As filed with the Securities and Exchange Commission on June 28, 1999
Registration No. 1-14987
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
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TOO, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 31-1333930
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3885 Morse Road 43219
Columbus, Ohio (Zip Code)
(Address of Principal Executive Offices)
(614) 479-3500
(Registrant's telephone number, including area code)
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Securities to be registered
pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
Common Stock, par value $.01 per share The New York Stock Exchange, Inc.
Securities to be registered
pursuant to Section 12(g) of the Act:
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None
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The Limited, Inc.
, 1999
Dear Limited Shareholder:
Beginning in 1995, The Limited, Inc. increased its strategic
focus to unlock and create greater value for shareholders. The strategy and
the actions that have resulted from this focus during the last several years
are described in the accompanying information statement.
As part of these actions, The Limited, Inc. has announced a
plan to establish its Limited Too business as a fully independent public
company under the name Too, Inc. In order to implement this plan and
distribute its Too, Inc. shares, the Board of Directors of The Limited has
approved a spin-off to our shareholders of all the outstanding shares of
common stock of Too, Inc. to holders of record of The Limited's common stock
on , 1999. In the spin-off, you will receive one share of Too,
Inc.'s common stock for every share(s) of The Limited's common stock
that you hold at the close of business on , 1999. Your current
shares of our common stock will be unchanged and will continue to represent
your ownership position in The Limited, Inc.
Your Board of Directors has concluded that the spin-off is in
the best interests of The Limited, the Limited Too business and The Limited's
shareholders, because it believes that:
o having two separate public companies will enable the financial
markets to evaluate each company more effectively, thereby maximizing
shareholder value over the long term for both The Limited and Too,
Inc.
o separate management and ownership structures for Too, Inc. will
provide incentives to Too, Inc.'s management and direct
accountability to public investors
o the spin-off will provide Too, Inc.'s management with increased
strategic flexibility and decision-making power to realize the
significant growth opportunities that it has identified
Shares of Too, Inc.'s common stock are expected to trade on the
New York Stock Exchange, under the ticker symbol "TOO".
The enclosed information statement explains the proposed
spin-off in detail and provides important information regarding Too, Inc. We
urge you to read it carefully. Please note that a shareholder vote is not
required in connection with this matter, and holders of The Limited's common
stock are not required to take any action to participate in the spin-off.
Thus, we are not asking you for a proxy.
Very truly yours,
Leslie H. Wexner
Chairman and Chief Executive Officer
The Limited, Inc.
Too, Inc.
, 1999
Dear Too, Inc. Shareholder:
We welcome you as a "founding" shareholder of Too, Inc., the
successor company to Limited Too, Inc. that will be publicly traded for the
first time on , 1999. You will become an owner of one share of
Too, Inc.'s common stock for every share(s) of common stock of The
Limited, Inc. that you own at the close of business on , 1999. We
expect that shares of our common stock will trade on the New York Stock
Exchange, under the ticker symbol "TOO".
As you know, Limited Too is the leading specialty retailer
specifically targeted to fashion-aware, trend-setting young girls. Our stores
sell apparel, underwear, sleepwear, swimwear, lifestyle and personal care
products for girls aged 7 to 14 years in a fun shopping environment. In fiscal
1998, we had sales of $377 million, and we currently have approximately 5,900
sales associates in 330 stores nationwide.
This is a very exciting time, and we are enthusiastic about
what the future holds. We believe that our Company has a great opportunity to
grow, and as a new Too, Inc. shareholder, like our customers, you have an
opportunity to grow with us.
Congratulations on becoming one of the "founding" shareholders
of Too, Inc.!
Very truly yours,
Michael W. Rayden
President and Chief Executive Officer
Too, Inc.
Preliminary and Subject to Completion, dated June 28, 1999
INFORMATION STATEMENT
TOO, INC.
COMMON STOCK
(par value $.01 per share)
At this time, Too, Inc., the successor company to Limited Too,
Inc., is wholly owned by The Limited, Inc. In this spin-off, The Limited will
distribute 100% of the shares of our common stock to its shareholders. Each of
you, as a holder of The Limited's common stock, will receive one share of our
common stock for every share(s) of The Limited that you hold at the close
of business on , 1999, the record date for the spin-off.
We are sending you this information statement to describe the
spin-off. We expect the spin-off to occur on , 1999. The Limited
will mail you certificates representing your proportionate number of whole
shares of our common stock on this day or as soon after this day as
practicable. Immediately after the spin-off is completed, The Limited will not
own any shares of our common stock, and we will be an independent public
company. We refer to ourselves in this information statement as "Limited Too"
or "Too, Inc."
No shareholder action is necessary to receive the shares of our
common stock to which you are entitled in the spin-off. This means that:
o you do not need to pay any consideration to The Limited or to
Too, Inc.
o you do not need to surrender any shares of The Limited's
common stock to receive your shares of our common stock
In addition, a shareholder vote is not required for the spin-off to occur. The
Limited is not asking you for a proxy, and The Limited requests that you do
not send a proxy.
There has been no trading market for our common stock. However,
we expect that a limited market for shares of our common stock will develop on
or shortly before the record date for the spin-off, commonly known as a "when
issued" trading market. We have applied to list our common stock on the New
York Stock Exchange under the ticker symbol "TOO".
As you review this information statement, you should carefully
consider the matters described in "Risk Factors" beginning on page 13.
-----------------
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved of these securities, or determined
if this information statement is truthful or complete. Any representation to
the contrary is a criminal offense.
The date of this information statement is , 1999.
TABLE OF CONTENTS
Page
Introduction.................................................................3
Summary......................................................................5
Risk Factors................................................................13
The Spin-Off................................................................25
Relationship Between Too, Inc. and The Limited..............................29
Trading Market..............................................................39
Dividends...................................................................40
Unaudited Pro Forma Consolidated Financial Statements.......................41
Capitalization..............................................................47
Selected Consolidated Financial and Operating Data..........................48
Management's Discussion and Analysis of Financial Condition and Results
of Operations...............................................................50
Business....................................................................60
Management..................................................................76
Executive Compensation......................................................79
Security Ownership of The Limited and Too, Inc..............................87
Description of Capital Stock................................................89
Statutory, Charter and Bylaw Provisions.....................................91
Independent Accountants.....................................................95
Where You Can Find More Information.........................................96
Index to the Consolidated Financial Statements of Limited Too, Inc.........F-1
INTRODUCTION
Over the past several years, The Limited's board of directors
and senior management have embarked upon a comprehensive review of The
Limited's organization structure and operations, with the primary goals of
generating maximum value for The Limited's shareholders and focusing its
resources on its key strategic business.
After much consideration, The Limited determined that a
complete spin-off of Too, Inc., the successor company to Limited Too, Inc.,
from The Limited is consistent with these objectives and would be in the best
interests of The Limited, the Limited Too business and The Limited's
shareholders. We at Limited Too have demonstrated that we have a unique
customer base, focused brand image and a profitable growth strategy, and The
Limited intends for the spin-off to allow us greater flexibility to grow as an
independent company. At the same time, the spin-off allows The Limited to
focus its resources on its other brands where it can add more value. The
Limited believes that:
o having two separate public companies will enable the financial
markets to evaluate each company more effectively, thereby maximizing
shareholder value over the long term for both The Limited and Too,
Inc.
o separate management and ownership structures for Too, Inc. will
provide incentives to Too, Inc.'s management and direct
accountability to public investors
o the spin-off will provide Too, Inc.'s management with increased
strategic flexibility and decision-making power to realize the
significant growth opportunities that it has identified
In deciding to pursue the spin-off, The Limited considered several things,
including the financial advice of J.P. Morgan Securities Inc. and the legal
advice of Davis Polk & Wardwell. To review the reasons for the spin-off in
greater detail, see "The Spin-Off--Background to and Reasons for the Spin-Off."
To accomplish the spin-off, on , 1999, the Board of
Directors of The Limited declared a dividend payable to holders of record of
The Limited's common stock at the close of business on , 1999, of
one share of our common stock for every share(s) of The Limited's common
stock owned of record on this day. We expect the spin-off to occur on
, 1999. The Limited will mail you certificates representing your
proportionate number of whole shares of our common stock on this day or as
soon after this day as practicable.
In the spin-off, The Limited will distribute 100% of the
outstanding shares of our common stock to its shareholders. Immediately after
the spin-off is completed, The Limited will not own any shares of our common
stock, and we will be an independent public company. We have applied to list
our common stock on the New York Stock Exchange under the ticker symbol "TOO".
If you have any questions relating to the spin-off, you should
contact EquiServe, First Chicago Division, which is serving as the
distribution agent for the spin-off. The contact information for EquiServe is:
EquiServe
First Chicago Division
525 Washington Boulevard
Suite 4690
Jersey City, NJ 07310
(201) 222-4237
Attention: Robbin A. Mayo, Assistant Vice President
You can also contact The Limited with any questions. The
Limited's contact information is:
The Limited, Inc.
Three Limited Parkway
P.O. Box 16000
Columbus, OH 43216
(614) 415-7076
Attention: Thomas J. Katzenmeyer, Vice President of Investor Relations
After the spin-off, if you are a shareholder of Too, Inc. and
have questions relating to the spin-off, you can contact us directly. Our
contact information is:
Too, Inc.
3885 Morse Road
Columbus, OH 43219
(614) 479-3610
Attention: Kent A. Kleeberger, Vice President and Chief Financial Officer
No action is necessary to receive the shares of our common
stock to which you are entitled in the spin-off. You do not need to pay any
consideration to The Limited or to us, and you do not need to surrender any
shares of The Limited's common stock to receive your shares of our common
stock.
SUMMARY
This summary highlights information contained in this
information statement. You should read the entire information statement,
including our historical and pro forma consolidated financial statements and
the notes to those financial statements.
LIMITED TOO
We are a rapidly growing specialty retailer that sells apparel,
underwear, sleepwear, swimwear, lifestyle and personal care products for
fashion-aware, trend-setting young girls. As of May 1, 1999, we had 321 stores
in 43 states. We design, source and market our products under our proprietary
"Limited Too" brand name.
In 1987, The Limited established "Limited Too" brand stores
adjacent to or as departments within The Limited stores to provide similar
apparel to young girls, and apparel for infants. From 1987 to the end of
fiscal 1995, we expanded our locations from two stores to 288 stores. In 1996,
a new management team recognized that its core customer had her own emerging
sense of style and revised our strategy to focus on girls approximately 7 to 14
years of age as our target customer group.
In the period from fiscal 1996 to fiscal 1998, this focused
strategy enabled us to:
o increase net sales to $376.9 million from $258.8 million
o improve our pretax operating income to $28.5 million from a
loss of $(8.9) million
o improve our operating income rate as a percentage of sales to
7.6% from a loss of (3.4)%
o improve sales per average square foot to $300 from $214
We plan to continue our new store expansion program by opening
approximately 40 new stores per year in 1999 and 2000 and remodeling or
expanding approximately 20 existing stores in 1999.
