<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Abercrombie & Fitch Co.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
LOGO
FOUR LIMITED PARKWAY REYNOLDSBURG, OHIO 43068 (614) 577-6500
April 14, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to be
held at 10:30 a.m., Eastern Daylight Time, on May 20, 1997, at the offices of
Abercrombie & Fitch Co., Four Limited Parkway, Reynoldsburg, Ohio. Our
Investor Relations telephone number is (614) 479-7070 should you require
assistance in finding the location of the meeting. The formal Notice of Annual
Meeting of Stockholders and Proxy Statement are attached. I hope that you will
be able to attend and participate in the meeting, at which time I will have
the opportunity to review the business and operations of Abercrombie & Fitch.
The matters to be acted upon by our stockholders are set forth in the Notice
of Annual Meeting of Stockholders. It is important that your shares be
represented and voted at the meeting. Accordingly, after reading the attached
Proxy Statement, would you kindly sign, date and return the enclosed proxy
card. Your vote is important regardless of the number of shares you own.
Sincerely yours,
/s/ Michael S. Jeffries
Michael S. Jeffries President
and Chief Executive Officer
<PAGE>
LOGO
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1997
April 14, 1997
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Abercrombie & Fitch Co., a Delaware corporation (the "Company"), will be held
at the offices of Abercrombie & Fitch Co., Four Limited Parkway, Reynoldsburg,
Ohio on May 20, 1997, at 10:30 a.m., Eastern Daylight Time, for the following
purposes:
1.To elect three directors to serve for terms of three years.
2. To consider and vote upon a proposal to approve the Abercrombie & Fitch
Co. Incentive Compensation Performance Plan.
3. To consider and vote upon a proposal to approve the 1997 Restatement of
the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive
Plan.
4. To consider and vote upon a proposal to approve the Abercrombie & Fitch
Co. 1996 Stock Plan for Non-Associate Directors.
5. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record, as shown by the transfer books of the Company,
at the close of business on March 28, 1997 are entitled to notice of and to
vote at the Annual Meeting.
By Order of the Board of
Directors
/s/ Michael S. Jeffries
Michael S. Jeffries President
and Chief Executive Officer
PLEASE FILL IN, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE
ENVELOPE PROVIDED AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE ANNUAL MEETING. IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR
ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ATTACHED PROXY
STATEMENT.
<PAGE>
LOGO
FOUR LIMITED PARKWAY REYNOLDSBURG, OHIO 43068 (614) 577-6500
PROXY STATEMENT DATED APRIL 14, 1997
ANNUAL MEETING OF STOCKHOLDERS MAY 20, 1997
The accompanying proxy is solicited by the Board of Directors of Abercrombie
& Fitch Co. (the "Company") to be voted at the Annual Meeting of Stockholders
to be held May 20, 1997 (the "Annual Meeting"), and any adjournments thereof.
When such proxy is properly executed and returned, the shares it represents
will be voted at the meeting as directed. If no specification is indicated,
the shares will be voted in accordance with the recommendation of the
Company's Board of Directors with respect to each matter submitted to the
Company's stockholders for approval. Abstentions will not be voted, but will
be counted for determining the presence of a quorum. Broker non-votes will not
be counted for any purpose. Any stockholder giving a proxy has the power to
revoke it prior to its exercise by notice of revocation to the Company in
writing, by voting in person at the Annual Meeting or by execution of a
subsequent proxy; provided, however, that such action must be taken in
sufficient time to permit the necessary examination and tabulation of the
subsequent proxy or revocation before the vote is taken.
The shares entitled to vote at the meeting consist of shares of Class A
Common Stock and Class B Common Stock of the Company (collectively, the
"Common Stock"), with each share of Class A Common Stock entitling the holder
of record to one vote and each share of Class B Common Stock entitling the
holder of record to three votes. At the close of business on March 28, 1997,
the record date for the Annual Meeting, there were outstanding 8,002,950
shares of Class A Common Stock and 43,000,000 shares of Class B Common Stock.
All shares of Class B Common Stock, representing approximately 94% of the
voting power of the Company, are held by The Limited, Inc. ("The Limited").
The Class A Common Stock and the Class B Common Stock will vote as a single
class with respect to all matters submitted to stockholders for approval at
the Annual Meeting. This Proxy Statement and the accompanying form of proxy
are first being sent to stockholders on or about April 14, 1997.
The Company consummated an initial public offering of its Class A Common
Stock in September 1996 (the "Initial Public Offering"). Prior to that time,
the businesses comprising Abercrombie & Fitch were wholly owned by The
Limited.
ELECTION OF DIRECTORS
NOMINEES AND DIRECTORS
Three members of the Board of Directors of the Company will be elected at
the Annual Meeting. Directors elected at the Annual Meeting will hold office
for a three-year term expiring at the Annual Meeting of Stockholders in 2000
or until their successors are elected and qualified. In the event any of the
nominees shall be unable or unwilling to serve as a director, it is intended
that the proxies will be voted for the election of such person nominated by
the Board of Directors in substitution. The Company has no reason to believe
that any nominee of the Board of Directors will be unable to serve as a
director if elected.
<PAGE>
Stockholders wishing to nominate directors for election may do so by
delivering to the Secretary of the Company, no later than 14 days before the
Annual Meeting, a notice setting forth (a) the name, age, business address
and, if known, residence address of each nominee proposed in such notice, (b)
the principal occupation or employment of each such nominee and (c) the number
of shares of stock of the Company beneficially owned by each such nominee. No
person may be elected as a director unless he or she has been nominated by a
stockholder in the manner just described or by the Board of Directors. The
three nominees receiving the highest number of votes will be elected
directors. Proxies may not be voted for more than three nominees.
BUSINESS EXPERIENCE
Nominees for Election at the 1997 Annual Meeting
<TABLE>
<S> <C>
ROGER D. BLACKWELL Dr. Blackwell has been a Professor of Marketing at The
Ohio State University for more than five years and is
also President and Chief Executive Officer of Roger D.
Blackwell Associates, Inc., a marketing consulting firm
in Columbus, Ohio. Dr. Blackwell is also a director of
Airnet Systems, Inc., Applied Industrial Technologies,
Inc., Checkpoint Systems, Inc., The Flex-Funds, Intimate
Brands, Inc., a subsidiary of The Limited ("Intimate
Brands"), Max & Erma's Restaurants, Inc., and Worthington
Foods, Inc.
E. GORDON GEE Dr. Gee has been President of The Ohio State University
since September 1990. Dr. Gee is also a director of The
Limited, Intimate Brands, ASARCO, Inc., Banc One
Corporation, Columbia Gas of Ohio and Glimcher Realty
Trust.
MICHAEL S. JEFFRIES Mr. Jeffries has been President and Chief Executive
Officer of Abercrombie & Fitch since February 1992.
Directors Whose Terms Continue until the 1998 Annual Meeting
KENNETH B. GILMAN Mr. Gilman has been Vice Chairman of the Company since
1996. Mr. Gilman has been Vice Chairman and Chief
Financial Officer of The Limited since 1993 and was
Executive Vice President and Chief Financial Officer of
The Limited for five years prior thereto. Mr. Gilman has
also been the Vice Chairman of the Board of Intimate
Brands since 1995. Mr. Gilman is also a director of We
Do, Inc.
DONALD B. SHACKELFORDMr. Shackelford has been Chairman of the Board and Chief
Executive Officer of State Savings Bank, a banking
business, for more than five years and has been the Chief
Executive Officer of State Savings Co. since 1995. Mr.
Shackelford is also a director of The Limited, Intimate
Brands, Progressive Corporation and Worthington Foods,
Inc.
Directors Whose Terms Continue until the 1999 Annual Meeting
LESLIE H. WEXNER Mr. Wexner has been Chairman of the Board of the Company
since 1996. Mr. Wexner has been President and Chief
Executive Officer of The Limited since he founded The
Limited in 1963 and has been Chairman of the Board of
Directors of The Limited for more than five years. Mr.
Wexner is also Chairman of the Board and Chief Executive
Officer of Intimate Brands and a director of Hollinger
International, Inc. and Hollinger International
Publishing, Inc.
</TABLE>
2
<PAGE>
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Company's Board of Directors held one meeting in fiscal year 1996 after
its Initial Public Offering. All of the directors attended the meeting.
The Compensation Committee of the Board is charged with reviewing executive
compensation and administering the Company's stock option and performance
incentive plans. Its members are Mr. Shackelford (Chair) and Dr. Gee. Members
of the Compensation Committee held one meeting in fiscal year 1996 and took
action in writing without a meeting on one occasion.
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
Set forth below is certain information about the securities ownership of all
directors of the Company, the executive officers of the Company named in the
Summary Compensation Table below and all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF PERCENT OF
DIRECTOR CLASS A COMMON STOCK THE LIMITED COMMON THE LIMITED
NAME, POSITION WITH THE COMPANY OR CONTINUOUSLY TERM BENEFICIALLY OWNED PERCENT STOCK BENEFICIALLY COMMON
PRINCIPAL OCCUPATION, AND AGE SINCE EXPIRES (A)(B) OF CLASS OWNED (A)(B) STOCK
- ---------------------------------- ------------ ------- -------------------- -------- ------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Roger D. Blackwell............ 1996 1997 1,077 * 6,800 *
Professor of Marketing,
The Ohio State University, 56
Michele S. Donnan-Martin...... ** ** 4,963(c) * 19,919(d) *
Vice President--General
Merchandising Manager
Women's, 33
E. Gordon Gee................. 1996 1997 577 * 1,386 *
President of The Ohio
State University, 53
Kenneth B. Gilman ............ 1996 1998 10,000 * 427,109(d)(e)(f) *
Vice Chairman, 50
Michael S. Jeffries .......... 1996 1997 23,343(c) * 67,141(d) *
President and Chief
Executive Officer, 52
Seth R. Johnson .............. ** ** 9,939(c) * 31,640(d)(f) *
Vice President--Chief
Financial Officer, 43
Donald B. Shackelford ........ 1996 1998 1,077 * 67,837(g) *
Chairman of the Board and
Chief Executive Officer of
State Savings Bank, 64
Leslie H. Wexner ............. 1996 1999 10,000 * 67,384,748(d)(f)(h) 24.9%
Chairman of the Board, 59
All directors and executive
officers as a group.......... ** ** 60,976(c)(i) * 68,006,580(d)(h)(j) 25.1%
</TABLE>
- --------
*Less than 1%.
**Not applicable.
(a) Unless otherwise indicated, each named person has voting and investment
power over the listed shares and such voting and investment power is
exercised solely by the named person or shared with a spouse.
3
<PAGE>
(b) Reflects ownership as of February 24, 1997.
(c) Includes the following number of shares issuable within 60 days upon the
exercise of outstanding stock options: Mr. Jeffries, 10,834; Ms. Donnan-
Martin, 3,250; Mr. Johnson, 1,625; and all directors and executive
officers as a group, 15,709.
(d) Includes the following number of shares issuable within 60 days upon the
exercise of outstanding stock options: Mr. Gilman, 254,167; Mr. Wexner,
87,500; Mr. Jeffries, 49,000; Ms. Donnan-Martin, 18,500; Mr. Johnson,
28,500; and all directors and executive officers as a group, 437,667.
(e) Includes 1,117 shares owned by family members, as to which beneficial
ownership is disclaimed by Mr. Gilman.
(f) Includes the following number of shares held as of December 31, 1996 in an
employee benefit plan, over which the participant has the power to dispose
or withdraw shares: Mr. Gilman, 33,075; Mr. Johnson, 599; Mr. Wexner,
520,631; and all directors and executive officers as a group, 554,305.
(g) Includes 18,381 shares owned by family members, as to which beneficial
ownership is disclaimed by Mr. Shackelford.
(h) Includes 2,000,000 shares held by Health and Science Interests, 350,000
shares held by Health and Science Interests II, 2,104,717 shares held by
the Wexner Foundation, 6,010,600 shares held by the Harry & Hannah Wexner
Trust, 3,989,400 shares held by the Harry, Hannah & David Wexner Trust and
18,750,000 shares held by The Wexner Children's Trust. Mr. Wexner
disclaims beneficial ownership of the shares held by Health and Science
Interests, Health and Science Interests II and the Wexner Foundation. Mr.
Wexner shares investment and voting power with others with respect to
shares held by The Wexner Foundation. The 18,750,000 shares held by the
Wexner Children's Trust are held subject to the terms of a Contingent
Stock Redemption Agreement entered into on January 26, 1996 between The
Limited, Mr. Wexner and The Wexner Children's Trust.
(i) Includes 15,709 shares issuable within 60 days upon the exercise of
outstanding stock options.
(j) Includes 4,474,215 shares as to which beneficial ownership is disclaimed.
4
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information concerning compensation paid by the
Company (except, as noted below, for executive officers Wexner and Gilman,
whose compensation was paid by The Limited in the years noted) to each of the
named executive officers of the Company for the Company's last fiscal year and
by The Limited for that portion of the 1996 fiscal year prior to the
consummation of the Initial Public Offering.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------------------------------------
SECURITIES
RESTRICTED UNDERLYING
FISCAL STOCK OPTIONS ALL OTHER
YEAR SALARY BONUS (3) AWARDS AWARDED COMPENSATION
NAME AND PRINCIPAL POSITION (1) (2) $ $ (4) $ # (5) $
- ------------------------------- ------ ----------- --------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Leslie H. Wexner........ 1996 1,011,538 915,000 -- 200,000(6) 151,629
Chairman of the Board 100,000(8)
1995 1,150,000 768,315 -- 100,000(6) 148,436
1994 1,150,000 832,370 556,562(6) 50,000(6) 149,066
Kenneth B. Gilman....... 1996 903,846 603,900 -- 50,000(6) 187,192
Vice Chairman 50,000(8)
1995 941,935 449,820 -- 25,000(6) 190,772
1994 896,144 473,760 278,281(6) 25,000(6) 185,736
Michael S. Jeffries..... 1996 546,154 990,275 720,000(7)(9) 130,000(7) 140,380
President and Chief
Executive 340,478(7)
Officer 93,366(6)
1995 491,700 426,300 159,393(6) 12,000(6) 104,772
Michele S.
Donnan-Martin.......... 1996 256,923 234,065 72,000(7)(9) 28,000(7) 46,657
Vice President--General 88,000(7)
Merchandising Manager-- 43,203(7)
Women's 15,561(6)
1995 217,510 107,184 26,566(6)(9) 5,000(6) 36,051
Seth R. Johnson......... 1996 223,077 202,556 43,203(7) 6,500(7) 45,873
Vice President--Chief
Financial 15,561(6)
Officer 1995 198,340 97,440 26,566(6) 5,000(6) 39,854
</TABLE>
- --------
(1) Executive officers 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 executive officers 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.
(2) Under rules promulgated by the Securities and Exchange Commission (the
"Commission"), since the Company was not a reporting company during the
three immediately preceding fiscal years, only the information with
respect to the last two completed fiscal years is noted in the Summary
Compensation Table, except for such information that was previously
required to be filed with the Commission.
(3) Represents for each fiscal year, the aggregate of the performance-based
cash incentive compensation for the Spring and Fall selling seasons.
5
<PAGE>
(4) On February 1, 1997, 24,762, 3,142 and 3,142 restricted stock performance
awards of the Company's Class A Common Stock were granted to executive
officers Jeffries, Donnan-Martin and Johnson, respectively. The per share
value of the Class A Common Stock on such date was $13.75. On August 1,
1996, 4,788, 798 and 798 restricted stock performance awards of The
Limited's Common Stock were granted to executive officers Jeffries,
Donnan-Martin and Johnson, respectively. The per share value of The
Limited's Common Stock on such date was $19.50. The February 1, 1997 and
August 1, 1996 awards were in respect of 1996 performance. On February 1,
1996, 9,516, 1,586, 1,586 restricted stock performance awards of The
Limited's Common Stock were granted to executive officers Jeffries,
Donnan-Martin and Johnson, respectively, in respect of 1995 performance.
