<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 2, 1998
-----------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________to________________
Commission file number 1-12107
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ABERCROMBIE & FITCH CO.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1469076
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Four Limited Parkway East, Reynoldsburg, OH 43068
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 577-6500
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock Outstanding at June 1, 1998
- - -------------------------------- ----------------------------------------
$.01 Par Value 54,745,748 Shares
<PAGE> 2
ABERCROMBIE & FITCH CO.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen Weeks Ended
May 2, 1998 and May 3, 1997 ...............................................................3
Consolidated Balance Sheets
May 2, 1998 and January 31, 1998 ..........................................................4
Consolidated Statements of Cash Flows
Thirteen Weeks Ended
May 2, 1998 and May 3, 1997 ...............................................................5
Notes to Consolidated Financial Statements .........................................................6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition ............................................10
Part II. Other Information
Item 1. Legal Proceedings ............................................................................15
Item 6. Exhibits and Reports on Form 8-K .............................................................16
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ABERCROMBIE & FITCH CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------
May 2, May 3,
1998 1997
--------- ---------
<S> <C> <C>
NET SALES $ 134,230 $ 74,316
Cost of Goods Sold, Occupancy
and Buying Costs 85,019 50,375
--------- ---------
GROSS INCOME 49,211 23,941
General, Administrative and
Store Operating Expenses 38,872 21,961
--------- ---------
OPERATING INCOME 10,339 1,980
Interest (Income) Expense, Net (169) 1,035
--------- ---------
INCOME BEFORE INCOME TAXES 10,508 945
Provision for Income Taxes 4,200 380
--------- ---------
NET INCOME $ 6,308 $ 565
========= =========
NET INCOME PER SHARE:
Basic $ 0.12 $ 0.01
========= =========
Diluted $ 0.12 $ 0.01
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 51,207 51,022
========= =========
Diluted 52,476 51,068
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
ABERCROMBIE & FITCH CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
--------- ---------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and Equivalents $ 2,671 $ 42,667
Accounts Receivable 951 1,695
Inventories 36,707 33,927
Store Supplies 5,817 5,592
Intercompany Receivable 34,020 23,785
Other 1,337 1,296
--------- ---------
TOTAL CURRENT ASSETS 81,503 108,962
PROPERTY AND EQUIPMENT, NET 68,739 70,517
DEFERRED INCOME TAXES 4,239 3,759
OTHER ASSETS 740 -
--------- ---------
TOTAL ASSETS $ 155,221 $ 183,238
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 12,615 $ 15,968
Accrued Expenses 37,722 35,143
Income Taxes Payable 1,851 15,851
--------- ---------
TOTAL CURRENT LIABILITIES 52,188 66,962
LONG-TERM DEBT - 50,000
OTHER LONG-TERM LIABILITIES 11,594 7,501
SHAREHOLDERS' EQUITY:
Common Stock 517 511
Paid-In Capital 143,891 117,972
Retained Earnings (Deficit) (52,623) (58,931)
--------- ---------
91,785 59,552
Less: Treasury Stock, at Cost (346) (777)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 91,439 58,775
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 155,221 $ 183,238
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
ABERCROMBIE & FITCH CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------
May 2, May 3,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,308 $ 565
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization 5,128 3,478
Noncash Charge for Deferred Compensation 3,801 -
Changes in Assets and Liabilities:
Inventories (2,780) 3,977
Accounts Payable and Accrued Expenses (774) 1,288
Income Taxes (14,480) (10,320)
Other Assets and Liabilities 1,021 941
-------- --------
NET CASH USED FOR OPERATING ACTIVITIES (1,776) (71)
-------- --------
CASH USED FOR INVESTING ACTIVITIES
Capital Expenditures (4,341) (6,023)
-------- --------
FINANCING ACTIVITIES:
Issuance of Common Stock 25,875 -
Increase (Decrease) in Intercompany Balance (10,235) 6,922
Exercise of Stock Options and Other 481 -
Purchase of Treasury Stock - (852)
Repayment of Long-Term Debt (50,000) -
-------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (33,879) 6,070
-------- --------
NET DECREASE IN CASH AND EQUIVALENTS (39,996) (24)
Cash and Equivalents, Beginning of Year 42,667 1,945
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 2,671 $ 1,921
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
ABERCROMBIE & FITCH CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Abercrombie & Fitch Co. (the "Company") is a specialty retailer of high
quality, casual apparel for men and women with an active, youthful
lifestyle.
The consolidated financial statements include the accounts of the Company
and all significant subsidiaries which are more than 50 percent owned and
controlled. All significant intercompany balances and transactions have
been eliminated in consolidation.
The consolidated financial statements as of and for the periods ended May
2, 1998 and May 3, 1997 are unaudited and are presented pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, these consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's 1997 Annual Report on Form 10-K. In the opinion
of management, the accompanying consolidated financial statements reflect
all adjustments (which are of a normal recurring nature) necessary to
present fairly the financial position and results of operations and cash
flows for the interim periods, but are not necessarily indicative of the
results of operations for a full fiscal year.
The consolidated financial statements as of May 2, 1998 and for the
thirteen week periods ended May 2, 1998 and May 3, 1997 included herein
have been reviewed by the independent accounting firm of Coopers & Lybrand
L.L.P. and the report of such firm follows the notes to consolidated
financial statements.
2. CONSUMMATION OF EXCHANGE OFFER
On May 19, 1998, The Limited, Inc. completed a tax-free exchange offer to
establish the Company as an independent company. The Limited accepted
47,075,052 shares of its common stock that were exchanged at a ratio of
.86 of a share of Abercrombie & Fitch stock for each Limited share
accepted for exchange. In addition, on June 1, 1998, The Limited effected
a pro rata spin-off to its shareholders of its remaining 3,115,455
Abercrombie & Fitch shares. Limited shareholders of record at the close of
trading on May 29, 1998 received .013673 of a share of Abercrombie &
Fitch stock for each Limited share owned at that time.
6
<PAGE> 7
3. EARNINGS PER SHARE
Weighted Average Common Shares Outstanding (thousands):
<TABLE>
<CAPTION>
May 2, May 3,
1998 1997
------------ ------------
<S> <C> <C>
Common shares issued 51,235 51,050
Treasury shares (28) (28)
------------ ------------
Basic shares 51,207 51,022
Dilutive effect of options and restricted shares 1,269 46
------------ ------------
Diluted shares 52,476 51,068
============ ============
</TABLE>
4. INVENTORIES
The fiscal year of the Company and its subsidiaries is comprised of two
principal selling seasons: Spring (the first and second quarters) and Fall
(the third and fourth quarters). Valuation of finished goods inventories
is based principally upon the lower of average cost or market determined
on a first-in, first-out basis utilizing the retail method. Inventory
valuation at the end of the first and third quarters reflects adjustments
for inventory markdowns and shrinkage estimates for the total selling
season.
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (thousands):
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
------------ ------------
<S> <C> <C>
Property and equipment, at cost $ 126,873 $ 124,000
Accumulated depreciation and amortization (58,134) (53,483)
------------ ------------
Property and equipment, net $ 68,739 $ 70,517
============ ============
</TABLE>
6. INCOME TAXES
The Company is included in The Limited's consolidated federal and certain
state income tax groups for income tax purposes and will continue to be
through fiscal 1998. Under this arrangement, the Company is responsible
for its proportionate share of income taxes calculated upon its federal
taxable income at a current estimate of the Company's annual effective tax
rate. Income taxes paid during the thirteen weeks ended May 2, 1998 and
May 3, 1997 approximated $18.1 million and $10.7 million.
7
<PAGE> 8
7. LONG-TERM DEBT
The Company entered into a $150 million unsecured credit agreement (the
"Agreement"), on April 30, 1998 (the "Effective Date"). Borrowings
outstanding under the Agreement are due April 30, 2003. The Agreement has
several borrowing options, including interest rates that are based on the
lender's "Alternate Base Rate", a LIBO Rate or a rate submitted under a
bidding process. Facilities fees payable under the Agreement are based on
the Company's long-term credit ratings, and currently approximate .275% of
the committed amount per annum. The Agreement contains covenants relating
to the Company's debt, interest expense and EBITDAR. No amounts were
outstanding under the Agreement at May 2, 1998.
Long-term debt at January 31, 1998 consisted of a 7.80% unsecured note in
the amount of $50 million that represented the Company's proportionate
share of certain long-term debt of The Limited. The interest rate and
maturity of the note paralleled that of corresponding debt of The Limited.
On April 15, 1998, the Company repaid the $50 million long-term note owed
The Limited by issuing 600,000 shares of Class A common stock at a price
of $43.125 per share and paid $24,125,000 in cash.
8. RELATIONSHIP WITH THE LIMITED
The Limited provides various services to the Company including, but not
limited to, certain associate benefit plan administration, information
technology, tax, store planning/design, transportation, real estate and
import and shipping services. To the extent expenditures are specifically
identifiable, they are charged to the Company. All other related support
expenses are charged to the Company and other divisions of The Limited
based upon various allocation methods.
Subsequent to the exchange offer, the cost of these services generally is
equal to The Limited's costs in providing the relevant services plus 5% of
such costs. The Limited will cease to provide a substantial majority of
these services on May 19, 1999 (the first anniversary of the expiration of
the exchange offer establishing the Company as an independent company).
The Company's proprietary credit card processing is performed by Alliance
Data Systems which is approximately 40% owned by The Limited.
Cash activity was provided through The Limited's centralized cash
management systems and was reflected in the Company's intercompany
account. The intercompany account was an interest earning asset or
interest bearing liability of the Company depending upon the level of cash
receipts and disbursements.
8
<PAGE> 9
REPORT OF INDEPENDENT ACCOUNTANTS
To the Audit Committee of
The Board of Directors of
Abercrombie & Fitch Co.
We have reviewed the condensed consolidated balance sheet of Abercrombie & Fitch
Co. and Subsidiaries at May 2, 1998, and the related condensed consolidated
statements of income and cash flows for the thirteen-week periods ended May 2,
1998 and May 3, 1997. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 31, 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated February
20, 1998, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of January 31, 1998, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
May 7, 1998
9
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the first quarter of 1998, net sales increased 81% to $134.2 million from
$74.3 million a year ago. Operating income improved to $10.3 million in the
first quarter of 1998 from $2.0 million in the first quarter of 1997. Earnings
per diluted share were $.12 in the first quarter of 1998 compared to $.01 a year
ago.
Financial Summary
- - -----------------
The following summarized financial and statistical data compares the thirteen
week period ended May 2, 1998 to the comparable 1997 period:
<TABLE>
<CAPTION>
1998 1997 % CHANGE
------------ ------------ -----------
<S> <C> <C> <C>
Increase in comparable store
sales 48% 14%
Retail sales increase
attributable to new and
remodeled stores 33% 32%
Retail sales per average selling
square foot $106 $73 45%
Retail sales per average store
(thousands) $838 $574 46%
Average store size at end of
quarter (selling square feet) 7,905 7,886 0%
Selling square feet at end of
quarter (thousands) 1,249 1,041 20%
NUMBER OF STORES:
Beginning of year 156 127
Opened 3 5
Closed (1) -
------------ ------------
End of period 158 132
============ ============
</TABLE>
Net Sales
- - ---------
Net sales for the first quarter of 1998 increased 81% to $134.2 million from
$74.3 million. The increase was due to a comparable store sales increase of 48%,
combined with the net addition of 26 stores compared to the first quarter of
1997. Comparable store sales increases were strong in both the men's and women's
businesses as both were driven by a strong knit and short business.
Additionally, the A&F Quarterly, a catalogue/magazine which premiered for
back-to-school 1997, accounted for 2.0% of net sales in the first quarter of
1998.
10
<PAGE> 11
Gross Income
- - ------------
Gross income, expressed as a percentage of net sales, increased to 36.7% during
the first quarter of 1998 from 32.2% for the same period in 1997. The increase
was attributable to improved merchandise margins (representing gross income
before the deduction of buying and occupancy costs) and a decrease in buying and
occupancy costs, as a percentage of net sales, due to favorable expense
leveraging associated with increased comparable store sales.
General, Administrative and Store Operating Expenses
- - ----------------------------------------------------
General, administrative and store operating expenses, expressed as a percentage
of net sales, were 29.0% in the first quarter of 1998 and 29.6% for the
comparable period in 1997. The improvement resulted primarily from the favorable
leveraging of store expenses due to higher sales volume.
Operating Income
- - ----------------
First quarter operating income, expressed as a percentage of net sales, was 7.7%
in 1998, up from 2.7% for the comparable period in 1997. The improvement in
operating income is a result of both higher gross income and lower general,
administrative and store operating expenses, as a percentage of net sales.
Interest Income/Expense
- - -----------------------
First quarter 1998 net interest income was $169 thousand as compared with net
interest expense of $1.0 million for the first quarter last year. Interest
expense in 1997 consisted of $975 thousand on the $50 million long-term debt
that was repaid during the first quarter of 1998 in addition to interest on
short-term borrowings. First quarter 1998 net interest income was primarily from
short-term investments offset by interest expense on the $50 million long-term
debt until repayment.
11
<PAGE> 12
FINANCIAL CONDITION
Liquidity and Capital Resources
- - -------------------------------
Cash provided from operating activities and the Company's $150 million credit
agreement provide the resources to support operations, including projected
growth, seasonal requirements and capital expenditures. A summary of the
Company's working capital position and long-term ongoing capitalization follows
(thousands):
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
------------ ------------
<S> <C> <C>
Working capital $29,315 $42,000
============ ============
Capitalization:
Long-term debt - $50,000
Shareholders' equity $91,439 58,775
------------ ------------
Total capitalization $91,439 $108,775
============ ============
</TABLE>
Net cash used for operating activities totaled $1.8 million for the thirteen
weeks ended May 2, 1998 versus $71 thousand in the comparable period in 1997.
Cash was provided from the increase in net income before depreciation and
amortization. Cash requirements for inventory increased over the period,
supporting the sales growth and addition of stores. Additionally, cash used for
income taxes increased due to the first quarter tax payments made on higher
fourth quarter earnings.
Abercrombie & Fitch's operations are seasonal in nature and typically peak
during the back-to-school and Christmas selling periods. Accordingly, cash
requirements for inventory expenditures are highest during these periods.
Investing activities were all for capital expenditures, which are primarily for
new stores.
Financing activities in the first quarter of 1998 consisted primarily of the
repayment of $50 million long-term debt to The Limited. This occurred through
the issuance of 600,000 shares of Class A common stock to The Limited with the
remaining balance paid with cash from operations.
Capital Expenditures
- - --------------------
Capital expenditures, primarily for new and remodeled stores, totaled $4.3
million for the thirteen weeks ended May 2, 1998 compared to $6.0 million for
the comparable period of 1997.
The Company anticipates spending $38-$45 million in 1998 for capital
expenditures, of which $32-$37 million will be for new stores, remodeling
and/or expansion of existing stores and related improvements. The Company
intends to add approximately 225,000 net selling square
12
<PAGE> 13
feet in 1998, which will represent an 18% increase over year-end 1997. It is
anticipated that the increase will result from the addition of 30 new stores and
the remodeling and/or expansion of four to six stores.
The Company estimates that the average cost for leasehold improvements,
furniture and fixtures for stores opened in 1998 will approximate $725,000 per
store, after giving effect to landlord allowances. In addition, inventory
purchases are expected to average approximately $275,000 per store.
Additionally, the Company plans to open 13 to 15 children's stores in 1998. The
planned store size is approximately 3,200 selling square feet and the average
cost for leasehold improvements, furniture and fixtures will be approximately
$530,000.
The Company expects capital expenditures will be funded principally by net cash
provided by operating activities.
Information Systems and "Year 2000" Compliance
- - ----------------------------------------------
As discussed in the Company's Annual Report on Form 10-K, the Company has
completed a comprehensive review of its information systems and is involved in a
program to update computer systems and applications in preparation for the year
2000. The Company will incur internal staff costs as well as outside consulting
and other expenditures related to the initiative. Total incremental expenses,
including depreciation and amortization of new package systems, remediation to
bring current systems into compliance and writing off legacy systems are not
expected to have a material impact on the Company's financial condition in any
year during the conversion process through 2000.
The Company is attempting to contact vendors and others on whom it relies to
assure that their systems will be timely converted. However, there can be no
assurance that the systems of other companies on which the Company's systems
rely also will be timely converted or that any such failure to convert by
another company would not have an adverse effect on the Company's systems.
Furthermore, no assurance can be given that any or all of the Company's systems
are or will be Year 2000 compliant, or that the ultimate costs required to
address the Year 2000 issue or the impact of any failure to achieve substantial
Year 2000 compliance will not have a material adverse effect on the Company's
financial condition.
Relationship with The Limited
- - -----------------------------
Subsequent to the exchange offer (see Note 2 to the Consolidated Financial
Statements), the Company and The Limited entered into service agreements which
include among other things, tax, information technology and store design and
construction. These agreements are generally for a term of one year. Service
agreements were also entered into for the continued use by the Company of its
distribution and home office space and transportation and logistic services.