Business Strengths
We believe that our six core business strengths developed over
the last three years have contributed to our success and will enable us to
continue growing profitably.
o Target Customer Group. We have identified our target customer
group to be girls approximately 7 to 14 years of age who are
active, creative and image-conscious, enjoy shopping and want
to describe themselves as "fun" and "cool". We believe our
target customers want a broad assortment of merchandise for
their range of dressing occasions, including school, leisure
activities and parties. To attract our target customer, we
continually update our merchandise assortment, which includes
non-apparel merchandise, such as cosmetics and lifestyle
furnishings for her room. We also create an in-store atmosphere
that is visually appealing and provides an enjoyable, safe and
exciting shopping experience. We believe that girls interested
in the latest fashions are attracted to our image and are made
to feel secure in their fashion choices when they purchase our
brand. At the same time, we believe that parents defer to many
choices that their daughters make in our stores because they
find our products to be appropriate for their daughters' age.
o Focused and Differentiated Brand. We have created a focused and
differentiated brand image for fashion-aware girls aged 7 to 14
who follow the latest trends. We believe that the brand's
appeal has been augmented by, and should continue to benefit
from, trends that emphasize the latest fashions and the
aspirational lifestyle of today's younger girls who want to
look and dress like older girls consistent with the latest
trends in junior fashions. We communicate our brand image
through all aspects of our business, including merchandise
assortment and our exciting, colorful in-store presentation. We
believe that the strength of our brand provides opportunities
for increased penetration of current merchandise categories and
entry into newer product categories such as our "GirlCare" line
of toiletries and cosmetics introduced in 1996.
o Entertaining Store Environment. A major element of our recent
success is the consistent store-level execution of our brand
strategy. We design our stores to provide a "theme park"
destination in the mall and to encourage our customers to touch
and sample our products. All of our stores contain a wide
variety of merchandise for a "one-stop shopping" experience,
which has been specifically designed to embody "a store for
her" theme. Our stores feature colorful window displays;
photographic sticker booths; ear piercing stations; gumball
machines; and eye-catching photographs. Our newer store formats
may also have our daisy logo on our front signage; a personal
care sampling table in the front of the store at which our
customers can experiment with our "GirlCare" products and
consult their friends and our sales associates; light shows;
and mock pay telephones from which our customers can listen to
music or call their friends within the store. We tightly
control our in-store presentation by basing it on detailed and
comprehensive store plans. These plans use visual displays and
fixtures designed to brand our stores in a manner tailored to
appeal to our target customer group.
o Proprietary Design and Merchandising Capabilities. A
cornerstone of our business is our ability to design products
which embody our brand image. We develop substantially all of
our merchandise assortment through our own design group, which
allows us to create exclusive merchandise under our proprietary
brand, develop complementary fashionable outfits, offer a vast
array of merchandise within a fashion season, introduce new
non-apparel items and bring our products to market faster. In
addition, because our merchandise is sold exclusively in our
own stores, we are able to control the presentation and pricing
of our merchandise and provide a higher level of customer
service. Our merchandising strategy of offering a broad
assortment allows us to constantly introduce elements of the
latest fashion trends. We believe that these capabilities
provide us with competitive advantages over other brand
manufacturers that market their goods through department and
other specialty apparel stores.
o Proven Management Team. Since early 1996, when some of the
senior members of our current management team assumed
responsibility, we have increased the level of brand awareness
and consistently reported improved financial results. We
believe that our management has a distinct understanding of our
customers and is able to execute design, sourcing and marketing
strategies to penetrate our target customer group. With over
125 years of collective experience in the retail industry, they
have demonstrated a track record of highly profitable growth
which strongly positions us for the future.
o Attentive Customer Service. Our sales associates convey and
reinforce our brand image through their attitude, enthusiasm
and awareness of current fashion trends. We train them to greet
each customer, to inform the customer about new fashion trends,
to guide her through the store and to suggest merchandise to
suit the customer's wardrobe and lifestyle needs. We strive to
give each of our young customers the same level of respect and
attention that adult customers expect in a retail shopping
experience.
Growth Strategy
We have implemented a growth strategy to capitalize on our
business strengths. Our growth strategy focuses on four goals: (1) opening
approximately 40 new stores per year in 1999 and 2000, (2) remodeling and
expanding approximately 20 existing stores in 1999, (3) increasing comparable
store sales through product extensions and our continued execution of
merchandise and other initiatives to satisfy our target customers' needs and
(4) increasing our distribution channels to include direct marketing through
catalog and website initiatives.
To achieve these goals, we plan to do the following:
o Store Openings, Remodelings and Expansions. Given the strength
of our brand and our customer demographics, our management
believes that there will be approximately 100 to 150 mall sites
available for new stores, with an additional 100 to 150 sites
available in smaller markets, specialty centers and major urban
locations. We plan to open approximately 40 new stores per year
in 1999 and 2000. We also plan to remodel or expand
approximately 20 of our existing stores in 1999 and continue
our remodeling and expansion program for the next several
years.
o Merchandise Initiatives and Product Extensions. We plan to
continue to increase the variety of sizes offered in many of
our tops and bottoms categories and to continue to develop the
new product lines we recently introduced such as underwear,
sleepwear and swimwear; personal care products under our
"GirlCare" line, such as glitter make-up and nail polish; and
lifestyle products and other accessories for our target
customer's room, such as inflatable furniture and glitter
telephones.
o Increase Consumer Feedback and Awareness. An important source
of customer feedback has been our focus groups and other
formats for customer communication, which we intend to
continue. We expect to enhance our customer relationships and
increase our brand awareness through our frequent buyer program
and our catalog and website initiatives. We use our frequent
buyer program to obtain customer information, and our customers
will also be asked to provide information when they register on
our website. Additionally, our frequent buyer program rewards
our customers with incentives based on the frequency of their
purchases and incorporates in-store events such as "Too Punch
Toosday". As of May 1, 1999, our frequent buyer database
contained approximately 900,000 names. In late April 1999, we
executed our first direct mail campaign that targeted not only
customers in our frequent buyer database but prospective
customers as well.
o Expand Distribution Channels. We plan to expand our marketing
efforts by launching our first catalog targeted for the 1999
holiday season with a planned October mailing. We are also
developing an informational website with an expected launch in
the fall of 1999. We intend to further develop our website to
allow our customers to order our products on-line during the
year 2000.
Risk Factors
Our business may be adversely affected by the following risks:
o we will no longer benefit from our business relationship with
The Limited and may incur costs or be forced to relocate stores
adjacent to or departments within The Limited stores
o we may not be able to obtain suitable real estate
o we may not be able to effectively manage our growth
o we may not be able to offer products that are accepted by our
customers
o we may not be able to obtain sufficient quantities of
merchandise on a cost-effective basis
o we may not be able to effectively address Year 2000 issues
In addition, our industry is highly competitive. These and
other risks are addressed in the section entitled "Risk Factors" beginning on
page 13 of this information statement.
* * *
We were incorporated in Delaware on August 21, 1991. Our
principal office is located at 3885 Morse Road, Columbus, Ohio 43219, and our
telephone number is (614) 479-3500.
THE SPIN-OFF
The following is a brief summary of the terms of the spin-off.
Distributing Company................ The Limited, Inc. After the spin-off,
The Limited will not own any shares of
our common stock.
Spun-Off Company.................... Too, Inc. After the spin-off, Too, Inc.
will be an independent public company.
Primary Purposes of the Spin-Off.... The Limited has determined that the
spin-off is in the best interests of
The Limited, the Limited Too business
and The Limited's shareholders. In
reaching this conclusion, The Limited
considered several issues, including:
(1) having two separate public companies
will enable the financial markets to
evaluate each company more
effectively, thereby maximizing
shareholder value over the long term
for both The Limited and Too, Inc.
(2) having separate management and
ownership structures for Too, Inc.
will provide incentives to Too,
Inc.'s management and direct
accountability to public investors
(3) the spin-off will provide our
management with increased strategic
flexibility and decision-making power
to realize the significant growth
opportunities that it has identified
See "The Spin-Off--Background to and
Reasons for the Spin-Off."
Securities to Be Distributed........ All of the outstanding shares of our
common stock. Based on the number of
shares of The Limited's common stock
outstanding as of ,
1999, we estimate that we will
distribute approximately
million shares of our common stock to
The Limited's shareholders. Immediately
after the spin-off, we estimate that
approximately
shareholders of record will hold shares
of our common stock, although some of
the shares may be registered in the
name of a single shareholder who
represents a number of shareholders.
Distribution Ratio.................. One share of our common stock for every
share(s) of The Limited's common
stock that you hold at the close of
business on ,
1999, the record date for the spin-off.
Record Date......................... , 1999 (close
of business).
Spin-Off Date....................... , 1999. The Limited will
mail you certificates representing your
proportionate number of whole shares of
our common stock on this day or as soon
after this day as practicable.
Distribution Agent.................. EquiServe, First Chicago Division.
Trading Market and Symbol........... There has been no trading market for
our common stock. However, we expect
that a limited market for shares of our
common stock will develop on or shortly
before the record date for the
spin-off, commonly known as a "when
issued" trading market. We have applied
to list our common stock on the New
York Stock Exchange under the ticker
symbol "TOO".
Tax Consequences.................... Before the spin-off, The Limited will
receive an opinion of counsel that the
spin-off should qualify as tax-free to
The Limited and its shareholders for
United States federal income tax
purposes. An opinion of counsel is not
binding on the IRS or the courts. See
"The Spin-Off--Material Federal Income
Tax Consequences of the Spin-Off" for a
more detailed description of the federal
income tax consequences of the spin-off.
Risk Factors........................ You should carefully consider the
matters described in the section
entitled "Risk Factors" beginning on
page 13 in this information statement.
No Fractional Shares................ We will not distribute any fractional
shares of our common stock. EquiServe
will aggregate all fractional
interests, sell them on behalf of
shareholders and distribute the cash
proceeds to the shareholders who are
entitled to a fractional interest. See
"The Spin-Off--Description of the
Spin-Off."
Relationship Between Too, Inc. and
The Limited After the Spin-Off.... We and The Limited will enter into a
distribution agreement and other
agreements described in the section
entitled "Relationship Between Too,
Inc. and The Limited." We believe that
the terms of these agreements will be
similar to terms achievable through
arm's length negotiations. We and The
Limited may enter into additional or
modified agreements, arrangements and
transactions after the spin-off, which
will be negotiated at arm's length. In
connection with the spin-off, we may
hire personnel or contract with third
parties for financial, treasury, real
estate, employee benefit, tax,
consulting and other services.
Our Management and Management
Compensation After the Spin-Off... The compensation, awards and other
benefits payable to selected members of
management after the spin-off are
described in "Management" and "Executive
Compensation."
Dividend Policy..................... We anticipate that future earnings will
be used principally to support
operations and finance the growth of our
business. Thus, we do not intend to pay
cash dividends on our common stock in
the foreseeable future.
SUMMARY FINANCIAL AND OPERATING DATA
The following table presents summary historical and pro forma
financial as well as operating data of Too, Inc. for the last five fiscal
years and for the thirteen weeks ended May 1, 1999 and May 2, 1998. The
information for the fiscal years ended February 3, 1996 and January 28, 1995
is derived from our unaudited consolidated financial statements. The
information for the thirteen weeks ended May 1, 1999 and May 2, 1998 is
derived from the unaudited consolidated financial statements included in this
information statement which, in the opinion of management, reflect all
adjustments, which are of a recurring nature, necessary to present fairly the
financial position and results of operations and cash flows for the interim
periods. Results for the thirteen weeks ended May 1, 1999 are not necessarily
indicative of the results of operations to be expected for the full fiscal
year.
Before the spin-off, we operated as part of The Limited.
Because the data reflects periods during which we did not operate as an
independent company, the data may not reflect the results of operations or the
financial condition which would have resulted if we had operated as a
separate, independent company during the periods shown. In addition, the data
may not necessarily be indicative of our future results of operations or
financial condition.
The data presented in the table below is derived from "Selected
Consolidated Financial and Operating Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our historical
and pro forma consolidated financial statements and the notes to those
financial statements included in this information statement. You should read
these sections for a further explanation of the data summarized here.