The per share value of The Limited's Common Stock on such date was $16.75.
These awards generally vest 10% on the grant date; an additional 20% on
the first anniversary of the grant date; an additional 30% on the second
anniversary of the grant date; and the remaining 40% on the third
anniversary of the grant date, in each case, subject to the holder's
continued employment.
Under the relevant awards, the employment of executive officers Jeffries,
Donnan-Martin and Johnson with The Limited is not considered terminated as
a result of their becoming employees of the Company.
On September 25, 1996, 5,500 restricted shares of the Company's Class A
Common Stock were awarded to executive officer Donnan-Martin. The per share
value of Class A Common Stock on such date was the Initial Public Offering
price of $16.00 per share. This award vests 100% on September 25, 2001.
As of February 1, 1997, the aggregate holdings of restricted shares of the
Company's Class A Common Stock and the market value of such holdings for
each of the named executive officers were: Mr. Jeffries, 67,286 shares,
$925,183; Ms. Donnan-Martin, 12,828 shares, $176,385; and Mr. Johnson,
2,828 shares, $38,885 (based on the $13.75 fair market value of the
Company's Class A Common Stock on Friday, January 31, 1997).
As of February 1, 1997, the aggregate holdings of restricted shares of The
Limited's Common Stock and the market value of such holdings for such
executive officers were: Mr. Jeffries, 15,772 shares, $270,096; Ms. Donnan-
Martin, 2,630 shares, $45,039 and Mr. Johnson, 2,630 shares, $45,039,
(based on the $17.125 fair market value of The Limited's Common Stock on
Friday, January 31, 1997).
Dividends will not be paid or accrue with respect to shares of restricted
stock until such shares vest.
(5) Represents for each named executive officer, the amount of employer
matching and supplemental contributions allocated to his or her account
under certain of The Limited's qualified and non-qualified defined
contribution plans during 1996.
(6) Denominated in shares of The Limited's Common Stock.
(7) Denominated in shares of the Company's Class A Common Stock.
(8) Denominated in shares of Intimate Brands' Class A Common Stock.
(9) Reflects the cancellation of awards of restricted shares of The Limited's
Common Stock granted to such executive officers on March 1, 1994 and
February 2, 1996, respectively, in consideration for the award on
September 25, 1996 to executive officers Jeffries and Donnan-Martin of
45,000 and 4,500 restricted shares of the Company's Class A Common Stock,
respectively. Such restricted shares vest 100% on March 1, 1999 and
February 2, 2001, respectively, subject to continued employment with the
Company.
6
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS
No awards were granted in respect of the 1996 fiscal year to the named
executive officers other than the restricted stock performance awards granted
to executive officers Jeffries, Donnan-Martin and Johnson as disclosed in the
Summary Compensation Table.
STOCK OPTIONS
The following table sets forth certain information regarding stock options
granted to the executive officers named in the Summary Compensation Table
during the Company's 1996 fiscal year.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
INDIVIDUAL POTENTIAL REALIZABLE
GRANTS VALUE AT ASSUMED
-------------- ANNUAL RATES OF STOCK ---
APPROXIMATE PRICE APPRECIATION FOR
% OF TOTAL OPTION TERM (2)
SECURITIES OPTIONS EXERCISE -----------------------
UNDERLYING GRANTED TO PRICE
OPTIONS ASSOCIATES PER EXPIRATION
NAME GRANTED (1) IN FISCAL YEAR SHARE DATE 5% 10%
- ------------------------ ----------- -------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Leslie H. Wexner........ 19,656(3) 1.08% $20.35 (4) 7/19/01 $ 110,513 $ 244,204
180,344(3) 9.91% 20.35 (4) 7/19/06 2,308,044 5,849,035
100,000(5) 10.93% 21.5875(4) 7/19/06 1,357,626 3,440,492
Kenneth B. Gilman....... 16,197(3) 0.89% $16.625 2/10/06 $ 169,346 $ 429,155
33,803(3) 1.86% 16.625 2/10/06 353,423 895,643
2,176(5) 0.24% 14.125 2/10/06 19,330 48,985
47,824(5) 5.23% 14.125 2/10/06 424,827 1,076,595
Michael S. Jeffries..... 21,718(6)(7) 8.79% $16.000 9/26/06 $ 218,533 $ 553,806
108,282(6)(7) 43.82% 16.000 9/26/06 1,089,567 2,761,178
Michele S. Donnan-
Martin................. 12,226(6)(7) 4.95% $16.000 9/26/06 $ 123,022 $ 311,762
774(6)(7) 0.31% 16.000 9/26/06 7,788 19,737
5,203(6) 2.11% 16.000 9/26/06 52,354 132,676
9,797(6) 3.96% 16.000 9/26/06 98,580 249,822
Seth R. Johnson......... 4,875(6)(7) 1.97% $16.000 9/26/06 $ 49,054 $ 124,312
1,625(6)(7) 0.66% 16.000 9/26/06 16,351 41,437
</TABLE>
- --------
(1) On July 18, 1996, options to purchase shares of The Limited's Common Stock
pursuant to The Limited, Inc. 1993 Stock Option and Performance Incentive
Plan and options to purchase shares of Intimate Brands' Class A Common
Stock pursuant to the Intimate Brands, Inc. 1995 Stock Option and
Performance Incentive Plan were granted to Mr. Wexner. Such options become
exercisable in four equal annual installments commencing on the first
anniversary of the grant date, subject to continued employment. One grant
represents options intended to qualify as "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the other represents non-qualified stock
options. All Intimate Brands options granted to Mr. Wexner represent non-
qualified stock options.
On February 9, 1996, options to purchase shares of The Limited's Common
Stock pursuant to The Limited, Inc. 1993 Stock Option and Performance
Incentive Plan and options to purchase shares of Intimate Brands',
7
<PAGE>
Class A Common Stock pursuant to The Intimate Brands, Inc. 1995 Stock
Option and Performance Incentive Plan were granted to Mr. Gilman. Such
options are comprised of three approximately equal tranches, each of which
will vest in four equal annual installments commencing on the first, second
and third anniversaries of February 9, 1996, respectively, subject to
continued employment. Mr. Gilman received two grants of each company's
options during 1996. 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-qualified stock options.
On September 25, 1996, options to purchase shares of the Company's Class A
Common Stock pursuant to the Company's 1996 Stock Option and Performance
Incentive Plan were granted to executive officers Jeffries, Donnan-Martin
and Johnson in consideration of the cancellation of The Limited options
granted on February 9, 1996 to such executive officers. Such options
granted to executive officers Donnan-Martin and Johnson become exercisable
in four equal annual installments commencing on the first anniversary of
February 9, 1996 subject to continued employment with the Company. Such
options granted to executive officer Jeffries are comprised of three
approximately equal tranches, each of which will vest in four equal annual
installments commencing on the first, second and third anniversaries of
February 9, 1996, respectively, subject to continued employment. Each
officer received two grants relative to such options. 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-qualified stock
options.
On September 25, 1996, Ms. Donnan-Martin was granted options to purchase
the Company's Class A Common Stock pursuant to the Company's 1996 Stock
Option and Performance Incentive Plan. Such options become exercisable in
four equal annual installments commencing on the first anniversary of the
grant date, subject to continued employment. Ms. Donnan-Martin received two
grants relative to such options. 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-qualified stock options.
(2) The assumed rates of growth were selected by the Securities and Exchange
Commission (the "Commission") for illustrative purposes only and are not
intended to predict or forecast future stock prices.
(3) Denominated in shares of The Limited's Common Stock.
(4) The per share exercise price of all such options granted to Mr. Wexner is
set at 110% of the fair market value of the underlying common stock of the
date of grant.
(5) Denominated in shares of Intimate Brands' Class A Common Stock.
(6) Denominated in shares of the Company's Class A Common Stock.
(7) The table does not include the February 9, 1996 grants of options to
purchase shares of The Limited's Common Stock pursuant to The Limited,
Inc. 1993 Stock Option and Performance Incentive Plan to executive
officers Jeffries, Donnan-Martin and Johnson. Such grants were canceled as
consideration for the September 25, 1996 grant of certain options to
purchase shares of the Company's Class A Common Stock noted above.
8
<PAGE>
The following table sets forth certain information relating to the number
and value of shares of The Limited's Common Stock, Intimate Brands' Class A
Common Stock and the Company's Class A Common Stock subject to the stock
options held by the executive officers named in the Summary Compensation Table
during the Company's 1996 fiscal year and the year-end values of unexercised
options held by such executive officers.
AGGREGATED OPTION EXERCISES IN 1996 FISCAL YEAR AND FISCAL YEAR-
END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED VALUE ---------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ------------ --------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Leslie H. Wexner........ -- -- 50,000(1) 300,000(1) $ 3,125(1) $ 3,125(1)
-- (2) 100,000(2) -- (2) -- (2)
Kenneth B. Gilman....... -- -- 237,500(1) 81,250(1) $422,656(1) $ 26,563(1)
-- (2) 50,000(2) -- (2) 181,250(2)
Michael S. Jeffries..... -- -- 43,000(1) 18,000(1) $ 750(1) $ 750(1)
-- (3) 130,000(3) -- (3) -- (3)
Michele S. Donnan-
Martin................. -- -- 16,250(1) 6,750(1) $ 250(1) $ 250(1)
-- (3) 28,000(3) -- (3) -- (3)
Seth R. Johnson......... -- -- 26,000(1) 9,000(1) $ 31,063(1) $ 313(1)
-- (3) 6,500(3) -- (3) -- (3)
</TABLE>
- --------
(1) Denominated in shares of The Limited's Common Stock. Value is calculated
on the basis of the number of shares subject to each such option,
multiplied by the excess of the fair market value of a share of such
Common Stock at fiscal year-end ($17.125) over the exercise price of such
option.
(2) Denominated in shares of Intimate Brands' Class A Common Stock. Value is
calculated on the basis of the number of shares subject to each such
option, multiplied by the excess of the fair market value of a share of
Class A Common Stock at fiscal year-end ($17.75) over the exercise price
of such option.
(3) Denominated in shares of the Company's Class A Common Stock. Value is
calculated on the basis of the number of shares subject to each such
option, multiplied by the excess of the fair market value of a share of
Class A Common Stock at fiscal year-end ($13.75) over the exercise price
of such option.
COMPENSATION OF DIRECTORS
Directors who are not associates of the Company receive an annual retainer
of $10,000 per year (increased by $1,500 for each committee chair held), plus
a fee of $800 for each Board meeting attended ($400 for a telephonic meeting)
and, as committee members, receive $600 per committee meeting attended ($200
for a telephonic meeting). Each action in writing taken by the Board or any
committee entitles each such director to be paid $200. In addition, pursuant
to the 1996 Non-Associate Director Stock Plan, each non-associate director
will receive annual grants of options to acquire 2,000 shares of the Company's
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 shares of the Company's Class A Common Stock pursuant
to the 1996 Non-Associate Director Stock Plan. Associates and officers of the
Company who are directors receive no additional compensation for services
rendered as directors.
9
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, are required
to file reports of ownership and changes in ownership of the Company's equity
securities with the Commission and the New York Stock Exchange. Copies of
those reports must also be furnished to the Company.
Based solely on a review of the copies of reports furnished to the Company
and written representations that no other reports were required, the Company
believes that during fiscal 1996 its officers, directors, and greater than
ten-percent beneficial owners complied with such filing requirements.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") reviews and approves the
Company's executive compensation philosophy and policies and the application
of such policies to the compensation of executive officers. Messrs. Wexner and
Gilman were compensated by The Limited and did not participate in the
Company's compensation program. The Company's compensation program and
compensation philosophy are generally consistent with those of The Limited.
The Company and the Committee have also retained independent compensation
consultants to assist in developing, and periodically assessing the
reasonableness of, the Company's executive officer compensation program.
COMPENSATION PHILOSOPHY
The Company seeks to apply a consistent philosophy to compensation for all
leadership associates, including senior executives. The primary goal of the
compensation program is to link total compensation to executive performance to
enhance stockholder value. Accordingly, total compensation for leadership
individuals is structured to provide a lower proportion as fixed compensation
and a much higher variable proportion keyed to performance.
Our philosophy is built on the following basic principles:
To Pay for Outstanding Performance
The Company believes in paying for results. Individuals in leadership roles
are compensated based on a combination of business unit and individual
performance factors. Total business performance is evaluated primarily based
on the degree by which financial targets are met. Individual performance is
evaluated based on several factors, including attainment of specific
merchandise and financial objectives, building and developing a strong
leadership team, developing an infrastructure to support future business
growth, and controlling expenses. In addition, a significant portion of total
compensation is in the form of equity-based award opportunities to directly
tie any increased compensation to increased stockholder value.
To Pay Competitively
The Company is committed to providing a total compensation program designed
to attract the best senior leaders to the business and to retain the best,
most consistent performers. To achieve this goal, the Company annually
compares its pay practices and overall pay levels with other leading retail,
and where appropriate, non-retail companies, and sets pay guidelines based on
this review.
10
<PAGE>
To Pay Equitably
The Company believes that it is important to apply generally consistent
guidelines for all leadership compensation programs across business units,
considering the size, complexity, stage of development and performance of the
business.
PRINCIPAL COMPENSATION ELEMENTS
The principal elements of executive compensation at the Company are base
salary, short-term performance-based cash incentive compensation, and equity-
based incentive programs. In determining guidelines for each compensation
element, the Company participates in compensation surveys which include
approximately 75 national and regional specialty and department store retail
businesses, chosen because of their general similarity to the Company in
business and merchandise focus. In addition, the Company participates in
special surveys focusing on special segments of the business, such as
merchandise design. The Company, along with its compensation consultants,
analyzes executive compensation levels and practices relative to the
performance of these competitor companies, and from this information, develops
pay guidelines that generally target, and place the Company in, the 75th to
90th percentile of pay for those with exceptional performance. The competitor
group that is surveyed is subject to periodic review and is modified from time
to time to reflect new businesses, mergers, acquisitions and changes in
business focus. The competitor group contains approximately 50% of the
companies in the S&P Retail Stores Composite Index represented in the
Stockholder Return Graph below. Subject to the needs of the Company, its
policy is to attempt to design all incentive and equity-based compensation
programs to meet the requirements for deductibility under the Code.
Base Salary
The Committee annually reviews and approves the base salary of each
executive officer. In determining salary adjustments, the Committee considers
the size and responsibility of the individual's position, the business unit's
overall performance, the individual's overall performance and future
potential, and the base salaries paid by competitors to employees in
comparable positions. Individual performance is measured against the following
factors: seasonal and annual business goals, business growth and brand
execution goals, and the recruitment and development of future leadership
talent. These factors are considered subjectively in the aggregate, and none
of these factors is accorded a formula weight.
Performance-Based Cash Incentive Compensation
The Company has employed a short-term performance-based cash incentive
compensation program for specified key leadership positions that provides for
incentive payments based on the extent to which preestablished objective goals
for each six-month operating season are attained. This year, stockholders are
being asked to approve a successor plan, the Incentive Compensation
Performance Plan, which is substantially similar to and will replace the
current plan, pursuant to which the named executive officers may earn
performance-based cash incentive payments (see "Proposal to Approve Adoption
of the Incentive Compensation Performance Plan", below).
The goals under this plan are based on operating income. However, goals also
may be based on other objectives and/or criteria, depending on the business
unit strategy. These goals are generally set at the beginning of each season,
and are based on an analysis of historical performance and growth expectations
for the business, financial results of other comparable businesses both inside
and outside the Company and progress toward achieving the business strategic
plan. Target cash incentive compensation opportunities are established
annually for eligible executives stated as a specific percent of base salary.