These agreements are generally for a term of three years. Costs for these
services will generally be the costs and expenses incurred by The Limited plus
5% of such amounts. Upon expiration of these agreements with The Limited, the
Company may bring certain services in-house, contract with other outside parties
or take other actions the Company deems appropriate at that time.
The Company does not anticipate that costs associated with these service
agreements or costs to be incurred upon their expiration will have a material
adverse impact on its financial condition.
13
<PAGE> 14
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
- - --------------------------------------------------------------------------------
All forward-looking statements made by the Company involve material risks and
uncertainties and are subject to change based on various important factors which
may be beyond the Company's control. Accordingly, the Company's future
performance and financial results may differ materially from those expressed or
implied in any such forward-looking statements. Such factors include, but are
not limited to, changes in consumer spending patterns, consumer preferences and
overall economic conditions, the impact of competition and pricing, changes in
weather patterns, political stability, currency and exchange risks and changes
in existing or potential duties, tariffs or quotas, availability of suitable
store locations on appropriate terms, ability to develop new merchandise and
ability to hire and train associates, and other factors that may be described in
the Company's filings with the Securities and Exchange Commission. The Company
does not undertake to publicly update or revise its forward-looking statements
even if experience or future changes make it clear that any projected results
expressed or implied therein will not be realized.
14
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in a variety of lawsuits arising in the
ordinary course of business. On November 13, 1997, the United States
District Court for the Southern District of Ohio, Eastern Division,
dismissed with prejudice an amended complaint previously transferred to
that court by the United States District Court, Central District of
California. The amended complaint, which had been filed against the
Company, The Limited and certain of The Limited's other subsidiaries by
the American Textile Manufacturers Institute ("ATMI"), a textile
industry trade association, alleged that the defendants violated the
federal False Claims Act by submitting false country of origin records
to the U.S. Customs Service. On November 26, 1997, ATMI served a motion
to alter or amend judgment and a motion to disqualify the presiding
judge and to vacate the order of dismissal. The motion to disqualify
was denied on December 22, 1997, but as a matter of his personal
discretion, the presiding judge elected to recuse himself from further
proceedings and this matter was transferred to another judge of the
United States District Court for the Southern District of Ohio, Western
Division. On May 21, 1998, this judge reaffirmed the earlier dismissal
and denied all pending motions seeking to alter, amend or vacate the
judgment that had been entered in favor of the Company. On June 5,
1998, ATMI filed a notice of appeal to the United States Court of
Appeals for the Sixth Circuit.
On June 2, 1998, Abercrombie & Fitch filed suit against American Eagle
Outfitters alleging an intentional and systematic copying of the
Abercrombie & Fitch Brand, its images and business practices, including
the design and look of the Company's merchandise, marketing and
catalogue/magazine. The lawsuit was filed in Federal District Court in
Columbus, Ohio and seeks to enjoin American Eagle's practices, recover
lost profits and obtain punitive damages.
Although it is not possible to predict with certainty the eventual
outcome of any litigation, in the opinion of management, the foregoing
proceedings are not expected to have a material adverse effect on the
Company's financial position or results of operations.
15
<PAGE> 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
3. Articles of Incorporation and Bylaws
3.1 Amended and Restated Certificate of Incorporation of the
Company incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 2, 1996.
3.2 Bylaws of the Company incorporated by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended November 2, 1996.
4. Instruments Defining the Rights of Security Holders
4.1 Specimen Certificate of Class A Common Stock of the
Company incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (File No.
333-8231) (the "Form S-1").
4.2 Credit Agreement dated as of April 30, 1998 among
Abercrombie & Fitch Stores, Inc., as Borrower, the
Company, as Guarantor, the Lenders party thereto, The
Chase Manhattan Bank, as Administrative Agent, and Chase
Securities, Inc., as Arranger, incorporated by reference
to Exhibit 4.1 to the Company's Current Report on Form
8-K dated April 30, 1998.
10. Material Contracts
10.1 Abercrombie & Fitch Co. Incentive Compensation
Performance Plan incorporated by reference to Exhibit A
to the Company's Proxy Statement dated April 14, 1997.
10.2 Abercrombie & Fitch Co. 1997 Restatement of the
Abercrombie & Fitch Co. 1996 Stock Option and
Performance Incentive Plan incorporated by reference to
Exhibit B to the Company's Proxy Statement dated April
14, 1997.
10.3 Abercrombie & Fitch Co. 1996 Stock Plan for
Non-Associate Directors incorporated by reference to
Exhibit C to the Company's Proxy Statement dated April
14, 1997.
10.4 Employment Agreement by and between the Company and
Michael S. Jeffries dated as of May 13, 1997 with
exhibits and amendment incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended November 1, 1997.
10.5 Employment Agreement by and between the Company and
Michele Donnan-Martin dated December 5, 1997
incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form S-4 (File No.
333-46423) (the "Form S-4").
10.6 Employment Agreement by and between the Company and Seth
R. Johnson dated December 5, 1997 incorporated by
reference to Exhibit 10.10 to the Form S-4.
10.7 Tax Disaffiliation Agreement dated as of May 19, 1998
between The Limited, Inc. and the Company.
16
<PAGE> 17
10.8 Amended and Restated Services Agreement dated as of
May 19, 1998 between The Limited, Inc. and the Company.
10.9 Shared Facilities Agreement dated September 27, 1996 by
and between the Company and The Limited, Inc.,
incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 2, 1996.
10.10 Sublease Agreement by and between Victoria's Secret
Stores, Inc. and the Company, dated June 1, 1995,
(the "Sublease Agreement") incorporated by reference to
Exhibit 10.3 to the Form S-1.
10.11 Amendment No. 1 to the Sublease Agreement dated as of
May 19, 1998.
15. Letter re: Unaudited Interim Financial Information to Securities
and Exchange Commission re: Incorporation of Report of
Independent Accountants
27. Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
Date of Report Items Reported
-------------- --------------
February 17, 1998 Fourth Quarter Results; Commencement of
Exchange Offer
April 9, 1998 February and March Sales Announcement
April 30, 1998 Entry in Credit Agreement; First Quarter
Sales
May 19, 1998 Consummation of Exchange Offer
17
<PAGE> 18
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABERCROMBIE & FITCH CO.
(Registrant)
By /s/ Seth R. Johnson
-----------------------------------
Seth R. Johnson,
Vice President and Chief
Financial Officer*
Date: June 15, 1998
- - -----------------------------------
* Mr. Johnson is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
18
<PAGE> 19
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Document
----------- -----------------------------------------
<S> <C> <C>
10.7 Tax Disaffiliation Agreement dated as of May 19, 1998 between The
Limited, Inc. and the Company.
10.8 Amended and Restated Services Agreement dated as of May 19, 1998
between The Limited, Inc. and the Company.
10.11 Amendment No. 1 to the Sublease Agreement dated as of May 19, 1998.
15 Letter re: Unaudited Interim Financial Information to Securities and
Exchange Commission re: Incorporation of Report of Independent Accountants.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
Exhibit 10.7
EXECUTION COPY
TAX DISAFFILIATION AGREEMENT
BETWEEN
THE LIMITED, INC.,
ON BEHALF OF ITSELF
AND THE MEMBERS
OF THE LIMITED GROUP
AND
ABERCROMBIE & FITCH CO.
ON BEHALF OF ITSELF
AND THE MEMBERS
OF THE ABERCROMBIE & FITCH GROUP
<PAGE> 2
TAX DISAFFILIATION AGREEMENT
This Agreement is entered into as of the 19th day of May, 1998
between The Limited Inc. ("The Limited"), a Delaware corporation, on behalf of
itself and the members of The Limited Group, and Abercrombie & Fitch Co.
("Abercrombie & Fitch"), a Delaware corporation, on behalf of itself and the
members of the Abercrombie & Fitch Group.
W I T N E S S E T H:
WHEREAS, pursuant to the tax laws of various jurisdictions, certain
members of the Abercrombie & Fitch Group, as defined below, presently file
certain tax returns on an affiliated, consolidated, combined, unitary, fiscal
unit or other group basis (including as permitted by Section 1501 of the
Internal Revenue Code of 1986, as amended (the "Code")) with certain members of
The Limited Group, as defined below (each such group, a "Consolidated Group");
WHEREAS, The Limited and Abercrombie & Fitch intend to distribute to
its shareholders all of the Abercrombie & Fitch common stock held by The Limited
(the "Distribution");
WHEREAS, The Limited and Abercrombie & Fitch desire to set forth
their agreement on the rights and obligations of The Limited, Abercrombie &
Fitch and the members of The Limited Group and the Abercrombie & Fitch Group,
respectively, with respect to the handling and allocation of federal, state and
local taxes incurred in taxable periods beginning prior to the Distribution
Date, as defined below, and various other tax matters;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
<PAGE> 3
1. DEFINITIONS
(a) As used in this Agreement:
"Abercrombie & Fitch Combined State Tax Liability" shall mean, with
respect to any taxable year and any jurisdiction, an amount of Combined State
Taxes determined in accordance with the principles set forth in the definition
of Abercrombie & Fitch Federal Tax Liability; provided, however, that (i) such
amount shall also include any actual income, franchise or similar state or local
tax liability (a "State Liability") owed in a jurisdiction (a "Combined
Jurisdiction") in which a member of the Abercrombie & Fitch Group files tax
returns with a member of The Limited Group, on a consolidated, combined or
unitary basis, to the extent such liability exceeds the liability that would
have been owed had no member of the Abercrombie & Fitch Group been included in
such returns, except to the extent attributable to the recognition of The
Limited's excess loss account with respect to the stock of Abercrombie & Fitch
as a result of the Distribution, and (ii) such amount shall be reduced to the
extent that, in any Combined Jurisdiction, the State Liability of The Limited
Consolidated Group is less than the liability that would have been owed had no
member of the Abercrombie & Fitch Group been included in the returns of such
Combined Jurisdiction.
"Abercrombie & Fitch Federal Tax Liability" shall mean, with respect
to any taxable year, the sum of the Abercrombie & Fitch Group's Federal Tax
liability and any interest, penalties and other additions to such taxes for such
taxable year, computed as if the Abercrombie & Fitch Group were not and never
were part of The Limited Consolidated Group, but rather were a separate
affiliated group of corporations filing a consolidated federal income tax return
pursuant to Section 1501 of the Code, provided, however, that transactions with
members of The Limited Group shall be reflected according to the provisions of
the consolidated return regulations promulgated under the Code governing
intercompany transactions, and that the Distribution will trigger any deferred
amounts, excess loss accounts or similar items. Such computation shall be made
(A) without regard to the income, deductions (including net operating loss and
capital loss deductions) and credits in any year of any member of The Limited
Consolidated Group that is not a member of the Abercrombie & Fitch Group, (B) by
taking account of any Tax Asset of the Abercrombie & Fitch Group in accordance
with Section 3(c)(iii) hereof, (C) with regard to net operating loss and capital
loss carryforwards and carrybacks and minimum tax credits from earlier years of
the Abercrombie & Fitch Group, but without regard to any such carryforward from
a tax period (or portion thereof) ending on or before September 27, 1996, date
of the initial public offering of Abercrombie & Fitch, and arising solely due to
treating the Abercrombie & Fitch Group as if it were never part of The Limited
Consolidated Group, (D) as though the highest rate of tax specified
2
<PAGE> 4
in subsection (b) of Section 11 of the Code (or any other similar rates
applicable to specific types of income) were the only rates set forth in that
subsection, and with other similar adjustments as described in Section 1561 of
the Code, (E) reflecting the positions, elections and accounting methods used by
The Limited in preparing the consolidated federal income tax return for The
Limited Consolidated Group, (F) by not permitting the Abercrombie & Fitch Group
any compensation deductions arising in respect of any exercise of options on The
Limited stock by, or the issuance or vesting of The Limited restricted stock to,
any employee of the Abercrombie & Fitch Group prior to the Distribution Date,
and (G) without regard to gain attributable to the recognition of The Limited's
excess loss account with respect to the stock of Abercrombie & Fitch and
Abercrombie & Fitch's excess loss account with respect to stock of its
subsidiaries as a result of the Distribution.
"Abercrombie & Fitch Group" shall mean, at any time, Abercrombie &
Fitch and any direct or indirect corporate subsidiaries of Abercrombie & Fitch
that would be eligible to join with Abercrombie & Fitch, with respect to Federal
Taxes, in the filing of a consolidated federal income tax return and, with
respect to Combined State Taxes, in the filing of a consolidated, combined or
unitary income or franchise tax return, including any predecessors thereto.
"Abercrombie & Fitch Tax Liability" shall mean, with respect to any
taxable year, the sum of Abercrombie & Fitch Combined State Tax Liability and
Abercrombie & Fitch Federal Tax Liability.
"After-Tax Amount" shall mean an additional amount necessary to
reflect the hypothetical tax consequences of the receipt or accrual of any
payment, using the maximum statutory rate (or rates, in the case of an item that
affects more than one tax) applicable to the recipient of such payment for the
relevant year, reflecting for example, the effect of the deductions available
for interest paid or accrued and for taxes such as state and local income taxes.
"Combined State Tax" means, with respect to each state or local
taxing jurisdiction, any income, franchise or similar tax payable to such state
or local taxing jurisdiction in which a member of the Abercrombie & Fitch Group
files tax returns with a member of The Limited Group, on a consolidated,
combined or unitary basis for purposes of such income or franchise tax.
"Contingent Redemption Agreement" means the contingent stock
redemption agreement, dated January 26, 1996, entered into among The Limited,
Leslie H. Wexner and The Wexner Children's Trust.
3
<PAGE> 5
"Distribution" shall mean the Exchange Offer and the Spin-Off as
described in the Offering Circular-Prospectus dated April 15, 1998.
"Distribution Date" shall mean the date on which the Distribution
shall be effected.
"Federal Tax" shall mean any tax imposed under Subtitle A of the
Code and any related interest or penalty imposed under Subtitle F of the Code.
"Final Determination" shall mean (i) with respect to Federal Taxes,
a "determination" as defined in Section 1313 (a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to taxes other than
Federal Taxes, any final determination of liability in respect of a tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise, (ii) any final disposition of a tax issue by
reason of the expiration of a statute of limitations or (iii) the payment of tax
by The Limited with respect to any item disallowed or adjusted by any taxing
authority where The Limited determines in good faith that no action should be
taken to recoup such payment.
"IRS" shall mean the Internal Revenue Service.
"Post-Distribution Tax Period" means (i) any tax period beginning
and ending after the Distribution Date and (ii) with respect to a tax period
that begins before and ends after the Distribution Date, such portion of the tax
period that commences on the day immediately after the Distribution Date.
"Pre-Distribution Tax Period" means (i) any tax period beginning and
ending before or on the Distribution Date and (ii) with respect to a period that
begins before and ends after the Distribution Date, such portion of the tax
period ending on and including the Distribution Date.
"Prime" shall mean, the rate announced from time to time as "prime"
by BankOne, Columbus, Ohio, as its prime rate with respect to the applicable
currency.
"Referee" is defined in Section 16.
"Return" shall mean any tax return, statement, report or form
(including estimated tax returns and reports, extension requests and forms, and
information returns and reports) required to be filed with any taxing authority.
4
<PAGE> 6
"Tax Asset" shall mean any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or any other
credit or tax attribute that could be carried forward or back to reduce taxes
(including without limitation deductions and credits related to alternative
minimum taxes).
"Tax Packages" shall mean one or more packages of information, that
are (i) reasonably necessary for the purpose of preparing tax Returns of The
Limited Consolidated Group with respect to any Pre-Distribution Tax Period, or
of the Abercrombie & Fitch Group with respect to any Post-Distribution Tax
Period and (ii) completed in all material respects in accordance with the
standards that The Limited has established for its subsidiaries.
"Tax Proceeding" shall mean any tax audit, dispute or proceeding
(whether administrative or judicial).
"The Limited Consolidated Group" shall mean The Limited and each
direct and indirect corporate subsidiary, including the Abercrombie & Fitch
Group that is eligible to join with The Limited in the filing of (i) for Federal
Tax purposes, a consolidated federal income tax return, and (ii) for Combined
State Tax Purposes, a Combined State Tax Return.
"The Limited Group" shall mean, at any time, The Limited and each of
its direct and indirect corporate subsidiaries other than those subsidiaries
that are members of the Abercrombie & Fitch Group.
(b) Any term used in this Agreement which is not defined in this
Agreement shall, to the extent the context requires, have the meaning assigned
to it in the Code or the applicable Treasury regulations thereunder or in
comparable provisions of applicable law.
2. ADMINISTRATIVE AND COMPLIANCE MATTERS.
(a) Sole Tax Sharing Agreement. Any and all existing Tax sharing
agreements or arrangements, written or unwritten, between any member of The
Limited Group and any member of the Abercrombie & Fitch Group shall be
terminated as of the effective date of this Agreement. As of the date of this
Agreement, neither the members of the Abercrombie & Fitch Group nor the members
of The Limited Group shall have any further rights or liabilities thereunder,
and this Agreement shall be the sole tax sharing agreement between the members
of the Abercrombie & Fitch Group and the members of The Limited Group.