Earnings per share data is presented elsewhere in this
information statement on a pro forma basis only. See "Unaudited Pro Forma
Consolidated Financial Statements."
<TABLE>
Fiscal Years Ended Thirteen Weeks Ended
------------------------------------------------------------------- ---------------------
January 30, January 31, February 1, February 3, January 28, May 1, May 2,
1999 1998 1997 1996(1) 1995 1999 1998
----------- ----------- ----------- ----------- ----------- -------- --------
(dollars in thousands, except per share data and sales per average square foot)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales........................ $376,943 $322,150 $258,818 $214,302 $173,787 $95,048 $82,257
Gross income(2).................. 125,214 95,247 60,844 38,237 47,928 31,724 24,888
General, administrative and
store operating expenses(3).... 96,758 82,950 69,698 57,481 44,817 30,412 24,599
Operating income (loss).......... 28,456 12,297 (8,854) (19,244) 3,111 1,312 289
Net income (loss)................ 17,056 7,397 (5,354) (11,544) 1,911 812 189
Pro forma net income (loss)(4)... 14,686 219 (404)
Pro forma diluted weighted
average number of shares(5)....
Pro forma diluted net income per
share(5).......................
Balance Sheet Data:
Inventories...................... $27,565 $18,661 $20,437 $16,046 $15,156 $23,584 $17,167
Total assets..................... 89,969 72,974 74,793 72,972 57,828 89,938 71,043
Pro forma long-term debt......... 50,000
Pro forma shareholders' equity... 9,236
Selected Operating Data:
Comparable store sales increase
(decrease)(6).................. 15% 20% 8% (4)% 13% 10% 23%
Total net sales growth........... 17.0% 24.5% 20.8% 23.3% 18.4% 15.6% 25.3%
Gross income rate(7)............. 33.2% 29.6% 23.5% 17.8% 27.6% 33.4% 30.3%
Operating income (loss) rate(7).. 7.6% 3.8% (3.4)% (9.0)% 1.8% 1.4% 0.4%
Total number of stores open at
period end..................... 319 312 308 288 212 321 313
Total square feet at period end
(thousands).................... 1,281 1,244 1,224 1,143 838 1,296 1,248
Annual sales per average square
foot(8)........................ $300 $259 $214 $207 $226 NM NM
- ------------
NM= not meaningful
(1) Represents the 53-week fiscal year ended February 3, 1996.
(2) Gross income equals net sales less costs of goods sold, occupancy and buying
costs, including charges and allocations made by The Limited to us.
(3) General, administrative and store operating expenses include charges and
allocations made by The Limited to us.
(4) Pro forma net income includes interest expense and financing fees, net of
the related tax benefit, on approximately $52 million of indebtedness we
expect to incur under our credit facility shortly before the date of the
spin-off. Proceeds from the debt incurred will be used to pay a $50 million
dividend to The Limited and $1.75 million of financing fees to the lenders
under our credit facility. Pro forma net income does not reflect any
interest expense related to working capital advances that are likely to be
made in 1999 as the amounts and timing of such advances are not certain.
(5) Pro forma diluted net income per share is based on pro forma net income and
the diluted weighted average number of shares of our common stock expected
to be outstanding immediately after the spin-off plus shares related to
stock options and restricted stock assumed to be granted as of the date of
the spin-off under the Too, Inc. 1999 Stock Option and Performance Incentive
Plan and the Too, Inc. 1999 Stock Plan for Non-Associate Directors. The
actual number of dilutive options and restricted stock will vary. Pro forma
diluted net income per share is not necessarily indicative of what actual
diluted net income per share would have been if the spin-off had occurred on
the basis assumed.
(6) A store is included in our comparable store sales calculation once it has
completed 52 weeks of operation. Further, stores that are expanded or
downsized more than 20% in square feet are treated as new stores for
purposes of this calculation.
(7) Calculated as a percentage of net sales.
(8) Sales per average square foot is the result of dividing net sales for the
period by average gross square foot, which reflects the impact of opening
and closing stores in different periods throughout the year.
</TABLE>
RISK FACTORS
You should carefully consider each of the following risks,
which we believe are the principal risks that we face, and all of the other
information in this information statement. Some of the following risks relate
principally to our spin-off from The Limited. Other risks relate principally
to our business in general and the industry in which we operate. Finally,
other risks relate principally to our corporate documents, such as our
certificate of incorporation and bylaws, as well as the legal environment and
how these affect the ownership of our stock and our ability to declare
dividends. Our business may also be adversely affected by risks and
uncertainties not presently known to us or that we currently believe to be
immaterial.
If any of the following risks and uncertainties develop into
actual events, our business, financial condition or results of operations
could be materially adversely affected. If this occurs, the trading price of
our common stock could decline, and you may lose all or part of your
investment.
Risk Factors Relating to Separating Our Company from The Limited
We face the following risks in connection with our spin-off
from The Limited.
We Will No Longer Benefit from the Business Relationships that
The Limited Extends to Us or the Services that The Limited Provides to Us
As one of The Limited's subsidiaries, we are able to benefit
from The Limited's financial strengths and extensive network of business
relationships. After the spin-off, we will be a stand-alone company and will no
longer be able to benefit from The Limited's relationships or use The
Limited's services on a long-term basis. Although we will enter into
agreements with The Limited so that it will continue to provide services to
us, these agreements will be of short duration -- generally up to 12 months.
We cannot assure you that after the expiration of these various arrangements,
we will be able to replace these services in a timely manner and on terms and
conditions, including cost, as favorable as those we received from The Limited.
We May Incur Costs or Be Forced to Relocate Stores Which Are
Adjacent to or Departments Within The Limited Stores
As of May 1, 1999, 131 of our stores were adjacent to or not
fully separated from The Limited stores, including six stores which were
departments within The Limited stores. 127 of our stores occupy space that The
Limited, or an affiliate of The Limited, other than us, has leased from
landlords, and we have no direct lease arrangements with the landlords of
these stores. The Limited may decide to close any or all of these 131 stores
without consulting with us, and The Limited is not obligated to consider the
profitability of our adjacent stores or departments before making its decision.
If The Limited closes one or more of these 131 stores, several
things may happen, including:
o we may, if available and on acceptable terms, lease the entire
retail space that includes our own space and The Limited's
store space directly from the landlord or from The Limited,
which may involve remodeling costs for which we are
responsible, less any cash payments and loans received from The
Limited
o we may, if available and on acceptable terms, lease our own
store space directly from the landlord which may involve costs
to physically separate our stores from space occupied by The
Limited stores so that our store space is free-standing. This
separation may involve building walls in the cross-over space
between the two stores, creating separate back rooms and
utilities and in some instances, creating separate access to
corridors
o we may be forced to close our existing location and incur costs
to relocate to an alternative location in the same mall
o we may not be able to obtain alternative space in the same mall
on acceptable terms and may be forced to relocate to another
mall, in which case we would not receive any compensation from
The Limited, as described below
o we may incur incremental rent expenses whether we remain in our
current store or relocate to a new store
o we may lose sales during any period that we are remodeling an
existing store or constructing a relocated store
Under an agreement that we will enter into with The Limited in
connection with the spin-off, The Limited would compensate us with a
combination of cash payments and loans if The Limited decides to close any of
those 131 stores and we remain in the same mall. The compensation is described
under "Relationship between The Limited and Limited Too--Transitional Services
and Separation Agreements--Store Leases Agreement--Adjacent Stores and
Departments." We could lose our rights to all of the compensation if we
breach our obligations under that agreement in connection with two or more of
our stores.
We estimate that the costs of separation for those stores that
are currently adjacent to The Limited stores would range from $50,000 to
$350,000 per store, and would be, on average, approximately $170,000 per
store. The actual costs of separation would depend on the nature of the shared
space involved. For our six stores which are departments within The Limited
stores, we may need to relocate if The Limited closes its stores, which may
cost up to $500,000 in each instance.
We cannot assure you that the amounts that we would receive
from The Limited would be sufficient to cover the costs of separating,
relocating or reimbursing us for incremental rent increases for each store, or
that the estimated costs of separation and relocation accurately reflect what
the actual costs may be. We also cannot assure you that we will be able to
enter into new leases for alternative mall locations on agreeable terms or at
all.
We May Not Be Able to Obtain Suitable Real Estate to Implement
Our Growth Strategy
The Limited's expertise in real estate matters and The
Limited's size and reputation as one of the largest specialty retailers in the
United States may have enabled us to obtain lease terms and store sites that
were more favorable than those that we would have been able to obtain on our
own. We cannot assure you that we will be able to achieve the same economies
of scale and bargaining leverage.
110 of the existing 194 direct leases into which we have
entered have been guaranteed by The Limited. In addition, 127 of our stores
occupy space that The Limited, or an affiliate of The Limited, other than us,
has leased from landlords. Under an agreement that we will enter into with The
Limited in connection with the spin-off, as described in "Relationship Between
Too, Inc. and The Limited--Transitional Services and Separation
Agreements--Store Leases Agreement," the lease guarantees that The Limited
provides which are in effect on the date of the spin-off will remain in effect
for the remaining initial term of the lease unless we negotiate the
elimination of these guarantees with the landlord on acceptable terms or if we
amend, extend or renew the existing lease after the spin-off. The Limited will
not guarantee any of our new leases that we enter into after the spin-off.
In addition, The Limited's guarantee of any existing lease will expire upon
the amendment, renewal or extension of any such lease or upon any waiver by a
landlord of any provision of the lease.
Some of our stores are governed by leases that require us to
notify the landlord or obtain the landlord's consent for a change of control
of the lessee. We cannot assure you that the landlord will consent to the
change of control caused by the spin-off. Our failure to renew existing leases
on historical terms or to obtain suitable store sites on attractive terms may
hinder our store expansion plans.
We Will License the "Limited Too" Brand Name from The Limited,
Which May Restrict Our Business
In connection with the spin-off, we and The Limited intend to
cause our wholly owned subsidiaries to enter into an exclusive trademark and
service mark licensing agreement that will allow us to operate under the
"Limited Too" brand name. The agreement will be for an initial term of five
years after the spin-off, renewable annually at our option. In return, we will
be required to provide The Limited with the right to inspect our stores and
distribution facilities and an ability to review and approve our advertising.
The Limited's wholly owned subsidiary will have the right to terminate the
agreement if:
o we breach any of our obligations under the agreement and do not
cure the breach within 30 days after receiving notice of the
breach
o we become bankrupt or insolvent
o we experience a change of control
The agreement will also restrict the way in which we use the
licensed brand in our business. We will only be able to use the brand name
"Limited Too" in connection with any business in which we sell to our current
target customer group or to infants and toddlers.
If in the future we are unable to continue using the brand
"Limited Too", we may be forced to change our brand name. Because all of our
merchandise is currently sold under the "Limited Too" label and in stores
called "Limited Too", a name change might cause confusion for our customers
and adversely affect our brand recognition, which is a significant part of our
business strategy. We may need to expend substantial resources, which we cannot
estimate at this time, to establish brand recognition if we are required to
change our name.
Our Historical Financial Information May Not Be Representative
of Our Results as a Separate Company
The historical financial information we have included in this
information statement may not reflect what our results of operations,
financial position and cash flows would have been had we been a separate,
stand-alone company during the periods presented or what our results of
operations, financial position and cash flows will be in the future. This is
because:
o various adjustments and allocations were made to the historical
financial statements in this information statement because The
Limited did not account for us as a single stand-alone business
for all periods presented
o the historical information does not reflect many significant
changes that will occur in our financial condition, capital
structure and operations as a result of our separation from The
Limited
o the historical information does not reflect the indebtedness
under our credit facility and the costs associated with
borrowing under the facility
We cannot assure you that the adjustments and allocations we
have made in preparing our historical and pro forma consolidated financial
statements appropriately reflect our operations during the periods presented
as if we had operated as a stand-alone company, nor can we predict what the
actual effect of our separation from The Limited will be.