The amount of performance-based incentive compensation earned by participating
executives can range from zero to double their incentive target, based upon
the extent to which preestablished financial goals are achieved.
11
<PAGE>
Equity-Based Incentive Programs
The Committee believes that continued emphasis on equity-based compensation
opportunities encourage performance that enhances stockholder value, thereby
further linking leadership and shareholder objectives. In 1996, the Committee
awarded equity-based incentive compensation under two programs: a stock option
program and a restricted stock program under which shares of restricted stock
are granted and earned based on seasonal and annual financial performance. The
Committee also believes that restricted stock awards, which are earned based
on financial performance and the ultimate vesting of which is subject to
continued employment, assists the Company in retaining key high performing
executives.
The award opportunity level for each eligible participant is based on
guidelines which include size of the executive's business unit, the
individual's responsibility level within that business, competitive practices,
and the market price of the Company's Class A Common Stock. In determining the
Committee begins with these guidelines and then makes adjustments based on an
evaluation of the individual's performance and potential in the business.
Stock Options. In 1996, stock options were awarded to executives in the
amounts set forth in the Option Grants in Fiscal Year 1996 Table above. The
option program utilizes vesting periods to encourage retention of key
executives. The exercise price for each option granted, with the exception of
certain options granted to Mr. Wexner (who was granted certain above-market
value options), is equal to the fair market value of the underlying common
stock on the date of grant.
Performance-Based Restricted Stock. In 1996, the Committee commenced a
program under which executives, including the named executive officers, are
eligible to receive restricted stock based on the achievement of
preestablished financial goals. Executives can earn from zero to double their
targeted number of restricted shares based upon the extent to which financial
goals are achieved.
CEO COMPENSATION
Mr. Jeffries has been President and Chief Executive Officer of the Company
since February 1992. The Committee conducts the same type of competitive
review and analysis to determine base salary and incentive guidelines for Mr.
Jeffries' position as it does for the other executive positions.
In 1996, as in prior years, in establishing Mr. Jeffries' compensation
package the Committee considered competitive practices, the extent to which
the Company achieved operating income and sales growth objectives, and the
success of the Initial Public Offering. These factors are considered
subjectively in the aggregate and none of these factors is accorded specific
weight.
Since the Company is now publicly-held, the Committee believes that as Chief
Executive Officer of the Company, Mr. Jeffries' total compensation package
should have even greater emphasis on performance-based cash and equity
compensation. Therefore, Mr. Jeffries' base salary was increased by 10%, from
$500,000 to $550,000, while his performance-based cash incentive target was
raised from 70% to 100%. In addition, Mr. Jeffries was granted options
covering 130,000 shares of the Company's Class A Common Stock in consideration
for the cancellation of a February 9, 1996 grant to Mr. Jeffries of options
covering The Limited's Common Stock. In consideration for the cancellation of
his March 1994 grant of restricted shares of The Limited's Common Stock, Mr.
Jeffries was also granted an award of 45,000 shares of restricted shares of
Class A Common Stock that vests 100% in March 1999, subject to continued
employment.
12
<PAGE>
The Committee believes that the Company's 1996 performance was excellent,
posting a net sales increase of 42%, an operating income increase of 93%, and
an earnings per share increase of 129% over the prior year. As a result of
that performance, Mr. Jeffries earned significantly above targeted levels
under the performance-based cash incentive program and the performance-based
restricted stock program.
Compensation Committee
Donald B. Shackelford, Chair E. Gordon
Gee
13
<PAGE>
STOCKHOLDER RETURN GRAPH
The following graph shows the changes, over the three-month period in fiscal
1996 commencing after the Initial Public Offering, in the value of $100
invested in Class A Common Stock of the Company, the Standard & Poor's 500
Composite Stock Price Index and the Standard & Poor's Retail Stores Composite
Index. The plotted points represent the closing price on the last day of the
fiscal year indicated.
COMPARISON OF 4 MONTH CUMULATIVE TOTAL RETURN*
AMONG ABERCROMBIE & FITCH CO., THE S & P 500 INDEX
AND S & P RETAIL COMPOSITE INDEX
[GRAPH APPEARS HERE]
DATE Abercrombie & Fitch Co. S & P 500 S & P Retail Composite
9/26/96 $100 $100 $100
1/31/97 $ 86 $122 $ 97
* $100 INVESTED ON 9/26/96 IN STOCK OR ON
8/31/96 IN INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDEDING JANUARY 31.
14
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth the names of all persons who, on February 24,
1997, were known by the Company to be the beneficial owners (as defined in the
rules of the Commission) of more than 5% of the shares of any class of voting
common stock of the Company:
<TABLE>
<CAPTION>
AMOUNT
CLASS OF BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON OWNED OF CLASS
- ------------------------------------ -------- ------------ --------
<S> <C> <C> <C>
The Limited, Inc................................ Class B 43,000,000 100.0%
Three Limited Parkway
P.O. Box 16000
Columbus, Ohio 43216
Janus Capital Corporation (1)................... Class A 1,329,700 16.5%
Thomas H. Bailey
100 Fillmore Street
Denver, CO 80206
Wellington Management Company, LLP.............. Class A 1,136,340 14.1%
75 State Street
Boston, MA 02109
Provident Investment Counsel, Inc. (2).......... Class A 453,700 5.6%
300 North Lake Avenue
Pasadena, CA 91101
Janus Mercury Fund.............................. Class A 435,500 5.4%
100 Fillmore Street
Denver, CO 80206
Travelers Group Inc. (3)........................ Class A 438,330 5.5%
Smith Barney Holdings Inc.
388 Greenwich Street
New York, NY 10013
FMR Corp. (4)................................... Class A 355,400 4.4%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- --------
(1) Janus Capital Corporation ("Janus Capital") is a registered investment
adviser which furnishes investment advice to several investment companies
registered under Section 8 of the Investment Company Act of 1940 and
individual and institutional clients. As a result of its role as
investment adviser or sub-adviser, Janus Capital may be deemed to be the
beneficial owner of the shares of the Company's Class A Common Stock held
by such clients. However, Janus Capital does not have the right to receive
any dividends from, or the proceeds from the sale of, the securities held
in its clients' portfolios, and disclaims any ownership associated with
such rights. Mr. Bailey owns approximately 12.2% of Janus Capital. In
addition to being a stockholder of Janus Capital, Mr. Bailey serves as
President and Chairman of the Board of Janus Capital. Mr. Bailey does not
own of record any shares of the Company's Class A Common Stock and he has
not engaged in any transaction in the Company's Class A Common Stock.
However, as a result of his position, Mr. Bailey may be deemed to have the
power to exercise or to direct the exercise of such voting and/or
15
<PAGE>
dispositive power that Janus Capital may have with respect to the Company's
Class A Common Stock held by its clients' portfolios. Mr. Bailey
specifically disclaims beneficial ownership over any shares of the
Company's Class A Common Stock that he or Janus Capital may be deemed to
beneficially own.
(2) Provident Investment Counsel Inc. ("Provident") is a Massachusetts
corporation and registered investment adviser, and is a wholly owned
subsidiary of United Asset Management Holdings, which is wholly owned by
United Asset Management Corporation ("UAM"). Provident's beneficial
ownership of the Company's Class A Common Stock is as a direct result of
its discretionary authority to buy, sell, and vote shares of such Class A
Common Stock for its investment advisory clients.
(3) Travelers Group Inc. is the sole shareholder of Smith Barney Holdings Inc.
(4) FMR Corp., Edward C. Johnson 3d, Abigail P. Johnson and certain
subsidiaries of FMR Corp. may be deemed to be members of a "group" as such
term is defined in the rules promulgated by the Commission. The FMR Group
is the beneficial holder of the Company's Class A Common Stock as a result
of the investment-related activities of certain subsidiaries of FMR Corp.
Members of the Edward C. Johnson 3d family and trusts for their benefit
are the predominant owners of Class B shares of common stock of FMR Corp.
representing approximately 49% of its voting power. Mr. Johnson 3d, the
chairman of FMR Corp., owns 12% of the aggregate outstanding voting stock
of FMR Corp. and Ms. Johnson, a director of FMR Corp., owns 24.5% of the
aggregate outstanding voting stock of FMR Corp.
RELATIONSHIP AND TRANSACTIONS WITH THE LIMITED
The Limited owns 100% of the outstanding Class B Common Stock of the
Company, which represents approximately 94% of the combined voting power of
all of the Company's outstanding Common Stock. 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 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 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 future.
INTERCOMPANY ARRANGEMENTS. The Company's relationship with The Limited is
governed, in part, by agreements entered into in connection with the Initial
Public Offering, including a services agreement, a corporate agreement,
several lease agreements, several shared facilities agreements and a tax-
sharing agreement, the material terms of which are summarized below.
Information concerning amounts paid under the various agreements with The
Limited have been calculated as if such agreements had been in effect for the
full 1996 fiscal year.
The following summary of the material terms of the agreements does not
purport to be complete and is qualified in its entirety by reference to the
forms of the relevant agreements, copies of which were filed with the
Commission as exhibits to the Company's Registration Statement on Form S-1
filed in connection with the Initial Public Offering, and are available for
inspection at the Commission.
Services Agreement. The Company and The Limited are parties to an
intercompany services and operating agreement (the "Services Agreement") with
respect to services provided by The Limited (or subsidiaries of The Limited)
to the Company. The services provided by The Limited to the Company include,
among other things,
16
<PAGE>
certain accounting, aircraft, associate benefit plan administration, audit,
cash management, corporate development, corporate secretary, governmental
affairs, human resources and compensation, investor and public relations,
import and shipping, legal, real estate, risk management, store
design/planning, tax and treasury services. The Services Agreement provides
that such services are to be provided in exchange for specified fees, which
(based on current costs for such services) management believes do not exceed
fees that would be paid if such services were provided by independent third
parties. Under the Services Agreement, the fees for services provided by The
Limited to the Company during 1996 were approximately $3,989,000.
In addition to the identified services, during fiscal 1996, The Limited
continued coverage of the Company under The Limited's umbrella liability,
property, casualty and fiduciary insurance policies. The Company reimburses
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 the Company may
only be for nonpayment and only if a replacement policy, acceptable to The
Limited, is entered into by the Company.
The Services Agreement further provides for eligible associates of the
Company to participate in The Limited's associate benefit plans. In addition
to a monthly services fee, the Company reimburses 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) relating to participation by the Company's associates in any of
The Limited's benefit plans.
The Services Agreement has an initial term of five years and will be renewed
automatically thereafter for successive one-year terms, unless either the
Company 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. Furthermore, the Services
Agreement is subject to early termination by either the Company 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 the Company, whether as a result of a tax-free spin-off of the
Company or otherwise.
Sublease Agreement. The Company has entered into a sublease agreement with
an affiliate of The Limited (the "Sublease Agreement") pursuant to which such
affiliate subleases to the Company a distribution center and headquarters
office space. The Sublease Agreement provides for the lessee to 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. The Company paid approximately $932,000 in lease payments during 1996
under the Sublease Agreement.
The Sublease Agreement has an initial term of fifteen years and will be
renewed automatically thereafter for eight successive five-year terms unless
either the lessor or lessee (or sublessor or sublessee) elects not to renew
the Sublease Agreement upon at least one year's notice.
Shared Facilities Agreement. The Company and certain businesses operated by
The Limited have entered into shared facilities agreements (collectively, the
"Shared Facilities Agreement") pursuant to which the Company subleased
facilities from the relevant businesses operated by The Limited. Under the
Shared Facilities Agreement, the sublessee is responsible for its pro rata
share (based on square feet occupied) of all costs and expenses (principally
fixed rent) under the relevant lease, plus the portion of any performance-
based rent attributable to the sublessee. In 1996, the Company paid The
Limited approximately $1,509,000 for the portion of the cost and expenses
attributable to it under the relevant leases.
17
<PAGE>
Tax-Sharing Agreement. The Company is included in The Limited's federal
consolidated income tax group and the Company's federal income tax liability
is included in the consolidated federal income tax liability of The Limited
and its subsidiaries. In certain circumstances, certain subsidiaries of the
Company are also included with certain subsidiaries of The Limited (other than
subsidiaries of the Company) in combined, consolidated or unitary income tax
groups for state and local tax purposes. The Company and The Limited entered
into a tax-sharing agreement (the "Tax-Sharing Agreement") pursuant to which
the Company and The Limited make payments between them such that, with respect
to any period, the amount of taxes to be paid by the Company, subject to
certain adjustments, will be determined as though the Company 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. The Company 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 prepares for the Company 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
continues 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), is the sole and
exclusive agent for the Company in any and all matters relating to the income,
franchise and similar tax liabilities of the Company, is solely and
exclusively responsible for the preparation and filing of consolidated federal
and consolidated or combined state income tax returns (or amended returns),
and has 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 the Company. In addition, The Limited provides
the aforementioned services with respect to the Company's separate state and
local returns and the Company's foreign returns. Under the Tax-Sharing
Agreement, the Company must pay The Limited a fee intended to reimburse The
Limited for all direct and indirect costs and expenses incurred with respect
to the Company'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 the Company 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.
Corporate Agreement. The Company and The Limited are parties to a corporate
agreement (the "Corporate Agreement") under which the Company granted 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 Corporate Agreement further provides 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 as may be necessary to permit the sale thereof in
other jurisdictions, subject to certain limitations
18
<PAGE>
specified in the Corporate Agreement. The Company will pay all out-of-pocket
costs and expenses in connection with each such registration that The Limited
requests or in which The Limited participates. The Corporate Agreement also
restricts the Company from taking certain actions for so long as The Limited
maintains beneficial ownership of a majority of the number of outstanding
shares of the Company's Common Stock.
INTERCOMPANY OBLIGATIONS. Prior to the Initial Public Offering, the Company
had intercompany obligations to The Limited in an aggregate amount of
approximately $181.6 million. Of such amount, $131.6 million was repaid during
fiscal 1996. The remaining $50 million of intercompany obligations (the
"Mirror Note") matures on May 15, 2002, bears interest at the rate of 7.8% per
annum and represents the Company's share of certain long-term debt of The
Limited. The interest rate and maturity of the Mirror Note parallel those of
the corresponding debt of The Limited.
19
<PAGE>
PROPOSAL TO APPROVE ADOPTION OF THE INCENTIVE COMPENSATION PLAN
The Company's Board of Directors has adopted, subject to approval of the
Company's stockholders, the Abercrombie & Fitch Co. Incentive Compensation
Performance Plan (the "Incentive Plan"). The Incentive Plan is intended to
satisfy the applicable provisions of, and is being submitted to stockholders
pursuant to, Section 162(m) of the Code. If approved by stockholders, the
Incentive Plan will replace and supersede the Company's Incentive Compensation
Plan ("ICP"), approved prior to the Initial Public Offering by The Limited as
the Company's then sole stockholder. The following summary of the material
terms of the Incentive Plan, a copy of which is attached hereto as Exhibit A,
does not purport to be complete and is qualified in its entirety by the terms
of the Incentive Plan. Under the Incentive Plan, those key executives of the
Company with significant operating and financial responsibility who, as
determined by the Compensation Committee, are likely to be "covered employees"
(within the meaning of Section 162(m) of the Code) in respect of the relevant
performance year, will be eligible to earn seasonal or annual cash incentive
compensation payments.
Under the Incentive Plan, performance goals will be established by the
Compensation Committee in respect of each Spring and/or Fall selling season or
fiscal year. The performance goals selected by the Compensation Committee
shall be based on any one or more of the following: price of the Company's
Class A Common Stock, shareholder return, return on equity, return on
investment, return on capital, sales productivity, comparable store sales
growth, economic profit, economic value added, net income, operating income,
gross margin, sales, free cash flow, earnings per share, operating company
contribution or market share. These factors shall have a minimum performance
standard below which, and a maximum performance standard above which, no
payments will be made. Any performance goals established may be based on an
analysis of historical performance and growth expectations, financial results
of other comparable businesses both inside and outside the Company, and
progress toward achieving the Company's long-range strategic plan. These
performance goals and determination of results shall be based entirely on
financial measures. After performance goals are established, discretion may
not be used to modify award results except as permitted under Section 162(m)
of the Code.