Notwithstanding the foregoing, if any such termination is not binding on any
taxing authority, the Abercrombie & Fitch Group shall hold the affected member
of The Limited Group harmless against any adverse effect which would
5
<PAGE> 7
have been avoided if such termination had been given effect by such taxing
authority.
(b) Designation of Agent. Each member of the Abercrombie & Fitch
Group hereby irrevocably authorizes and designates The Limited, as its agent,
coordinator, and administrator, for the purpose of taking any and all actions
(including the execution of waivers of applicable statutes of limitation)
necessary or incidental to the filing of any Return, any amended Return, or any
claim for refund (even where an item or Tax Asset giving rise to an amended
Return or refund claim arises in a Post-Distribution Tax Period), credit or
offset of tax or any other proceedings, and for the purpose of making payments
to, or collecting refunds from, any taxing authority, in each case relating only
to any Pre- Distribution Tax Period. The Limited Group covenants to Abercrombie
& Fitch that it shall be responsible to see that all such administrative matters
relating thereto shall be handled promptly and appropriately.
(c) Pre-Distribution Tax Period Returns. The Limited will prepare,
consistently with past practice and applicable law and with the assistance of
the Abercrombie & Fitch Group, the consolidated Federal Tax Returns and Combined
State Tax Returns of The Limited Consolidated Group for all Pre- Distribution
Tax Periods. The Limited shall have the right with respect to such Returns to
determine (i) the manner in which such returns, documents or statements shall be
prepared and filed, including, without limitation, the manner in which any item
of income, gain, loss, deduction or credit shall be reported, (ii) whether any
extensions should be requested, and (iii) the elections that will be made by any
member of The Limited Group or the Abercrombie & Fitch Group. In addition, with
respect to all Pre-Distribution Tax Periods, The Limited shall have the right to
(i) contest, compromise or settle any adjustment or deficiency proposed,
asserted or assessed as a result of any audit of any Return filed by The Limited
Consolidated Group, (ii) file, prosecute, compromise or settle any claim for
refund, and (iii) determine whether any refunds to which The Limited
Consolidated Group may be entitled shall be received by way of refund or credit
against the tax liability of The Limited Consolidated Group. No later than 60
days after the Distribution Date, Abercrombie & Fitch shall prepare and deliver
to The Limited Tax Packages that include information of Abercrombie & Fitch
Group for the Pre-Distribution Tax Period that includes the Distribution Date.
In addition, if The Limited decides to make the election referred to in section
(d) below, Abercrombie & Fitch shall prepare and deliver to The Limited Tax
Packages that include information of Abercrombie & Fitch Group for the tax
period beginning immediately after the Distribution Date no later than 60 days
after the end of such tax period.
6
<PAGE> 8
(d) Allocation. The Limited may, at its option, elect and
Abercrombie & Fitch shall join The Limited in electing (if necessary) to ratably
allocate items (other than extraordinary items) of the Abercrombie & Fitch Group
in accordance with relevant provisions of the Treasury Regulations Section
1.1502-76. If The Limited exercises its option to make the election, each member
of the Abercrombie & Fitch Group will provide a statement stating its consent to
such election as required under the regulations.
(e) Separate State Tax Returns and Post-Distribution Tax Period Returns
of Abercrombie & Fitch Group. Abercrombie & Fitch shall be solely responsible
for the preparation and filing of its separate state and local tax Returns and
its Returns for all Post-Distribution Tax Periods.
3. TAX SHARING.
(a) General. For each taxable year of The Limited Consolidated Group
during which income, loss or credit against tax of the Abercrombie & Fitch Group
are includible in the consolidated Federal Tax return of The Limited
Consolidated Group, Abercrombie & Fitch shall pay to The Limited an amount equal
to the Abercrombie & Fitch Federal Tax Liability, and for each taxable period
during which income, loss or credit against tax of any member of the Abercrombie
& Fitch Group are includible in a return relating to a Combined State Tax,
Abercrombie & Fitch shall pay The Limited an amount equal to the Abercrombie &
Fitch Combined State Tax Liability for such taxable period, each as shown on the
Pro Forma Returns (as defined in paragraph (c) below).
(b) Estimated Payments. The Limited shall determine the amount of
the estimated tax installment of the Abercrombie & Fitch Federal Tax Liability
(corresponding to The Limited's estimated Federal Tax installment) with respect
to a taxable year in which the Abercrombie & Fitch Group is part of The Limited
Consolidated Group (whether or not such payment is made prior to the
Distribution), as determined under the principles of Section 3(a) of this
Agreement. The Limited shall provide Abercrombie & Fitch with notice of such
estimated tax determination for Federal Tax no later than 10 days before the
date such corresponding installment payment is due. Abercrombie & Fitch shall,
within 5 days of receipt of such determination (but in no event earlier than 5
days prior to the due date of The Limited's corresponding estimated tax
payment), review the notice of determination and pay to The Limited the amount
so determined. The Limited shall determine under provisions of applicable law
the amount of the estimated tax installment of the Abercrombie & Fitch Combined
State Tax Liability (corresponding to the relevant estimated Combined State Tax
installment) with respect to a taxable year in which the Abercrombie & Fitch
Group is part of The Limited Consolidated Group (whether or not such payment is
7
<PAGE> 9
made prior to the Distribution), as determined under the principles of Section
3(a) of this Agreement. The Limited shall provide Abercrombie & Fitch with
notice of such estimated tax determination for Combined State Tax no later than
10 days before the date such corresponding installment payment is due.
Abercrombie & Fitch shall, within 5 days of receipt of such determination (but
in no event earlier than 5 days prior to the due date of The Limited's
corresponding estimated tax payment), review the notice and pay to The Limited
or The Limited shall pay to the Abercrombie & Fitch, as appropriate, the amount
so determined in accordance with Section 9 hereof.
(c) Payment of Taxes at Year-End.
(i) Not later than 5 days after the due date (including all
applicable and valid extensions) for The Limited Consolidated Group's
consolidated Federal Tax return, The Limited shall deliver to Abercrombie &
Fitch a pro forma Federal Tax return (a "Pro Forma Federal Return") of the
Abercrombie & Fitch Group reflecting the Abercrombie & Fitch Federal Tax
Liability. Not later than 30 days after the due date for each Combined State Tax
return, The Limited shall deliver to Abercrombie & Fitch the relevant pro forma
Combined State Tax return (each a "Pro Forma Combined State Return" and together
with the Pro Forma Federal Return, the "Pro Forma Returns") of the Abercrombie &
Fitch Group reflecting the relevant Abercrombie & Fitch Combined State Tax
Liability. The Pro Forma Returns shall be prepared in good faith in a manner
generally consistent with past practice. Each Pro Forma Return shall be
delivered together with a statement showing a calculation of the amount to be
paid pursuant to section (3)(c)(ii) below.
(ii) Not later than 15 days after the receipt of each Pro Forma
Return, Abercrombie & Fitch shall pay to The Limited, or The Limited shall pay
to Abercrombie & Fitch, as appropriate, an amount equal to the difference, if
any, between the Abercrombie & Fitch Federal Tax Liability or the Abercrombie &
Fitch Combined State Tax Liability, as the case may be, reflected on such Pro
Forma Return for such period and the aggregate amount of the estimated
installments paid with respect thereto pursuant to Section 3(b).
(iii) If a Pro Forma Return reflects a Tax Asset that may under
applicable law be used to reduce a Federal Tax or Combined State Tax liability
of any member of The Limited Group for any taxable period, The Limited shall pay
to Abercrombie & Fitch an amount equal to the actual tax saving (which would
include refunds actually received) produced by such Tax Asset at the time such
Tax saving is realized and the future Pro Forma Returns of the Abercrombie &
Fitch Group shall be adjusted to reflect such use. The amount of any such tax
saving for any taxable period shall be the amount of the reduction in taxes
payable
8
<PAGE> 10
to a taxing authority with respect to such tax period as compared to the taxes
that would have been payable to a taxing authority with respect to such tax
period in the absence of such Tax Asset.
(iv) In the event that The Limited makes a cash deposit with a
taxing authority in order to stop the running of interest or makes a payment of
tax and correspondingly takes action to recoup such payment (such as suing for a
refund), Abercrombie & Fitch shall pay to The Limited an amount equal to
Abercrombie & Fitch's share of the amount so deposited or paid (calculated in a
manner consistent with the determinations provided in this Section 3). Upon
receipt by The Limited of a refund of any amounts paid by it in respect of which
Abercrombie & Fitch shall have advanced an amount hereunder, The Limited shall
pay to Abercrombie & Fitch the amount of such refund, together with any interest
received by it on such refund. If and to the extent that any claim for refund or
contest based thereupon shall be unsuccessful, the payment by Abercrombie &
Fitch under Section 3(c)(iv) shall be credited toward Abercrombie & Fitch's
obligations under this Section 3(c)(iv) and any other payment obligation of
Abercrombie & Fitch under Section 3(d) below.
(d) Treatment of Adjustments. If any adjustment is made in a Federal
Tax return of The Limited Group or in a return relating to a Combined State Tax,
after the filing thereof, in which income or loss of the Abercrombie & Fitch
Group (or any member thereof) is included, then at the time of a Final
Determination of the adjustment, Abercrombie & Fitch shall pay to The Limited or
The Limited shall pay to Abercrombie & Fitch, as the case may be, the difference
between all payments actually made under Section 3 with respect to the taxable
year or period covered by such tax return and all payments that would have been
made under Section 3 taking such adjustment into account, together with any
penalties actually paid and interest for each day until the date of Final
Determination calculated at a rate equal to Prime rate.
(e) Carrybacks From Post-Distribution Years.
(i) The Limited agrees to pay to Abercrombie & Fitch the actual tax
benefit received by The Limited Consolidated Group from the use in any Pre-
Distribution Tax Period of a carryback of any Tax Asset of the Abercrombie &
Fitch Group from a Post-Distribution Tax Period. Such benefit shall be equal to
the excess of (i) the amount of Federal Taxes, or Combined State Taxes, as the
case may be, that would have been payable (or of the tax refund that would have
been receivable) by The Limited Consolidated Group in the absence of such
carryback over (ii) the amount of Federal Taxes or Combined State Taxes, as the
case may be, actually payable (or of the Tax refund actually receivable) by The
Limited Consolidated Group.
9
<PAGE> 11
(ii) If, subsequent to the payment by The Limited Group to
Abercrombie & Fitch Group of any amount, there shall be (A) a Final
Determination which results in a disallowance or a reduction of the Tax Asset so
carried back or (B) a reduction in the amount of the benefit realized by The
Limited Consolidated Group from such Tax Asset as a result of a Final
Determination or the use by The Limited Consolidated Group of a Tax Asset of The
Limited Group, the Abercrombie & Fitch Group shall repay to The Limited, within
90 days of such event described in (A) or (B) (an "Event" or, collectively the
Events") any amount which would not have been payable to the Abercrombie & Fitch
Group pursuant to this Section 3(e) had the amount of the benefit been
determined in light of the Events. In addition, the Abercrombie & Fitch Group
shall hold each member of The Limited Group harmless for any penalty or interest
payable by any member of The Limited Group as a result of any such Event. Any
such amount shall be paid by The Abercrombie & Fitch Group within 90 days of the
payment by The Limited Group of any such interest or penalty. Nothing in this
Section 3(e) shall require The Limited to file a claim for refund of Federal
Taxes or Combined States Taxes which The Limited, in its sole discretion,
determined lacks substantial authority, as defined in the Code and the
regulations thereunder.
(iii) Any refunds or credits of tax received by a member of The
Limited Group or the Abercrombie & Fitch Group, as the case may be, relating to
a Pre-Distribution Tax Period, to the extent attributable to any item of income,
loss, credit, deduction or other tax attribute of any member of the Abercrombie
& Fitch Group or The Limited Group, respectively, shall be paid by such member
of The Limited Group or the Abercrombie & Fitch Group, respectively, to
Abercrombie & Fitch or The Limited, respectively, within 90 days of receipt;
provided that no such payment shall be required to the extent such refund or
credit is attributable to (x) a Tax Asset of the Abercrombie & Fitch Group or
The Limited Group, respectively, for which payment has previously been made by
The Limited Group or the Abercrombie & Fitch Group, respectively, pursuant to
Section 3(c)(iii), 3(e)(1) or 3(e)(iii), or (y) an adjustment for which payment
in respect thereof has previously been made pursuant to Section 3(d).
4. CERTAIN REPRESENTATIONS AND COVENANTS.
(a)(i) Abercrombie & Fitch Representations. Abercrombie & Fitch and
each member of the Abercrombie & Fitch Group represent that, as of the date
hereof, and covenant that on the Distribution Date there is no plan or intention
(A) to liquidate Abercrombie & Fitch or to merge or consolidate Abercrombie &
Fitch, or any member of the Abercrombie & Fitch Group conducting an active trade
or business relied upon in connection with the Distribution, with any other
person subsequent to the Distribution, (B) to sell or
10
<PAGE> 12
otherwise dispose of any asset (or close any store) of Abercrombie & Fitch or
any member of the Abercrombie & Fitch Group subsequent to the Distribution,
except in the ordinary course of business, (C) to take any action inconsistent
with the information and representations furnished to the IRS in connection with
the request for a private letter ruling with respect to the Distribution, (D) to
repurchase stock of Abercrombie & Fitch in a manner contrary to the requirements
of Revenue Procedure 96-30 or in a manner contrary to the representations made
in connection with the request for a private letter ruling with respect to the
Distribution, or (E) to enter into any negotiations, agreements, or arrangements
with respect to transactions or events (including stock issuances, pursuant to
the exercise of options or otherwise, option grants, capital contributions, or
acquisitions, but not including the Distribution) which may cause the
Distribution to be treated as part of a plan pursuant to which one or more
persons acquire directly or indirectly Abercrombie & Fitch stock representing a
"50-percent or greater interest" within the meaning of Section 355(d)(4) of the
Code.
(ii) The Limited Representations. The Limited and each member of The
Limited Group represent that, as of the date hereof, and covenant on the
Distribution Date there is no plan or intention to take any action inconsistent
with the information and representations furnished to the IRS and Davis Polk &
Wardwell in connection with the request for a private letter ruling with respect
to the Distribution, regardless of whether such information and representations
were included in the ruling or pronouncement issued by the IRS.
(iii) Abercrombie & Fitch and The Limited Representations. Except
pursuant to the terms of the Contingent Redemption Agreement, each of
Abercrombie & Fitch, The Limited and the members of the Abercrombie & Fitch
Group and The Limited Group, respectively, represent that, as of the date
hereof, and covenant that on the Distribution Date, neither Abercrombie & Fitch,
The Limited nor the members of the Abercrombie & Fitch Group or The Limited
Group, respectively (as applicable), is aware of any present plan or intention
by the current shareholders of The Limited to sell, exchange, transfer by gift,
or otherwise dispose of any of their stock in, or securities of, The Limited or
Abercrombie & Fitch subsequent to the Distribution.
(b) Abercrombie & Fitch Covenants. Abercrombie & Fitch covenants to
The Limited that (i) during the two-year period following the Distribution Date,
neither Abercrombie & Fitch nor any member of the Abercrombie & Fitch Group
conducting an active trade or business relied upon in connection with the
Distribution, will liquidate, merge or consolidate with any other person, (ii)
during the two-year period following the Distribution Date, Abercrombie & Fitch
will not sell, exchange, distribute or otherwise dispose of its
11
<PAGE> 13
assets or those of any member of the Abercrombie & Fitch Group, or close any of
its stores or those of any member of the Abercrombie & Fitch Group, except in
the ordinary course of business, (iii) following the Distribution, Abercrombie &
Fitch will, for a minimum of two years, continue the active conduct of the
historic business conducted by Abercrombie & Fitch throughout the five year
period prior to the Distribution, (iv) Abercrombie & Fitch will not, nor will it
permit any member of the Abercrombie & Fitch Group to, take any action
inconsistent with the information and representations furnished to the IRS in
connection with the request for a private letter ruling with respect to the
Distribution, (v) Abercrombie & Fitch will not repurchase stock of Abercrombie &
Fitch in a manner contrary to the requirements of Revenue Procedure 96-30 or in
a manner contrary to the representations made in connection with the request for
a private letter ruling with respect to the Distribution, (vi) on or after the
Distribution Date, it will not, nor will it permit any member of the Abercrombie
& Fitch Group to make or change any accounting method, change its taxable year,
amend any tax Return or take any tax position on any tax Return, take any other
action, omit to take any action or enter into any transaction that results in
any increased tax liability or reduction of any Tax Asset of The Limited
Consolidated Group or any member thereof in respect of any Pre-Distribution Tax
Period, (vii) during the tax period of the Abercrombie & Fitch Group that begins
immediately after the Distribution Date, it will not, nor will it permit any
member of the Abercrombie & Fitch Group to, enter into any transaction or take
any other action that is motivated, in whole or in part, by tax considerations,
(viii) during the applicable period provided in Section 355(e)(2)(B) of the Code
with respect to the Distribution, it will not enter into any transaction or make
any change in equity structure (including stock issuances, pursuant to the
exercise of options, option grants or otherwise, capital contributions, or
acquisitions, but not including the Distribution) which may cause the
Distribution to be treated as part of a plan pursuant to which one or more
Persons acquire directly or indirectly Abercrombie & Fitch stock representing a
"50-percent or greater interest" within the meaning of Section 355(d)(4) of the
Code, and (ix) it will file federal consolidated returns with its subsidiaries
for the tax period immediately after the Distribution Date.