Our Stock Price May Fluctuate Significantly After the Spin-Off,
and You Could Lose All or Part of Your Investment as a Result
Before the spin-off, there will have been no public market for
our common stock. We have applied to list our common stock on the New York
Stock Exchange.
Once issued, we do not know how our common stock will trade in
the future. The market price of our common stock may fluctuate significantly
due to a number of factors, some of which may be beyond our control, including:
o our business profile may not fit the investment objectives of
The Limited's shareholders, causing them to sell our shares
after the spin-off
o actual or anticipated fluctuations in our operating results
o absence of securities analysts covering our company and
distributing research and investment recommendations about our
company
o changes in earnings estimated by securities analysts or our
ability to meet those estimates
o the operating and stock price performance of other comparable
companies
o overall stock market fluctuations
o the retail environment
o economic conditions
In particular, the realization of any of the risks described in
these "Risk Factors" could have a significant and adverse impact on the market
price of our common stock. In addition, the stock market in general has
experienced extreme volatility that has often been unrelated or
disproportionate to the operating performance of particular companies. These
broad market fluctuations may adversely affect the trading price of our common
stock, regardless of our actual operating performance. Additionally, if our
quarterly results of operations fluctuate significantly as a result of the
seasonality of the retail industry, the timing and costs of new store openings
and remodelings or expansions of existing stores, the performance of new and
existing stores, merchandise mix and fashion trends, the market price of our
common stock may be affected.
The IRS Could Challenge the Tax-Free Nature of the Spin-Off
Before the spin-off, The Limited will receive an opinion of Davis
Polk & Wardwell stating that the spin-off should qualify as tax-free to The
Limited and its shareholders under Section 355 of the Internal Revenue Code.
Opinions of counsel are not binding on the IRS or the courts. The IRS may
challenge positions taken based upon an opinion of counsel. Davis Polk &
Wardwell, however, is of the opinion that if the IRS were to assert that the
spin-off did not qualify as tax-free, the IRS should not prevail in a judicial
proceeding in which the issues and the facts were properly presented. For a
further description of the tax consequences of the spin-off, see "The Spin-
Off--Material Federal Income Tax Consequences of the Spin-Off."
Risk Factors Relating to Our Business
Our business faces the following risks, which include risks
relating to the industry in which we operate. The Limited also faces a number
of these same risks.
We May Not Be Able to Sustain a Growth Rate Sufficient to
Implement Our Expansion Strategy
We have grown rapidly over the past few years. We may not be
able to continue to grow profitably or at rates consistent with our recent
past. Our future growth prospects are dependent upon a number of factors,
including:
o the availability of suitable markets and sites for our stores
and our ability to negotiate leases on acceptable terms for
those stores
o our ability to fulfill our plans to open new stores and remodel
or expand existing stores
o our ability to enter new distribution channels, including the
launch of our catalog and the creation of our website
o our ability to attract and retain talented personnel and to
expand our infrastructure to accommodate our growth, including
our ability to maintain high levels of customer service by
hiring and training qualified sales associates
o the capacity to expand or add distribution facilities, the
effective management of our inventory and timely delivery of
our merchandise
o our ability to keep up with constantly shifting fashion trends
and develop new and appealing merchandise
We will require substantial capital expenditures to implement
our business strategy, in particular our opening of new stores and our
remodeling or expansion of our existing stores, which we estimate will require
capital expenditures of approximately $25 to $29 million in fiscal 1999. If we
do not generate sufficient cash flow from operations or if we are unable to
obtain sufficient financing under our credit facility or on other acceptable
terms, we may be required to reduce our planned capital expenditures, which
could have a material adverse effect on our growth prospects and the market
price of our common stock. In the past, our capital needs, including those for
working capital, have been provided by The Limited as part of its overall
capital expenditure and treasury management strategy. After our spin-off from
The Limited, The Limited will no longer provide financing for our operations.
Further, we may not be able to obtain financing at interest rates or on terms
that are as favorable as those enjoyed historically by The Limited.
We May Not Be Able to Maintain Our Comparable Store Sales Growth
Our comparable store sales have fluctuated significantly in the
past. Comparable store sales will continue to fluctuate and may be affected by
many factors, including:
o competition
o economic conditions
o keeping up with fashion trends
o weather conditions
o new store openings in existing markets
o procurement and management of merchandise inventory
o customer response to new and existing styles
o store remodelings and expansions
We may not maintain comparable store sales growth at our
current levels. Our stock price may be materially adversely affected by
declines and fluctuations in our comparable store sales.
Our Net Sales, Net Income and Inventory Levels Fluctuate on a
Seasonal Basis
We experience seasonal fluctuations in our net sales and net
income, with a disproportionate amount of our net sales and a majority of our
net income typically realized during our fourth quarter due to sales from the
holiday season. We also generate significant net sales during the "back to
school" period in the third quarter. Any decrease in sales or margins during
those periods could have material adverse results on our financial condition
and results of operations.
Seasonal fluctuations also affect our inventory levels, since
we usually order merchandise in advance of peak selling periods and sometimes
before new fashion trends are confirmed by customer purchases. We must carry a
significant amount of inventory, especially before the holiday season and
"back to school" selling periods.
We May Be Unable to Compete Favorably in Our Highly Competitive
Segment of the Retail Industry
The girls' retail apparel and accessories industry is highly
competitive. We expect competition in this market to increase, because there
are few barriers to entry in this market and our success may attract additional
competitors. Increased competition could result in pricing pressures,
increased marketing expenditures and loss of our market share, all of which
could have a material adverse effect on our financial condition and results of
operations.
We compete for sales primarily with specialty apparel and
accessory retailers, such as GapKids and Claire's, department stores and
discount retailers. Other specialty retailers, such as Abercrombie & Fitch,
have recently begun to enter into the market for pre-teen apparel. In addition
to the traditional store-based retailers, we also compete with direct
marketers who target customers through catalogs and Internet shopping. Direct
marketers also include traditional store-based retailers like us who are
expanding into catalogs and the Internet as additional distribution channels.
Some of our competitors may have greater financial, marketing and other
resources available to them. In many cases, our primary competitors are
located in the same shopping malls as our stores, and in addition to competing
for sales, we compete for favorable site locations and lease terms in shopping
malls.
We May Lose Key Personnel
We believe that we have benefitted substantially from Leslie H.
Wexner's leadership. Mr. Wexner is the chairman, president and chief executive
officer of The Limited. Mr. Wexner's services with us will terminate after the
spin-off. We have also benefitted significantly from Michael Rayden's
leadership. Mr. Rayden is our president and chief executive officer, and the
loss of his services could have a material adverse effect on our business and
prospects. We expect to enter into an employment agreement with Mr. Rayden
shortly after the spin-off. See "Management--Employment Agreements with
Executive Officers."
We May Not Be Able to Keep Up with Fashion Trends
Our success depends in part on our management's ability to
anticipate the fashion tastes of our young customers and to offer merchandise
which appeals to them on a timely and affordable basis. We expect our
customers' fashion tastes to change frequently. If we are unable to
successfully anticipate, identify or react to changing styles or trends, our
sales will be lower and we may have excess inventories. In response, we may be
forced to increase our marketing promotions or price markdowns, which could
have a material adverse effect on our business. Our brand image may also
suffer if our young customers believe that our merchandise misjudgments
indicate that we are no longer able to offer them the latest fashions.
Our Business Is Sensitive to Economic Conditions and Consumer
Spending
Our business is sensitive to changes in the overall economic
conditions and consumer spending patterns. Our growth, sales and profitability
may be adversely affected by unfavorable local, regional or national economic
conditions. In addition, shifts in consumer discretionary spending among our
customers for other goods including music, entertainment and electronic
products could also adversely affect our business.
We Depend on a High Volume of Mall Traffic and the Availability
of Suitable Lease Space
Substantially all of our stores are located in regional
shopping malls. Our sales are derived, in part, from the high volume of
traffic in those malls. We benefit from the ability of the mall's "anchor"
tenants, generally large department stores, and other area attractions to
generate consumer traffic in our stores' vicinity and the continuing
popularity of malls as shopping destinations. Sales volume and mall traffic
may be adversely affected by economic downturns in a particular area,
competition from non-mall retailers and other malls where we do not have stores
and the closing of anchor department stores. In addition, a decline in the
desirability of the shopping environment in a particular mall, or a decline in
the popularity of mall shopping among our target consumers, could affect our
business.
Since we are primarily a mall-based chain, our future growth is
significantly dependent on our ability to open new stores in desirable mall
locations. We cannot assure you as to when or whether such desirable locations
will become available.
Our Inability to Effectively Address the Year 2000 Issue May
Disrupt Our Business
The Year 2000 issue arises primarily from computer programs,
commercial systems and embedded chips that will be unable to properly
interpret dates beyond 1999. This could result in system failure or
miscalculations. We have been part of the package migration group of The
Limited, which involves the migration of software to be Year 2000 ready. We
have installed those systems. Recently, we have decided to explore
redeploying our inventory planning legacy system which is not part of the
overall Year 2000 readiness efforts undertaken by The Limited. The Limited has
not committed resources to assist us in our remediation efforts on the
inventory planning legacy system. We have assumed full responsibility to make
our legacy system Year 2000 ready and to identify and respond to any Year 2000
issues associated with the interaction between our legacy system, our other
systems and new systems installed as part of The Limited's overall efforts. We
believe we will incur incrementally $100,000 in order to make the legacy
system Year 2000 ready, along with other programming costs in order to bridge
this system to the other new systems installed. If we are unsuccessful in our
efforts to remediate the inventory planning legacy system, we will continue
with the planning system The Limited has already provided us as part of The
Limited's Year 2000 readiness efforts.
In addition to the inventory planning legacy system, not all of
our information systems are Year 2000 ready, and not all of the third parties
with whom we conduct our business have indicated that their information
systems are Year 2000 ready.
We cannot assure you that:
o our inventory planning legacy system will be Year 2000 ready
o remediating and integrating our inventory planning legacy
system will not negatively impact our other systems, including
systems we currently believe to be Year 2000 ready
o we will not incur additional costs beyond our current estimates
The Year 2000 issue may result in our inability to engage in
normal business activities resulting from one or more of the following:
o the loss of communications links with store locations
o disruptions in the movement of inventory to and from our
vendors and distribution center and between store locations
o the failure of our inventory management systems
o the inability to process transactions with customers or to
execute purchase orders with suppliers
o the failure of basic services, such as utilities
Except for the inventory planning legacy system, we are
currently part of the Year 2000 readiness efforts undertaken by The Limited,
which will continue after the spin-off under a services agreement with The
Limited. Working with our management team, The Limited has made changes to, or
replaced, our other information systems to make them Year 2000 ready,
including installing new software and hardware to support our inventory
planning, merchandising and finance functions. Various third parties with whom
we conduct business have notified The Limited that they are in the process of
becoming Year 2000 ready. However, if The Limited and these third parties do
not complete this work effectively or on time, we may be materially adversely
affected.
We discuss The Limited's Year 2000 effort, the potential impact
of the Year 2000 on our business, our expected costs to address our Year 2000
issues and our contingency plans under "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000 Readiness." In
connection with the spin-off, we will indemnify The Limited against any
liabilities caused by or arising from The Limited's Year 2000 readiness
assistance and in connection with the failure of any of our systems to be Year
2000 ready. We have also agreed not to make any claims against The Limited
caused by or arising from The Limited's Year 2000 readiness assistance.