Annual incentive compensation targets established for eligible executives
will range from 40% to 150% of base salary. Executives will earn their target
incentive compensation if their businesses achieve the pre-established
performance goals. 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. The amount of incentive compensation paid to executives
can range from zero to double their targets, based upon the extent to which
performance goals 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, will generally be established
by the Compensation Committee of the Company prior to the commencement of each
bonus period, and actual payouts will be based on either a straight-line or
preestablished graded interpolation based on these minimum and maximum levels
and actual performance.
The maximum dollar amount to be paid in any year under the Incentive Plan to
any participant may not exceed $3,000,000.
Approval of the Incentive Plan by the Company's stockholders is required
under applicable law in order for compensation paid pursuant to the Incentive
Plan to qualify as performance-based for purposes of Section 162(m) of the
Code. Unless the Incentive Plan is approved at the Annual Meeting, no annual
incentive compensation opportunities will be awarded under the Incentive Plan
after such meeting, and any such awards made under the
20
<PAGE>
Incentive Plan prior to such meeting (which are subject to stockholder
approval of the Incentive Plan) will lapse. If the Incentive Plan is approved,
no further compensation will be paid under the ICP.
The Board of Directors of the Company may amend the Plan at any time.
The following table sets forth amounts that would have been paid under the
Incentive Plan for the Company's last completed fiscal year to the named
executive officers and certain other groups based on Company performance and
the performance goals established under the ICP by the Committee for such
fiscal year.
INCENTIVE COMPENSATION PLAN BENEFITS TABLE
<TABLE>
<CAPTION>
DOLLAR VALUE
NAME AND POSITION ($)
- ----------------- ------------
<S> <C>
Leslie H. Wexner, Chairman of the Board....................... -- (1)
Kenneth B. Gilman, Vice Chairman.............................. -- (1)
Michael S. Jeffries, President and Chief Executive Officer.... 990,275(2)
Michele S. Donnan-Martin, Vice President--General
Merchandising Manager--Women's............................... 234,065(2)
Seth R. Johnson, Vice President--Chief Financial Officer...... 202,556(2)
All Executive Officers as a Group............................. 1,426,896(1)(2)
All Current Directors Who are Not Executive Officers as a
Group........................................................ --
All Associates Other than Executive Officers as a Group....... --
</TABLE>
- --------
1. Executive officers Wexner and Gilman did not participate in the ICP in the
last completed fiscal year and are not participating in the Incentive Plan
in respect of the current fiscal year.
2. Executive officers Jeffries, Donnan-Martin and Johnson have been granted
annual incentive compensation opportunities for the current fiscal year
under the Incentive Plan, subject to its approval by stockholders.
REQUIRED VOTE
Approval of the Incentive Plan requires the affirmative vote of a majority
of the total voting power represented by the outstanding shares of the Common
Stock present or represented at the Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE INCENTIVE
PLAN.
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<PAGE>
PROPOSAL TO APPROVE ADOPTION OF THE 1997 RESTATEMENT OF THE 1996 STOCK OPTION
AND PERFORMANCE INCENTIVE PLAN
In connection with the Initial Public Offering, the Company's Board of
Directors adopted, and The Limited, as the Company's then sole stockholder,
approved, effective on the consummation of the Initial Public Offering, the
Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan (the
"Prior Plan"). Subject to stockholder approval, the Company's Board of
Directors adopted the 1997 Restatement of the Prior Plan (the "Stock Plan").
The Stock Plan, which is unchanged from the Prior Plan other than to increase
the maximum number of shares of the Company's Class A Common Stock that may be
subject to awards granted to any associate in any calendar year, expand the
list of possible objective performance goals for restricted stock performance
awards, provide the Plan Committee (as defined below) with greater discretion
in establishing vesting and forfeiture provisions for awards under the Stock
Plan and require that stockholder approval is required only for amendments
materially increasing the aggregate number of shares of Class A Common Stock
issuable under the Stock Plan other than pursuant to the Stock Plan's anti-
dilution provisions, is being submitted to stockholders to satisfy the
requirements of Section 162(m) of the Code. The following summary of the
material terms of the Stock Plan, a copy of which is attached hereto as
Exhibit B, does not purport to be complete and is qualified in its entirety by
the terms of 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 stockholders. 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 stockholders of the Company.
ADMINISTRATION OF THE STOCK PLAN
The Stock Plan is 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 the Securities and Exchange Act of 1934, as amended (the "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 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 the Company's Class A Common Stock to associates of the Company and
its subsidiaries and to associates of The Limited and its subsidiaries during
the term of the Stock Plan. Corresponding Tax Offset Payments (as hereinafter
defined) also may be awarded at the discretion of the Plan Committee. 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. Shares of the Company's Class A Common Stock attributable to:
(i) unexercised Options (as hereinafter defined) which expire or are
terminated, surrendered or canceled (other than in connection with the
exercise of stock appreciation rights ("SARs")); (ii) shares of the Company's
Class A Common Stock subject to certain restrictions ("Restricted
22
<PAGE>
Shares") which are forfeited to the Company; (iii) units representing shares
of the Company's Class A Common Stock ("Performance Shares") and units which
do not represent shares of the Company's Class A Common Stock but which may be
paid in shares of the Company's Class A Common Stock ("Performance Units")
which are not earned and paid; and (iv) awards settled in cash in lieu of
shares of the Company's Class A Common Stock, may be available for subsequent
award under the Stock Plan at the Plan Committee's discretion, to the extent
permissible under Rule 16b-3 of the Act.
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 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 within the classes eligible to participate in the Stock Plan. The Company
anticipates that approximately 20% of those eligible will participate in the
Stock Plan. Participation in the Stock Plan is subject to the discretion of
the Plan Committee and will 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 1,500,000 shares of the
Company's 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 ("ISOs"); (ii) nonstatutory stock
options ("NSOs"); (iii) SARs; (iv) Restricted Shares; (v) Performance Shares;
(vi) Performance Units; (vii) shares of unrestricted Class A Common Stock of
the Company ("Unrestricted Shares"); and (viii) tax offset payments ("Tax
Offset Payments").
GRANT OF OPTIONS AND SARS
The Plan Committee may award ISOs and/or NSOs (collectively, "Options") to
eligible associates. SARs may be awarded either in tandem with Options
("Tandem SARs") or on a stand-alone basis ("Nontandem SARs"). Tandem SARs may
be awarded by the Plan Committee either at the time the related Option is
granted or thereafter at any time prior to the exercise, termination or
expiration of the related Option.
EXERCISE PRICE
The exercise price with respect to an Option is determined by the Plan
Committee at the time of grant. The exercise price determined with respect to
an Option shall also be applicable in connection with the exercise of any
Tandem SAR granted with respect to such Option. At the time of grant of a
Nontandem SAR, the Plan Committee will specify the base price of the shares of
the Company's Class A Common Stock to be issued for determining the amount of
cash or number of shares of the Company's Class A Common Stock to be
distributed upon the exercise of such Nontandem SAR. Neither the exercise
price per share of the Company's Class A Common Stock nor the base price of
Nontandem SARs will be less than 100% of the fair market value per share of
the Company's Class A Common Stock underlying the award on the date of grant.
Information as to awards granted under the Prior Plan to named executives,
officers and other participants is set forth in the table below.
23
<PAGE>
VESTING
The Plan Committee may determine at the time of grant and any time
thereafter the terms under which Options and SARs shall vest and become
exercisable.
SPECIAL LIMITATIONS ON ISOS
No ISO may be granted to an associate who owns, at the time of the grant,
stock representing more than 10% of the total combined voting power of all
classes of stock of the Company, its parent or its subsidiaries (a "10%
Shareholder") unless the exercise price per share of the Company's Class A
Common Stock for the shares subject to such ISO is at least 110% of the fair
market value per share of the Company's Class A Common Stock on the date of
grant and such ISO award is not exercisable more than five years after its
date of grant. In addition, the total fair market value of shares of the
Company's Class A Common Stock subject to ISOs which are exercisable for the
first time by an eligible associate in a given calendar year shall not exceed
$100,000, valued as of the date of the ISOs' grant. ISOs may not be granted
more than ten years after the date of adoption of the Stock Plan by the
Company's Board of Directors.
EXERCISE OF OPTIONS AND SARS
An Option may be exercised by written notice to the Plan Committee stating
the number of shares of the Company's Class A Common Stock with respect to
which the Option is being exercised, and tendering payment therefor. The Plan
Committee may, at its discretion, accept shares of the Company's Class A
Common Stock as payment (valued at their fair market value on the date of
exercise).
Tandem SARs are exercisable only to the extent that the related Option is
exercisable and only for the period determined by the Plan Committee (which
period may expire prior to the expiration date of the related Option). Upon
the exercise of all or a portion of Tandem SARs, the related Option shall be
canceled with respect to an equal number of shares of the Company's Class A
Common Stock. Similarly, upon exercise of all or a portion of an Option, the
related Tandem SARs shall be canceled with respect to an equal number of
shares of the Company's Class A Common Stock. Nontandem SARs shall be
exercisable for the period determined by the Plan Committee.
SURRENDER OR EXCHANGE OF SARS
Upon the surrender of a Tandem SAR and cancellation of the related
unexercised Option, the associate will be entitled to receive shares of the
Company's Class A Common Stock having an aggregate fair market value equal to
(A) the excess of (i) the fair market value of one share of the Company's
Class A Common Stock as of the date the Tandem SAR is exercised over (ii) the
exercise price per share specified in such Option, multiplied by (B) the
number of shares of the Company's Class A Common Stock subject to the Option,
or portion thereof, which is surrendered. Upon surrender of a Nontandem SAR,
the associate will be entitled to receive shares of the Company's Class A
Common Stock having an aggregate fair market value equal to (A) the excess of
(i) the fair market value of one share of the Company's Class A Common Stock
as of the date on which the Nontandem SAR is exercised over (ii) the base
price of the shares covered by the Nontandem SAR multiplied by (B) the number
of shares of the Company's Class A Common Stock covered by the Nontandem SAR,
or the portion thereof being exercised. The Plan Committee, in its discretion,
may cause all or any portion of the Company's obligation to an associate in
respect of the exercise of an SAR to be satisfied in cash in lieu of shares of
the Company's Class A Common Stock. Any fractional shares resulting from the
exercise of an SAR will be paid in cash.
24
<PAGE>
NONTRANSFERABILITY OF OPTIONS AND SARS
Options and SARs are not transferable except by will or applicable laws of
descent and distribution.
EXPIRATION OF OPTIONS
Options will expire at such time as the Plan Committee determines; provided,
however, that no Option may be exercised more than ten years from the date of
grant, unless an ISO is held by a 10% Shareholder, in which case such ISO may
not be exercised more than five years from the date of grant.
TERMINATION OF OPTIONS AND SARS
Except as the Committee may at any time provide, options and SARs may be
exercised within three months after the termination of an associate's
employment (other than by death or total disability), to the extent then
exercisable, but in no case later than the term specified in the grant. Except
as the Committee may at any time provide, upon the death or total disability
of an associate while employed by the Company or its subsidiaries (or upon the
death of an associate within three months after termination of employment),
Options and SARs, to the extent then exercisable, shall remain exercisable for
(i) one year following such associate's death or (ii) during the first nine
months that the associate receives benefits under the Company's Long-Term
Disability Plan.
RESTRICTED SHARES
Restricted Shares granted to associates under the Stock Plan may not be
sold, transferred, pledged or otherwise encumbered or disposed of during the
restricted period established by the Plan Committee. The Plan Committee may
also impose additional restrictions on the associate's right to dispose of or
to encumber Restricted Shares, which may include satisfaction of performance
objectives. Performance objectives under the Stock Plan will be determined by
the Plan Committee and will be based on operating income and/or gross margin
objectives for each relevant division. These objectives will be based on any
one or more of the following: price of the Company's Class A Common Stock,
shareholder return, return on equity, return on investment, return on capital,
sales productivity, comparable store sales growth, economic profit, economic
value added, net income, operating income, gross margin, sales, free cash
flow, earnings per share, operating company contribution or market share.
These factors shall have a minimum performance standard below which, and a
maximum performance standard above which, no payments will be made. These
performance goals may 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 performance goals and determination of results shall be
based entirely on financial measures. The Committee may not use any discretion
to modify award results except as permitted under Section 162(m) of the Code.
Except as the Plan Committee may at any time provide, holders of Restricted
Shares may not exercise the rights of a shareholder, such as the right to vote
the shares or receive dividends and other distributions.
Except as the Committee may at any time provide, upon termination of the
associate's employment with the Company, Restricted Shares granted to such
associate shall be forfeited.
PERFORMANCE SHARES AND PERFORMANCE UNITS
The Plan Committee may award to associates Performance Shares, each
equivalent to one share of the Company's Class A Common Stock and Performance
Units which will have a specified value or formula-based
25
<PAGE>
value at the end of a performance period. Performance Shares and Performance
Units so awarded will be credited to an account established and maintained for
the associate. The Plan Committee shall determine performance periods and
performance objectives in connection with each grant of Performance Shares or
Performance Units.
Vesting of awards of Performance Shares and Performance Units will occur
upon achievement of the applicable objectives within the applicable
performance period. The Plan Committee may, at its discretion, permit vesting
in the event performance objectives are partially met, or grant additional
vested Performance Shares or Performance Units in the event performance
objectives are surpassed. Payment of vested Performance Shares and Performance
Units may be made in cash, Class A Common Stock of the Company or any
combination thereof, as determined by the Plan Committee.
No voting or dividend rights attach to the Performance Shares; however, the
Plan Committee may credit an associate's Performance Share account with
additional Performance Shares equivalent to the fair market value of any
dividends on an equivalent number of shares of the Company's Class A Common
Stock.
UNRESTRICTED SHARES
Unrestricted Shares may also be granted at the discretion of the Plan
Committee. Except as required by applicable law, no payment will be required
for Unrestricted Shares.
TAX WITHHOLDING AND TAX OFFSET PAYMENTS
The Plan Committee may require payment, or withhold from payments made under
the Stock Plan, in order to satisfy applicable withholding tax requirements.
The Plan Committee may make Tax Offset Payments to assist associates in paying
income taxes incurred as a result of their participation in the Stock Plan.
The amount of the Tax Offset Payments shall be determined by multiplying a
percentage (established by the Plan Committee) by all or a portion of the
taxable income recognized by an associate upon: (i) the exercise of an NSO or
an SAR; (ii) the disposition of shares received upon exercise of an ISO; (iii)
the lapse of restrictions on Restricted Shares; (iv) the award of Unrestricted
Shares; or (v) payments for Performance Shares or Performance Units.
TERM OF STOCK PLAN
Unless earlier terminated by the Company's Board of Directors, the Stock
Plan will terminate on October 1, 2006.
AMENDMENT AND TERMINATION
The Company's Board of Directors may suspend, amend, modify or terminate the
Stock Plan; provided, however, that the Company's stockholders shall be
required to approve any amendment that would materially increase the aggregate
number of shares issuable under the Stock Plan.
Awards granted prior to a termination of the Stock Plan shall continue in
accordance with their terms following such termination. No amendment,
suspension or termination of the Stock Plan shall adversely affect the rights
of an associate in awards previously granted without such associate's consent.
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<PAGE>
Set forth below is a summary of the awards that were made in respect of
fiscal 1996 pursuant to the Prior Plan.
