number of directors then serving is less
than the number then allocated to such other class or classes under said
formula;
(d) in the event of the death, resignation or removal of any director
who is a member of a class in which the number of directors serving immediately
preceding the creation of such vacancy exceeded the number then allocated to
that class under said formula, the Board of Directors shall designate the
vacancy thus created as a vacancy in another class in which the number of
directors then serving is less than the
15
<PAGE>
number then allocated to such other class under said formula;
(e) In the event of any increase in the authorized number of
directors, the newly created directorships resulting from such increase shall be
apportioned by the Board of Directors to such class or classes as shall, so far
as possible, bring the composition of each of the classes into conformity with
the formula in this ARTICLE SIXTH, as it applies to the number of directors
authorized immediately following such increase; and
(f) designation of directorships or vacancies into other classes and
apportionments of newly created directorships to classes by the Board of
Directors under the foregoing items (c), (d) and (e) shall, so far as possible,
be effected so that the class whose term of office is due to expire next
following such designation or apportionment shall contain the full number of
directors then allocated to said class under said formula.
Notwithstanding any of the foregoing provisions of this ARTICLE SIXTH, each
director shall serve until his successor is elected and qualified or until his
death, resignation or removal.
Section 2. Election by Holders of Preferred Stock. During any period
--------------------------------------
when the holders of any Preferred Stock or any one or more series thereof,
voting as a class, shall be entitled to elect a specified number of directors,
by reason of dividend arrearages or other provisions giving them the right to do
so, then and during such time as such right continues (i) the then otherwise
authorized number of directors shall be increased by such specified number of
directors, and the holders of such Preferred Stock or such series thereof,
voting as a class, shall be entitled to elect the additional directors so
provided for, pursuant to the provisions of such Preferred Stock or series; (ii)
each such additional director shall serve for such term, and have such voting
powers, as shall be stated in the provisions pertaining to such Preferred Stock
or series; and (iii) whenever the holders of any such Preferred Stock or series
thereof are divested of such rights to elect a specified number of directors,
voting as a class, pursuant to the provisions of such Preferred Stock or series,
the terms of office of all directors elected by the holders of
16
<PAGE>
such Preferred Stock or series, voting as a class pursuant to such provisions or
elected to fill any vacancies resulting from the death, resignation or removal
of directors so elected by the holders of such Preferred Stock or series, shall
forthwith terminate and the authorized number of directors shall be reduced
accordingly.
Section 3. Ballots. Elections of directors at an annual or special
-------
meeting of stockholders need not be by written ballot unless the bylaws of the
Corporation shall provide otherwise.
Section 4. Elimination of Certain Personal Liability of Directors. A
------------------------------------------------------
director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of any fiduciary duty as a
director to the fullest extent permitted by Delaware Law.
SEVENTH. After the issuance of more than 1,000 shares of Common Stock
-------
of the Corporation, no action shall be taken by the stockholders except at an
annual or special meeting of stockholders.
EIGHTH. The Board of Directors of the Corporation, when evaluating
------
any offer of another party to (1) make a tender or exchange offer for any equity
security of the Corporation, (2) merge or consolidate the Corporation with
another corporation, or (3) purchase or otherwise acquire all or substantially
all of the properties and assets of the Corporation, shall in connection with
the exercise of its judgment in determining what is in the best interests of the
Corporation and its stockholders, give due consideration to all relevant
factors, including without limitation the social and economic effects on the
employees, customers, suppliers and other constituents of the Corporation and
its subsidiaries and on the communities in which the Corporation and its
subsidiaries operate or are located.
NINTH. Any director may be removed at any annual or special
-----
stockholders' meeting upon the affirmative vote of not less than 75 percent of
the outstanding shares of voting stock of the Corporation at that time entitled
to vote thereon; provided, however, that such director may be removed only for
cause and shall receive a copy of the charges against him, delivered to him
personally or by mail at his last
17
<PAGE>
known address at least 10 days prior to the date of the stockholders' meeting;
provided further, that directors who shall have been elected by the holders of a
series or class of Preferred Stock, voting separately as a class, shall be
removed only pursuant to the provisions establishing the rights of such series
or class to elect such directors.
TENTH.