Our Expansion into Catalog and Internet Distribution Channels
May Not Be Successful
Our business strategy includes exploring new channels of
distribution, such as a catalog which we plan to mail in October 1999 for the
holiday season and an informational website which we plan to launch in the
fall of 1999. We have no operating history in these new channels of
distribution. We intend to establish adequate infrastructures to allow these
new distribution channels to become self-sustaining, which includes a plan to
hire additional qualified personnel. The timing of the launch of our website
and catalog may be significantly affected by our ability to develop such
infrastructure. In addition, our efforts to enter into these new channels may
place a strain on our managerial, operational and financial resources. We
cannot assure you that:
o we will be able to manage effectively our expansion into these
new channels
o we will be able to establish systems, procedures and controls
adequate to support these channels
o our management will be able to achieve the rapid execution
necessary to fully exploit new market opportunities
We also face competition from established retailers in these
new areas.
Our website will initially be informational, although we intend
to permit our customers to order our merchandise on-line in the future, and we
intend to link our on-line business to our catalog business. Our success will
depend on our ability to attract customers and provide them with a superior
shopping experience. In addition, we will need to coordinate the fulfillment
and service of customer orders, for which we have not established an
infrastructure.
Currently, few laws or regulations directly apply to access to
or commerce on the Internet. As Internet commerce evolves, federal or state
governments may adopt regulations covering issues such as user privacy,
pricing, content and quality of products and services. If enacted, such laws
or regulations, in particular laws regulating the solicitation, collection or
processing of personal consumer information, could limit the potential for
this distribution channel.
We intend to mail our catalogs to names in our frequent buyer
database, and we may obtain additional names by purchasing or renting
qualified names from other third parties' mailing lists. There has been
increasing public concern regarding the compilation, use and distribution of
information about teens and children. The U.S. Federal Trade Commission
recently proposed regulations to implement the Children's Online Privacy
Protection Act of 1998, which places restrictions on persons, principally list
brokers, that sell, purchase or otherwise use for commercial purposes personal
information about teens (under the age of 16) and children. These and future
regulations may limit our ability to obtain lists of potential customers.
We Will Incur a Significant Amount of Debt Which We May Not Be
Able to Service
We will incur a significant amount of indebtedness in
connection with the spin-off. On a pro forma basis, as of May 1, 1999, we had:
(a) total consolidated indebtedness of approximately $52 million; and (b) $48
million of borrowings available under our credit facility, subject to
customary conditions. We will borrow amounts under our credit facility to
repay working capital advances made by The Limited to us in 1999 before the
spin-off.
Our credit facility, which is likely to be secured, precludes
us from securing additional indebtedness over stipulated amounts. In addition,
as previously described under "--We May Incur Costs or Be Forced to Relocate
Stores Which Are Adjacent To or Departments Within The Limited Stores," we may
also borrow money from The Limited in connection with the closing of our
stores adjacent to or departments within The Limited.
The level of our indebtedness could have important
consequences, including:
o limiting cash flow available for general corporate purposes
because a portion of our cash flow from operations must be
dedicated to servicing our debt
o limiting our ability to obtain additional financing in the
future for working capital or capital expenditures
o limiting our flexibility to react to competitive and other
changes in our industry and economic conditions generally
Our ability to pay or to refinance our indebtedness will depend
upon our future operating performance, which will be affected by general
economic, financial, competitive, legislative, regulatory, business and other
factors beyond our control.
We anticipate that our operating cash flow, together with money
we can borrow under our credit facility, will be sufficient to meet
anticipated future operating expenses, to fund capital expenditures and to
service our debt as it becomes due. If we were still unable to meet our debt
service obligations, we may attempt to restructure or refinance our
indebtedness or seek additional equity capital. We cannot assure you that we
will be able to accomplish that on satisfactory terms, if at all.
The Planned Upgrades of the Management Information Systems That
We Use May Not Be Successful
We rely on management information systems that we own or that
The Limited provides to us for all major aspects of our business. After our
management information systems become Year 2000 ready, we expect to upgrade
many of these systems. We will be materially adversely affected if these
systems are not improved, upgraded or expanded on an effective basis or if our
systems are disrupted. Current hardware and network infrastructure is being
upgraded through:
o the creation of store, marketing and customer databases to
improve controls and enhance sales and operational capabilities
o the implementation of a new warehouse management system
o the upgrading of distribution facilities to expand capacity
We may not be able to process our transactions at alternative sites and
platforms after our services agreement with The Limited expires. We cannot
assure you that we will complete our planned upgrades on a timely basis or in a
successful manner.
We Will Need to Comply with Existing and New Regulations that
Govern Us
Currently, much of our personal care and lifestyle merchandise
are subject to various regulations stipulated by the U.S. Food and Drug
Administration, Federal Trade Commission and the U.S. Consumer Product Safety
Commission. As we expand our merchandise assortment and increase the number of
our suppliers to accommodate our growth, we may be governed by new regulations
that may be more difficult to comply with.
For example, we are required to meet federal flammability
standards for children's sleepwear. These standards require sleepwear to be
flame-resistant, and if the fabric ignites, for the flame to self-extinguish.
Failure to meet the flammability standards presents a risk of serious burn
injuries to children. We require our suppliers to ensure that these standards
are met; however, they may source products from other suppliers, in particular
foreign suppliers, who, despite our best efforts, may not adhere to these
standards. We may be forced to voluntarily recall the merchandise in question
and give full refunds to our customers.
In September 1998, in cooperation with the U.S. Consumer
Product Safety Commission, we voluntarily recalled approximately 390,000
children's satin pajama sets. In January 1999, we voluntarily recalled
approximately 17,600 girls' fleece robes. Our supplier incurred all of the
costs, not including a major portion of our lost profits, related to the
recalls. These kinds of recalls may occur in the future and may have adverse
effects on sales, performance, operating results, business opportunities and
our reputation. While we continuously update our standards for our vendor
partners to ensure compliance, we cannot assure you that these standards will
be met.
We Rely Significantly on Foreign Sources of Production
In 1998, we sourced over 60% of our merchandise from foreign
factories located primarily in East and Southeast Asia. We do not have any
long-term merchandise supply contracts, and many of our imports are subject
to existing or potential duties, tariffs or quotas that may limit the quantity
of goods which may be imported into the United States from countries in that
region. We compete with other companies, including The Limited and The
Limited's other subsidiaries, for production facilities and import quota
capacity.
Our business also faces a variety of other risks generally
associated with doing business in foreign markets and importing merchandise
from abroad, such as:
o political instability
o currency and exchange risks
o local business practice and political issues, including issues
relating to compliance with domestic or international labor
standards
Our future performance will depend upon these factors, which are beyond our
control. These factors may have a material adverse effect on our business.
Risk Factors Relating to Our Corporate Documents and the Legal Environment
In connection with the ownership of our stock, you should
consider the following risks relating to our corporate documents and the legal
environment. These risks may affect our ability to execute business
combinations and change of control transactions and to declare dividends.
Provisions in Our Corporate Documents Could Delay or Prevent a
Change in Control of Our Company, Which Could Cause the Price of Our Common
Stock to Decline
Our certificate of incorporation and bylaws contain a number of
provisions that could impede a merger, consolidation, takeover or other
business combination involving us or discourage a potential acquiror from
making a tender offer or otherwise attempting to obtain control of us. Those
provisions include:
o a requirement that the holders of at least 75% of our
outstanding common stock must approve:
- a merger or consolidation with persons or entities that
beneficially own at least 5% of our common stock
- a sale of all or substantially all of our assets to those
persons or entities
- other control transactions
unless, in each case, the proposed transaction is approved by a
majority of the directors who were in office immediately before
the time when such ownership was acquired, or by their approved
successors
o a classified board of directors in which the board members are
divided into three classes, each of which serves a staggered
three-year term
o a requirement that only the holders of at least 75% of our
outstanding common stock may approve any amendment or repeal of
our bylaws and specified provisions of our certificate of
incorporation
o an authorization to adopt a rights plan that may be redeemed
only by a majority of the directors who were in office when the
rights plan was adopted, or by their approved successors
After the spin-off, we expect that Mr. Wexner and his related
interests will own approximately % of the shares of our common stock. This
may impede a change in control of our company without his support.
In connection with the spin-off, we will enter into a
distribution agreement which will provide that no person or group may acquire
beneficial ownership of more than 35% of our common stock unless, before the
acquisition takes place, the acquiror has provided to The Limited a guarantee
of our indemnity and other obligations under the distribution agreement and
other agreements. In addition, if any person or group acquires such beneficial
ownership of us, The Limited may immediately stop providing transitional
services.
We Will Not Be Able to Pay Dividends in the Foreseeable Future
We anticipate that future earnings will be used principally to
support operations and finance the growth of our business. Thus, we do not
intend to pay cash dividends on our common stock in the foreseeable future.
Payment of dividends will also be restricted by provisions in our credit
facility. If our lenders permit us to declare dividends, the dividend amounts,
if any, will be determined by our board. Our board will consider a number of
factors, including our financial condition, capital requirements, funds
generated from operations, future business prospects, applicable contractual
restrictions and any other factors our board may deem relevant.
THE SPIN-OFF
Background to and Reasons for the Spin-Off
Over the past several years, The Limited's board of directors
and senior management have embarked upon a comprehensive review of The
Limited's organization structure and operations, with the primary goals of
generating maximum value for The Limited's shareholders and focusing its
resources on its key strategic business. To date, The Limited has taken a
number of actions in furtherance of these goals:
o the 1995 initial public offering of common stock of Intimate
Brands, Inc., which consisted of The Limited's Victoria's
Secret Stores, Victoria's Secret Catalogue, Bath & Body Works,
Cacique, Penhaligon's and Gryphon businesses. The offering
resulted in a gain of approximately $649 million. After this
offering, The Limited retained approximately 83% of the
economic interests in, and approximately 94% of the total
voting power of, Intimate Brands
o the sale of our interest in approximately $1.3 billion of
credit card accounts receivable owned by World Financial
Network National Bank, The Limited's credit card bank. This
transaction was completed in 1995 and resulted in net cash
proceeds of approximately $1.2 billion
o the 1995 sale of a 60% interest in World Financial Network
National Bank to an affiliate of Welsh, Carson, Anderson and
Stowe VII, L.P. for approximately $135 million in cash
o a distribution of $1.6 billion of the cash received from the
foregoing three transactions to The Limited's shareholders
through an issuer self tender in March 1996
o the 1996 initial public offering of the Class A common stock of
Abercrombie & Fitch Co. The offering resulted in a gain of
approximately $118 million. After this offering, The Limited
retained approximately 84% of the economic interest in, and
approximately 94% of the total voting power of, Abercrombie &
Fitch
o the 1997 public offering of a significant portion of The
Limited's interest in Brylane, Inc., consisting principally of
the Lerner and Lane Bryant catalog businesses. In 1998, The
Limited sold its remaining interest in Brylane for
approximately $131 million in cash. These actions followed the
1993 sale by The Limited of 60% of its interest in Brylane to
an affiliate of Freeman, Spogli & Co.
o the 1997 sales of The Limited's interests in:
- the Newport Office Tower in Jersey City, New Jersey to
TrizecHahn Office Properties for approximately $159 million
in cash
- The Mall at Tuttle Crossing in Columbus, Ohio to a unit of
Taubman Centers Inc. for approximately $76 million in cash
o the 1997 sale of Intimate Brands' Penhaligon's business
o the 1997 closure of Intimate Brands' Cacique business
o the 1997 decision to streamline The Limited's Henri Bendel
business. In 1998, The Limited closed all of its Henri Bendel
locations other than its flagship store in New York City
o the complete separation of Abercrombie & Fitch from The Limited
in 1998 through an exchange of shares of The Limited's common
stock for shares of the Class A common stock of Abercrombie &
Fitch owned by The Limited which resulted in the acquisition of
47.1 million shares of The Limited's common stock from The
Limited's shareholders
o the closure of 750 underperforming stores between 1995 and
1998, primarily in women's apparel, excluding the closure of
Cacique stores
o the signing of an agreement with an affiliate of Freeman,
Spogli & Co. under which The Limited has agreed to sell a 60%
interest in Galyan's Trading Co. to the Freeman, Spogli
affiliate
In early 1998, the chairman of The Limited informed
shareholders that as part of its ongoing consideration of strategic
alternatives, The Limited intends to streamline operations and focus on core
brands. During this time, The Limited began to explore various transaction
structures to continue to implement these goals with respect to The Limited's
interest in our business. In late 1998, The Limited acknowledged that Limited
Too had become an established business with a unique customer base, a focused
brand image and a profitable growth strategy. The Limited began to conduct
discussions with various financial institutions, and retained J.P. Morgan
Securities Inc., as financial adviser, and Davis Polk & Wardwell, as legal
counsel, to begin an analysis of various alternatives, including the
possibility of designing, formulating and implementing a plan to separate us
from The Limited. We considered a separation by means of a 100% spin-off, a
sale of our company through a negotiated transaction and an initial public
offering followed by a subsequent spin-off. In this strategic review, The
Limited worked with its financial adviser and legal counsel to analyze and
evaluate issues related to the three alternative transactions and structures.