1996 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN TABLE
<TABLE>
<CAPTION>
NUMBER
NAME AND POSITION OF UNITS(1)
- ----------------- -----------
<S> <C>
Leslie H. Wexner, Chairman of the Board........................... --
Kenneth B. Gilman, Vice Chairman.................................. --
Michael S. Jeffries, President and Chief Executive Officer........ 130,000(2)
69,762(3)
Michele S. Donnan-Martin, Vice President--General Merchandising
Manager--Women's................................................. 28,000(2)
13,142(3)
Seth R. Johnson, Vice President--Chief Financial Officer.......... 6,500(2)
3,142(3)
All Executive Officers as a Group................................. 164,500(2)
86,046(3)
All Current Directors Who are Not Executive Officers as a Group... --
--
All Associates Other than Executive Officers a Group.............. 76,600(2)
10,997(3)
</TABLE>
- --------
(1) Messrs. Wexner and Gilman did not participate in the Prior Plan in the
last fiscal year.
(2) Consists of options to purchase shares of the Company's Class A Common
Stock. As of April 4, 1997, the market value of a share of the Company's
Class A Common Stock was $15.
(3) Consists of restricted shares of the Company's Class A Common Stock, which
will generally vest as set forth in footnote 4 to the Summary Compensation
Table, in each case subject to the holder's continued employment with the
Company.
FEDERAL INCOME TAX CONSEQUENCES
Stock Options
There will be no federal income tax consequences to the associate or the
Company upon the grant of either an ISO or an NSO under the Stock Plan. Upon
exercise of an NSO, an associate generally will recognize ordinary income in
an amount equal to (i) the fair market value, on the date of exercise, of the
acquired shares of the Company's Class A Common Stock less (ii) the exercise
price of the NSO. Subject to Section 162(m) of the Code and the associate
including such compensation in income and the Company satisfying applicable
reporting requirements, the Company will be entitled to a tax deduction in the
same amount.
Upon the exercise of an ISO, an associate recognizes no immediate taxable
income. Income recognition is deferred until the associate sells the shares of
the Company's Class A Common Stock. If the ISO is exercised no later than
three months after the termination of the associate's employment, and the
associate does not dispose of the shares acquired pursuant to the exercise of
the ISO within two years from the date the ISO was granted and within one year
after the exercise of the ISO, the gain on the sale will be treated as long-
term capital gain. Certain of these holding periods and employment
requirements are liberalized in the event of an associate's death
27
<PAGE>
or disability while employed by the Company. The Company is not entitled to
any tax deduction with respect to the grant or exercise of ISOs, except that
if the shares of the Company's Class A Common Stock are not held for the full
term of the holding period outlined above, the gain on the sale of such Class
A Common Stock, being the lesser of: (i) the fair market value of the shares
of the Company's Class A Common Stock on the date of exercise minus the option
price or (ii) the amount realized on disposition minus the exercise price,
will be taxed to the associate as ordinary income and, subject to Section
162(m) of the Code and the associate including such compensation in income and
the Company satisfying applicable reporting requirements, the Company will be
entitled to a deduction in the same amount. The excess of the fair market
value of the shares of the Company's Class A Common Stock acquired upon
exercise of an ISO over the exercise price therefor constitutes a tax
preference item for purposes of computing the "alternative minimum tax" under
the Code.
Special rules, summarized below, may apply to associates who are subject to
Section 16 of the Act.
Stock Appreciation Rights
There will be no federal income tax consequences to either the associate or
the Company upon the grant of an SAR. However, the associate generally will
recognize ordinary income upon the exercise of an SAR in an amount equal to
the aggregate amount of cash and the fair market value of the shares of the
Company's Class A Common Stock received upon exercise. Subject to Section
162(m) of the Code and the associate including such compensation in income and
the Company satisfying applicable reporting requirements, the Company will be
entitled to a deduction equal to the amount includable in the associate's
income.
Special rules, summarized below, may apply to associates who are subject to
Section 16 of the Act.
Restricted Shares
There will be no federal income tax consequences to either the associate or
the Company upon the grant of Restricted Shares until expiration of the
restricted period and the satisfaction of any other conditions applicable to
the Restricted Shares. At that time, the associate generally will recognize
taxable income equal to the then fair market value for the shares of the
Company's Class A Common Stock and, subject to Section 162(m) of the Code and
the associate including such compensation in income and the Company satisfying
applicable reporting requirements, the Company will be entitled to a
corresponding deduction. However, the associate may elect, within thirty days
after the date of the grant, to recognize ordinary income as of the date of
grant and the Company will be entitled to a corresponding deduction at that
time.
Special rules, summarized below, may apply to associates who are subject to
Section 16 of the Act.
Performance Shares and Units
There will be no federal income tax consequences to the associate or the
Company upon the grant of Performance Shares or Performance Units. Associates
generally will recognize taxable income at the time when payment for the
Performance Shares or Performance Units is received in an amount equal to the
aggregate amount of cash and the fair market value of shares of the Company's
Class A Common Stock acquired. Subject to Section 162(m) of the Code and the
associate including such compensation in income and the Company satisfying
applicable reporting requirements, the Company will be entitled to a deduction
equal to the amount includable in the associate's income.
28
<PAGE>
Special rules, summarized below, may apply to associates who are subject to
Section 16 of the Act.
Unrestricted Shares
Associates generally will recognize taxable income at the time Unrestricted
Shares are received. Subject to Section 162(m) of the Code and the associate
including such compensation in income and the Company satisfying applicable
reporting requirements, the Company will be entitled to a deduction equal to
the amount includable in the associate's income.
Special rules, summarized below, may apply to associates who are subject to
Section 16 of the Act.
Section 16 of the Exchange Act
Associates who are subject to Section 16 of the Act and receive shares of
Common Stock under the Stock Plan will not recognize ordinary income at that
time unless (i) an election is made by such associate under Section 83(b) of
the Code or (ii) the sale of such shares by such associate at a profit is no
longer subject to Section 16(b) of the Act (generally (1) in the case of
options, six months following the date of grant of the option to which the
shares relate and (2) otherwise, six months after the receipt of shares). Such
associate will instead recognize ordinary income equal to the fair market
value of such shares received (less the 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
Act and, subject to Section 162(m) of the Code, the Company or an affiliate
generally will 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. An associate subject to Section 16 of the Act may
elect under Section 83(b) of the Code, within 30 days of the transfer of such
shares, to recognize income at the time of transfer equal to the difference
between the price paid for such shares, if any, and the fair market value of
such shares. Such amount will be taxed as ordinary income to the associate
and, subject to Section 162(m) of the Code and satisfaction of applicable
withholding requirements, generally will be allowed as a deduction for federal
income tax purposes to the Company.
REQUIRED VOTE
Approval of the Stock Plan requires the affirmative vote of a majority of
the total voting power represented by the outstanding shares of the Common
Stock present or represented at the Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE STOCK PLAN.
29
<PAGE>
PROPOSAL TO APPROVE ADOPTION OF THE 1996
STOCK PLAN FOR NON-ASSOCIATE DIRECTORS
In connection with the Initial Public Offering, the Company's Board of
Directors adopted and The Limited, as the Company's then sole stockholder,
approved, effective on the consummation of the Initial Public Offering, the
Abercrombie & Fitch Co. 1996 Non-Associate Director Stock Plan (the "Director
Stock Plan"). The Director Stock Plan, which is unchanged, is being submitted
to shareholders solely to satisfy certain requirements of Rule 16b-3 under the
Act. The following summary of the material terms of the Director Stock Plan, a
copy of which is attached hereto as Exhibit C, does not purport to be complete
and is qualified in its entirety by the terms of the Director Stock Plan.
PURPOSE OF PLAN
The purpose of the Director Stock Plan is to promote the interests of the
Company and its stockholders by increasing the proprietary interest of non-
associate directors in the growth and performance of the Company.
ELIGIBILITY
Directors of the Company who are not associates of the Company or its
affiliates ("Eligible Directors") are eligible to participate in the Director
Stock Plan.
TYPES OF AWARDS UNDER THE DIRECTOR STOCK PLAN
Pursuant to the Director Stock Plan, on the effective date of the Initial
Public Offering each Eligible Director was granted an option to purchase 2,000
shares of Class A Common Stock. On the first business day of each fiscal year
of the Company commencing thereafter, each Eligible Director will be granted
an option to purchase 2,000 shares of Class A Common Stock as of the date of
such approval or the first business day of such fiscal year, as the case may
be, 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 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 paid in cash.
In addition, the 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.
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 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 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 Director Plan and/or subject to
outstanding options may be adjusted by the Board of Directors to prevent
dilution or enlargement or rights in the event of various changes in the
capitalization of the Company.
30
<PAGE>
ADMINISTRATION OF THE DIRECTOR STOCK PLAN
The Director Stock Plan will be administered by the Board of Directors.
Subject to the provisions of the Director Stock Plan, the Board shall be
authorized to interpret the 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 Director Stock Plan, as described herein, shall be final
and conclusive. The Secretary of the Company shall be authorized to implement
the 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 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 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 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 Director Stock Plan after the tenth
annual meeting of the Company's shareholders following its approval by the
Company's stockholders.
AMENDMENTS
The 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 certain limited circumstances, without the authorization
and approval of stockholders: (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 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, the Employee
Retirement Income Security Act of 1974, as amended, or the rules under either
such statute.
31
<PAGE>
AWARDS UNDER THE PLAN
The following table sets forth amounts paid to the Non-Associate Director
group under the Director Stock Plan in fiscal 1996.
1996 NON-ASSOCIATE DIRECTOR STOCK PLAN BENEFITS TABLE
<TABLE>
<CAPTION>
NUMBER
NAME AND POSITION OF UNITS
- ----------------- --------
<S> <C>
Non-Associate Director Group (Based on 3 Eligible Directors)......... 231(1)
6,000(2)
</TABLE>
- --------
(1) Consists of 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. Each such option will vest in 25% increments commencing on the
first anniversary of the date of grant. As of April 4, 1997, the market
value of a share of the Company's Class A Common Stock was $15.
FEDERAL INCOME TAX CONSEQUENCES
There are no federal income consequences to an Eligible Director or to the
Company upon the grant of an option under the Director Plan.
Eligible Directors, all of whom are subject to Section 16 of the Act, who
receive shares of Class A Common Stock by reason of the exercise of an option
under the Director Stock Plan or as payment 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 Eligible Director at a profit is no longer subject to
Section 16(b) of the Act. Such Eligible Director will instead recognize
ordinary income equal to the fair market value of such shares received (less
the 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 Act, and the Company or an affiliate
will 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 at the time of exercise equal to
the difference between the purchase price, if any, and any higher fair market
of the shares of Class A Common Stock, generally on the date of acquisition,
will be taxed as ordinary income to the Eligible Director and generally will
be allowed as a deduction for federal income tax purposes to the Company.
Any gain or loss realized by an Eligible Director on disposition of the
Class A Common Stock acquired under the Director Plan will be taxed as capital
gain or loss to such Eligible Director, 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.
REQUIRED VOTE
Approval of the Director Plan requires the affirmative vote of a majority of
the total voting power represented by the outstanding shares of Common Stock
present or represented at the Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE DIRECTOR
PLAN.
32
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
During the Company's 1996 fiscal year, Coopers & Lybrand L.L.P. served as
the Company's independent public accountants and in that capacity will render
an opinion on the Company's consolidated financial statements as of and for
the fiscal year ended February 1, 1997. The Company annually reviews the
selection of its independent public accountants; no selection has yet been
made for the current fiscal year.
Representatives of Coopers & Lybrand are expected to be present at the
Annual Meeting. They will be available to respond to appropriate questions and
may make a statement if they so desire.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
Annual Meeting. However, if other matters should come before the meeting, it
is the intention of each of the persons named in the proxy to vote in
accordance with his judgment on such matters.
STOCKHOLDER PROPOSALS
Any proposals of stockholders which are intended to be presented at the next
Annual Meeting of Stockholders, but which are not received by the Secretary of
the Company at the principal executive offices of the Company on or before
December 15 , 1997, may be omitted by the Company from the Proxy Statement and
form of proxy relating to that meeting.
EXPENSES OF SOLICITATION
The expense of preparing, assembling, printing and mailing the proxy form
and the form of material used in solicitation of proxies will be paid by the
Company. In addition to the use of the mails, solicitation may be made by
employees of the Company by telephone, mailgram, facsimile, telegraph, cable
and personal interview. The Company has retained Shareholder Communications
Corporation, New York, New York, to aid in the solicitation of proxies with
respect to shares held by brokerage houses, custodians, fiduciaries and other
nominees for a fee of approximately $5,000, plus expenses. The Company does
not expect to pay any other compensation for the solicitation of proxies.
By Order of the Board of Directors
/s/ Michael S. Jeffries
Michael S. Jeffries
President and Chief Executive
Officer
33
<PAGE>
EXHIBIT A
ABERCROMBIE & FITCH CO.
INCENTIVE COMPENSATION PERFORMANCE PLAN
The Abercrombie & Fitch Co. Incentive Compensation Performance 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 select those key executives of the Company
with significant operating and financial responsibility and who are likely to
be "covered employees" (within the meaning of Section 162(m) of the Code) for
the relevant fiscal year, to be eligible to earn seasonal or annual cash
incentive compensation payments to be paid under the Incentive Plan.
In respect of each Spring and/or Fall selling season or fiscal year, the
Committee may establish performance goals for the Company. The performance
goals selected by the Committee shall be based on any one or more of the
following: price of the Company's Class A Common Stock, shareholder return,
return on equity, return on investment, return on capital, sales productivity,
comparable store sales growth, economic profit, economic value added, net
income, operating income, gross margin, sales, free cash flow, earnings per
share, operating company contribution or market share. These factors shall
have a minimum performance standard below which, and a maximum performance
standard above which, no payments will be made. These performance goals may 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
performance goals and determination of results shall be based entirely on
financial measures. The Committee may not use any discretion to modify award
results except as permitted under Section 162(m) of the Code.
Annual incentive compensation targets may be established for eligible
executives ranging from 40% to 150% of base salary. Executives may earn their
target incentive compensation if the business achieves the pre-established
performance goals. 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. The amount of incentive compensation paid to
participating executives may range from zero to double their targets, based
upon the extent to which performance goals are achieved or exceeded. Except as
otherwise permitted by Section 162(m) of the Code, the minimum level at which
a participating executive will earn any incentive payment, and the level at
which an executive will bear 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 either a straight-line or
preestablished graded interpolation based on these minimum and maximum levels
and the performance goals.
The maximum dollar amount to be paid for any year under the Incentive Plan
to any participant may not exceed $3,000,000.
A-1
<PAGE>
EXHIBIT B
ABERCROMBIE & FITCH CO.
1996 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
(1997 RESTATEMENT)
<PAGE>
ABERCROMBIE & FITCH CO.