-----
Section 1. Amendment of Certain Articles. The provisions set forth in
-----------------------------
this ARTICLE TENTH and in ARTICLES FIFTH, SIXTH, Section 1, SEVENTH, EIGHTH,
NINTH, ELEVENTH, TWELFTH and THIRTEENTH may not be amended, altered, changed, or
repealed in any respect unless such amendment, alteration, change or repealing
is approved by the affirmative vote of not less than 75 percent of the
outstanding shares of the Corporation entitled to vote thereon; provided that
with respect to any proposed amendment, alteration or change to this Amended and
Restated Certificate of Incorporation, or repealing of any provision of this
Amended and Restated Certificate of Incorporation, which would amend, alter or
change the powers, preferences or special rights of the shares of Class A Common
Stock or Class B Common Stock so as to affect them adversely, the affirmative
vote of not less than 75 percent of the outstanding shares affected by the
proposed amendment, voting as a separate class, shall be required in addition to
the vote otherwise required pursuant to this ARTICLE TENTH; and provided,
--------
further, that with respect to any amendment, alteration or change to, or
- -------
repealing of, any provision of ARTICLE ELEVENTH, the affirmative vote of not
less than 75 percent of the outstanding shares of the Corporation entitled to
vote thereon, other than shares held by the Interested Person (if any) seeking
or proposing to effect any transaction involving the Corporation or any
subsidiary of the Corporation, shall be required in addition to the vote
otherwise required pursuant to this ARTICLE TENTH.
Section 2. Amendments Generally. Subject to the provisions of
--------------------
Section 1 of this ARTICLE TENTH, the Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Amended and Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred on stockholders herein are granted subject to
this reservation.
18
<PAGE>
ELEVENTH.
--------
Section 1. Vote Required for Certain Business Combinations. The
-----------------------------------------------
affirmative vote of not less than 75 percent of the outstanding shares of
"Voting Stock" (as hereinafter defined) held by stockholders other than the
"Interested Person" (as hereinafter defined) seeking to effect a "Business
Combination" (as hereinafter defined) shall be required for the approval or
authorization of any Business Combination with any Interested Person; provided
--------
that the provisions of this ARTICLE ELEVENTH shall not apply to any Business
Combination, and such Business Combination shall require only such affirmative
vote, if any, as is required by law or otherwise, if such Business Combination
shall have been approved by a majority (whether such approval is made prior or
subsequent to the acquisition of Beneficial Ownership of the Voting Stock that
caused the Interested Person to become an Interested Person) of the Continuing
Directors (as hereinafter defined).
Section 2. Definitions. Certain words and terms as used in this
-----------
ARTICLE ELEVENTH shall have the meanings given to them by the definitions and
descriptions in this Section.
(a) Business Combination. The term "Business Combination" shall mean
--------------------
(a) any merger or consolidation of the Corporation or a subsidiary of the
Corporation with or into an Interested Person, (b) any sale, lease, exchange,
transfer or other disposition, including without limitation, a mortgage or any
other security device, of all or any "Substantial Part" (as hereinafter defined)
of the assets either of the Corporation (including without limitation, any
voting securities of a subsidiary) or of a subsidiary of the Corporation to an
Interested Person, (c) any merger or consolidation of an Interested Person with
or into the Corporation or a subsidiary of the Corporation, (d) any sale, lease,
exchange, transfer or other disposition, including without limitation, a
mortgage or other security device, of all or any Substantial Part of the assets
of an Interested Person to the Corporation or a subsidiary of the Corporation,
(e) the issuance or transfer by the Corporation or any subsidiary of the
Corporation of any securities of the Corporation or a subsidiary of the
Corporation to an Interested Person, (f) any reclassification of securities,
recapitalization or other comparable transaction
19
<PAGE>
involving the Corporation that would have the effect of increasing the voting
power of any Interested Person with respect to Voting Stock of the Corporation,
and (g) any agreement, contract or other arrangement providing for any of the
transactions described in this definition of Business Combination.
(b) Interested Person. The term "Interested Person" shall mean and
-----------------
include any individual, corporation, partnership or other person or entity
which, together with its "Affiliates" and "Associates" (as defined in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act of 1934
as in effect at the date of the adoption of this ARTICLE ELEVENTH by the
stockholders of the Corporation), "Beneficially Owns" (as defined in Rule 13d-3
of the General Rules and Regulations under the Securities Exchange Act of 1934
as in effect at the date of the adoption of this ARTICLE ELEVENTH by the
stockholders of the Corporation) in the aggregate five percent or more of the
outstanding Voting Stock of the Corporation, and any Affiliate or Associate of
any such individual, corporation, partnership or other person or entity.