Issues which The Limited reviewed included the strategic direction of The
Limited and Limited Too businesses, the financial impact on both companies,
the market risk and timing involved, the tax implications for shareholders and
The Limited, the post-spin-off market values of Limited Too and The Limited,
and the regulatory implications.
After considering these transactions and structures, The
Limited's board gave the approval to proceed with actions toward separating
our business from The Limited by means of a 100% spin-off. The Limited's board
elected not to pursue a negotiated sale of our company or an initial public
offering followed by a subsequent spin-off principally because of the
potential market risk and timing involved and possible adverse tax
consequences to The Limited's shareholders. Additionally, the decision to
proceed with a 100% spin-off by The Limited's board and its executive
committee was also based on the following material factors:
o First, The Limited believed that having two separate public
companies would enable the financial markets to evaluate each
company more effectively, thereby maximizing shareholder value
over the long term for both The Limited and Too, Inc.
o Second, The Limited concluded that separate management and
ownership structures for Too, Inc. would provide incentives to
Too, Inc.'s management and direct accountability to public
investors.
o Third, The Limited recognized that the spin-off would provide
our management with increased strategic flexibility and
decision-making power to realize the significant growth
opportunities that it has identified.
o Finally, The Limited determined that its distribution of our
common stock would further the various objectives outlined
above and that the complete separation of us from The Limited
would be in the best interests of The Limited, the Limited Too
business and The Limited's shareholders.
The spin-off is intended to allow us to grow as an independent company, since
we have demonstrated that we have a unique customer base, a focused brand
image and a profitable growth strategy. At the same time, our separation
allows The Limited to focus its resources on its other brands where it can add
more value.
Description of the Spin-Off
The distribution agreement between The Limited and us provides
the general terms and conditions relating to the spin-off. See "Relationship
Between Too, Inc. and The Limited--Distribution Agreement."
The Limited will effect the spin-off on or about
, 1999 by providing for the delivery of the shares of our
common stock to EquiServe, First Chicago Division, for distribution to each
holder of record of The Limited's common stock at the close of business on the
record date.
In the spin-off, each eligible recipient of our shares will
receive one share of our common stock for every share(s) of
The Limited's common stock that the recipient holds at the close of business
on the record date for the spin-off. The actual total number of shares of our
common stock to be distributed will depend on the number of shares of The
Limited's common stock outstanding on the record date. Based on the number of
shares of The Limited's common stock outstanding as of ,
1999, we estimate that we will distribute approximately million shares of
our common stock to The Limited's shareholders. Immediately after the spin-
off, we estimate that approximately shareholders of record will hold
shares of our common stock, although some of the shares may be registered in
the name of a single shareholder who represents a number of shareholders.
We anticipate that in connection with the spin-off, options
related to The Limited's common stock and restricted shares of its common
stock held by employees of The Limited and Too, Inc. will be equitably
adjusted to reflect the spin-off.
In the spin-off, The Limited will distribute 100% of the
outstanding shares of our common stock to The Limited's shareholders. The
shares of our common stock will be validly issued, fully paid and
nonassessable, and the holders of these shares will not be entitled to
preemptive rights. See "Description of Capital Stock." The Limited will mail
you certificates representing your proportionate number of whole shares of our
common stock on the date of the spin-off or as soon after this day as
practicable.
We will not issue any certificates representing fractional
shares of our common stock as part of the spin-off. EquiServe will aggregate
all fractional interests into whole shares and sell them in the open market at
then prevailing prices on behalf of holders who would be entitled to receive
fractional interests. These holders will receive cash payments in the amount
of their proportionate share of the total sale proceeds from the sale of the
fractional shares. EquiServe will pay the proceeds from these sales based upon
the average gross selling price per share of our common stock. See "--Material
Federal Income Tax Consequences of the Spin-Off." The Limited will bear the
cost of commissions incurred in connection with these sales. We anticipate
that these sales will occur as soon after the date of the spin-off as
practicable.
The Limited, Too, Inc. or EquiServe will not guarantee any
minimum sale price for the fractional shares of our common stock. Neither we
nor The Limited will pay any interest on the proceeds from the sale of
fractional shares.
Material Federal Income Tax Consequences of the Spin-Off
Before the spin-off, The Limited will receive an opinion of
Davis Polk & Wardwell stating that the spin-off should qualify as tax-free to
The Limited and its shareholders under Section 355 of the Internal Revenue
Code. The Limited will not seek a private letter ruling relating to the
spin-off from the IRS.
The material federal income tax consequences of a tax-free
spin-off are:
o Except as described below with respect to fractional shares,
shareholders of The Limited will not recognize gain or loss as
a result of the spin-off.
o Cash received instead of a fractional share will be treated as
received in exchange for the fractional share. Gain or loss
will be recognized to a recipient shareholder to the extent of
the difference between the shareholder's basis in the
fractional share and the amount received for the fractional
share. If the fractional share interest is held as a capital
asset by the recipient shareholder, the gain or loss will be a
capital gain or loss.
o You, as a shareholder of The Limited, will apportion your tax
basis in The Limited's common stock between The Limited's
common stock and our common stock received in the spin-off in
proportion to the relative fair market values of The Limited's
common stock and our common stock on the date of the spin-off.
o If you hold The Limited's common stock as a capital asset as of
the date of the spin-off, your holding period for our common
stock received in the spin-off will include the period during
which you held the common stock which enabled you to receive
our common stock in the spin-off.
o The Limited generally will not recognize any gain or loss as a
result of the spin-off.
Opinions of counsel are not binding on the IRS or the courts.
The IRS may challenge positions taken based upon an opinion of counsel. Davis
Polk & Wardwell, however, is of the opinion that if the IRS were to assert that
the spin-off did not qualify as tax-free, the IRS should not prevail in a
judicial proceeding in which the issues and facts were properly presented.
If the spin-off does not qualify as tax-free, the fair market
value of the shares of our common stock received by The Limited's shareholders
would be taxable as a dividend to the extent of current-year and accumulated
earnings and profits. As a result, your tax basis in the shares of The
Limited's common stock would not change, and your tax basis in the shares of
our common stock would be their fair market value on the date of the spin-off.
In addition, The Limited would recognize a capital gain equal to the excess of
the fair market value of the shares of our common stock over its basis in
these shares.
Current Treasury regulations require each shareholder of The
Limited who receives our common stock in the spin-off to attach a descriptive
statement concerning the spin-off to the shareholder's federal income tax
return for the year in which the spin-off occurs. The Limited, or Too, Inc. on
behalf of The Limited, will make available the required information to each
shareholder of record of The Limited as of the record date for the spin-off.
You should consult your tax adviser regarding the particular
federal, foreign, state and local tax consequences of the spin-off to you.
For a description of the agreements under which we and The
Limited have provided for tax sharing and other tax matters, see "Relationship
Between Too, Inc. and The Limited--Transitional Services and Separation
Agreements--Tax Separation Agreement."
RELATIONSHIP BETWEEN TOO, INC. AND THE LIMITED
This section of the information statement summarizes material
agreements between The Limited and us that will govern the ongoing
relationships between the two companies after the spin-off and will provide
for an orderly transition to our status as a separate, independent company.
You should also read the agreements, which we have filed as exhibits to the
Form 10 of which this information statement forms a part.
We believe that the terms of these agreements will be similar
to terms achievable through arm's length negotiations with third parties.
Additional or modified agreements, arrangements and transactions may be entered
into between The Limited and us after the spin-off, which we will attempt to
negotiate at arm's length as well.
Distribution Agreement
We and The Limited will enter into a distribution agreement in
connection with the spin-off. This agreement will:
o provide for the principal corporate transactions and procedures
for effecting the spin-off
o provide for the allocation of assets and liabilities between
The Limited and us on the date of the spin-off
Cross Indemnification
We and The Limited have agreed to indemnify one another against
specified liabilities. We have agreed to indemnify The Limited and its
subsidiaries (The Limited and its subsidiaries being "The Limited Group") and
their directors, officers and affiliates (collectively, "The Limited
Indemnitees") from and against any and all damage, loss, liability and expense
incurred by any of The Limited Indemnitees arising out of or due to our
failure to discharge any obligations or liabilities of us and our subsidiaries
(the "Too, Inc. Group") under the distribution agreement, as well as all
liabilities, whenever arising, of the Too, Inc. Group, liabilities arising
from or in connection with our conduct of our business or our ownership or use
of assets in connection with our business and liabilities relating to our
individual account plan.
The Limited has agreed to indemnify the Too, Inc. Group and our
directors, officers and affiliates (collectively, "Too, Inc. Indemnitees")
from and against any and all damage, loss, liability and expense incurred by
any of Too, Inc. Indemnitees arising out of or due to The Limited's failure to
discharge any obligations or liabilities of The Limited Group under the
distribution agreement, as well as all liabilities, whenever arising, of The
Limited Group, liabilities arising from or in connection with the conduct of
The Limited Group's businesses, other than our business, or The Limited
Group's ownership or use of assets in connection with their businesses and
liabilities relating to the Limited Group's savings and retirement plan.
In addition, we and The Limited have generally agreed to
indemnify each other and the other's affiliates and controlling persons from
specified liabilities under the securities laws relating to the Form 10 and
this information statement or to contribute under specified circumstances to
the amount paid or payable by the other in respect of the liabilities.
None of these indemnities applies to indemnification for tax
liabilities, which are addressed in the tax separation agreement described
below under "--Transitional Services and Separation Agreements--Tax Separation
Agreement." We do not believe that any of these indemnities will have a
material adverse effect on our business, financial condition or results of
operations.
The distribution agreement also includes procedures for notice
and payment of indemnification claims and generally provides that the
indemnifying party may assume the defense of a claim or suit brought by a
third party. Any indemnification amount paid under the indemnities will be
paid net of the amount of any insurance or other amounts that would be payable
by any third party to the indemnified party in the absence of the indemnity
and net of any tax benefit to the indemnified party that is attributable to
the relevant payment or liability. The indemnification amount will be
increased so that the indemnified party receives 100% of the after-tax amount
of any payment or liability.