1996 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
(1997 RESTATEMENT)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1
ESTABLISHMENT AND PURPOSE
1.1 Establishment and Effective Date.................................... B-1
1.2 Purpose............................................................. B-1
ARTICLE 2
AWARDS
2.1 Form of Awards...................................................... B-1
2.2 Maximum Shares Available............................................ B-1
2.3 Return of Prior Awards.............................................. B-2
ARTICLE 3
ADMINISTRATION
3.1 Committee........................................................... B-2
3.2 Powers of Committee................................................. B-2
3.3 Delegation.......................................................... B-2
3.4 Interpretations..................................................... B-2
3.5 Liability; Indemnification.......................................... B-2
ARTICLE 4
ELIGIBILITY B-3
ARTICLE 5
STOCK OPTIONS
5.1 Grant of Options.................................................... B-3
5.2 Option Price........................................................ B-3
5.3 Term of Options..................................................... B-3
5.4 Exercise of Options................................................. B-3
5.5 Cancellation of Stock Appreciation Rights........................... B-4
ARTICLE 6
SPECIAL RULES APPLICABLE TO INCENTIVE STOCK OPTIONS
6.1 Ten Percent Stockholder............................................. B-4
6.2 Limitation on Grants................................................ B-4
6.3 Limitations on Time of Grant........................................ B-4
</TABLE>
B-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 Grants of Stock Appreciation Rights................................ B-4
7.2 Limitations on Exercise............................................ B-4
7.3 Surrender or Exchange of Tandem Stock Appreciation Rights.......... B-4
7.4 Exercise of Nontandem Stock Appreciation Rights.................... B-5
7.5 Settlement of Stock Appreciation Rights............................ B-5
7.6 Cash Settlement.................................................... B-5
ARTICLE 8
NONTRANSFERABILITY OF OPTIONS AND
STOCK APPRECIATION RIGHTS B-5
ARTICLE 9
TERMINATION OF EMPLOYMENT
9.1 Exercise after Termination of Employment........................... B-5
9.2 Total Disability................................................... B-6
ARTICLE 10
DEATH OF ASSOCIATE B-6
ARTICLE 11
RESTRICTED SHARES
11.1 Grant of Restricted Shares......................................... B-6
11.2 Restrictions....................................................... B-6
11.3 Restricted Stock Certificates...................................... B-6
11.4 Rights of Holders of Restricted Shares............................. B-6
11.5 Forfeiture......................................................... B-7
11.6 Delivery of Restricted Shares...................................... B-7
11.7 Performance-Based Objectives....................................... B-7
ARTICLE 12
PERFORMANCE SHARES
12.1 Award of Performance Shares........................................ B-7
12.2 Performance Period................................................. B-7
12.3 Right to Payment of Performance Shares............................. B-7
12.4 Payment for Performance Shares..................................... B-8
12.5 Voting and Dividend Rights......................................... B-8
</TABLE>
B-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 13
PERFORMANCE UNITS
13.1 Award of Performance Units........................................ B-8
13.2 Right to Payment of Performance Units............................. B-8
13.3 Payment for Performance Units..................................... B-9
ARTICLE 14
UNRESTRICTED SHARES
14.1 Award of Unrestricted Shares...................................... B-9
14.2 Delivery of Unrestricted Shares................................... B-9
ARTICLE 15
TAX OFFSET PAYMENTS B-9
ARTICLE 16
ADJUSTMENT UPON CHANGES IN CAPITALIZATION B-10
ARTICLE 17
AMENDMENT AND TERMINATIONS B-10
ARTICLE 18
WRITTEN AGREEMENT B-10
ARTICLE 19
MISCELLANEOUS PROVISIONS B-10
19.1 Fair Market Value................................................. B-10
19.2 Tax Withholding................................................... B-10
19.3 Compliance With Section 16(b) and Section 162(m).................. B-11
19.4 Successors........................................................ B-11
19.5 General Creditor Status........................................... B-11
19.6 No Right to Employment............................................ B-11
19.7 Notices........................................................... B-11
19.8 Severability...................................................... B-12
19.9 Governing Law..................................................... B-12
19.10 Term of Plan...................................................... B-12
</TABLE>
B-iii
<PAGE>
ABERCROMBIE & FITCH CO.
1996 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
(1997 RESTATEMENT)
ARTICLE 1
ESTABLISHMENT AND PURPOSE
1.1 Establishment and Effective Date. In 1996, Abercrombie & Fitch Co., a
Delaware corporation (the "Company"), established a stock incentive plan to be
known as the "Abercrombie & Fitch 1996 Stock Option and Performance Incentive
Plan" (the "1996 Plan"). The 1996 Plan became effective on September 25, 1996,
the effective date of the initial public offering of the Company's Class A
Common Stock, par value $.01 per share ("Common Stock"). The 1996 Plan was
amended and restated by the Company's Board of Directors (the "Board") in
March 1997 (the "Plan"), subject to approval of the Company's stockholders.
1.2 Purpose. The Company desires to attract and retain the best available
executive and key management associates for itself and its subsidiaries and to
encourage the highest level of performance by such associates in order to
serve the best interests of the Company and its stockholders. The Plan is
expected to contribute to the attainment of these objectives by offering
eligible associates the opportunity to acquire stock ownership interests in
the Company, and other rights with respect to stock of the Company, and to
thereby provide them with incentives to put forth maximum efforts for the
success of the Company and its subsidiaries.
ARTICLE 2
AWARDS
2.1 Form of Awards. Awards under the Plan may be granted in any one or all
of the following forms: (i) incentive stock options ("Incentive Stock
Options") meeting the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"); (ii) nonstatutory stock options
("Nonstatutory Stock Options") (unless otherwise indicated, references in the
Plan to Options shall include both Incentive Stock Options and Nonstatutory
Stock Options); (iii) stock appreciation rights ("Stock Appreciation Rights"),
as described in Article 7, which may be awarded either in tandem with Options
("Tandem Stock Appreciation Rights") or on a stand-alone basis ("Nontandem
Stock Appreciation Rights"); (iv) shares of Common Stock which are restricted
as provided in Article 11 ("Restricted Shares"); (v) units representing shares
of Common Stock, as described in Article 12 ("Performance Shares"); (vi) units
which do not represent shares of Common Stock but which may be paid in the
form of Common Stock, as described in Article 13 ("Performance Units"); (vii)
shares of unrestricted Common Stock ("Unrestricted Shares") and (viii) tax
offset payments ("Tax Offset Payments"), as described in Article 15.
2.2 Maximum Shares Available. The maximum aggregate number of shares of
Common Stock available for award under the Plan, including shares of Common
Stock awarded as Tax Offset Payments, is 3,500,000, subject to adjustment
pursuant to Article 16. Shares of Common Stock issued pursuant to the Plan may
be either authorized but unissued shares or issued shares reacquired by the
Company. In the event that prior to the end of the period during which Options
may be granted under the Plan, any Option or any Nontandem Stock Appreciation
Right under the Plan expires unexercised or is terminated, surrendered or
canceled (other than in connection with the exercise of a Stock Appreciation
Right) without being exercised in whole or in part for any
B-1
<PAGE>
reason, or any Restricted Shares, Performance Shares or Performance Units are
forfeited, or if such awards are settled in cash in lieu of shares of Common
Stock, then such shares or units may, at the discretion of the Committee (as
defined below) to the extent permissible under Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Act"), be made available for subsequent awards
under the Plan, upon such terms as the Committee may determine.
2.3 Return of Prior Awards. As a condition to any subsequent award, the
Committee shall have the right, at its discretion, to require associates to
return to the Company awards previously granted under this Plan. Subject to
the provisions of this Plan, such new award shall be upon such terms and
conditions as are specified by the Committee at the time the new award is
granted to the extent permitted by Rule 16b-3 under the Act.
ARTICLE 3
ADMINISTRATION
3.1 Committee. The Plan shall be administered by a Committee (the
"Committee") appointed by the Board and consisting of not less than two (2)
members of the Board. Each member of the Committee shall be an "outside
director" (within the meaning of Section 162(m) of the Code) and a "non-
employee director" (within the meaning of Rule 16b-3(b)(3)(i) under the Act).
3.2 Powers of Committee. Subject to the express provisions of the Plan, the
Committee shall have the power and authority (i) to grant Options and to
determine the purchase price of the Common Stock covered by each Option, the
term of each Option, the number of shares of Common Stock to be covered by
each Option and any performance objectives or vesting standards applicable to
each Option, (ii) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options and to determine which Options, if any shall be
accompanied by Tandem Stock Appreciation Rights; (iii) to grant Tandem Stock
Appreciation Rights and Nontandem Stock Appreciation Rights and to determine
the terms and conditions of such rights; (iv) to grant Restricted Shares and
to determine the term of the restricted period and other conditions and
restrictions applicable to such shares; (v) to grant Performance Shares and
Performance Units and to determine the performance objectives, performance
periods and other conditions applicable to such shares or units; (vi) to grant
Unrestricted Shares; (vii) to determine the amount of, and to make, Tax Offset
Payments; and (viii) to determine the associates to whom, and the time or
times at which, Options, Stock Appreciation Rights, Restricted Shares,
Performance Shares, Performance Units and Unrestricted Shares shall be
granted.
3.3 Delegation. The Committee may delegate to one or more of its members or
to any other person or persons such duties as it may deem advisable; provided,
however, that the Committee may not delegate any of its responsibilities
hereunder if such delegation will cause (i) transactions under the Plan to
fail to comply with Section 16 of the Act or (ii) the Committee to fail to
qualify as "outside directors" under Section 162(m) of the Code. The Committee
may also employ attorneys, consultants, accountants or other professional
advisors and shall be entitled to rely upon the advice, opinions or valuations
of any such advisors.
3.4 Interpretations. The Committee shall have sole discretionary authority
to interpret the terms of the Plan, to adopt and revise rules, regulations and
policies to administer the Plan and to make any other factual determinations
which it believes to be necessary or advisable for the administration of the
Plan. All actions taken and interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Company, all
associates who have received awards under the Plan and all other interested
persons.
3.5 Liability; Indemnification. No member of the Committee, nor any person
to whom duties have been delegated, shall be personally liable for any action,
interpretation or determination made with respect to the Plan
B-2
<PAGE>
or awards made thereunder, and each member of the Committee shall be fully
indemnified and protected by the Company with respect to any liability he or
she may incur with respect to any such action, interpretation or
determination, to the extent permitted by applicable law and to the extent
provided in the Company's Certificate of Incorporation and Bylaws, as amended
from time to time.
ARTICLE 4
ELIGIBILITY
Awards shall be limited to executive and key management associates who are
regular, full-time associates of the Company, its present and future
subsidiaries, its parent and subsidiaries thereof. In determining the
associates to whom awards shall be granted and the number of shares to be
covered by each award, the Committee shall take into account the nature of the
services rendered by such associates, their present and potential
contributions to the success of the Company and its subsidiaries and such
other factors as the Committee in its sole discretion shall deem relevant. As
used in this Plan, the term "subsidiary" shall mean any corporation which at
the time qualifies as a subsidiary of the Company under the definition of
"subsidiary corporation" set forth in Section 424(f) of the Code, or any
successor provision hereafter enacted. No associate may be granted in any
calendar year awards covering more than 1,500,000 shares of Common Stock.
ARTICLE 5
STOCK OPTIONS
5.1 Grant of Options. Options may be granted under this Plan for the
purchase of shares of Common Stock. Options shall be granted in such form and
upon such terms and conditions, including the satisfaction of corporate or
individual performance objectives and other vesting standards, as the
Committee shall from time to time determine.
5.2 Option Price. The option price of each Option to purchase Common Stock
shall be determined by the Committee at the time of grant, but shall not be
less than 100 percent of the fair market value of the Common Stock subject to
such Option on the date of grant. The option price so determined shall also be
applicable in connection with the exercise of any Tandem Stock Appreciation
Right granted with respect to such option.
5.3 Term of Options. The term of each Option granted under the Plan shall
not exceed ten (10) years from the date of grant, subject to earlier
termination as provided in Articles 9 and 10, except as otherwise provided in
Section 6.1 with respect to ten (10) percent stockholders of the Company.
5.4 Exercise of Options. An Option may be exercised, in whole or in part, at
such time or times as the Committee shall determine. The Committee may, in its
discretion, accelerate the exercisability of any Option at any time. Options
may be exercised by an associate by giving written notice to the committee
stating the number of shares of Common Stock with respect to which the Option
is being exercised and tendering payment therefor. Payment for the Common
Stock issuable upon exercise of the Option shall be made in full in cash, or
by certified check or, if the Committee, in its sole discretion, permits, in
shares of Common Stock (valued at fair market value on the date of exercise).
As soon as reasonably practicable following such exercise, a certificate
representing the shares of Common Stock purchased, registered in the name of
the associate, shall be delivered to the associate.
B-3
<PAGE>
5.5 Cancellation of Stock Appreciation Rights. Upon exercise of all or a
portion of an Option, the related Tandem Stock Appreciation Rights shall be
canceled with respect to an equal number of shares of Common Stock.
ARTICLE 6
SPECIAL RULES APPLICABLE TO INCENTIVE STOCK OPTIONS
6.1 Ten Percent Stockholder. Notwithstanding any other provision of this
Plan to the contrary, no associate may receive an Incentive Stock Option under
the Plan if such associate, at the time the award is granted, owns (after
application of the rules contained in Section 424(d) of the Code) stock
possessing more than ten (10) percent of the total combined voting power of
all classes of stock of the Company, its parent or its subsidiaries, unless
(i) the option price for such Incentive Stock Option is at least 110 percent
of the fair market value of the Common Stock subject to such Incentive Stock
Option on the date of grant and (ii) such Option is not exercisable after the
date five (5) years from the date such Incentive Stock Option is granted.
6.2 Limitation on Grants. The aggregate fair market value (determined with
respect to each Incentive Stock Option at the time such Incentive Stock Option
is granted) of the shares of Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by an associate during any
calendar year (under this Plan or any other plan of the Company or a
subsidiary) shall not exceed $100,000.
6.3 Limitations on Time of Grants. No grant of an Incentive Stock Option
shall be made under this Plan after the termination date set forth in Section
19.10 hereof.
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 Grants of Stock Appreciation Rights. Tandem Stock Appreciation Rights
may be awarded by the Committee in connection with any Option granted under
the Plan, either at the time the Option is granted or thereafter at any time
prior to the exercise, termination or expiration of the Option. Nontandem
Stock Appreciation Rights may also be granted by the Committee at any time. At
the time of grant of a Nontandem Stock Appreciation Right, the Committee shall
specify the number of shares of Common Stock covered by such right and the
base price of shares of Common Stock to be used in connection with the
calculation described in Section 7.4 below. The base price of a Nontandem
Stock Appreciation Right shall be not less than 100 percent of the fair market
value of a share of Common Stock on the date of grant. Stock Appreciation
Rights shall be subject to such terms and conditions not inconsistent with the
other provisions of this Plan as the Committee shall determine.
7.2 Limitations on Exercise. A Tandem Stock Appreciation Right shall be
exercisable only to the extent that the related Option is exercisable and
shall be exercisable only for such period as the Committee may determine
(which period may expire prior to the expiration date of the related Option).
Upon the exercise of all or a portion of Tandem Stock Appreciation Rights, the
related Option shall be canceled with respect to an equal number of shares of
Common Stock. Shares of Common Stock subject to Options or portions thereof,
surrendered upon exercise of a Tandem Stock Appreciation Right, shall not be
available for subsequent awards under the Plan. A Nontandem Stock Appreciation
Right shall be exercisable during such period as the Committee shall
determine.
7.3 Surrender or Exchange of Tandem Stock Appreciation Rights. A Tandem
Stock Appreciation Right shall entitle the associate to surrender to the
Company unexercised the related Option, or any portion thereof, and to receive
from the Company in exchange therefor that number of shares of Common Stock
having an
B-4
<PAGE>
aggregate fair market value equal to (A) the excess of (i) the fair market
value of one (1) share of Common Stock as of the date the Tandem Stock
Appreciation Right is exercised over (ii) the option price per share specified
in such Option, multiplied by (B) the number of shares of Common Stock subject
to the Option, or portion thereof, which is surrendered. Cash shall be
delivered in lieu of any fractional shares.
7.4 Exercise of Nontandem Stock Appreciation Rights. The exercise of a
Nontandem Stock Appreciation Right shall entitle the associate to receive from
the Company that number of shares of Common Stock having an aggregate fair
market value equal to (A) the excess of (i) the fair market value of one (1)
share of Common Stock as of the date on which the Nontandem Stock Appreciation
Right is exercised over (ii) the base price of the shares covered by the
Nontandem Stock Appreciation Right, multiplied by (B) the number of shares of
Common Stock covered by the Nontandem Stock Appreciation Right, or the portion
thereof being exercised. Cash shall be delivered in lieu of any fractional
shares.