Without limitation, any share of Voting Stock of the Corporation that any
Interested Person has the right to acquire at any time (notwithstanding that
Rule 13d-3 deems such shares to be beneficially owned only if such right may be
exercised within 60 days) pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise, shall be deemed to be
Beneficially Owned by the Interested Person and to be outstanding for purposes
of this definition. An Interested Person shall be deemed to have acquired a
share of the Voting Stock of the Corporation at the time when such Interested
Person became the Beneficial Owner thereof.
(c) Voting Stock. The term "Voting Stock" shall mean all of the
------------
outstanding shares of Common Stock of the Corporation and any outstanding shares
of Preferred Stock entitled to vote on each matter on which the holders of
record of Common Stock shall be entitled to vote, and each reference to a
proportion of shares of Voting Stock shall refer to such proportion of the votes
entitled to be cast by such shares.
(d) Substantial Part. The term "Substantial Part" shall mean more
----------------
than 20 percent of the fair market value as determined by two-thirds of the
Continuing Directors of the total consolidated assets
20
<PAGE>
of the Corporation and its subsidiaries taken as a whole as of the end of its
most recent fiscal year ended prior to the time the determination is being made.
(e) Continuing Director. The term "Continuing Director" shall mean a
-------------------
Director who was a member of the Board of Directors of the Corporation
immediately prior to the time that the Interested Person involved in a Business
Combination became an Interested Person, or a Director who was elected or
appointed to fill a vacancy after the date the Interested Person became an
Interested Person by a majority of the then-current Continuing Directors;
provided, that with respect to The Limited, the term "Continuing Director" shall
- --------
mean a Director who was a member of the Board of Directors of the Corporation
immediately following the consummation of the initial public offering of the
Corporation's Class A Common Stock in a transaction registered under the
Securities Act of 1933, as amended (the "IPO"), or a Director who was elected or
appointed to fill a vacancy after the IPO by a majority of the then-current
Continuing Directors.
TWELFTH.
-------
Section 1. In anticipation that the Corporation will cease to be a
wholly owned subsidiary of The Limited, but that The Limited will remain a
stockholder of the Corporation, and in anticipation that the Corporation and The
Limited may engage in the same or similar activities or lines of business and
have an interest in the same areas of corporate opportunities, and in
recognition of (i) the benefits to be derived by the Corporation through its
continued contractual, corporate and business relations with The Limited
(including service of officers and directors of The Limited as officers and
directors of the Corporation) and (ii) the difficulties attendant to any
director, who desires and endeavors fully to satisfy such director's fiduciary
duties, in determining the full scope of such duties in any particular
situation, the provisions of this ARTICLE TWELFTH are set forth to regulate,
define and guide the conduct of certain affairs of the Corporation as they may
involve The Limited and its officers and directors, and the powers, rights,
duties and liabilities of the Corporation and its officers, directors and
stockholders in connection therewith.
21
<PAGE>
Section 2. Except as The Limited may otherwise agree in writing,
(a) The Limited shall not have a duty to refrain from engaging directly or
indirectly in the same or similar business activities or lines of business as
the Corporation, and
(b) neither The Limited nor any officer or director thereof shall be liable
to the Corporation or its stockholders for breach of any fiduciary duty by
reason of any such activities of The Limited or of such person's participation
therein.
In the event that The Limited acquires knowledge of a potential transaction or
matter that may be a corporate opportunity for both The Limited and the
Corporation, The Limited shall have no duty to communicate or offer such
corporate opportunity to the Corporation and shall not be liable to the
Corporation or its stockholders for breach of any fiduciary duty as a
stockholder of the Corporation or controlling person of a stockholder by reason
of the fact that The Limited pursues or acquires such corporate opportunity for
itself, directs such corporate opportunity to another person or entity, or does
not communicate information regarding, or offer, such corporate opportunity to
the Corporation.