Conditions to the Spin-Off
The distribution agreement provides that the following
conditions must be satisfied or waived before or as of the date of the
spin-off for the spin-off to occur:
o the SEC must have declared effective the Form 10 filed with
it under the Securities Exchange Act of 1934
o the New York Stock Exchange must have approved the listing of
our common stock, subject to official notice of issuance
o The Limited's board must be satisfied that the spin-off will be
paid out of The Limited's surplus in accordance with Section
170 of the Delaware General Corporation Law
o The Limited's board must have approved the spin-off and must
not have abandoned, deferred or modified the spin-off at any
time before the spin-off occurs
o The Limited, as our sole shareholder, must have elected our
board
o our certificate of incorporation and bylaws must be in effect
o The Limited and we must have entered into the tax separation
agreement and other transitional services and separation
agreements
o The Limited must have received an opinion of Davis Polk &
Wardwell relating to the tax-free nature of the spin-off
o our lenders must have made available a credit facility in an
amount and on terms satisfactory to The Limited and to us
Transfer of Assets
Assuming that either The Limited or we can obtain the necessary
consents of third parties or governmental or regulatory bodies:
o The Limited Group will use its best efforts to transfer to the
Too, Inc. Group all assets that relate solely to the business
of the Too, Inc. Group and that are not already owned by the
Too, Inc. Group. We will assume any liabilities associated with
these assets.
o The Too, Inc. Group will use its best efforts to transfer to
The Limited Group all assets that relate solely to the business
of The Limited Group and that are not already owned by The
Limited Group. The Limited will assume any liabilities
associated with these assets.
o The Limited will have exclusive authority to negotiate and
prosecute any rights, claims or refunds relating to real estate
that The Limited Group or the Too, Inc. Group currently leases
or subleases, or has previously leased or subleased.
o We will assume our proportionate share of any judgment or
settlement that is ultimately reached in connection with claims
against us or the Too, Inc. Group or claims for which The
Limited or The Limited Group can be found jointly and severally
liable with us or the Too, Inc. Group.
o The Limited will transfer to us or to the Too, Inc. Group all
of the outstanding stock in American Factoring, Inc., currently
a wholly owned subsidiary of The Limited.
Employee Benefits
The distribution agreement provides that The Limited will
generally cease to have any liability under its employee benefit plans with
respect to employees of the Too, Inc. Group after the spin-off. However, the
full account balances of current employees of the Too, Inc. Group in The
Limited's qualified and non-qualified plans will be transferred to similar
successor plans of Too, Inc.
Restriction on Solicitation or Employment of Employees
For a period of three years beginning on the date of the
spin-off, we and The Limited agree not to, and to cause our subsidiaries not
to:
o solicit or otherwise attempt to induce or influence any
associate of the other party or a subsidiary to leave
employment with his or her then-current employer, without the
consent of the other party
o employ any exempt or salaried associate of the other party or a
subsidiary, except for any associate who was assigned solely to
a single store location, without the consent of the other party
Net Investment by The Limited Account
The distribution agreement eliminates all investment accounts
and loan balances between The Limited and its subsidiaries, on the one hand,
and us and our subsidiaries, on the other, outstanding as of the spin-off. For
additional information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition--Liquidity and
Capital Resources," "Unaudited Pro Forma Consolidated Financial Statements"
and "Capitalization."
Rights of The Limited If a Third Party Tries to Acquire Us
The distribution agreement generally provides that no person or
group may acquire beneficial ownership of more than 35% of our common stock
unless, before the acquisition takes place, the acquiror has provided to The
Limited a guarantee of our indemnity and other obligations under the
distribution agreement and other agreements. In addition, if any person or
group acquires such beneficial ownership of us, The Limited may immediately
stop providing transitional services.
Access to Information; Provision of Witnesses; Confidentiality
Under the distribution agreement, we and The Limited will, for
a reasonable period of time and with specified exceptions, allow the other
party and their specified representatives reasonable access to all records in
our or its possession relating to the business and affairs of the other party
as reasonably required. Access will be allowed for such purposes as auditing,
accounting, litigation, disclosure, reporting and regulatory compliance. Each
party will also use reasonable efforts to make available to the other its
officers, directors, employees and representatives as witnesses and will
otherwise cooperate with the other party in connection with any proceeding
arising out of its or the other party's business before the spin-off.
Except as otherwise provided in the distribution agreement, we,
The Limited and our respective officers, directors, employees, agents and
representatives will hold all information in our, its or their possession
concerning the other party in strict confidence.
Transaction Expenses
The Limited will generally be responsible for all transaction
expenses relating to the spin-off that The Limited Group or the Too, Inc.
Group incurs. However, we will be responsible for all fees and expenses
incurred in connection with our credit facility, which is described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Description of Credit Facility."
Termination
Neither party will be able to terminate the distribution
agreement for a period of three years after the date of the spin-off, except
upon mutual consent by us and The Limited. After that, either party will be
able to terminate the distribution agreement with six months' prior written
notice.
Transitional Services and Separation Agreements
Our relationship with The Limited will also be governed by
agreements that we will enter into in connection with the spin-off, including:
o a store leases agreement
o a trademark and service mark licensing agreement
o a services agreement
o a tax separation agreement
o an amendment to an existing building lease agreement
The material terms of these agreements are described below.
Store Leases Agreement
We and The Limited or its affiliates intend to enter into a
store leases agreement effective before or as of the date of the spin-off.
Under this agreement, we will:
o formalize our sublease arrangements regarding 127 of our stores
where we occupy space that The Limited or an affiliate of The
Limited, other than us, has leased from landlords (the "Direct
Limited Leases")
o receive compensation from The Limited in the form of cash
payments and loans if The Limited decides to close any of its
131 stores to which we are adjacent and we remain in the same
mall
o compensate The Limited for providing guarantees under our
direct leases for 110 stores (the "Direct Too, Inc. Leases") if
we exceed specified threshold sales levels
Direct Limited Leases. We currently operate 127 stores under
the Direct Limited Leases. Under the store leases agreement, which formalizes
our interest in those spaces, we will sublet the space which our stores
currently occupy, and assume responsibility for our proportionate share, based
on the size of our respective selling space areas, of all costs and expenses
(principally rent, maintenance and utilities) under the Direct Limited Leases.
This method of allocating costs and expenses is consistent in all material
respects with the allocation of similar costs and expenses contained in our
historical consolidated financial statements. See our historical consolidated
financial statements and the notes to those financial statements included in
this information statement. Management's estimate of the store lease and other
occupancy costs charge that we would have paid in fiscal 1998 if this
agreement had been in effect during that period is approximately $10.4 million.
Effective as of the date of the spin-off, if our store sales in
those stores governed by the Direct Limited Leases exceed threshold sales
levels, we will be required to make additional payments to The Limited in
connection with our interests. The threshold sales level for each store will
be determined in the store leases agreement, and we will pay The Limited a
portion of the sales amount that exceeds the threshold sales level for each
store for the remaining term of the relevant lease. Management's estimate of
the amount that we would have paid in fiscal 1998 if this agreement had been
in effect during that period is approximately $484,000. If our sales increase
in these stores, the amount of our cash payments would also increase. Assuming
a 5.0% comparable store sales growth for each of our stores operating under
the Direct Limited Leases, we estimate that the amount that we would be
required to pay to The Limited in fiscal 1999 is approximately $591,000.
Under the store leases agreement, we are committed to pay rent
and related costs through the expiration of the associated Direct Limited
Leases. Approximately 100 of the Direct Limited Leases of which we are a part
are scheduled to expire during 2005 or later. We may not assign or sublet our
interest in those premises, except to an affiliate, without The Limited's
consent, which The Limited may withhold in its sole discretion. If The Limited
intends to sublet or assign its portion of the leased premises under any of the
Direct Limited Leases to any non-affiliate, it will be required to give us 60
days' notice, and we will be allowed to terminate our interest on that basis.
All termination rights and other remedies under the Direct
Limited Leases will remain with The Limited. If The Limited decides to extend
the Direct Limited Leases, it will not be required to allow us to continue to
sublet. If we both decide to extend, we will pay our proportionate share of
any costs of separation. If The Limited decides to terminate any of the Direct
Limited Leases early, The Limited must offer to assign such lease to us. If,
as a result of such early termination by The Limited, we are forced to close
our store or relocate, The Limited will pay us compensation, as outlined below.
Under the store leases agreement, we and The Limited have
agreed to indemnify one another against specified liabilities arising in
connection with any accident or occurrence, or in connection with any
construction, repair or other act or omission, in our respective premises.
Furthermore, we will indemnify The Limited against any damages of any kind
arising from a breach or default on our part that would result in The Limited
being found in default or having to pay any charges or damages under a Direct
Limited Lease.
Adjacent Stores and Departments. As of May 1, 1999, 131 of our
stores were adjacent to The Limited stores, including six stores which were
departments within The Limited stores. As described above, 127 of these stores
are leased to The Limited or an affiliate of The Limited, other than us, and
we have no direct lease arrangements with the landlords of these stores. The
Limited may decide to close any or all of these 131 stores without consulting
with us, and The Limited is not obligated to consider the profitability of our
adjacent stores or departments before making its decision.
If The Limited closes one or more of these 131 stores, several
things may happen, including:
o we may, if available and on acceptable terms, lease the entire
retail space that includes our own space and The Limited's
store space directly from the landlord or from The Limited,
which may involve remodeling costs for which we would be
responsible
o we may, if available and on acceptable terms, lease our own
store space directly from the landlord which may involve costs
to physically separate our stores from space occupied by The
Limited stores so that our store space is free-standing. This
separation may involve building walls in the cross-over space
between the two stores, creating separate back rooms and
utilities and in some instances, creating separate access to
corridors
o we may be forced to close our existing location and incur costs
to relocate to an alternative location in the same mall
o we may not be able to obtain alternative space in the same mall
on acceptable terms and may be forced to relocate to another
mall, in which case we would not receive any compensation from
The Limited, as described below
o we may incur incremental rent expenses whether we remain in our
current store or relocate to a new store
o we may lose sales during any period that we are remodeling an
existing store or constructing a relocated store
Under the store leases agreement, The Limited would compensate
us with a combination of cash payments and loans if The Limited decides to
close any of those 131 stores and we remain in the same mall. The cash payment
and loans will be payable in respect of any such store that The Limited
closes, and will vary, depending on the remaining term of the affected store
lease at the time the Limited closes its adjacent store, as follows:
Cash Loan
Remaining Lease Term Payment Amount
-------------------- ------- ------
Less than one year................ -- $100,000
One to two years.................. $ 50,000 100,000
Three to four years............... 100,000 100,000
Greater than four years........... 100,000 150,000
As of May 1, 1999, approximately 100 of our stores adjacent to
or departments within The Limited stores are under the Direct Limited Leases
with remaining terms greater than four years. In addition, if The Limited
closes in the aggregate 98 (75% of the 131 stores) of its stores to which we
are adjacent or within which we have departments and we remain in the same
mall (the "Closure Threshold"), we will receive, within 90 days of any
additional closure by The Limited of an adjacent store, an additional cash
payment of $50,000 in respect of such closure if our adjacent affected store
has a remaining lease term greater than four years at the time The Limited
closes its store. The loans would have a five-year term, would bear interest
at The Limited's five-year borrowing rate, would be repayable at our option at
any time, would be senior to any other indebtedness incurred by us after the
spin-off (except under our credit facility and any refinancings of the
facility) and would otherwise have customary terms and conditions. Our right
to the cash payments and loans described above will terminate if we breach our
obligations under the store leases agreement in connection with two or more of
our stores.