(c) Exceptions. Notwithstanding the foregoing, Abercrombie & Fitch
and the members of the Abercrombie & Fitch Group may take actions inconsistent
with the covenants contained in Section 4(b)(i) through (vii) above, if:
(i) Abercrombie & Fitch obtains a ruling from the IRS to the effect
that such actions will not result in the Distribution being taxable to The
Limited or its shareholders; or
(ii) Abercrombie & Fitch obtains an opinion of counsel recognized as
an expert in federal income tax matters and acceptable to The Limited to the
12
<PAGE> 14
same effect as in Section 4(c)(i), provided such opinion is reasonably
acceptable to The Limited.
(d) Deductions and Certain Taxes Related to Options.
(i) The Limited shall file Returns claiming (x) the tax deductions
attributable to the exercise of options to purchase stock of The Limited or the
vesting of The Limited restricted stock which are held by employees or former
employees of the Abercrombie & Fitch Group or (y) any other similar compensation
related tax deductions. The Returns of the Limited Group and the Abercrombie &
Fitch Group shall reflect the entitlement of The Limited Group to such
deductions. To the extent such deductions are disallowed because a taxing
authority determines that the Abercrombie & Fitch Group should have claimed such
deductions, as consideration for The Limited's issuance of shares of its stock
as a result of an event described in clause (x) of the preceding sentence, the
Abercrombie & Fitch Group shall pay to The Limited Group an amount equal to the
tax paid by The Limited Group as a result of such disallowance. Upon the
exercise of any option or the vesting of any restricted stock described in
clause (x), or the occurrence of any other event that would result in a
compensation related tax deduction, as the case may be, the Abercrombie & Fitch
Group (as agent for the Limited Group) shall prepare and file all applicable tax
returns and pay the applicable tax liability under the Federal Insurance
Contributions Act, the Federal Unemployment Tax Act or any state employment tax
law in connection with such event.
(ii) Abercrombie & Fitch shall file Returns claiming (x) the tax
deductions attributable to the exercise of options to purchase stock of
Abercrombie & Fitch which are held by employees or former employees of The
Limited Group or (y) any other similar compensation related tax deductions. The
Returns of The Limited Group and the Abercrombie & Fitch Group shall reflect the
entitlement of The Abercrombie & Fitch Group to such deductions. To the extent
such deductions are disallowed because a taxing authority determines that The
Limited Group should have claimed such deductions, as consideration for
Abercrombie & Fitch's issuance of shares of its stock as a result of an event
described in clause (x) of the preceding sentence, The Limited Group shall pay
to The Abercrombie & Fitch Group an amount equal to the tax paid by Abercrombie
& Fitch Group as a result of such disallowance. Upon the exercise of any option
described in the immediately preceding clause (x), or the occurrence of any
other event that would result in a compensation related tax deduction, as the
case may be, The Limited Group (as agent for Abercrombie & Fitch Group) shall
prepare and file all applicable tax return and pay the applicable tax liability
under the Federal Insurance Contributions Act, the Federal Unemployment Tax Act
or any state employment tax law in connection with the exercise of such an
option.
13
<PAGE> 15
5. INDEMNITIES.
(a) Abercrombie & Fitch Indemnity. Abercrombie & Fitch and each
member of the Abercrombie & Fitch Group will jointly and severally indemnify The
Limited and the members of The Limited Group that were members of The Limited
Consolidated Group (that included a member of the Abercrombie & Fitch Group)
against and hold them harmless from:
(i) any Abercrombie & Fitch Group Tax Liability;
(ii) any liability or damage resulting from a breach by Abercrombie
& Fitch or any member of the Abercrombie & Fitch Group of any representation or
covenant made by Abercrombie & Fitch herein; and
(iii) all liabilities, costs, expenses (including, without
limitation, reasonable expenses of investigation and attorneys' fees and
expenses), losses, damages, assessments, settlements or judgments arising out of
or incident to the imposition, assessment or assertion of any tax liability or
damage described in (i) or (ii) including those incurred in the contest in good
faith in appropriate proceedings relating to the imposition, assessment or
assertion of any such tax, liability or damage.
(b) The Limited Indemnity. The Limited and each member of The
Limited Group will jointly and severally indemnify Abercrombie & Fitch and the
members of the Abercrombie & Fitch Group that were members of The Limited
Consolidated Group (that included a member of The Limited Group) against and
hold them harmless from:
(i) any The Limited Group Tax Liability and any tax liability
resulting from the Distribution, other than any such liabilities described in
Section 5(a);
(ii) any liability or damage resulting from a breach by The Limited
or any member of The Limited Group of any representation or covenant made by The
Limited herein; and
(iii) all liabilities, costs, expenses (including, without
limitation, reasonable expenses of investigation and attorneys' fees and
expenses), losses, damages, assessments, settlements or judgments arising out of
or incident to the imposition, assessment or assertion of any tax liability or
damage described in (i) or (ii) including those incurred in the contest in good
faith in appropriate proceedings relating to the imposition, assessment or
assertion of any such tax, liability or damage.
14
<PAGE> 16
If a member of The Limited Group ceases to be a member of The Limited as a
result of a sale of its stock to a third party (whether or not treated as a sale
of stock for tax purposes), such member of The Limited Group shall be released
from its obligations under this Agreement upon such sale and neither The Limited
nor any member of The Limited Group shall have any obligation to indemnify
Abercrombie & Fitch or any member of the Abercrombie & Fitch Group under Section
5(b)(iii) for any liability or damage attributable to actions taken by such
member after such sale.
(c) Discharge of Indemnity. Abercrombie & Fitch, The Limited and the
members of the Abercrombie & Fitch Group and The Limited Group, respectively,
shall discharge their obligations under Section 5(a) and 5(b) hereof,
respectively, by paying the relevant amount within 30 days of demand therefor.
After a Final Determination of an obligation of Abercrombie & Fitch or any
member of the Abercrombie & Fitch Group under Section 5(a), The Limited shall
send a statement to Abercrombie & Fitch showing the amount due thereunder. After
a Final Determination of an obligation of The Limited or any member of The
Limited Group under Section 5(b), Abercrombie & Fitch shall send a statement to
The Limited showing the amount due thereunder. Calculation mechanics relating to
items described in Section 5(a)(i) are set forth in Section 3(c).
Notwithstanding the foregoing, if either Abercrombie & Fitch, The Limited or any
member of the Abercrombie & Fitch Group or The Limited Group disputes in good
faith the fact or the amount of its obligation under Section 5(a) or Section
5(b), then no payment of the amount in dispute shall be required until any such
good faith dispute is resolved in accordance with Section 16 hereof; provided,
however, that any amount not paid within 30 days of demand therefor shall bear
interest as provided in Section 9.
(d) Tax Benefits. If an indemnification obligation of any member of
The Limited Group or any member of the Abercrombie & Fitch Group, as the case
may be, under this Section 5 with respect to The Limited Consolidated Group
arises in respect of an adjustment that makes allowable to a member of the
Abercrombie & Fitch Group or a member of The Limited Group, respectively, any
deduction, amortization, exclusion from income or other allowance (a "Tax
Benefit") which would not, but for such adjustment, be allowable, then any
payment by any member of The Limited Group or any member of the Abercrombie &
Fitch Group, respectively, pursuant to this Section 5 shall be an amount equal
to (X) the amount otherwise due but for this subsection (d), minus (Y) the
present value of the product of the Tax Benefit multiplied (i) by the maximum
federal, foreign or state, as the case may be, corporate tax rate in effect at
the time such Tax Benefit becomes allowable to a member of the Abercrombie &
Fitch Group or a member of The Limited Group (as the case may be) or (ii) in the
case of a credit, by 100 percent. The present value of such product shall be
15
<PAGE> 17
determined by discounting such product from the time the Tax Benefit becomes
allowable at a rate equal to Prime.
6. SUBSIDIARIES.
(a) Performance. The Limited agrees and acknowledges that The
Limited shall be responsible for the performance of the obligations of each
member of The Limited Group hereunder applicable to such subsidiary. Abercrombie
& Fitch agrees and acknowledges that Abercrombie & Fitch shall be responsible
for the performance by each member of the Abercrombie & Fitch Group of the
obligations hereunder applicable to such member.
(b) Application to Present and Future Subsidiaries. This Agreement
is being entered into by The Limited and Abercrombie & Fitch on behalf of
themselves and each member of The Limited Group and Abercrombie & Fitch Group,
respectively. This Agreement shall constitute a direct obligation of each such
member and shall be deemed to have been readopted and affirmed on behalf of any
corporation which becomes a member of The Limited Group or Abercrombie & Fitch
Group in the future.
7. COMMUNICATION AND COOPERATION.
(a) Consult and Cooperate. Abercrombie & Fitch and The Limited shall
consult and cooperate (and shall cause each member of the Abercrombie & Fitch
Group or The Limited Group, respectively, to cooperate) fully at such time and
to the extent reasonably requested by the other party in connection with all
matters subject to this Agreement. Such cooperation shall include, without
limitation,
(i) the retention and provision on reasonable request of any and all
information including all books, records, documentation or other
information pertaining to tax matters relating to The Limited Group and
the Abercrombie & Fitch Group, any necessary explanations of information,
and access to personnel, until two years after the expiration of the
applicable statute of limitation (giving effect to any extension, waiver,
or mitigation thereof);
(ii) the execution of any document that may be necessary or helpful
in connection with any required Return or in connection with any audit,
proceeding, suit or action; and
16
<PAGE> 18
(iii) the use of the parties' best efforts to obtain any
documentation from a governmental authority or a third party that may be
necessary or helpful in connection with the foregoing.
(b) Provide Information. The Limited and Abercrombie & Fitch shall
keep each other fully informed with respect to any material development relating
to the matters subject to this Agreement.
(c) Tax Attribute Matters. The Limited and Abercrombie & Fitch shall
advise each other with respect to any proposed tax adjustments relating to a
Pre-Distribution Tax Period, which are the subject of an audit or investigation,
or are the subject of any proceeding or litigation, and which may affect any tax
liability or any tax attribute of The Limited, Abercrombie & Fitch, The Limited
Group, the Abercrombie & Fitch Group or any member of the Abercrombie & Fitch
Group or The Limited Group (including, but not limited to, basis in an asset or
the amount of earnings and profits). Except as otherwise provided herein, The
Limited shall determine the apportionment of tax attributes between The Limited
Group and the Abercrombie & Fitch Group in accordance with applicable laws.
8. AUDITS AND CONTEST.
(a) Notwithstanding anything in this Agreement to the contrary, The
Limited shall have full control over all matters relating to any tax return or
any tax Proceeding relating to any tax matters of at least one member of The
Limited Consolidated Group. Except as provided in Section 8(b), The Limited
shall have absolute discretion with respect to any decisions to be made, or the
nature of any action to be taken, with respect to any matter described in the
preceding sentence.
(b) No settlement of any Tax Proceeding relating to any matter that
would cause a payment obligation under Sections 5(a) or 5(b) shall be accepted
or entered into by or on behalf of the party entitled to receive a payment under
either Section 5(a) or 5(b), whichever is applicable, unless the party
ultimately responsible for such payment under either Section 5(a) or 5(b),
whichever is applicable (the "Indemnitor"), consents thereto in writing (which
consent shall not be unreasonably withheld). If such consent is unreasonably
withheld, all expenses relating to the contest of such matter shall be borne by
the Indemnitor, and otherwise they shall be borne equally by the Indemnitor and
the indemnified party. If the Indemnitor does not respond to the indemnified
party's request for consent within 30 days, the Indemnitor will be deemed to
have consented to the settlement.
17
<PAGE> 19
(c) The indemnified party agrees to give prompt notice to the
Indemnitor of the assertion of any claim, or the commencement of any suit,
action or proceeding in respect of which indemnity may be sought hereunder.
(d) With respect to Returns relating to taxes solely attributable to
the Abercrombie & Fitch Group, Abercrombie & Fitch and the members of the
Abercrombie & Fitch Group shall have full control over all matters relating to
any Tax Proceeding in connection therewith. Abercrombie & Fitch and the members
of the Abercrombie & Fitch Group shall have absolute discretion with respect to
any decisions to be made, or the nature of any action to be taken, with respect
to any matter described in the preceding sentence.
9. PAYMENTS.
All payments to be made hereunder shall be made in immediately
available funds. Except as otherwise provided, all payments required to be made
pursuant to this Agreement will be due 90 days after the receipt of notice of
such payment or, where no notice is required, 90 days after the fixing of
liability or the resolution of a dispute. Payments shall be deemed made when
received. Any payment that is not made when due shall bear interest at a rate
equal to Prime rate for each day until paid. If, pursuant to a Final
Determination, any amount paid by The Limited or the members of The Limited
Group or Abercrombie & Fitch or the members of the Abercrombie & Fitch Group, as
the case may be, pursuant to this Agreement results in any increased tax
liability or reduction of any Tax Asset of Abercrombie & Fitch or any member of
the Abercrombie & Fitch Group or The Limited or any member of The Limited Group,
respectively, then The Limited or Abercrombie & Fitch, as appropriate, shall
indemnify the other party and hold it harmless from any interest or penalty
attributable to such increased tax liability or the reduction of such Tax Asset
and shall pay to the other party, in addition to amounts otherwise owed, the
After-Tax Amount.
18
<PAGE> 20
10. NOTICES.
Any notice, demand, claim, or other communication under this
Agreement shall be in writing and shall be deemed to have been given upon the
delivery or mailing thereof, as the case may be, if delivered personally or sent
by certified mail, return receipt requested, postage prepaid, to the parties at
the following addresses (or at such other address as a party may specify by
notice to the other):
If to The Limited, to:
The Limited, Inc.
Three Limited Parkway
Columbus, OH 43230
Attention: Timothy B. Lyons
Fax: 614-479-7020
If to Abercrombie & Fitch, to:
Abercrombie & Fitch Co.
Four Limited Parkway East
Reynoldsburg, OH 43068
Attention: Seth Johnson
Fax: 614-577-6950
11. COSTS AND EXPENSES.
(a) Reimbursement for Certain Services. The Limited shall provide
services in connection with this Agreement, including but not limited to, those
services relating to the preparation of returns (including Pro Forma Returns)
and determination of Abercrombie & Fitch Tax Liability as described in sections
2 and 3. As compensation for these services, Abercrombie & Fitch shall pay The
Limited a fee. The Limited shall calculate the fee payable, invoice Abercrombie
& Fitch for the fee and Abercrombie & Fitch will pay the invoiced amount in a
manner consistent with the invoice and payment procedures provided for in the
Amended and Restated Services Agreement between Abercrombie & Fitch Co. and The
Limited, Inc. (the "Transitional Services Agreement").
(b) Additional Services. The Limited will provide the tax services
specified in the Transitional Services Agreement to the Abercrombie & Fitch
Group that do not relate to Federal Taxes or Combined State Taxes for any Pre-
19
<PAGE> 21
Distribution Tax Period. The Limited will be compensated in the same manner as
described in Section 11(a).
(c) Others. Except as expressly set forth in this Agreement, each party
shall bear its own costs and expenses incurred pursuant to this Agreement. For
purposes of this Agreement, "out-of-pocket" expenses shall include reasonable
attorney fees, accountant fees and other related professional fees and
disbursements.
12. EFFECTIVENESS; TERMINATION AND SURVIVAL.
This Agreement shall become effective upon the consummation of the
Distribution. All rights and obligations arising hereunder with respect to a
Pre-Distribution Tax Period shall survive until they are fully effectuated or
performed and, provided, further, that notwithstanding anything in this
Agreement to the contrary, this Agreement shall remain in effect and its
provisions shall survive for the full period of all applicable statutes of
limitation (giving effect to any extension, waiver or mitigation thereof).
13. SECTION HEADINGS.
The headings contained in this Agreement are inserted for
convenience only and shall not constitute a part hereof or in any way affect the
meaning or interpretation of this Agreement.
14. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS; SEVERABILITY.
(a) Entire Agreement. This Agreement and the exhibits hereto
contains the entire understanding of the parties hereto with respect to the
subject matter contained herein. No alteration, amendment, modification, or
waiver of any of the terms of this Agreement shall be valid unless made by an
instrument signed by an authorized officer of each of The Limited and
Abercrombie & Fitch, or in the case of a waiver, by the party against whom the
waiver is to be effective.