Section 3. In the event that a director, officer or employee of the
Corporation who is also a director, officer or employee of The Limited acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for the Corporation and The Limited (whether such potential
transaction or matter is proposed by a third-party or is conceived of by such
director, officer or employee of the Corporation), such director, officer or
employee shall be entitled to offer such corporate opportunity to the
Corporation or The Limited as such director, officer or employee deems
appropriate under the circumstances in his sole discretion, and no such
director, officer or employee shall be liable to the Corporation or its
stockholders for breach of any fiduciary duty or duty of loyalty or failure to
act in (or not opposed to) the best interests of the Corporation or the
derivation of any improper personal benefit by reason of the fact that (i) such
director, officer or employee offered such corporate opportunity to The Limited
(rather than the Corporation) or did not communicate information
22
<PAGE>
regarding such corporate opportunity to the Corporation or (ii) The Limited
pursues or acquires such corporate opportunity for itself or directs such
corporate opportunity to another person or does not communicate information
regarding such corporate opportunity to the Corporation.
Section 4. Any person or entity purchasing or otherwise acquiring any
interest in any shares of capital stock of the Corporation shall be deemed to
have notice of and to have consented to the provisions of this ARTICLE TWELFTH.
Section 5. For purposes of this ARTICLE TWELFTH and ARTICLE
THIRTEENTH only, (i) the term "Corporation" shall mean the Corporation and all
corporations, partnerships, joint ventures, associations and other entities in
which the Corporation beneficially owns (directly or indirectly) fifty percent
or more of the outstanding voting stock, voting power or similar voting
interests, and (ii) the term "The Limited" shall mean The Limited and all
corporations, partnerships, joint ventures, associations and other entities
(other than the Corporation, defined in accordance with clause (i) of this
Section 5) in which The Limited beneficially owns (directly or indirectly) fifty
percent or more of the outstanding voting stock, voting power or similar voting
interests.
Section 6. Notwithstanding anything in this Certificate of
Incorporation to the contrary, the foregoing provisions of this ARTICLE TWELFTH
shall expire on the date that The Limited ceases to own beneficially Common
Stock representing at least 20% of the number of outstanding shares of Common
Stock of the Corporation and no person who is a director or officer of the
Corporation is also a director or officer of The Limited. Neither the
alteration, amendment, change or repeal of any provision of this ARTICLE TWELFTH
nor the adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with any provision of this ARTICLE TWELFTH shall
eliminate or reduce the effect of this ARTICLE TWELFTH in respect of any matter
occurring, or any cause of action, suit or claim that, but for this ARTICLE
TWELFTH, would accrue or arise, prior to such alteration, amendment, repeal or
adoption.
23
<PAGE>
Section 7. The provisions of this ARTICLE TWELFTH are in addition to
the provisions of ARTICLE SIXTH, Section 5, and ARTICLE THIRTEENTH.
THIRTEENTH.
----------
Section 1. No contract, agreement, arrangement or transaction (or any
amendment, modification or termination thereof) between the Corporation and The
Limited or any Related Entity (as defined below) or between the Corporation and
one or more of the directors or officers of the Corporation, The Limited or any
Related Entity, shall be void or voidable solely for the reason that The
Limited, any Related Entity or any one or more of the officers or directors of
the Corporation, The Limited or any Related Entity are parties thereto, or
solely because any such directors or officers are present at or participate in
the meeting of the Board of Directors or committee thereof which authorizes the
contract, agreement, arrangement, transaction, amendment, modification or
termination or solely because his or their votes are counted for such purpose,
but any such contract, agreement, arrangement or transaction (or any amendment,
modification or termination thereof) shall be governed by the provisions of this
Amended and Restated Certificate of Incorporation, the Corporation's Bylaws,
Delaware Law and other applicable law. For purposes of this ARTICLE THIRTEENTH,
(i) the term "Related Entities" means one or more directors of this Corporation,
or one or more corporations, partnerships, associations or other organizations
in which one or more of its directors have a direct or indirect financial
interest and (ii) the terms the "Corporation" and "The Limited" have the
meanings set forth in ARTICLE TWELFTH, Section 5.
Section 2. Directors of the Corporation who are also directors or
officers of The Limited or any Related Entity may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
that authorizes or approves any such contract, agreement, arrangement or
transaction (or amendment, modification or termination thereof). Outstanding
shares of Common Stock owned by The Limited and any Related Entities may be
counted in determining the presence of a quorum at a meeting of stockholders
that authorizes or approves any such contract, agreement, arrangement or
transaction (or amendment, modification or termination thereof).