7.5 Settlement of Stock Appreciation Rights. As soon as is reasonably
practicable after the exercise of a Stock Appreciation Right, the Company
shall (i) issue, in the name of the associate, stock certificates representing
the total number of full shares of Common Stock to which the associate is
entitled pursuant to Section 7.3 or 7.4 hereof and cash in an amount equal to
the fair market value, as of the date of exercise, of any resulting fractional
shares, and (ii) if the Committee causes the Company to elect to settle all or
part of its obligations arising out of the exercise of the Stock Appreciation
Right in cash pursuant to Section 7.6, deliver to the associate an amount in
cash equal to the fair market value, as of the date of exercise, of the shares
of Common Stock it would otherwise be obligated to deliver.
7.6 Cash Settlement. The Committee, in its discretion, may cause the Company
to settle all or any part of its obligation arising out of the exercise of a
Stock Appreciation Right by the payment of cash in lieu of all or part of the
shares of Common Stock it would otherwise be obligated to deliver in an amount
equal to the fair market value of such shares on the date of exercise.
ARTICLE 8
NONTRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS
No Option or Stock Appreciation Right may be transferred, assigned, pledged
or hypothecated (whether by operation of law or otherwise), except as provided
by will or the applicable laws of descent and distribution, and no Option or
Stock Appreciation Right shall be subject to execution, attachment or similar
process. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of an Option or a Stock Appreciation Right not specifically
permitted herein shall be null and void and without effect. An Option or Stock
Appreciation Right may be exercised by an associate only during his or her
lifetime, or following his or her death pursuant to Article 10.
ARTICLE 9
TERMINATION OF EMPLOYMENT
9.1 Exercise after Termination of Employment. Except as the Committee may at
any time provide, in the event that the employment of an associate to whom an
Option or Stock Appreciation Right has been granted under the Plan shall be
terminated (for reasons other than death or total disability), except as the
Committee may at any time provide, such Option or Stock Appreciation Right may
be exercised (to the extent that the associate was entitled to do so on the
date of the termination of his employment) at any time within three (3) months
after such termination of employment.
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9.2 Total Disability. In the event that an associate to whom an Option or
Stock Appreciation Right has been granted under the Plan shall become totally
disabled, except as the Committee may at any time provide such Option or Stock
Appreciation Right may be exercised at any time during the first nine (9)
months that the associate receives benefits under the The Limited, Inc. Long-
Term Disability Plan (the "Disability Plan") to the extent otherwise
exercisable during such nine-month period. For purposes hereof, "total
disability" shall have the definition set forth in the Disability Plan, which
definition is hereby incorporated by reference.
ARTICLE 10
DEATH OF ASSOCIATE
If an associate to whom an Option or Stock Appreciation Right has been
granted under the Plan shall die while employed by the Company or one of its
subsidiaries or within three (3) months after the termination of such
employment, except as the Committee may at any time provide, such Option or
Stock Appreciation Right may be exercised to the extent that the associate was
entitled to do so at the time of his or her death, by the associate's estate
or by the person who acquires the right to exercise such Option or Stock
Appreciation Right upon his or her death by bequest or inheritance. Such
exercise may occur at any time within one (1) year after the date of the
associate's death, but in no case later than the date on which the Option or
Stock Appreciation Right terminates or such other period as the Committee may
at any time provide.
ARTICLE 11
RESTRICTED SHARES
11.1 Grant of Restricted Shares. The Committee may from time to time cause
the Company to grant Restricted Shares under the Plan to associates, subject
to such restrictions, conditions and other terms as the Committee may
determine.
11.2 Restrictions. At the time a grant of Restricted Shares is made, the
Committee shall establish a period of time (the "Restricted Period")
applicable to such Restricted Shares. Each grant of Restricted Shares may be
subject to a different Restricted Period. The Committee may, in its sole
discretion, at the time a grant is made, prescribe restrictions in addition to
or other than the expiration of the Restricted Period, including the
satisfaction of corporate or individual performance objectives as provided in
Section 11.7, which may be applicable to all or any portion of the Restricted
Shares. Except with respect to grants of Restricted Shares intended to qualify
as performance-based compensation for purposes of Section 162(m) of the Code,
the Committee may also, in its sole discretion, shorten or terminate the
Restricted Period or waive any other restrictions applicable to all or a
portion of such Restricted Shares. None of the Restricted Shares may be sold,
transferred, assigned, pledged or otherwise encumbered or disposed of during
the Restricted Period or prior to the satisfaction of any other restrictions
prescribed by the Committee with respect to such Restricted Shares.
11.3 Restricted Stock Certificates. If the Committee deems it necessary or
appropriate, the Company may issue, in the name of each associate to whom
Restricted Shares have been granted, stock certificates representing the total
number of Restricted Shares granted to the associate, provided that such
certificates bear an appropriate legend or other restriction on transfer. The
Secretary of the Company shall hold such certificates, properly endorsed for
transfer, for the associate's benefit until such time as the Restricted Shares
are forfeited to the Company, or the restrictions lapse.
11.4 Rights of Holders of Restricted Shares. Except as determined by the
Committee either at the time Restricted Shares are awarded or at any time
thereafter prior to the lapse of the restrictions, holders of Restricted
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Shares shall not have the right to vote such shares or the right to receive
any dividends with respect to such shares. All distributions, if any, received
by an associate with respect to Restricted Shares as a result of any stock
split-up, stock distribution, a combination of shares, or other similar
transaction shall be subject to the restrictions of this Article 11.
11.5 Forfeiture. Except as the Committee may at any time provide, any
restricted Shares granted to an associate pursuant to the Plan shall be
forfeited if the associate terminates employment with the Company or its
subsidiaries prior to the expiration or termination of the Restricted Period
and the satisfaction of any other conditions applicable to such Restricted
Shares. Upon such forfeiture, the Secretary of the Company shall either cancel
or retain in its treasury the Restricted Shares that are forfeited to the
Company.
11.6 Delivery of Restricted Shares. Upon the expiration or termination of
the Restricted Period and the satisfaction of any other conditions prescribed
by the Committee, the restrictions applicable to the Restricted Shares shall
lapse and a stock certificate for the number of Restricted Shares with respect
to which the restrictions have lapsed shall be delivered, free of all such
restrictions, to the associate or the associate's beneficiary or estate, as
the case may be.
11.7 Performance-Based Objectives. At the time of the grant of Restricted
Shares to an associate, and prior to the beginning of the performance period
to which performance objectives relate, the Committee may establish
performance objectives based on any one or more of the following: price of the
Company's Class A Common Stock, shareholder return, return on equity, return
on investment, return on capital, sales productivity, comparable store sales
growth, economic value added, net income, operating income, gross margin,
sales, free cash flow, earnings per share, operating company contribution or
market share. These factors shall have a minimum performance standard below
which, and a maximum performance standard above which, no payments will be
made. These performance goals may 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 performance goals and determination of
results shall be based entirely on financial measures. The Committee may not
use any discretion to modify award results except as permitted under Section
162(m) of the Code.
ARTICLE 12
PERFORMANCE SHARES
12.1 Award of Performance Shares. For each Performance Period (as defined in
Section 12.2), Performance Shares may be granted under the Plan to such
associates of the Company and its subsidiaries as the Committee shall
determine. Each Performance Share shall be deemed to be equivalent to one (1)
share of Common Stock. Performance Shares granted to an associate shall be
credited to an account (a "Performance Share Account") established and
maintained for such associate.
12.2 Performance Period. "Performance Period" shall mean such period of time
as shall be determined by the Committee in its sole discretion. Different
Performance Periods may be established for different associates receiving
Performance Shares. Performance Periods may run consecutively or concurrently.
12.3 Right to Payment of Performance Shares. With respect to each award of
Performance Shares under this Plan, the Committee shall specify performance
objectives (the "Performance Objectives") which must be satisfied in order for
the associate to vest in the Performance Shares which have been awarded to him
or her for the Performance Period. If the Performance Objectives established
for an associate for the Performance
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Period are partially but not fully met, the Committee may, nonetheless, in its
sole discretion, determine that all or a portion of the Performance Shares
have vested. If the Performance Objectives for a Performance Period are
exceeded, the Committee may, in its sole discretion, grant additional, fully
vested Performance Shares to the associate. The Committee may also determine,
in its sole discretion, that Performance Shares awarded to an associate shall
become partially or fully vested upon the associate's death, total disability
(as defined in Article 9) or retirement, or upon the termination of the
associate's employment prior to the end of the Performance Period.
12.4 Payment for Performance Shares. As soon as practicable following the
end of a Performance Period, the Committee shall determine whether the
Performance Objectives for the Performance Period have been achieved (or
partially achieved to the extent necessary to permit partial vesting at the
discretion of the Committee pursuant to Section 12.3). If the Performance
Objectives for the Performance Period have been exceeded, the Committee shall
determine whether additional Performance Shares shall be granted to the
associate pursuant to Section 12.3. As soon as reasonably practicable after
such determinations, or at such later date as the Committee shall determine at
the time of grant, the Company shall pay to the associate an amount with
respect to each vested Performance Share equal to the fair market value of a
share of Common Stock on such payment date or, if the Committee shall so
specify at the time of grant, an amount equal to (i) the fair market value of
a share of Common Stock on the payment date less (ii) the fair market value of
a share of Common Stock on the date of grant of the Performance Share. Payment
shall be made entirely in cash, entirely in Common Stock (including Restricted
Shares) or in such combination of cash and Common Stock as the Committee shall
determine.
12.5 Voting and Dividend Rights. Except as the Committee may at any time
provide, no associate shall be entitled to any voting rights, to receive any
dividends, or to have his or her Performance Share Account credited or
increased as a result of any dividends or other distribution with respect to
Common Stock. Notwithstanding the foregoing, within sixty (60) days from the
date of payment of a dividend by the Company on its shares of Common Stock,
the Committee, in its discretion, may credit an associate's Performance Share
Account with additional Performance Shares having an aggregate fair market
value equal to the dividend per share paid on the Common Stock multiplied by
the number of Performance Shares credited to his or her account at the time
the dividend was declared.
ARTICLE 13
PERFORMANCE UNITS
13.1 Award of Performance Units. For each Performance Period (as defined in
Section 12.2), Performance Units may be granted under the Plan to such
associates of the Company and its subsidiaries as the Committee shall
determine. The award agreement covering such Performance Units shall specify a
value for each Performance Unit or shall set forth a formula for determining
the value of each Performance Unit at the time of payment (the "Ending
Value"). If necessary to make the calculation of the amount to be paid to the
associate pursuant to Section 13.3, the Committee shall also state in the
award agreement the initial value of each Performance Unit (the "Initial
Value"). Performance Units granted to an associate shall be credited to an
account (a "Performance Unit Account") established and maintained for such
associate.
13.2 Right to Payment of Performance Units. With respect to each award of
Performance Units under this Plan, the Committee shall specify Performance
Objectives which must be satisfied in order for the associate to vest in the
Performance Units which have been awarded to him or her for the Performance
Period. If the Performance Objectives established for an associate for the
Performance Period are partially but not fully met, the Committee may,
nonetheless, in its sole discretion, determine that all or a portion of the
Performance Units
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have vested. If the Performance Objectives for a Performance Period are
exceeded, the Committee may, in its sole discretion, grant additional, fully
vested Performance Units to the associate. The Committee may also determine,
in its sole discretion, that Performance Units awarded to an associate shall
become partially or fully vested upon the associate's death, total disability
(as defined in Article 9) or retirement, or upon the termination of employment
of the associate by the Company.
13.3 Payment for Performance Units. As soon as practicable following the end
of a Performance Period, the Committee shall determine whether the Performance
Objectives for the Performance Period have been achieved (or partially
achieved to the extent necessary to permit partial vesting at the discretion
of the Committee pursuant to Section 13.2). If the Performance Objectives for
the Performance Period have been exceeded, the Committee shall determine
whether additional Performance Units shall be granted to the associate
pursuant to Section 13.2. As soon as reasonably practicable after such
determinations, or at such later date as the Committee shall determine, the
Company shall pay to the associate an amount with respect to each vested
Performance Unit equal to the Ending Value of the Performance Unit or, if the
Committee shall so specify at the time of grant, an amount equal to (i) the
Ending Value of the Performance Unit less (ii) the Initial Value of the
Performance Unit. Payment shall be made entirely in cash, entirely in Common
Stock (including Restricted Shares) or in such combination of cash and Common
Stock as the Committee shall determine.
ARTICLE 14
UNRESTRICTED SHARES
14.1 Award of Unrestricted Shares. The Committee may cause the Company to
grant Unrestricted Shares to associates at such time or times, in such amounts
and for such reasons as the Committee, in its sole discretion, shall
determine. Except as required by applicable law, no payment shall be required
for Unrestricted Shares.
14.2 Delivery of Unrestricted Shares. The Company shall issue, in the name
of each associate to whom Unrestricted Shares have been granted, stock
certificates representing the total number of Unrestricted Shares granted to
the associate, and shall deliver such certificates to the associate as soon as
reasonably practicable after the date of grant or on such later date as the
Committee shall determine at the time of grant.
ARTICLE 15
TAX OFFSET PAYMENTS
The Committee shall have the authority at the time of any award under this
Plan or anytime thereafter to make Tax Offset Payments to assist associates in
paying income taxes incurred as a result of their participation in this Plan.
The Tax Offset Payments, which, if awarded, may be in cash or shares of Common
Stock, shall be determined by multiplying a percentage established by the
Committee times all or a portion (as the Committee shall determine) of the
taxable income recognized by an associate upon (i) the exercise of a
Nonstatutory Stock Option or a Stock Appreciation Right, (ii) the disposition
of shares received upon exercise of an Incentive Stock Option, (iii) the lapse
of restrictions on Restricted Shares, (iv) the award of Unrestricted Shares,
or (v) payments for Performance Shares or Performance Units. The percentage
shall be established, from time to time, by the Committee at that rate which
the Committee, in its sole discretion, determines to be appropriate and in the
best interests of the Company to assist associates in paying income taxes
incurred as a result of the events described in the preceding sentence. Tax
Offset Payments shall be subject to the restrictions on transferability
applicable to Options and Stock Appreciation Rights under Article 8.
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ARTICLE 16
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Notwithstanding any other provision of the Plan, the Committee may at any
time make or provide for such adjustments to the Plan, to the number and class
of shares available thereunder or to any outstanding Options, Stock
Appreciation Rights, Restricted Shares or Performance Shares as it shall deem
appropriate to prevent dilution or enlargement of rights, including
adjustments in the event of changes in the number of shares of outstanding
Common Stock by reason of stock dividends, extraordinary cash dividends,
split-ups, recapitalizations, mergers, consolidations, combinations or
exchanges of shares, separations, reorganizations, liquidations and the like.
ARTICLE 17
AMENDMENT AND TERMINATION
The Board may suspend, terminate, modify or amend the Plan, provided that
any amendment that would materially increase the aggregate number of shares
which may be issued under the Plan shall be subject to the approval of the
Company's stockholders, except that any such increase or modification that may
result from adjustments authorized by Article 16 does not require such
approval. If the Plan is terminated, the terms of the Plan shall,
notwithstanding such termination, continue to apply to awards granted prior to
such termination. No suspension, termination, modification or amendment of the
Plan may, without the consent of the associate to whom an award shall
theretofore have been granted, adversely affect the rights of such associate
under such award.
ARTICLE 18
WRITTEN AGREEMENT
Each award of Options, Stock Appreciation Rights, Restricted Shares,
Performance Shares, Performance Units, Unrestricted Shares and Tax Offset
Payments shall be evidenced by a written agreement, executed by the associate
and the Company, and containing such restrictions, terms and conditions, if
any, as the Committee may require. In the event of any conflict between a
written agreement and the Plan, the terms of the Plan shall govern.