(b) Amendments and Waivers. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
hereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege. This
Agreement shall not be waived, amended or otherwise modified except as in
writing, duly executed by all of the parties hereto.
(c) Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
20
<PAGE> 22
determined by any court of competent jurisdiction to be invalid, illegal or
unenforceable to any extent, the remainder of this Agreement or such provision
or the application of such provision to such party or circumstances, other than
those to which it is so determined to be invalid, illegal or unenforceable,
shall remain in full force and effect to the fullest extent permitted by law and
shall not be affected thereby, unless such a construction would be unreasonable.
15. GOVERNING LAW AND INTERPRETATION.
This Agreement has been made in and shall be construed and enforced
in accordance with the laws of the state of New York without giving effect to
laws and principles relating to conflicts of law.
16. DISPUTE RESOLUTION.
If the parties hereto are unable to resolve any disagreement or
dispute relating to this Agreement within 20 days, such disagreement or dispute
shall be resolved by a recognized law firm or accounting firm expert in tax
matters in the relevant jurisdiction or that is mutually acceptable to the
parties hereto (a "Referee"). A Referee so chosen shall resolve any such
disagreement pursuant to such procedures as it may deem advisable. Any such
resolution shall be binding on the parties hereto without further recourse.
Except as otherwise provided herein, the costs of any Referee shall be
apportioned between The Limited and Abercrombie & Fitch as determined by such
Referee in such manner as the Referee deems reasonable, taking into account the
circumstances of the dispute, the conduct of the parties and the result of the
dispute.
17. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same Agreement.
18. ASSIGNMENTS; THIRD PARTY BENEFICIARIES.
Except as provided below, this Agreement shall be binding upon and
shall inure only to the benefit of the parties hereto and their respective
successors and assigns, by merger, acquisition of assets or otherwise (including
but not limited to any successor of a party hereto succeeding to the tax
attributes of such party under applicable law). This Agreement is not intended
to benefit any person other than the parties hereto and such successors and
assigns, and no such other person shall be a third party beneficiary hereof.
21
<PAGE> 23
19. FURTHER ASSURANCES.
The Limited and Abercrombie & Fitch shall execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such instruments
and take such other action as may be necessary or advisable to carry out their
obligations under this Agreement and under any exhibit, document or other
instrument delivered pursuant hereto.
20. AUTHORIZATION, ETC.
Each of the parties hereto hereby represents and warrants that it
has the power and authority to execute, deliver and perform this Agreement, that
this Agreement has been duly authorized by all necessary corporate action on the
part of such party that this Agreement constitutes a legal, valid and binding
obligation of each such party and that the execution, delivery and performance
of this Agreement by such party does not contravene or conflict with any
provision or law or of its charter or bylaws or any agreement, instrument or
order binding on such party.
22
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first written above.
The Limited on its own behalf and on behalf
of each member of The Limited Group.
By:__________________________
Title: Vice President, Taxes
Date: May 19, 1998
Abercrombie & Fitch on its own behalf and on
behalf of each member of the Abercrombie &
Fitch Group.
By:__________________________
Title: Vice President--Chief Financial Officer
Date: May 19, 1998
23
<PAGE> 1
Exhibit 10.8
EXECUTION COPY
AMENDED AND RESTATED SERVICES AGREEMENT
DATED AS OF MAY 19, 1998
BETWEEN
ABERCROMBIE & FITCH CO.
AND
THE LIMITED, INC.
<PAGE> 2
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
ARTICLE 1
DEFINITIONS
<S> <C> <C> <C>
SECTION 1.01. Definitions......................................................................2
SECTION 1.02. Internal References..............................................................4
ARTICLE 2
PURCHASE AND SALE OF SERVICES
SECTION 2.01. Purchase and Sale of Services....................................................4
SECTION 2.02. Additional Services..............................................................4
ARTICLE 3
SERVICE COSTS; OTHER CHARGES
SECTION 3.01. Service Costs Generally..........................................................5
SECTION 3.02. Customary Billing................................................................5
SECTION 3.03. Pass-Through Billing.............................................................5
SECTION 3.04. Certain Benefits Matters.........................................................6
SECTION 3.05. Invoicing and Settlement of Costs................................................6
ARTICLE 4
THE SERVICES
SECTION 4.01. General Standard of Service......................................................7
SECTION 4.02. Delegation.......................................................................7
SECTION 4.03. Limitation of Liability..........................................................8
SECTION 4.04. Indemnification of The Limited by Abercrombie & Fitch............................9
SECTION 4.05. Indemnification of Abercrombie & Fitch by The Limited............................9
SECTION 4.06. Further Indemnification.........................................................10
SECTION 4.07. Notice of Certain Matters.......................................................10
ARTICLE 5
TERM AND TERMINATION
SECTION 5.01. Term............................................................................11
SECTION 5.02. Termination.....................................................................11
SECTION 5.03. Effect of Termination...........................................................11
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
ARTICLE 6
ADDITIONAL AGREEMENTS
<S> <C> <C> <C>
SECTION 6.01. Confidential Information........................................................12
SECTION 6.02. Associate Matters...............................................................13
SECTION 6.03. Financial Support Arrangements..................................................13
SECTION 6.04. Insurance Matters...............................................................14
ARTICLE 7
MISCELLANEOUS
SECTION 7.01. Prior Agreements................................................................15
SECTION 7.02. Future Litigation and Other Proceedings.........................................15
SECTION 7.03. No Agency.......................................................................16
SECTION 7.04. Subcontractors..................................................................16
SECTION 7.05. Force Majeure...................................................................16
SECTION 7.06. Entire Agreement................................................................17
SECTION 7.07. Information.....................................................................17
SECTION 7.08. Notices.........................................................................17
SECTION 7.09. Governing Law...................................................................18
SECTION 7.10. Dispute Resolution..............................................................18
SECTION 7.11. WAIVER OF JURY TRIAL............................................................18
SECTION 7.12. Severability....................................................................19
SECTION 7.13. Amendment.......................................................................19
SECTION 7.14. Counterparts....................................................................19
SECTION 7.15. Services to The Limited.........................................................19
SECTION 7.16. Termination of Old Services Agreement...........................................19
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED SERVICES AGREEMENT
This Amended and Restated Services Agreement (this "AGREEMENT") is
entered into as of May 19, 1998 by and between Abercrombie & Fitch Co., a
Delaware corporation ("ABERCROMBIE & FITCH"), and The Limited, Inc. a
Delaware corporation ("THE LIMITED").
RECITALS
WHEREAS, The Limited owned approximately 84% of the outstanding common
stock of Abercrombie & Fitch prior to the consummation of the Exchange Offer (as
defined below);
WHEREAS, The Limited will no longer own any of the outstanding common
stock of Abercrombie & Fitch after the consummation of the Exchange Offer and
Spin-Off (as defined below), if any;
WHEREAS, The Limited has heretofore directly or indirectly provided
certain administrative, financial, management and other services to the
Abercrombie & Fitch Entities (as defined below) and Abercrombie & Fitch has
heretofore retained The Limited as an independent contractor to provide,
directly or indirectly, certain of those services to the Abercrombie & Fitch
Entities pursuant to the Services Agreement between Abercrombie & Fitch and The
Limited dated as of September 27, 1996 (the "OLD SERVICES AGREEMENT"); and
WHEREAS, Abercrombie & Fitch and The Limited desire to amend and
restate the Old Services Agreement as set forth herein.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, The Limited and Abercrombie &
Fitch, for themselves, their successors and assigns, hereby agree as follows:
<PAGE> 5
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) As used in this Agreement, the following
terms will have the following meanings, applicable both to the singular and the
plural forms of the terms described:
"ABERCROMBIE & FITCH ENTITIES" means Abercrombie & Fitch and its
Subsidiaries, and "Abercrombie & Fitch Entity" shall mean any of the Abercrombie
& Fitch Entities.
"AGREEMENT" has the meaning ascribed thereto in the preamble hereto, as
such agreement may be amended and supplemented from time to time in accordance
with its terms.
"BUSINESS DAY" means a day other than a Saturday, Sunday or other day
on which commercial banks in New York, New York or Columbus, Ohio are authorized
or required by law to close.
"CHANGE OF CONTROL" means (i) the direct or indirect acquisition (by
merger, consolidation, business combination or otherwise) by any Person or group
or Persons of beneficial ownership (as defined in Rule 13d-1 and Rule 13d-5
under the Securities Exchange Act of 1934) of 50% or more of the Total Voting
Power of Abercrombie & Fitch, (ii) any merger, consolidation or other business
combination of Abercrombie & Fitch or a Subsidiary of Abercrombie & Fitch with
any Person after giving effect to which (x) the shareholders of Abercrombie &
Fitch immediately prior to such transaction do not own at least 50% of the Total
Voting Power of the ultimate parent entity of the parties to such transaction or
(y) individuals who were directors of Abercrombie & Fitch immediately prior to
such transaction (or their designees) do not constitute a majority of the board
of directors of such ultimate parent entity and (iii) the direct or indirect
acquisition by any Person or group of Persons of all or substantially all of the
assets of Abercrombie & Fitch.
"CLASS A COMMON STOCK" means the Class A common stock, par value $.01
per share, of Abercrombie & Fitch.
"EFFECTIVE DATE" means the Expiration Date of the Exchange Offer.
"EXCHANGE OFFER" means the offer by The Limited to exchange all of its
shares of Class A Common Stock for shares of common stock, par value $.50 per
2
<PAGE> 6
share, of The Limited, which offer commenced on April 15, 1998 and was
consummated as of the date hereof.
"LIMITED ENTITIES" means The Limited and its Subsidiaries, and "Limited
Entity" shall mean any of The Limited Entities.
"PERSON" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization, government
(including any department or agency thereof) or other entity.
"SCHEDULES" means Schedules I, II, III, IV, V and VI hereto.
"SERVICES" means the various services described in the Schedules.
"SUBSIDIARY" means, as to any Person, any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting capital stock or other voting ownership interests is owned or
controlled directly or indirectly by such Person or by one or more of the
Subsidiaries of such Person or by a combination thereof.
"TOTAL VOTING POWER" with respect to any Person means the total
combined voting power of all securities of such Person entitled to vote
generally in the election of directors of such Person.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
- - ------- ----------
<S> <C>
Abercrombie & Fitch Preamble
Abercrombie & Fitch Indemnified Person 4.05
Actions 4.04
Applicable Insurance 6.04
Benefit Billing 3.01
Benefits Services 3.04
Confidential Information 6.01
Customary Billing 3.01
Employee Welfare Plans 4.02
Financial Support Arrangements 6.03(a)
force majeure 7.05
Limited Indemnified Person 4.03
Pass-Through Billing 3.01
Payment Date 3.05
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
TERM SECTION
- - ------- ----------
<S> <C>
Prior Agreements 7.01
Service Costs 3.01
The Limited Preamble
The Limited Plans 3.04
</TABLE>
SECTION 1.02. Internal References. Unless the context indicates
otherwise, references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement and references
to the parties shall mean the parties to this Agreement.
ARTICLE 2
PURCHASE AND SALE OF SERVICES
SECTION 2.01. Purchase and Sale of Services. (a) On the terms and
subject to the conditions of this Agreement and in consideration of the Service
Costs described below, The Limited agrees to provide to Abercrombie & Fitch, or
procure the provision to Abercrombie & Fitch of, and Abercrombie & Fitch agrees
to purchase from The Limited, the Services. Unless otherwise specifically agreed
by The Limited and Abercrombie & Fitch, the Services to be provided or procured
by The Limited hereunder shall be substantially similar in scope, quality, and
nature to those customarily provided to, or procured on behalf of, the
Abercrombie & Fitch Entities prior to the Effective Date.
(b) It is understood that (i) Services to be provided to Abercrombie &
Fitch under this Agreement will, at Abercrombie & Fitch's request, be provided
to Subsidiaries of Abercrombie & Fitch and (ii) The Limited may satisfy its
obligation to provide or procure Services hereunder by causing one or more of
its Subsidiaries to provide or procure such Services. With respect to Services
provided to, or procured on behalf of, any Subsidiary of Abercrombie & Fitch,
Abercrombie & Fitch agrees to pay on behalf of such Subsidiary all amounts
payable by or in respect of such Services pursuant to this Agreement; provided
that, without in any way limiting the obligations of Abercrombie & Fitch to pay
for such Services, Abercrombie & Fitch may allow Abercrombie & Fitch Service
Corporation, a Delaware corporation, to make such payments on its behalf.
SECTION 2.02. Additional Services. In addition to the Services to be
provided or procured by The Limited in accordance with Section 2.01, if
requested by Abercrombie & Fitch, and to the extent that The Limited and
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<PAGE> 8
Abercrombie & Fitch may mutually agree, The Limited shall provide additional
services (including services not provided by The Limited to the Abercrombie &
Fitch Entities prior to the Effective Date) to Abercrombie & Fitch. The scope of
any such services, as well as the term, costs, and other terms and conditions
applicable to such services, shall be as mutually agreed by The Limited and
Abercrombie & Fitch.
ARTICLE 3
SERVICE COSTS; OTHER CHARGES
SECTION 3.01. Service Costs Generally. The Schedules hereto indicate,
with respect to the Services listed therein, whether the costs to be charged to
Abercrombie & Fitch for such Service are to be determined by (i) the customary
billing method described in Section 3.02 ("CUSTOMARY BILLING"), (ii) the
pass-through billing method described in Section 3.03 ("PASS-THROUGH BILLING")
or (iii) based upon a calculation of certain costs relating to employee benefit
plans and benefit arrangements described in Section 3.04 ("BENEFIT BILLING").
The Customary Billing, Pass-Through Billing and Benefit Billing methods
applicable to Services provided to Abercrombie & Fitch are collectively referred
to herein as the "SERVICE COSTS". Abercrombie & Fitch agrees to pay to The
Limited in the manner set forth in Section 3.05 the Service Costs applicable to
each of the Services provided or procured by The Limited.
SECTION 3.02. Customary Billing. The costs of Services as to which the
Customary Billing method applies shall be equal to (i) the costs charged to
Abercrombie & Fitch by The Limited for such Services immediately prior to the
Effective Date (it being understood that from and after the Effective Date such
costs may be increased by The Limited in a manner consistent with the manner in
which such costs were increased from time to time prior to the Effective Date)
plus (ii) 5 percent. Notwithstanding the foregoing, any out-of-pocket,
third-party expenses incurred by The Limited in connection with the provision of
any Services as to which the Customary Billing method applies shall be passed
through to Abercrombie & Fitch without the 5 percent mark-up.
SECTION 3.03. Pass-Through Billing. The costs of Services as to which
the Pass-Through Billing method applies shall be equal to the aggregate amount
of third-party, out-of-pocket costs and expenses incurred by any Limited Entity
on behalf of any Abercrombie & Fitch Entity (which costs shall include but not
be limited to the costs incurred in connection with obtaining the consent of any
party to a contract or agreement to which any Limited Entity is a party where
such
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<PAGE> 9
consent is related to and reasonably required for the provision of any Service).
If a Limited Entity incurs any such costs or expenses on behalf of any
Abercrombie & Fitch Entity as well as businesses operated by The Limited, The
Limited will allocate any such costs or expenses in good faith between the
various businesses on behalf of which such costs or expenses were incurred as
The Limited shall determine in the exercise of The Limited's reasonable
judgment. The Limited shall apply usual and accepted accounting conventions in
making such allocations, and The Limited or its agents shall keep and maintain
such books and records as may be reasonably necessary to make such allocations.
The Limited shall make copies of such books and records available to Abercrombie
& Fitch upon request and with reasonable notice.
SECTION 3.04. Certain Benefits Matters. (a) Prior to the Effective
Date, certain associates of Abercrombie & Fitch participated in certain benefit
plans sponsored by The Limited ("THE LIMITED PLANS").
(b) The costs payable by Abercrombie & Fitch for Services relating to
employee plans and benefit arrangements ("BENEFITS SERVICES") shall be
determined and, to the extent specified in Schedule I, billed as set forth on
Schedule I. It is the express intent of the parties that Service Costs relating
to the administration of Abercrombie & Fitch employee plans and the performance
of related Services will not exceed reasonable compensation for such Services as
defined in 29 CFR ss.2550.408c-2.
(c) The Limited and Abercrombie & Fitch agree to cooperate fully with
each other in the administration and coordination of regulatory and
administrative requirements associated with The Limited Plans.
SECTION 3.05. Invoicing and Settlement of Costs. (a) The Limited will
invoice or notify Abercrombie & Fitch on a monthly basis (not later than the
tenth day of each month), in a manner substantially consistent with the billing
practices used in connection with services provided to the Abercrombie & Fitch
Entities prior to the Effective Date (except as otherwise agreed), of the
Service Costs. In connection with the invoicing described in this Section
3.05(a), The Limited will provide to Abercrombie & Fitch the same billing data
and level of detail as it customarily provided to the Abercrombie & Fitch
Entities prior to the Effective Date and such other data as may be reasonably
requested by Abercrombie & Fitch.