24
<PAGE>
Section 3. Neither The Limited nor any officer or director thereof or
Related Entity shall be liable to the Corporation or its stockholders for breach
of any fiduciary duty or duty of loyalty or failure to act in (or not opposed
to) the best interests of the Corporation or the derivation of any improper
personal benefit by reason of the fact that The Limited or an officer of
director thereof or such Related Entity in good faith takes any action or
exercises any rights or gives or withholds any consent in connection with any
agreement or contract between The Limited or such Related Entity and the
Corporation. No vote cast or other action taken by any person who is an
officer, director or other representative of The Limited or such Related Entity,
which vote is cast or action is taken by such person in his capacity as a
director of this Corporation, shall constitute an action of or the exercise of a
right by or a consent of The Limited or such Related Entity for the purpose of
any such agreement or contract.
Section 4. Any person or entity purchasing or otherwise acquiring any
interest in any shares of capital stock of the Corporation shall be deemed to
have notice of and to have consented to the provisions of this ARTICLE
THIRTEENTH.
Section 5. For purposes of this ARTICLE THIRTEENTH, any contract,
agreement, arrangement or transaction with any corporation, partnership, joint
venture, association or other entity in which the Corporation beneficially owns
(directly or indirectly) fifty percent or more of the outstanding voting stock,
voting power or similar voting interests, or with any officer or director
thereof, shall be deemed to be a contract, agreement, arrangement or transaction
with the Corporation.
Section 6. Neither the alteration, amendment, change or repeal of any
provision of this ARTICLE THIRTEENTH nor the adoption of any provision
inconsistent with any provision of this ARTICLE THIRTEENTH shall eliminate or
reduce the effect of this ARTICLE THIRTEENTH in respect of any matter occurring,
or any cause of action, suit or claim that, but for this ARTICLE THIRTEENTH,
would accrue or arise, prior to such alteration, amendment, change, repeal or
adoption.
25
<PAGE>
Section 7. The provisions of this ARTICLE THIRTEENTH are in addition
to the provisions of ARTICLE SIXTH, Section 5, and ARTICLE TWELFTH.
26
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation, having been duly adopted by the written consent of the sole
stockholder of the Corporation in accordance with the provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware, has
been executed this 27th day of August 1996.
ABERCROMBIE & FITCH CO.
By:
/s/ Samuel P. Fried
----------------------
Name: Samuel P. Fried
Title: Secretary
27
<PAGE>
EXHIBIT 4.1
TEMPORARY CERTIFICATE: EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN
READY FOR DELIVERY.
CLASS A
COMMON STOCK
NUMBER ABERCROMBIE & FITCH CO. SHARES
T INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 002896 20 7
SEE REVERSE SIDE FOR
CERTAIN DEFINITIONS
This certifies that
is the owner of
Fully-Paid and Non-Assessable Shares of the Class A Common Stock, $.01 par
value, of:
============================ ABERCROMBIE & FITCH CO. ==========================
(hereinafter and on the back hereof called the "Corporation") transferable on
the books of the Corporation by the holder hereof in person or by a duly
authorized attorney upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be subject to
all of the provisions of the Certificate of Incorporation and the By-Laws of the
Corporation (copies of which are on file with the Transfer Agent), as now or
hereafter amended pursuant to their terms, to all of which the holder hereof by
acceptance hereof assents. This Certificate is not valid unless countersigned
and registered by the Transfer Agent and Registrar.
Witness the facsimile signatures of its duly authorized officers.
Countersigned and Registered
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Transfer Agent
and Registrar
Chairman of the Board
By
Secretary Authorized Signature
<PAGE>
ABERCROMBIE & FITCH CO.
The Corporation will furnish without charge to each stockholder who so requests
a statement of the designations, preferences and relative, participating,
optional or other special rights of each class of stock of the Corporation, or
series thereof, and the qualifications, limitations or restrictions of such
preferences and/or rights. Such requests must be made to the office of the
secretary of the Corporation or to the Transfer Agent.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN OR DESTROYED, THE
CORPORATION MAY REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-__________Custodian_____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of Under Uniform Gifts to Minors
survivorship and not as tenants Act_____________________
in common (State)
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
For value received__________________________________________________________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE.
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
(Please Print or Typewrite Name and Address, including Zip Code of Assignee.)