ARTICLE 19
MISCELLANEOUS PROVISIONS
19.1 Fair Market Value. For purposes of this Plan, fair market value with
respect to the exercise price of options granted prior to and subject to the
consummation of the initial public offering referred to in Section 1.1 hereof
shall be the price at which shares of Common Stock are sold to the public
pursuant to such offering and, for all other purposes hereunder, shall be the
closing price of the Common Stock as reported on the principal exchange on
which the shares are listed for the date on which the grant, exercise or other
transaction occurs, or if there were no sales on such date, the most recent
prior date on which there were sales.
19.2 Tax Withholding. The Company shall have the right to require associates
or their beneficiaries or legal representatives to remit to the Company an
amount sufficient to satisfy federal, state and local withholding tax
requirements, or to deduct from all payments under this Plan, including Tax
Offset Payments, amounts sufficient to satisfy all withholding tax
requirements. Whenever payments under the Plan are to be made to an associate
in cash, such payments shall be net of any amounts sufficient to satisfy all
federal, state and local
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withholding tax requirements. The Committee may, in its discretion, permit an
associate to satisfy his or her tax withholding obligation either by (i)
surrendering shares owned by the associate or (ii) having the Company withhold
from shares otherwise deliverable to the associate. Shares surrendered or
withheld shall be valued at their fair market value as of the date on which
income is required to be recognized for income tax purposes. In the case of an
award of Incentive Stock Options, the foregoing right shall be deemed to be
provided to the associate at the time of such award.
19.3 Compliance With Section 16(b) and Section 162(m). In the case of
associates who are or may be subject to Section 16 of the Act, it is the
intent of the Company that any award granted hereunder satisfy and be
interpreted in a manner that satisfies the applicable requirements of Rule
16b-3, so that such person will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 of the Act and will not be subjected to
liability thereunder. If any provision of the Plan or any award would
otherwise conflict with the intent expressed herein, that provision, to the
extent possible, shall be interpreted and deemed amended so as to avoid such
conflict. To the extent of any remaining irreconcilable conflict with such
intent, such provision shall be deemed void as applicable to associates who
are or may be subject to Section 16 of the Act. If any award hereunder is
intended to qualify as performance-based for purposes of Section 162(m) of the
Code, the Committee shall not exercise any discretion to increase the payable
under such award except to the extent permitted by Section 162(m) and the
regulations thereunder.
19.4 Successors. The obligations of the Company under the Plan shall be
binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the Company, or upon any
successor corporation or organization succeeding to substantially all of the
assets and business of the Company. In the event of any of the foregoing, the
Committee may, at its discretion prior to the consummation of the transaction,
cancel, offer to purchase, exchange, adjust or modify any outstanding awards,
at such time and in such manner as the Committee deems appropriate and in
accordance with applicable law.
19.5 General Creditor Status. Associates shall have no right, title, or
interest whatsoever in or to any investments which the Company may make to aid
it in meeting its obligations under the Plan. Nothing contained in the Plan,
and no action taken pursuant to its provisions, shall create or be construed
to create a trust of any kind, or a fiduciary relationship between the Company
and any associate or beneficiary or legal representative of such associate. To
the extent than any person acquires a right to receive payments from the
Company under the Plan, such right shall be no greater than the right of an
unsecured general creditor of the Company. All payments to be made hereunder
shall be paid from the general funds of the Company and no special or separate
fund shall be established and no segregation of assets shall be made to assure
payment of such amounts except as expressly set forth in the Plan.
19.6 No Right to Employment. Nothing in the Plan or in any written agreement
entered into pursuant to Article 18, nor the grant of any award, shall confer
upon any associate any right to continue in the employ of the Company or a
subsidiary or to be entitled to any remuneration or benefits not set forth in
the Plan or such written agreement or interfere with or limit the right of the
Company or a subsidiary to modify the terms of or terminate such associate's
employment at any time.
19.7 Notices. Notices required or permitted to be made under the Plan shall
be sufficiently made if sent by registered or certified mail addressed (a) to
the associate at the associate's address as set forth in the books and records
of the Company or its subsidiaries, or (b) to the Company or the Committee at
the principal office of the Company.
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19.8 Severability. In the event that any provision of the Plan shall be held
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
19.9 Governing Law. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
19.10 Term of Plan. Unless earlier terminated pursuant to Article 17 hereof,
the Plan shall terminate on October 1, 2006.
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EXHIBIT C
ABERCROMBIE & FITCH CO.
1996 STOCK PLAN FOR NON-ASSOCIATE DIRECTORS
1. PURPOSE
The purpose of the Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate
Directors (the "Plan") is to promote the interests of Abercrombie & Fitch Co.
(the "Company") and its stockholders by increasing the proprietary interest of
non-associate directors in the growth and performance of the Company by
granting such directors options to purchase shares of Class A Common Stock,
par value $.01 per share (the "Shares") of the Company and by awarding Shares
to such directors in respect of a portion of the Retainer (as defined in
Section 6(b)) payable to such directors.
2. ADMINISTRATION
The Plan shall be administered by the Company's Board of Directors (the
"Board"). Subject to the provisions of the Plan, the Board shall be authorized
to interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan and to make all other determinations
necessary or advisable for the administration of the Plan; provided, however,
that the Board shall have no discretion with respect to the selection of
directors to receive options, the number of Shares subject to any such
options, the purchase price thereunder or the timing of grants of options
under the Plan. The determinations of the Board in the administration of the
Plan, as described herein, shall be final and conclusive. The Secretary of the
Company shall be authorized to implement the 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 Plan and any rules and regulations relating to the Plan shall be
determined in accordance with the laws of the State of Delaware.
3. ELIGIBILITY
The class of individuals eligible to receive grants of options and awards of
Shares in respect of the Retainer under the Plan shall be directors of the
Company who are not associates of the Company or its affiliates ("Eligible
Directors"). Any holder of an option or Shares granted hereunder shall
hereinafter be referred to as a "Participant".
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 7, an aggregate of 100,000
Shares shall be available for issuance under the Plan. The Shares deliverable
upon the exercise of options or in respect of the Retainer may be made
available from authorized but unissued Shares or treasury Shares. If any
option granted under the Plan shall terminate for any reason without having
been exercised, the Shares subject to, but not delivered under, such option
shall be available for issuance under the Plan.
5. GRANT, TERMS AND CONDITIONS OF OPTIONS
(a) Subject to the consummation prior to December 31, 1996 of the initial
public offering of the Company's Class A Common Stock, each Eligible Director
on the Effective Date (as defined in Section 11) will be granted on such date
an option to purchase 2,000 Shares.
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(b) Each Eligible Director on the first business day of a fiscal year of the
Company beginning after the Effective Date, will be granted on such a day an
option to purchase 2,000 Shares.
(c) The options granted will be nonstatutory stock options not intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and shall have the following terms and conditions:
(i) PRICE. The purchase price per Share deliverable upon the exercise of
each option shall be 100% of the Fair Market Value per Share on the date
the option is granted. For purposes of the Plan, Fair Market Value with
respect to the exercise price of options granted under Section 5(a) hereof
subject to the consummation of such initial public offering shall be the
price at which Shares are sold to the public pursuant to such offering and,
for all other purposes hereunder, shall be the closing price of the Shares
as reported on the principal exchange on which the shares are listed for
the date in question, or if there were no sales on such date, the most
recent prior date on which there were sales.
(ii) PAYMENT. Options may be exercised only upon payment of the purchase
price thereof in full. Such payment shall be made in cash.
(iii) EXERCISABILITY AND TERM OF OPTIONS. Options shall become
exercisable in four equal annual installments commencing on the first
anniversary of the date of grant, provided the holder of such Option is an
Eligible Director on such anniversary, and shall be exercisable until the
earlier of ten years from the date of grant and the expiration of the one
year period provided in paragraph (iv) below.
(iv) TERMINATION OF SERVICE AS ELIGIBLE DIRECTOR. Upon termination of a
Participant's service as a director of the Company for any reason, all
outstanding options held by such Eligible Director, to the extent then
exercisable, shall be exercisable in whole or in part for a period of one
year from the date upon which the Participant ceases to be a Director,
provided that in no event shall the options be exercisable beyond the
period provided for in paragraph (iii) above.
(v) NONTRANSFERABILITY OF OPTIONS. No option may be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by a
Participant otherwise than by will or the laws of descent and distribution,
and during the lifetime of the Participant to whom an option is granted it
may be exercised only by the Participant or by the Participant's guardian
or legal representative. Notwithstanding the foregoing, options may be
transferred pursuant to a qualified domestic relations order.
(vi) OPTION AGREEMENT. Each option granted hereunder shall be evidenced
by an agreement with the Company which shall contain the terms and
provisions set forth herein and shall otherwise be consistent with the
provisions of the Plan.
6. GRANT OF SHARES
(a) From and after the Effective Date, 50% of the Retainer of each Eligible
Director shall be paid in a number of Shares equal to the quotient of (i) 50%
of the Retainer divided by (ii) the Fair Market Value on the Retainer Payment
Date. Cash shall be paid to an Eligible Director in lieu of a fractional
Share.
(b) For purposes of this Plan, "Retainer" shall mean the annual retainer
payable to an Eligible Director (as defined in Section 3) for any fiscal
quarter of the Company, the amount of which Retainer may not be changed for
purposes of this Plan more often than once every six months and
"RETAINER PAYMENT DATE" shall mean the first business day of the Company's
calendar quarter.
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7. ADJUSTMENT OF AND CHANGES IN SHARES
In the event of a stock split, stock dividend, extraordinary cash dividend,
subdivision or combination of the Shares or other change in corporate
structure affecting the Shares, the number of Shares authorized by the Plan
shall be increased or decreased proportionately, as the case may be, and the
number of Shares subject to any outstanding option shall be increased or
decreased proportionately, as the case may be, with appropriate corresponding
adjustment in the purchase price per Share thereunder.
8. NO RIGHTS OF SHAREHOLDERS
Neither a Participant nor a Participant's legal representative shall be, or
have any of the rights and privileges of, a shareholder of the Company in
respect of any Shares purchasable upon the exercise of any option, in whole or
in part, unless and until certificates for such Shares shall have been issued.
9. PLAN AMENDMENTS
The Plan may be amended by the Board as it shall deem advisable or to
conform to any change in any law or regulation applicable thereto; provided,
that the Board may not, without the authorization and approval of shareholders
of the Company: (i) increase the number of Shares which may be purchased
pursuant to options hereunder, either individually or in the aggregate, except
as permitted by Section 7, (ii) change the requirement of Section 5(b) that
option grants be priced at Fair Market Value, except as permitted by Section
7, or (iii) modify in any respect the class of individuals who constitute
Eligible Directors. The provisions of Sections 3, 5 and/or 6 may not be
amended more often than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, or
the rules under either such statute.
10. LISTING AND REGISTRATION
Each Share shall be subject to the requirement that if at any time the Board
shall determine, in its discretion, that the listing, registration or
qualification of the Shares upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the
granting of such Shares, no such Share may be disposed of unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any condition not acceptable to the Board.
11. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on the effective date of the initial public
offering of the Company's Class A Common Stock ("Effective Date"), subject to
the consummation of such offering. In the event such public offering is not
consummated, all options and Shares previously granted hereunder shall be
canceled and all rights of Eligible Directors with respect to such options and
Shares shall thereupon cease. The Plan shall terminate the day following the
tenth Annual Shareholders Meeting at which Directors are elected succeeding
such initial public offering, unless the Plan is extended or terminated at an
earlier date by Shareholders or is terminated by exhaustion of the Shares
available for issuance hereunder.
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P R O X Y
ABERCROMBIE & FITCH CO.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1997
The undersigned hereby appoints Leslie H. Wexner and Kenneth B. Gilman, and
each of them, proxies, with full power of substitution, to vote for the
undersigned all shares of Class A Common Stock of Abercrombie & Fitch Co. which
the undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders to be held on May 20, 1997 at 10:30 a.m., Eastern
Daylight Time, and at any adjournments thereof, upon the matters described in
the accompanying Proxy Statement and upon any other business that may properly
come before the meeting or any adjournments thereof.
Election of Directors, Nominees:
Roger D. Blackwell, E. Gordon Gee, Michael S. Jeffries
SAID PROXIES ARE DIRECTED TO VOTE AS MARKED ON THE REVERSE SIDE AND IN THEIR
DISCRETION UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENTS THEREOF.
(Continued and to be signed on the reverse side)
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FOLD AND DETACH HERE
<PAGE>
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE. 9577
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" EACH
OF THE NAMED NOMINEES AND
"FOR" APPROVAL OF THE PLANS
REFERRED TO BELOW. IF NO
SPECIFICATION IS INDICATED,
THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED AS
RECOMMENDED BY THE BOARD.
FOR WITHHELD
1. Election of [_] [_]
Directors
(see reverse)
For, except vote withheld from following nominee(s):
- -------------------------------------------------------------------------------
2. Approval of the Abercrombie & Fitch Co. Incentive Compensation Performance
Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Approval of the 1997 Restatement of the Abercrombie & Fitch Co. 1996 Stock
Option and Performance Incentive Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Approval of the Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate
Directors
FOR AGAINST ABSTAIN
[_] [_] [_]
THE UNDERSIGNED ACKNOWLEDGES RECEIPT WITH THIS PROXY OF A COPY OF THE NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT DATED APRIL 14, 1997.
IMPORTANT: PLEASE DATE THIS PROXY AND SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR
HEREON. IF STOCK IS HELD JOINTLY, SIGNATURE SHOULD INCLUDE BOTH NAMES. EXECU-
TORS, ADMINISTRATORS, TRUSTEES, GUARDIANS AND OTHERS SIGNING IN A REPRESENTA-
TIVE CAPACITY SHOULD INDICATE FULL TITLES.
SIGNATURE(S)______________________ DATE ___________
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FOLD AND DETACH HERE
<PAGE>
LOGO
PROXY
ABERCROMBIE & FITCH CO.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1997
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NAMED NOMINEES AND
"FOR" APPROVAL OF THE PLANS REFERRED TO BELOW. IF NO SPECIFICATION IS
INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS RECOMMENDED BY
THE BOARD.
Election of Directors, Nominees:
Roger D. Blackwell, E. Gordon Gee, Michael S. Jeffries
1. Election of Directors
FOR WITHHELD
[_] [_]
For, except vote withheld from following nominee(s):
- -------------------------------------------------------------------------------
2. Approval of the Abercrombie & Fitch Co. Incentive Compensation Performance
Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Approval of the 1997 Restatement of the Abercrombie & Fitch Co. 1996 Stock
Option and Performance Incentive Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
(Continued and to be signed on the reverse side)
<PAGE>
LOGO
4. Approval of the Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate
Directors.
FOR AGAINST ABSTAIN
[_] [_] [_]
The undersigned hereby appoints Leslie H. Wexner and Kenneth B. Gilman, and
each of them, proxies, with full power of substitution, to vote for the
undersigned all shares of Class A Common Stock of Abercrombie & Fitch Co. which
the undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders to be held on May 20, 1997 at 10:30 a.m., Eastern
Daylight Time, and at any adjournments thereof, upon the matters described in
the accompanying Proxy Statement and upon any other business that may properly
come before the meeting or any adjournments thereof.
The undersigned acknowledges receipt with this Proxy of a copy of the Notice
of Annual Meeting of Stockholders and Proxy Statement dated April 14, 1997.
SIGNATURE(S) ________________ DATE
IMPORTANT: PLEASE DATE THIS PROXY AND
SIGN EXACTLY AS YOUR NAME OR NAMES
APPEAR HEREON. IF STOCK IS HELD
JOINTLY, SIGNATURE SHOULD INCLUDE BOTH
NAMES. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND OTHERS SIGNING
IN A REPRESENTATIVE CAPACITY SHOULD
INDICATE FULL TITLES.