(b) Abercrombie & Fitch agrees to pay on or before 30 days after the
date on which The Limited invoices or notifies Abercrombie & Fitch of the
Service Costs (or the next Business Day, if such day is not a Business Day)
(each, a "PAYMENT DATE") by wire transfer of immediately available funds payable
to the
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order of The Limited all amounts invoiced by The Limited pursuant to this
Section 3.05(a) during the preceding calendar month. If Abercrombie & Fitch
fails to pay any monthly payment within 30 days of the relevant Payment Date,
Abercrombie & Fitch shall be obligated to pay, in addition to the amount due on
such Payment Date, interest on such amount at the prime, or best, rate announced
by Banc One Corp. compounded monthly from the relevant Payment Date through the
date of payment.
ARTICLE 4
THE SERVICES
SECTION 4.01. General Standard of Service. Except as otherwise agreed
with Abercrombie & Fitch or described in this Agreement, and provided that The
Limited is not restricted by contract with third parties or by applicable law,
The Limited agrees that the nature, quality, and standard of care applicable to
the delivery of the Services hereunder will be substantially the same as that of
the Services which The Limited provides from time to time throughout its
businesses. The Limited shall use its reasonable efforts to ensure that the
nature and quality of Services provided to Abercrombie & Fitch associates either
by The Limited directly or through administrators under contract shall be
undifferentiated as compared with the same services provided to or on behalf of
The Limited associates under The Limited Plans. Subject to The Limited's express
obligations under this Agreement, the management of and control over the
provision of the Services shall reside solely with The Limited. Without limiting
the generality of the foregoing, all labor matters relating to associates of The
Limited and its Subsidiaries (including, without limitation, associates involved
in the provision of Services to Abercrombie & Fitch) shall be within the
exclusive control of The Limited, and Abercrombie & Fitch and its Subsidiaries
shall not take any action affecting such matters.
SECTION 4.02. Delegation. Subject to Section 4.01 above, Abercrombie &
Fitch hereby delegates to The Limited final, binding, and exclusive authority,
responsibility, and discretion to interpret and construe the provisions of
employee welfare benefit plans in which Abercrombie & Fitch has elected to
participate and which are administered by The Limited under this Agreement
(collectively, "EMPLOYEE WELFARE PLANS"). The Limited may further delegate such
authority to plan administrators to:
(i) provide administrative and other services;
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<PAGE> 11
(ii) reach factually supported conclusions consistent with the
terms of the Employee Welfare Plans;
(iii) make a full and fair review of each claim denial and
decision related to the provision of benefits provided or arranged for
under the Employee Welfare Plans, pursuant to the requirements of
ERISA, if within sixty days after receipt of the notice of denial, a
claimant requests in writing a review for reconsideration of such
decisions. The plan administrator shall notify the claimant in writing
of its decision on review. Such notice shall satisfy all ERISA
requirements relating thereto; and
(iv) notify the claimant in writing of its decision on review.
SECTION 4.03. Limitation of Liability. (a) Abercrombie & Fitch agrees
that none of the Limited Entities and their respective directors, officers,
agents, and employees (each, a "LIMITED INDEMNIFIED PERSON") shall have any
liability, whether direct or indirect, in contract or tort or otherwise, to any
Abercrombie & Fitch Entity or any other Person for or in connection with the
Services rendered or to be rendered by any Limited Indemnified Person pursuant
to this Agreement, the transactions contemplated hereby or any Limited
Indemnified Person's actions or inactions in connection with any such Services
or transactions, except for damages which have resulted from such Limited
Indemnified Person's gross negligence or willful misconduct in connection with
any such Services, actions or inactions.
(b) None of the Limited Entities shall be liable for any special,
indirect, incidental, or consequential damages of any kind whatsoever
(including, without limitation, attorneys' fees) in any way due to, resulting
from or arising in connection with any of the Services or the performance of or
failure to perform The Limited's obligations under this Agreement. This
disclaimer applies without limitation (i) to claims arising from the provision
of the Services or any failure or delay in connection therewith; (ii) to claims
for lost profits; (iii) regardless of the form of action, whether in contract,
tort (including negligence), strict liability, or otherwise; and (iv) regardless
of whether such damages are foreseeable or whether The Limited has been advised
of the possibility of such damages.
(c) None of the Limited Entities shall have any liability to any
Abercrombie & Fitch Entity or any other Person for failure to perform The
Limited's obligations under this Agreement or otherwise, where (i) such failure
to perform is not caused by the gross negligence or wilful misconduct of the
Limited Entity providing such Services and (ii) such failure to perform
similarly affects the Limited Entities receiving such Services and does not have
a
8
<PAGE> 12
disproportionately adverse effect on the Abercrombie & Fitch Entities, taken as
a whole.
(d) In addition to the foregoing, Abercrombie & Fitch agrees that it
shall, in all circumstances, use commercially reasonable efforts to mitigate and
otherwise minimize its damages and those of the other Abercrombie & Fitch
Entities, whether direct or indirect, due to, resulting from or arising in
connection with any failure by The Limited to comply fully with its obligations
under this Agreement.
(e) Notwithstanding the foregoing provisions of this Section 4.03, in
the event of a substantial and continuing failure on the part of The Limited to
provide or procure any material Services, where such failure is reasonably
expected to have a material adverse effect on Abercrombie & Fitch and its
Subsidiaries, considered as a whole, Abercrombie & Fitch shall be entitled to
seek specific performance to cause The Limited to provide or procure such
Services.
SECTION 4.04. Indemnification of The Limited by Abercrombie & Fitch.
Abercrombie & Fitch agrees to indemnify and hold harmless each Limited
Indemnified Person from and against any damages, and to reimburse each Limited
Indemnified Person for all reasonable expenses as they are incurred in
investigating, preparing, pursuing, or defending any claim, action, proceeding,
or investigation, whether or not in connection with pending or threatened
litigation and whether or not any Limited Indemnified Person is a party
(collectively, "ACTIONS"), arising out of or in connection with Services
rendered or to be rendered by any Limited Indemnified Person pursuant to this
Agreement, the transactions contemplated hereby or any Limited Indemnified
Person's actions or inactions in connection with any such Services or
transactions; provided that Abercrombie & Fitch will not be responsible for any
damages of any Limited Indemnified Person that have resulted from such Limited
Indemnified Person's gross negligence or willful misconduct in connection with
any of the advice, actions, inactions, or Services referred to above (it being
understood and agreed that the provision by any Limited Entity of any of the
Services contemplated by Schedule II hereof without obtaining the consent of any
party to any contract or agreement to which any Limited Entity is a party as of
the date hereof shall not constitute gross negligence or wilful misconduct by
any Limited Entity; provided that the relevant Limited Entity has used
commercially reasonable efforts to obtain the relevant consent).
SECTION 4.05. Indemnification of Abercrombie & Fitch by The Limited.
The Limited agrees to indemnify and hold harmless the Abercrombie & Fitch
Entities and their respective directors, officers, agents, and employees (each,
a "ABERCROMBIE & FITCH INDEMNIFIED PERSON") from and against any damages,
9
<PAGE> 13
and will reimburse each Abercrombie & Fitch Indemnified Person for all
reasonable expenses as they are incurred in investigating, preparing, or
defending any Action, arising out of the gross negligence or willful misconduct
of any Limited Indemnified Person in connection with the Services rendered or to
be rendered pursuant to this Agreement.
SECTION 4.06. Further Indemnification. To the extent that any other
Person has agreed to indemnify any Limited Indemnified Person or to hold a
Limited Indemnified Person harmless and such Person provides services to The
Limited or any affiliate of The Limited relating directly or indirectly to any
employee plan or benefit arrangement for which Benefit Services are provided
under this Agreement, The Limited will exercise reasonable efforts (a) to make
such agreement applicable to any Abercrombie & Fitch Indemnified Person so
that each Abercrombie & Fitch Indemnified Person is held harmless or indemnified
to the same extent as any Limited Indemnified Person or (b) otherwise make
available to each Abercrombie & Fitch Indemnified Person the benefits of such
agreement.
SECTION 4.07. Notice of Certain Matters. If Abercrombie & Fitch at any
time believes that The Limited is not in full compliance with its obligations
under Section 4.01 of this Agreement, Abercrombie & Fitch shall so notify The
Limited in writing promptly (but not later than 30 days) after becoming aware of
such possible non-compliance by The Limited. Such notice (a "Non-Compliance
Notice") shall set forth in reasonable detail the basis for Abercrombie &
Fitch's belief as well as Abercrombie & Fitch's view as to the steps to be taken
by The Limited to address the possible non-compliance. For the 30 days after
receipt of such a notice, appropriate representatives of The Limited and
Abercrombie & Fitch shall work in good faith to develop a plan to resolve the
matters referred to in the Non-Compliance Notice. In the event such matters are
not resolved through such discussions, Abercrombie & Fitch may elect to
terminate The Limited's obligation to provide or procure, and its obligation to
purchase, the Service or Services referred to in its Non-Compliance Notice in
accordance with Section 5.02. In the event such matters are resolved through
such discussions and Abercrombie & Fitch does not elect to terminate such
Service or Services within 60 days of the end of the 30-day period referred to
in the third sentence of this Section 4.07, Abercrombie & Fitch shall not be
entitled to deliver another NonCompliance Notice or pursue other remedies with
respect to same or any substantially similar matter so long as The Limited
complies in all material respects with the terms of such resolution. In no event
shall any termination of this Agreement pursuant to this Section 4.07 limit or
affect Abercrombie & Fitch's right to seek remedies in accordance with Section
7.10 in respect of any breach by The Limited of any of its obligations under
this Agreement prior to such termination.
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ARTICLE 5
TERM AND TERMINATION
SECTION 5.01. Term. Except as otherwise provided in this Article 5, in
Section 7.05 or as otherwise agreed in writing by the parties, (a) this
Agreement shall have a term of three years from the Effective Date and (b) The
Limited's obligation to provide or procure, and Abercrombie & Fitch's obligation
to purchase, a Service shall cease as of the applicable date set forth in the
applicable Schedules or such earlier date determined in accordance with Section
5.02.
SECTION 5.02. Termination. (a) Abercrombie & Fitch may (i) from time to
time terminate this Agreement with respect to one or more of the Services, in
whole or in part, upon giving at least 30 days' prior notice to The Limited or
(ii) terminate this Agreement at any time upon 30 days' written notice.
(b) The Limited may terminate any Service at any time if Abercrombie &
Fitch shall have failed to perform any of its material obligations under this
Agreement relating to any such Service, The Limited has notified Abercrombie &
Fitch in writing of such failure and such failure shall have continued for a
period of 30 days after receipt of Abercrombie & Fitch of written notice of such
failure.
(c) Abercrombie & Fitch may terminate any Service at any time if The
Limited shall have failed to perform any of its material obligations under this
Agreement relating to any such Service, Abercrombie & Fitch has notified The
Limited in writing of such failure, and such failure shall have continued for a
period of 30 days after receipt by The Limited of written notice of such
failure.
SECTION 5.03. Effect of Termination. (a) Other than as required by law,
upon termination of any Service pursuant to Section 5.02, and upon termination
of this Agreement in accordance with its terms, The Limited will have no further
obligation to provide the terminated Service (or any Service, in the case of
termination of this Agreement) and Abercrombie & Fitch will have no obligation
to pay any fees relating to such Services or make any other payments hereunder;
provided that notwithstanding such termination, (i) Abercrombie & Fitch shall
remain liable to The Limited for fees owed and payable in respect of Services
provided prior to the effective date of the termination; (ii) The Limited shall
continue to charge Abercrombie & Fitch for administrative and program costs
relating to benefits paid after but incurred prior to the termination of any
Service and other services required to be provided after the termination of such
Service and Abercrombie & Fitch shall be obligated to pay such expenses in
accordance with the terms of this Agreement; and (iii) the provisions of
Articles 4, 5, 6 and 7 shall survive any such termination indefinitely. All
program and administrative
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costs attributable to associates of any of the Abercrombie & Fitch Entities for
The Limited Plans that relate to any period after the effective date of any such
termination shall be for the account of Abercrombie & Fitch.
(b) Following termination of this Agreement with respect to any
Service, The Limited and Abercrombie & Fitch agree to cooperate in providing for
an orderly transition of such Service to Abercrombie & Fitch or to a successor
service provider. Without limiting the foregoing, The Limited agrees to (i)
provide, within 30 days of the termination, copies in a format designated by The
Limited, of all records relating directly or indirectly to benefit
determinations of Abercrombie & Fitch associates, including but not limited to
compensation and service records, correspondence, plan interpretive policies,
plan procedures, administration guidelines, minutes, or any data or records
required to be maintained by law and (ii) work with Abercrombie & Fitch in
developing a transition schedule.
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.01. Confidential Information. (a) Abercrombie & Fitch and The
Limited hereby covenant and agree to hold in trust and maintain confidential all
Confidential Information relating to the other party or any of such other
party's Subsidiaries. Without limiting the generality of the foregoing,
Confidential Information relating to a party or any of its Subsidiaries shall be
disclosed only to those associates of the other party who need to know such
information in connection with their ordinary course employment activities and
in no event shall any such Confidential Information be disclosed to any other
Person. "CONFIDENTIAL INFORMATION" shall mean all information, materials and
processes relating to a party or any Subsidiary of such party obtained by the
other party or any Subsidiary of such other party at any time (whether prior to
or after the date hereof and whether in connection with this Agreement or
otherwise) in any format whatsoever (whether orally, visually, in writing,
electronically or in any other form) and shall include, but not be limited to,
economic and business information or data, business plans, computer software and
information relating to associates, vendors, customers, products, fashion,
design, stores, financial performance and projections, processes, strategies,
systems and real estate, but shall not include (i) information which becomes
generally available other than by release in violation of the provisions of this
Section 6.01, (ii) information which becomes available on a non-confidential
basis to a party from a source other than the other party to this Agreement,
provided the party in question reasonably believes that such source is
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<PAGE> 16
not or was not bound to hold such information confidential and (iii) information
acquired or developed independently by a party without violating this Section
6.01 or any other confidentiality agreement with the other party.
Notwithstanding any provision of this Section 6.01 to the contrary, a party may
disclose such portion of the Confidential Information relating to the other
party to the extent, but only to the extent, the disclosing party reasonably
believes that such disclosure is required under law or the rules of a securities
exchange; provided that the disclosing party first notifies the other party
hereto of such requirement and allows such party a reasonable opportunity to
seek a protective order or other appropriate remedy to prevent such disclosure.
The parties acknowledge that money damages would not be a sufficient remedy for
any breach of the provisions of this Section 6.01 and that the non-breaching
party shall be entitled to equitable relief in a court of law in the event of,
or to prevent, a breach or threatened breach of this Section 6.01.
(b) Notwithstanding the provisions of Section 6.01(a), upon a Change of
Control, Abercrombie & Fitch shall (i) promptly (but in no event later than 30
days after the occurrence of such Change of Control) return to The Limited or
destroy all Confidential Information in its possession (or that of any of its
Subsidiaries) relating to The Limited or any of its Subsidiaries, (ii) no longer
be permitted to use such Confidential Information in its business or operations
(or the business or operations of any of its Subsidiaries) and (iii) promptly
(but in no event later than 30 days after the occurrence of such Change of
Control) deliver a written certificate to The Limited executed by Abercrombie &
Fitch's Chief Executive Officer expressly acknowledging the obligations set
forth in clauses (i) and (ii) of this sentence and certifying that Abercrombie &
Fitch has and will continue to adhere to such requirements.
SECTION 6.02. Associate Matters. For so long as any operations of
Abercrombie & Fitch or of any of its Subsidiaries are located in any of The
Limited's facilities and for one year thereafter, each of The Limited and
Abercrombie & Fitch agrees that (without the prior written consent of the other)
it will not, and will cause each of its Subsidiaries not to, directly or
indirectly, (i) solicit or otherwise attempt to induce or influence any
associate of the other party (or any of its Subsidiaries) to leave employment
with his or her then-current employer or (ii) employ any exempt or salaried
associate of the other party (or any of its Subsidiaries) other than any such
associates who were assigned solely to a single store location.
SECTION 6.03. Financial Support Arrangements. (a) Abercrombie & Fitch
agrees to cooperate reasonably with any efforts undertaken by The Limited or any
of its Subsidiaries intended to release The Limited and its Subsidiaries from
their obligations under any guarantees (including, without limitation,
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<PAGE> 17
guarantees of lease obligations), letters of credit, surety bonds and other
financial support arrangements maintained as of the date hereof by The Limited
or any of its Subsidiaries in connection with the business or operations of
Abercrombie & Fitch or any of its Subsidiaries (collectively, the "FINANCIAL
SUPPORT ARRANGEMENTS").
(b) If, after the date hereof, (i) any amounts are drawn on or paid
under any Financial Support Arrangement by The Limited or any of its
Subsidiaries or (ii) The Limited or any of its Subsidiaries pays any fees, costs
or expenses relating to any Financial Support Arrangement, Abercrombie & Fitch
shall reimburse The Limited for such amounts promptly after receipt from The
Limited of notice thereof accompanied by written evidence of the underlying
payment obligation.