- -------------------------------------------------------------------------------------------------------------------------shares
of the Class A Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
- ------------------------------------------------------------------------------------------------------------------------Attorney
to transfer the said shares on the books of the Corporation with full power of substitution in the premises.
Dated______________________________________
Signature______________________________________
</TABLE>
In the Presence of:
_________________________________________________________________
Notice: The signature to this assignment must correspond with the
name as written upon the face of the Certificate in every particular,
without alteration or enlargement or any change whatever.
<PAGE>
EXHIBIT 5.1
August 27, 1996
Abercrombie & Fitch Co.
Four Limited Parkway
Reynoldsburg, OH 43068
Ladies and Gentlemen:
We have acted as special counsel to Abercrombie & Fitch Co. (the "Company")
in connection with the Company's Registration Statement on Form S-1,
Registration No. 333-8231 (the "Registration Statement") filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, for the registration of 8,050,000 shares of the Company's Class A
Common Stock, $.01 par value per share (the "Shares"), including 1,050,000
shares subject to the underwriters' over-allotment option, as described in the
Registration Statement.
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments as we have deemed necessary for the purposes of
rendering this opinion, including the Company's Amended and Restated Certificate
of Incorporation.
On the basis of the foregoing and assuming the due execution and delivery
of certificates representing the Shares, we are of the opinion that the Shares
have been duly authorized and, when issued and delivered against payment
therefor in accordance with the terms of the Underwriting Agreement referred to
in the prospectus that is part of the Registration Statement, will be validly
issued, fully paid and non-assessable.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware.
1
<PAGE>
Abercrombie & Fitch Co. -2- August 27, 1996
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the related Prospectus.
Very truly yours,
DAVIS POLK & WARDWELL
2
<PAGE>
EXHIBIT 10.8
ABERCROMBIE & FITCH CO.
INCENTIVE COMPENSATION PLAN
The ABERCROMBIE & FITCH CO. Incentive Compensation Plan (the "INCENTIVE
PLAN") is intended to satisfy the applicable provisions of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "CODE"). The Incentive Plan shall
be administered by the Compensation Committee (the "COMMITTEE") of the Board of
Directors of ABERCROMBIE & FITCH CO. (the "COMPANY"). The Committee shall
determine which key executives of the Company with significant operating and
financial responsibility will be eligible to earn seasonal cash incentive
compensation payments to be paid twice each year under the Incentive Plan.
Neither Leslie H. Wexner nor Kenneth B. Gilman are eligible to participate in
the Incentive Plan.
Prior to the beginning of each spring and fall selling season, the Committee
may establish operating income and/or gross margin and/or sales objectives for
the Company. These objectives must assume an increased performance level, and be
based on an analysis of historical performance and growth expectations for the
business, financial results of other comparable businesses, and progress towards
achieving the long-range strategic plan for the business. These objectives and
determination of results are based entirely on financial measures, and the
Committee may not use any discretion to modify award results.
Annual incentive compensation targets may be established for eligible
executives ranging from 10% to 110% of base salary, as established under the
Company's pay guidelines. Executives may earn their target incentive
compensation if the business achieves the established operating income and/or
gross margin and/or sales objectives. The target incentive compensation
percentage for each executive will be based on the level and functional
responsibility of his or her position, size of the business for which the
executive is responsible, and competitive practices, in that order of priority.
The annual incentive compensation targets for the Company's eligible executive
officers required to be named in the Company's proxy statement may range from
40% to 110% of base salary. The amount of incentive compensation paid to
participating executives may range from zero to double their targets, based upon
the extent to which operating income and/or gross margin and/or sales objectives
are achieved or exceeded. The minimum level at which a participating executive
will earn any incentive payment, and the level at which an executive will earn
the maximum incentive payment of double the target, must be established by the
Committee prior to the commencement of each bonus period. Actual payouts must be
based on a straight-line interpolation based
<PAGE>
on these minimum and maximum levels and the target operating income and/or gross
margin and/or sales objectives.
The maximum dollar amount to be paid for any year under the Incentive Plan to
any participant may not exceed $2,000,000.
2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
no. 333-8231) of our reports dated July 11, 1996, on our audits of the balance
sheet of Abercrombie & Fitch Co. as of July 11, 1996 and the consolidated
financial statements of The Abercrombie & Fitch Business as of January 28, 1995
and February 3, 1996, and for each of the three years in the period ended
February 3, 1996. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
August 27, 1996