(c) Abercrombie & Fitch will not, and will not permit any of its
Subsidiaries to, take any action (including, without limitation, entering into
any agreement that could result in a Change of Control) that could materially
and adversely affect the ability of Abercrombie & Fitch to satisfy its
obligations under any material contract, agreement or arrangement in respect of
which a Financial Support Arrangement is in place unless, prior to the taking of
such action, appropriate provision is made such that, in the reasonable judgment
of The Limited, The Limited's exposure under any Financial Support Arrangement
is not materially increased as a result of the taking of any such action.
SECTION 6.04. Insurance Matters. (a) From and after the date of this
Agreement, The Limited shall not, and shall cause each of its Subsidiaries not
to, take or fail to take any action if such action or inaction, as the case may
be, would adversely affect the applicability of any insurance in effect on the
date of this Agreement that covers all or any part of the assets, liabilities,
business or employees of Abercrombie & Fitch or any Subsidiary of Abercrombie &
Fitch with respect to events occurring prior to the Effective Date ("APPLICABLE
INSURANCE"), it being understood that in no event shall The Limited or any
Subsidiary of The Limited be obligated to pay premiums with respect to periods
after the Effective Date in respect of Applicable Insurance.
(b) The Limited agrees that, from and after the Effective Date, all
Applicable Insurance directly or indirectly applicable to any assets,
liabilities, business or employees of Abercrombie & Fitch or any Subsidiary of
Abercrombie & Fitch shall be for the benefit of Abercrombie & Fitch and the
Subsidiaries of Abercrombie & Fitch, it being understood that such Applicable
Insurance shall also be for the benefit of The Limited and its Subsidiaries to
the extent directly or indirectly applicable to any assets, liabilities,
business or employees of The Limited or any of its Subsidiaries. Without
limiting the generality of the foregoing, from and after the Effective Date and
upon Abercrombie & Fitch's
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reasonable request, The Limited shall use its reasonable efforts to modify,
amend or assign all Applicable Insurance policies and arrangements so that
Abercrombie & Fitch is the direct beneficiary of such Applicable Insurance with
all rights to enforce, obtain the benefit of and take all other action in
respect of such Applicable Insurance; provided that, if the modifications,
amendments or assignments contemplated by this Section 6.04(b) are not
permissible, The Limited shall, and shall cause each of its Subsidiaries to, use
its reasonable efforts to enter into such other arrangements as Abercrombie &
Fitch may reasonably request to ensure that Abercrombie & Fitch and the
Subsidiaries of Abercrombie & Fitch are entitled to the benefit (to the fullest
extent set forth in the relevant policies and arrangements) of any Applicable
Insurance.
ARTICLE 7
MISCELLANEOUS
SECTION 7.01. Prior Agreements. In the event there is any conflict
between the provisions of this Agreement, on the one hand, and provisions of
prior services agreements among any Limited Entity and any of the Abercrombie &
Fitch businesses (the "PRIOR AGREEMENTS"), on the other hand, the provisions of
this Agreement shall govern and such provisions in the Prior Agreements are
deemed to be amended so as to conform with this Agreement.
SECTION 7.02. Future Litigation and Other Proceedings. In the event
that Abercrombie & Fitch (or any of its Subsidiaries or any of its or their
officers or directors) or The Limited (or any of its Subsidiaries or any of its
or their officers or directors) at any time after the date hereof initiates or
becomes subject to any litigation or other proceedings before any governmental
authority or arbitration panel with respect to which the parties have no prior
agreements (as to indemnification or otherwise), the party (and its Subsidiaries
and its and their officers and directors) that has not initiated and is not
subject to such litigation or other proceedings shall comply, at the other
party's expense, with any reasonable requests by the other party for assistance
in connection with such litigation or other proceedings (including by way of
provision of information and making available of employees as witnesses). In the
event that Abercrombie & Fitch (or any of its Subsidiaries or any of its or
their officers or directors) and The Limited (or any of its Subsidiaries or any
of its or their officers or directors) at any time after the date hereof
initiate or become subject to any litigation or other proceedings before any
governmental authority or arbitration panel with respect to which the parties
have no prior agreements (as to indemnification or otherwise), each party (and
its officers and directors) shall, at their own expense, coordinate
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<PAGE> 19
their strategies and actions with respect to such litigation or other
proceedings to the extent such coordination would not be detrimental to their
respective interests and shall comply, at the expense of the requesting party,
with any reasonable requests of the other party for assistance in connection
therewith (including by way of provision of information and making available of
employees as witnesses).
SECTION 7.03. No Agency. Nothing in this Agreement shall constitute or
be deemed to constitute a partnership or joint venture between the parties
hereto or, except to the extent provided in Section 4.02, constitute or be
deemed to constitute any party the agent or employee of the other party for any
purpose whatsoever and neither party shall have authority or power to bind the
other or to contract in the name of, or create a liability against, the other in
any way or for any purpose.
SECTION 7.04. Subcontractors. The Limited may hire or engage one or
more subcontractors to perform all or any of its obligations under this
Agreement; provided that, subject to Section 4.03, The Limited will in all cases
remain primarily responsible for all obligations undertaken by it in this
Agreement with respect to the scope, quality and nature of the Services provided
to Abercrombie & Fitch.
SECTION 7.05. Force Majeure. (a) For purposes of this Section, "FORCE
MAJEURE" means an event beyond the control of either party, which by its nature
could not have been foreseen by such party, or, if it could have been foreseen,
was unavoidable, and includes without limitation, acts of God, storms, floods,
riots, fires, sabotage, civil commotion or civil unrest, interference by civil
or military authorities, acts of war (declared or undeclared) and failure of
energy sources.
(b) Without limiting the generality of Section 4.03(a), neither party
shall be under any liability for failure to fulfill any obligation under this
Agreement, so long as and to the extent to which the fulfillment of such
obligation is prevented, frustrated, hindered, or delayed as a consequence of
circumstances of force majeure; provided that such party shall have exercised
all due diligence to minimize to the greatest extent possible the effect of
force majeure on its obligations hereunder.
(c) Promptly on becoming aware of force majeure causing a delay in
performance or preventing performance of any obligations imposed by this
Agreement (and termination of such delay), the party affected shall give written
notice to the other party giving details of the same, including particulars of
the actual and, if applicable, estimated continuing effects of such force
majeure on the obligations of the party whose performance is prevented or
delayed. If such
16
<PAGE> 20
notice shall have been duly given, and actual delay resulting from such force
majeure shall be deemed not to be a breach of this Agreement, and the period for
performance of the obligation to which it relates shall be extended accordingly;
provided that if force majeure results in the performance of a party being
delayed by more than 60 days, the other party shall have the right to terminate
this Agreement with respect to any Service effected by such delay forthwith by
written notice.
SECTION 7.06. Entire Agreement. This Agreement (including the Schedules
constituting a part of this Agreement) and any other writing signed by the
parties that specifically references this Agreement constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter hereof. This
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
SECTION 7.07. Information. Subject to applicable law and privileges,
each party hereto covenants and agrees to provide the other party with all
information regarding itself and transactions under this Agreement that the
other party reasonably believes are required to comply with all applicable
federal, state, county and local laws, ordinances, regulations and codes,
including, but not limited to, securities laws and regulations.
SECTION 7.08. Notices. Any notice, instruction, direction or demand
under the terms of this Agreement required to be in writing will be duly given
upon delivery, if delivered by hand, facsimile transmission, intercompany mail,
or mail, to the following addresses:
(a) If to Abercrombie & Fitch, to:
Abercrombie & Fitch Co.
Four Limited Parkway
Reynoldsburg, OH 43068
Attention: Seth R. Johnson
Fax: 614-577-6950
(b) If to The Limited, to:
The Limited, Inc.
Three Limited Parkway
Columbus, OH 43230
Attention: Samuel P. Fried
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<PAGE> 21
Fax: 614-415-7199
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: David L. Caplan
Fax: 212-450-4800
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
SECTION 7.09. Governing Law. This Agreement shall be construed in
accordance with and governed by the substantive internal laws of the State of
Delaware.
SECTION 7.10. Dispute Resolution. Subject to Sections 4.03(e), 6.01 and
6.02, the parties hereto agree that any dispute arising out of or in connection
with this Agreement or the transactions contemplated hereby shall be submitted
to arbitration. The parties shall negotiate in good faith and use all reasonable
efforts to agree upon a resolution of any dispute after receipt of written
notice of such dispute from a party. If the parties cannot agree on an amicable
settlement within 30 days from written submission of the matter by the party to
the other party, the matter shall be submitted to arbitration. Each party shall
select one arbitrator, and the two arbitrators so appointed shall select a third
arbitrator. In the event such arbitrators cannot agree upon a third arbitrator,
a third arbitrator shall be selected in accordance with the rules as then in
effect of the American Arbitration Association. The decision of two of the three
arbitrators so appointed shall be conclusive and binding upon the parties to
this Agreement. Any such arbitration shall be held in Columbus, Ohio under the
rules to be mutually agreed upon by the arbitrators selected by the parties or,
if no such agreement can be reached, under the rules as then in effect of the
American Arbitration Association. Each party to any such arbitration shall pay
its own expenses; provided that the fees, costs and expenses of the third
arbitrator shall be borne equally by the parties.
SECTION 7.11. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
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<PAGE> 22
SECTION 7.12. Severability. If any provision of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if not
containing the particular invalid or unenforceable provision, and the rights and
obligations of each party shall be construed and enforced accordingly.
SECTION 7.13. Amendment. This Agreement may only be amended by a
written agreement executed by both parties hereto.
SECTION 7.14. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one agreement.
SECTION 7.15. Services to The Limited. Abercrombie & Fitch agrees to
permit the Limited Entities to use the trademarks and service marks owned by the
Abercrombie & Fitch Entities at no cost to any Limited Entity in The Limited's
annual reports to shareholders for fiscal years 1997 and 1998 and publicity
materials and for other similar purposes through the end of fiscal year 1998.
SECTION 7.16. Termination of Old Services Agreement. Effective as of
the date hereof, The Limited's obligation to provide or procure, and Abercrombie
& Fitch's obligation to purchase, services under the Old Services Agreement
shall terminate automatically without any further action by any party.
19
<PAGE> 23
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their duly authorized representatives.
ABERCROMBIE & FITCH CO.
By:
----------------------------------
Name:
Title:
THE LIMITED, INC.
By:
----------------------------------
Name:
Title:
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<PAGE> 24
HUMAN RESOURCES AND BENEFITS SERVICES - SCHEDULE I
The Limited's obligation to provide or procure, and Abercrombie &
Fitch's obligation to purchase, the services described in this Schedule shall
terminate three months after the Effective Date.
SERVICE BILLING METHODOLOGY
- - ------- -------------------
MEDICAL/DENTAL PROGRAMS
Benefits/Claims Customary Billing
- - ---------------
O CLAIMS COSTS FOR ABERCROMBIE & FITCH ASSOCIATES
PARTICIPATING IN THE FOLLOWING LIMITED PLANS AND
PROGRAMS:
O MEDICAL PLAN
O SHORT TERM DISABILITY PLAN
O PRESCRIPTION DRUG PLAN
O DENTAL PLAN
ADMINISTRATION Customary Billing
- - --------------
O ADMINISTRATION OF ABOVE ABERCROMBIE & FITCH
PLANS AND PROGRAMS, INCLUDING
O MAINTENANCE OF ELIGIBILITY FILES UPON
ABERCROMBIE & FITCH'S NOTIFICATION OF STATUS
CHANGES
O CLAIM ADJUDICATION UNDER THE TERMS OF
APPLICABLE PLANS
O MAINTENANCE OF TOLL-FREE TELEPHONE LINES FOR
INQUIRIES, ETC.
O SUPPORT SERVICES (INTERNAL AND EXTERNAL,
INCLUDING COBRA)
PARTICIPANT CONTRIBUTIONS
- - -------------------------
O PARTICIPANT CONTRIBUTIONS FOR DEDUCTIONS ABOVE Participant Payroll
PLANS OR DIRECT BILL TO ASSOCIATES/RETIREES
OTHER BENEFIT PLANS
LIFE INSURANCE Customary Billing
- - --------------
O LIFE INSURANCE FOR ABERCROMBIE & FITCH
ASSOCIATES (INCLUDING ACCIDENTAL DEATH AND
DISMEMBERMENT)
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<PAGE> 25
SERVICE BILLING METHODOLOGY
- - ------- -------------------
SAVINGS/RETIREMENT PLANS
- - ------------------------
O COMPANY MATCH/RETIREMENT CONTRIBUTION Customary Billing
O PARTICIPANT CONTRIBUTIONS Payroll Deduction
LONG-TERM DISABILITY PLANS
- - --------------------------
O EMPLOYER CONTRIBUTIONS Customary Billing
O ASSOCIATE CONTRIBUTIONS Payroll Deduction
OTHER BENEFIT SUPPORT SERVICES Customary Billing
O AUDIT, LEGAL, ACTUARIAL FEES AND RELATED
RECOVERIES
O PAYROLL SUPPORT OF BENEFITS ADMINISTRATION
(INSURANCE, SAVINGS, OTHER BENEFIT PLANS AND
STATUTORY REQUIREMENTS)
EMPLOYEE STOCK PURCHASE PROGRAM CUSTOMARY BILLING
O PAYROLL SERVICES
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<PAGE> 26
INFORMATION TECHNOLOGY SERVICE - SCHEDULE II
The Limited's obligation to provide or procure, and Abercrombie &
Fitch's obligation to purchase, the services described in this Schedule shall
terminate on the first anniversary of the Effective Date. The costs for the
services on this Schedule shall be billed using the Customary Billing method.
DATA CENTER SERVICES
Computing services consistent with services provided to Abercrombie & Fitch in
the past, including:
o providing the following operating environments:
o MVS environment at or above the current release of MVS SP6.0.3
o Hardware environment to execute the MVS operating system described
above
o IBM CICS environments for Test and Production applications at or above
the current release of 2.1 and 4.1, respectively
o providing the following software:
o IBM DB/2, Version 5.1
o IBM TSO/ISPF, release 4.4
o IBM VSAM and IDCAMS software
o IBM ADDCOM (ADCS), NDM and GIX for store polling support
o Compuware File-Aid software, release 8.0.1
o SAS Institute Base SAS, release 6.09
o Maintain scheduling software to run the production job streams.
o Balance job streams as a means of controlling production applications.
o Maintain current print distribution by DC4 operations.
o Provide monitoring reports for Abercrombie & Fitch I.T. management.
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<PAGE> 27
o Provide data transmission to other entities. ( e.g., banks).
o Maintain the Abercrombie & Fitch Polling modems in the DC1 data center.
o Maintain hardware for tape and DASD support.
o Maintain current connectivity to the SNA network at the Abercrombie & Fitch
offices in Reynoldsburg.
o Sufficient spool capacity for reports to laser and impact printers.
o Maintain storage libraries for Abercrombie & Fitch to store Test and
Production source code and object code, including ADCSLIB, ASM, COBOL,
CNTL, PROCLIB, COPYLIB, MAPLIB, PARMLIB, SAS, VSAM and DOC libraries.
YEAR 2000 SERVICES
o Maintain a testing environment consistent with other Limited Inc.
businesses for compliance testing of MVS systems.
o Allow Abercrombie & Fitch to complete work under the Limited Project
Management Office towards meeting ITAA standards for Year 2000.
TECHNICAL SERVICES
o Technical support for physical data in DB/2 and VSAM.
o Technical support for SNA and VTAM.
o Technical support for system usage. ( i.e. new users, RACF ID's).
TELECOMMUNICATIONS SERVICES
o Provide move/add/change services to Reynoldsburg offices
o Maintain telecom switch and connections to Ameritech and MCI.
POINT-OF-SALE HELP DESK SERVICES
o Provide the current point-of-sale help desk support from Limited stores at
or above current levels.
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<PAGE> 28
TRANSITION SERVICES
o The Limited EOC will provide technical services ("TRANSITION SERVICES") to
assist Abercrombie & Fitch to move to another Data Center upon the
termination of the period (the "SERVICE PERIOD") during which The Limited
is obligated to provide or procure the other services contemplated by this
Schedule. These Transition Services will entail consulting with Abercrombie
& Fitch technical services staff concerning the hardware and operating
system environment in use at the EOC, but will not include any Services not
specifically contemplated in this or the following six paragraphs. Without
limiting the generality of the foregoing, Transition Services will not
include configuration, tailoring or tuning of the environment at any new
Abercrombie & Fitch Data Center.
o Copies of all Abercrombie data, both current and all available historical,
will be made available to complete a transition. This data will be provided
in magnetic tape format (or such other format compatible with devices in
use at the EOC as Abercrombie & Fitch reasonably requests).
o Copies of all applications software directly licensed to Abercrombie &
Fitch will also be made available to complete a transition, consistent with
any license agreements governing use of that software. These programs
include any and all application software and utilities licensed directly to
Abercrombie & Fitch and used to operate its production and test systems.
Applications and operating system software licensed to The Limited or any
of its affiliates and made available to or used for the benefit of
Abercrombie & Fitch under this Schedule II will not be available for
Abercrombie & Fitch's use unless the applicable licensor consents.
Abercrombie & Fitch acknowledges that, when obtainable, such consent often
is contingent upon payment of a licensing charge (which shall be the sole
responsibility of Abercrombie & Fitch).
o Where applicable, technically feasible and contractually permissible, upon
request Abercrombie data and directly-licensed software may be
electronically transmitted to Abercrombie & Fitch's data center in lieu of
magnetic tape or other media transfer.
o. Abercrombie-owned polling modems currently at the EOC data center will be
transferred to the new data center for continuation of communications at
the end of the Service Period. At the end of the Service Period, polling
modems not owned by Abercrombie & Fitch but used for the benefit of
Abercrombie & Fitch will be made available to Abercrombie & Fitch for
purchase at net book value at the end of the Service Period (with net book
value to be calculated in
3
<PAGE> 29
accordance with generally accepted accounting principles applied
consistently with the manner in which they are currently applied).
o Network systems hardware owned by Abercrombie & Fitch and all other
"downstream" communications hardware owned by Abercrombie & Fitch will
remain assets of Abercrombie & Fitch.
o All telecommunications hardware used exclusively in connection with
Abercrombie & Fitch's business will be acquired by Abercrombie & Fitch at
the end of the Service Period. The purchase price to be paid by Abercrombie
& Fitch for such hardware will be the net book value of the hardware at the
end of the Service Period (with net book value to be calculated in
accordance with generally accepted accounting principles applied
consistently with the manner in which they are currently applied).
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<PAGE> 30
DISTRIBUTION CENTER, TRANSPORTATION, ENGINEERING AND RELATED SERVICES -
SCHEDULE III
The Limited's obligation to provide or procure, and Abercrombie &
Fitch's obligation to purchase, the services described in this Schedule shall
terminate on the third anniversary of the Effective Date. The costs for the
services on this Schedule shall be billed using the Customary Billing method,
except as otherwise indicated.
DISTRIBUTION AND STORAGE SERVICES
Distribution and storage services will include receiving, handling, processing,
storing and shipping Abercrombie & Fitch merchandise as well as other goods and
materials to the extent reasonably related to Abercrombie & Fitch merchandise.
Procedures will be maintained to ensure process accountability, inventory
control, quality inspection, store-ready preparation or other special handling
services on the terms, subject to the conditions and on the basis contemplated
by this Agreement. Abercrombie & Fitch agrees that The Limited, including
Limited Distribution Services, Inc. ("LDS"), may from time to time modify its
procedures and processes, subject to the terms of this Agreement.
Without limiting the generality of the foregoing, specific services to be
performed by LDS include:
o Cycle count warehoused merchandise with the goal of cycling through the
Abercrombie & Fitch merchandise once each quarter.
o New store merchandise to be sensor-tagged by the distribution center prior
to shipment.
o Magazine merchandise to be poly-bagged by the distribution center prior to
shipment.
LDS will operate and maintain the facilities, distribution processing,
information systems and distribution related equipment (including safeguarding
the facilities and their contents), and provide a dedicated management staff and
work force, to the extent necessary to perform the services contemplated by this
Schedule on the terms, subject to the conditions and on the basis set forth in
this Agreement.
LDS may, at its discretion, make use of any facilities at its disposal in
addition to the primary Abercrombie & Fitch distribution site to perform the
foregoing services, provided that the required service levels are maintained. It
is understood
<PAGE> 31
that the associates, methods, systems, equipment and facilities of LDS shall at
all times be under LDS' exclusive direction and control.
TRANSPORTATION SERVICES
LDS will provide all shipping and transportation services and support as
follows: inbound and outbound shipping consolidation, international and domestic
freight forwarding, consolidation, CFS, transportation and store delivery
services through third party providers, and related management and
administration of these activities.
Abercrombie & Fitch agrees to timely communicate with LDS regarding business
plans which may impact LDS' ability to perform such services, including global
production plans, store distributions strategies, or significant changes in
requirements.
On the terms and subject to the conditions set forth in this Agreement, LDS will
provide Abercrombie & Fitch access to The Limited Inc. Freight Tracking System
(LIFTS). Any future improvements to the system which benefit other businesses
served by LDS will be made available to Abercrombie & Fitch on the same basis as
they are made available to such other businesses. Abercrombie & Fitch will
continue to provide purchase order uploads to the LIFTS system and agrees to
cooperate with LDS in efforts to improve the system, provided no substantial
expense or investment will be required of Abercrombie & Fitch.
SUPPLIES
The current procedure of tracking Abercrombie & Fitch supply purchases through
purchase orders to remain in effect.
ENGINEERING SERVICES
The following services will be provided by LDS Engineering for the design and
construction of offices and distribution centers:
o Requirements analysis and validation
o Schematic design and space or operation layout
o Cost estimating
o Engineering
2
<PAGE> 32
o Production of construction documents (drawing and specification)
o Solicitation and evaluation of competitive bids
o Purchasing, delivery, and implementation
o Project scheduling and management
o Project cost tracking and reporting
o Moving and start up assistance
FIXTURES
o It is understood that the Abercrombie & Fitch Distribution Center is
scheduled to relocate from its current facility to an other facility owned
by The Limited, with such relocation to be effected on or prior to
September 1, 1998. In connection with such relocation, The Limited will
purchase on Abercrombie & Fitch's behalf (with Abercrombie & Fitch to
reimburse The Limited promptly for all such purchases) hangers, racks and
other equipment (the "Distribution Center Equipment") required to operate
such new Distribution Center in the manner agreed by Abercrombie & Fitch
and The Limited prior to the date hereof. It is understood that the cost of
such hangers, racks and other equipment is expected to be approximately
$8.3 million in the aggregate (of which (i) $4.8 million will be payable
for hangers, racks and other equipment currently expected to be required to
meet Abercrombie & Fitch's needs in the Fall of 1998 and (ii) $3.5 million
will be payable for hangers, racks and other equipment currently expected
to be required to meet Abercrombie & Fitch's needs in the Spring of 1998,
it being understood that the amounts referred to in clause (ii) are subject
to adjustment during the Fall of 1998 in a manner mutually satisfactory to
The Limited and Abercrombie & Fitch based on Abercrombie & Fitch's then-
current business plan).
o Any Distribution Center Equipment which is not purchased by The Limited
shall be dismantled and removed from the leased Distribution Center
premises by Abercrombie & Fitch at its sole cost upon the termination of
its occupancy of such premises.
o Except for the arrangements with respect to the Distribution Center
Equipment set forth above, all further capital improvements to the
Distribution Center shall be the sole responsibility of Abercrombie &
Fitch.
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<PAGE> 33
o In the event of a Change of Control involving a Person which competes with
any current business of The Limited or any of its Subsidiaries, The
Limited and Abercrombie & Fitch will work in good faith and use their
reasonable best efforts to develop a plan whereby Abercrombie & Fitch
relocates from any facilities owned by The Limited as promptly after the
Change of Control as is reasonably practicable.
4
<PAGE> 34
STORE PLANNING SERVICES - SCHEDULE IV
The Limited's obligation to provide or procure, and Abercrombie &
Fitch's obligation to purchase, the services described in this Schedule shall
terminate on the first anniversary of the Effective Date. The Limited and
Abercrombie & Fitch agree that the capitalized construction costs for the
services described in this Schedule shall be billed upon the completion of the
construction of a store, and that Abercrombie & Fitch shall pay such costs for
each store within 30 days after the opening of such store. Costs for services
other than capitalized construction costs shall be billed in accordance with the
Customary Billing Methodology.
STORE PLANNING SERVICES TO BE PROVIDED BY LIMITED BILLING METHODOLOGY
STORE PLANNING
Limited Store Planning, Inc. ("LSP") will provide the Customary Billing
following services to Abercrombie & Fitch for
Abercrombie & Fitch stores to be opened or remodeled
in 1998:
o Initial design of space
o Production of architectural and mechanical drawings
of the store design
o Construction of store to drawing specifications
o Purchasing, shipment, and installation of materials
o Project management and accumulation of capital
costs
o Assisting Abercrombie & Fitch as necessary in the transition of
responsibility from LSP to Abercrombie & Fitch, including the transfer of
following:
o Store design plans
o Project management software
o Information pertaining to contractors, suppliers,
and other non-Limited resources used in the design
and construction of Abercrombie & Fitch stores
<PAGE> 35
REAL ESTATE SERVICES - SCHEDULE V
The Limited's obligation to provide or procure, and Abercrombie &
Fitch's obligation to purchase, the services described in this Schedule shall
terminate on the first anniversary of the Effective Date. The costs for the
services on this Schedule shall be billed using the Customary Billing method.
REAL ESTATE SERVICES TO BE PROVIDED BY LIMITED REAL ESTATE
Limited Real Estate ("LRE") will provide the following services to Abercrombie &
Fitch:
o Complete necessary deal follow-up and legal work for all deals in process
at the Effective Date.
o Provide Abercrombie & Fitch with the following:
o Leasing files, center maps, leasing plans and contact person
information for:
o all existing Abercrombie & Fitch locations.
o the top 600 centers.
o premier specialty centers.
o The Limited's list of developers, corporate offices, contacts, phone
numbers, etc.
o Copies of PCR's and ROA's for all existing and approved Abercrombie
& Fitch deals.
o Copies, including disc copies, if applicable, of existing form
leases with developers and Limited form leases.
o Copies of all Abercrombie & Fitch leases.
o Current version of the in-house developed real estate system and
data.
o Allow Abercrombie & Fitch to participate in the consolidated utility
management system related to deregulation.
2
<PAGE> 36
TAX SERVICES- SCHEDULE VI
The Limited's obligation to provide or procure, and Abercrombie &
Fitch's obligation to purchase, the services described in this Schedule shall
terminate no later than the filing due date for the income tax returns of
Abercrombie & Fitch for fiscal year 1998. The costs for the services on this
Schedule shall be billed using the Customary Billing method.
The Limited will:
o provide assistance and coordinate with outside tax accountants and
professional as is reasonably necessary for the preparation and filing of
the following income tax returns of Abercrombie & Fitch:
o federal consolidated income tax returns for the tax periods ending on
or before January 30, 1999.
o combined and separate state income or franchise tax returns for tax
periods ending on or before January 30, 1999.
o assist Abercrombie & Fitch in preparing tax packages and determining the
amount of estimated income tax installments for the federal and state income
taxes for the tax periods described above.
o assist Abercrombie & Fitch to the extent necessary in the transition of tax
responsibility from The Limited to Abercrombie &Fitch, by
o providing access to various tax resources of The Limited, including tax
library, tax software and tax personnel;
o allowing a designated Abercrombie & Fitch person to observe, learn and
participate in the planning, preparation and filing of Abercrombie
&Fitch income tax returns described above; and
o providing tax planning services regarding Abercrombie & Fitch's income
taxes for the tax periods described above.
<PAGE> 1
Exhibit 10.11
EXECUTION COPY
AMENDMENT TO SUBLEASE AGREEMENT
This amendment to the Sublease Agreement dated June 11, 1995 (the
"Sublease Agreement") between Victoria's Secret Stores, Inc., a Delaware
corporation (hereinafter referred to as "Landlord") and Abercrombie & Fitch Co.,
a Delaware corporation (hereinafter referred to as "Tenant") is entered into and
made as of the 19th day of May, 1998, by and between the Landlord and the
Tenant.
W I T N E S S E T H:
WHEREAS, Landlord has leased from Distribution Land Corp., a
Delaware corporation ("DLC"), a certain office/warehouse distribution facility
containing approximately 951,798 square feet of floor space, identified on
Exhibit A attached to the Sublease Agreement (the "Building"), pursuant to the
terms of that certain Building Lease Agreement between Landlord and DLC dated as
of June 1, 1995 (the "Building Lease"); and
WHEREAS, the Building is located upon an approximately 321.1 acre
parcel of land located at the intersection of East Broad Street (State Route 16)
and Taylor Road, Reynoldsburg, Ohio, which land is depicted on Exhibit A
attached to the Sublease Agreement (the "Campus"); and
WHEREAS, Landlord subleased to Tenant a portion of the Building as
more particularly described in the Sublease Agreement (the "Premises") and
granted to Tenant the right to utilize certain common areas and facilities
located within the Building and the Campus, all subject to the terms and
conditions of the Sublease Agreement and the Building Lease; and
WHEREAS, Landlord and Tenant desire to amend the Sublease Agreement
as hereinafter provided.
NOW, THEREFORE, in consideration of the premises described above and
the mutual promises set forth herein, Landlord and Tenant, intending to be
legally bound, hereby agree as follows:
SECTION 1. Definitions. Any capitalized terms not defined herein shall
have the meanings ascribed to them in the Sublease Agreement.
SECTION 2. Amendments. Effective as of the date hereof, the parties agree
that the Sublease Agreement shall be amended as follows:
<PAGE> 2
(a) Section 1.02.C(ii) shall be deleted and replaced with the
following:
"(ii) The space within the Premises is further depicted on the floor
plan attached hereto as EXHIBIT B and made a part hereof by
this reference, and consists of the following approximate
number of square feet: 271,617 (consisting of 70,320 square
feet of office space and 201,297 square feet of distribution
space)"
(b) Section 1.02.D shall be deleted and replaced with the following:
"D. Term: Six (6) years, beginning on June 1, 1995 (the
"Commencement Date") and ending on May 31, 2001 (the
"Expiration Date")"
(c) Section 1.02.E(i) shall be deleted and replaced with the following:
"(i) Office space - $11.00 per square feet, or $773,520.00"
(d) Section 1.02.E(iii) shall be deleted and replaced with the
following:
"(iii) Total Annual Base Rent (for distribution and office space) of
$1,347,216.45"
(e) Section 1.02.F shall be deleted and replaced with the following:
"F. Monthly Installments of Base Rent (for distribution and office
space): $112,268.04"
(f) Section 1.02.G and Section 3.05 shall be deleted in their entirety.
(g) EXHIBIT B shall be deleted and replaced with the new Exhibit B
attached hereto.
SECTION 3. No Other Modifications. Except as amended hereby, the
Sublease Agreement shall remain unchanged and the Sublease Agreement as amended
shall remain in full force and effect.
SECTION 4. Governing Law. This Amendment shall be construed and
enforced in accordance with the laws of the State of Ohio.
2
<PAGE> 3
SECTION 5. Successors and Assigns. This Amendment and the respective
rights and obligations of the parties hereto shall inure to the benefit of and
be binding upon the successors and assigns of the parties hereto, as well as the
parties themselves.
SECTION 6. Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be deemed an original and said counterparts
shall together constitute one and the same instrument, binding all of the
parties hereto, notwithstanding all of the parties are not signatory to the
original or the same counterparts.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
Witnesses as to Landlord: LANDLORD:
VICTORIA'S SECRET STORES, INC., a
Delaware corporation
________________________________ By: ______________________________
Print Name:_____________________ Name:
Title:
________________________________
Print Name:_____________________ ATTESTED BY:
________________________________ __________________________________
Print Name:_____________________ Name:
Title:
________________________________
Print Name:_____________________
4
<PAGE> 5
Witnesses as to Tenant: TENANT:
ABERCROMBIE & FITCH, INC., a
Delaware corporation
________________________________ By: ______________________________
Print Name:_____________________ Name:
Title:
Print Name:_____________________ ATTESTED BY:
________________________________ __________________________________
Print Name:_____________________ Name:
Title:
________________________________
Print Name:_____________________
5
<PAGE> 6
STATE OF OHIO,
COUNTY OF FRANKLIN, SS:
The foregoing instrument was acknowledged before me this 19th day of
May, 1998, by __________________ and __________________, ______________,
respectively, of Victoria's Secret Stores, Inc., a Delaware corporation, on
behalf of the corporation.
----------------------------------
Notary Public
Notarial Seal
STATE OF OHIO,
COUNTY OF FRANKLIN, SS:
The foregoing instrument was acknowledged before me this 19th day of
May, 1998, by ______________________ and ____________________,
___________________, respectively, of Abercrombie & Fitch, Inc., a Delaware
corporation, on behalf of the corporation.
----------------------------------
Notary Public
Notarial Seal
6
<PAGE> 1
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated May 7, 1998, on our review of the interim
consolidated financial information of Abercrombie & Fitch Co. and Subsidiaries
for the thirteen-week period ended May 2, 1998 and included in this Form 10-Q
is incorporated by reference in the Company's registration statements on Form
S-8, Registration Nos. 333-15941, 333-15943 and 333-15945. Pursuant to Rule
436(c) under the Securities Act of 1933, this report should not be considered a
part of the registration statement prepared or certified by us within the
meaning of Sections 7 and 11 of that Act.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
June 12, 1998
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