We estimate that the costs of separation for those stores that
are currently adjacent to The Limited stores would range from $50,000 to
$350,000 per store, and would be, on average, approximately $170,000 per
store. The actual costs of separation would depend on the nature of the shared
space involved. For our six stores which are departments within The Limited
stores, we may need to relocate if The Limited closes its stores, which may
cost up to $500,000 in each instance.
We cannot assure you that the amounts that we would receive
from The Limited would be sufficient to cover the costs of separating,
relocating or reimbursing us for incremental rent increases for each store, or
that the estimated costs of separation and relocation accurately reflect what
the actual costs may be. We also cannot assure you that we will be able to
enter into new leases for alternative mall locations on agreeable terms or at
all. See "Risk Factors--Risk Factors Relating to Separating Our Company from
The Limited--We May Incur Costs or Be Forced to Relocate Stores Which Are
Adjacent to or Departments Within The Limited Stores." By agreeing to the
above-described compensation payments, we will waive our ability to make any
claims against The Limited regarding any other actual claims, losses or costs
attributable to the closing of The Limited stores.
In addition, the agreement will contain other provisions
including:
o the party seeking to exercise a renewal option of a lease will
pay the costs of separating the adjacent stores. If both
parties seek to renew the lease, then we will divide the costs
of separation equally
o if a party seeks to undertake a remodeling project which costs
$160,000 or more, then that party will pay for the costs of
separating the adjacent stores
Lease Guarantees. Approximately 110 of the existing 194 Direct
Too, Inc. Leases into which we have entered have been guaranteed by The
Limited. Under the store leases agreement, the lease guarantees that The
Limited provides which are in effect on the date of the spin-off will remain
in effect for the remaining initial term of the lease, unless we negotiate the
elimination of these guarantees with the landlord on acceptable terms or if we
amend, extend or renew the existing lease after the spin-off. The Limited will
not guarantee any of our new leases that we enter into after the spin-off. In
addition, and The Limited's guarantee of any existing lease will expire upon
the amendment, renewal or extension of any such lease or upon any waiver by a
landlord of any provision of the lease.
Some of our stores are governed by leases that require us to
notify the landlord or obtain the landlord's consent for a change of control
of the lessee. We cannot assure you that the landlord will consent to the
change of control caused by the spin-off. See "Risk Factors--Risk Factors
Relating to Separating Our Company from The Limited--We May Not Be Able to
Obtain Suitable Real Estate to Implement Our Growth Strategy."
Effective as of the date of the spin-off, if our store sales in
those stores governed by our Direct Too, Inc. Leases exceed threshold sales
levels, we will be required to make additional payments to The Limited as
consideration for the guarantees that The Limited provides under such leases.
The threshold sales level for each store will be determined in the store leases
agreement, and we will pay The Limited a portion of the sales amount that exceed
the threshold sales level for each store, less any performance rents we are
required to pay to our third-party landlord, for the remaining term of the
relevant lease. Management's estimate of the amount that we would have paid in
fiscal 1998 if this agreement had been in effect during that period is
approximately $134,000. If our sales increase in these stores, the amount of our
cash payments would also increase. Assuming a 5.0% comparable store sales growth
for each of our stores operating under the Direct Too, Inc. Leases, we estimate
that the amount that we would be required to pay to The Limited in fiscal 1999
is approximately $201,000.
Trademark and Service Mark Licensing Agreement
We and The Limited intend to cause our wholly owned
subsidiaries to enter into an exclusive trademark and service mark licensing
agreement effective as of the date of the spin-off that will allow us to
operate under the "Limited Too" brand name. The agreement will have an initial
term of five years after the spin-off, renewable annually at our option. All
licenses granted under the agreement will be granted free of charge. In
return, we will be required to provide The Limited with the right to inspect
our stores and distribution facilities and an ability to review and approve
our advertising.
The trademark and service mark licensing agreement gives The
Limited's wholly owned subsidiary the right to terminate the agreement if:
o we breach any of our obligations under the agreement and do not
cure the breach within 60 days after receiving notice of the
breach
o we become bankrupt or insolvent
o we experience a change of control
The trademark and service mark licensing agreement also
provides that our subsidiary cannot sublicense the "Limited Too" brand name to
anyone without the written consent of The Limited's subsidiary.
Under the trademark and service mark licensing agreement, we
will only be able to use the brand name "Limited Too" in connection with any
business in which we sell to our current target customer group or to infants
and toddlers. In addition, we may not expand our business to include
merchandise currently offered by The Limited or its subsidiaries, unless it is
for our current target customer group. See "Risk Factors--Risk Factors
Relating to Separating Our Company from The Limited--We Will License the
'Limited Too' Brand Name from The Limited, Which May Restrict Our Business."
The Limited is not permitted to use the "Limited Too" brand name during the
term of the trademark and service mark licensing agreement.
Services Agreement
We and The Limited intend to enter into a services agreement
effective as of the date of the spin-off. The agreement will relate to
transitional services that The Limited or its subsidiaries or affiliates will
provide to us. The purpose of the services agreement will be to ensure that
The Limited continues to provide the administrative, financial, management and
other services that we require for a limited time. Under this agreement, The
Limited Group will provide services in exchange for fees which we believe are
similar in material respects to what a third- party provider would charge, and
will be based on several billing methodologies. Under one of these billing
methodologies, which is the most prevalent, The Limited will provide us with
services at costs comparable to those charged to other businesses operated by
The Limited from time to time. We will generally be obligated to purchase
those services at fees equal to The Limited's costs of providing the services
plus 5% of these costs.
Management's estimate of the net charge that we would have paid
in fiscal 1998 if the services agreement had been in effect during that period
is approximately $9.0 million. This is approximately the amount included in our
historical consolidated financial statements for fiscal 1998. These fees will
be paid monthly in arrears.
The services that The Limited will initially provide to us
include:
o compensation and benefit plan administration
o Year 2000 readiness assistance, except for services related to
our inventory planning legacy system
o management information systems, including telecommunications
services
o store design services
o merchandise distribution, engineering, customs and freight
services
o completion of transactions pending before the spin-off related
to identifying store sites and negotiating store leases, for up
to a year after the spin-off
o administration of the construction and design of any of our
stores that begins before December 31, 1999, for up to one year
after the spin-off
o tax return preparation services
o treasury services until the earlier of when we establish our
own cash management system or a year after the spin-off
In addition to the identified services, The Limited will agree
that any insurance applicable to our assets, liabilities, business or
employees will be for our benefit as well as theirs. The Limited will agree to
use reasonable efforts to cause us to become a direct beneficiary of all
applicable policies or to arrange for us to be entitled to the benefit of
those policies.
The agreement also provides that:
o we will indemnify The Limited from and against all damages
arising out of the services rendered by it or its directors,
officers, agents or employees under the services agreement,
except for damages caused by The Limited's gross negligence or
willful misconduct
o we will indemnify The Limited against any liabilities caused by
or arising from The Limited's providing Year 2000 readiness
assistance to us and in connection with the failure of any of
our systems to be Year 2000 ready (see "Management's Discussion
and Analysis of Financial Condition and Results of
Operations--Year 2000 Readiness--Reasonably Likely Worst Case
Scenario and Contingency Plans")
o we will not make any claims against The Limited caused by or
arising from The Limited's providing Year 2000 readiness
assistance to us and in connection with the failure of any of
our systems to be Year 2000 ready
o we will reimburse The Limited for any amounts paid by The
Limited under any guarantees (other than guarantees under our
stores leases which are separately discussed) or other
arrangements supporting our obligations
o we will not take actions that could materially and adversely
affect our ability to pay any obligations guaranteed or
otherwise supported by The Limited unless appropriate provision
is made such that, in the reasonable judgment of The Limited,
The Limited's exposure under any such guarantee or support
arrangement is not materially increased
The Limited will provide the services covered under the
services agreement, which will generally be for one year after the spin-off,
except for:
o compensation and benefit plan administration, which will have a
term of nine months after the spin-off
o telecommunications services, which may be extended for up to
three years from the date of the spin-off if our principal
place of business is located in office space that is leased to
us by any affiliate of The Limited
o merchandise distribution and freight services, which will have
a term of three years after the spin-off
o engineering services, which will be provided until the earlier
of:
- the completion of the analysis and design of the new
distribution facility or
- the first anniversary of the spin-off
o customs services, which will continue until the earlier of:
- the completion of training of one or more managers in customs
compliance regulations or
- the first anniversary of the spin-off
o tax return preparation services, which will continue until the
completion of income tax filings for fiscal 1999
o benefits audit report preparation services, which will continue
until the completion of reports for 1999
o treasury services, which will be provided until we develop our
own cash management system which we believe will occur within
six months after the date of the spin-off
Tax Separation Agreement
After the spin-off, we will no longer be included in The
Limited's consolidated group for United States federal income tax purposes. We
and The Limited will enter into a tax separation agreement to reflect our
separation from The Limited with respect to tax matters. The primary purpose
of the agreement is to reflect each party's rights and obligations relating to
payments and refunds of taxes that are attributable to periods beginning
before and including the date of the spin-off and any taxes resulting from
transactions effected in connection with the spin-off. With respect to any
period before the spin-off, The Limited will:
o continue to be the sole and exclusive agent for us in all
matters relating to the income, franchise, property, sales and
use tax liabilities of the Too, Inc. Group
o bear any costs relating to tax audits, including tax
assessments and any related interest and penalties and any
legal, litigation, accounting or consulting expenses
o continue to have the sole and exclusive responsibility for the
preparation and filing of consolidated federal and consolidated
or combined state income tax returns
o generally have the powers, in The Limited's sole discretion, to
contest or compromise any claim or refund on our behalf
The tax separation agreement will provide for payments between
the two companies to reflect tax liabilities which may arise before and after
the spin-off. It will also cover the handling of audits, settlements,
elections, accounting methods and return filing in cases where both companies
have an interest in the results of these activities.
After the spin-off, if one or more persons were to acquire a
50% or greater interest in either The Limited or us as part of a plan that
included the spin-off, The Limited would recognize gain on the shares of our
common stock that it distributes in the spin-off. To minimize the risk of this
gain recognition, we will agree to refrain from engaging in specified
transactions for two years after the spin-off without first:
o obtaining a ruling from the IRS to the effect that the proposed
transactions will not result in the spin-off being taxable to
The Limited or its shareholders, or
o obtaining an opinion of counsel recognized as an expert in
federal income tax matters and acceptable to The Limited to the
same effect
Transactions that may be affected by this restriction relating to an
acquisition of a 50% or greater interest include:
o a liquidation
o a merger or consolidation with, or acquisition by, another
company
o issuances and redemptions of shares of our common stock
o the granting of stock options
o the sale, distribution or other disposition of assets in a
manner that would adversely affect the tax consequences of the
spin-off
o the discontinuation of material businesses
Amendment to Building Lease Agreement
We currently lease office and warehouse space located at 3885
Morse Road in Columbus, Ohio from Distribution Land Corp., a wholly owned
subsidiary of The Limited, under a building lease agreement which is scheduled
to expire on June 30, 2000. We intend, on or before the spin-off, to amend
that agreement to extend the term of the lease until two years after the date
of the spin-off, with an additional year available at our option.
Under the amendment, we will lease office space at an annual
base rental rate of $11 per square foot and warehouse space at an annual base
rental rate of $2.85 per square foot. Management believes that these rates are
commensurate with market rates, although we did not seek bids from third
parties. In 1998, we paid approximately $0.6 million under our lease. We will
also remain responsible for the payment of all taxes, insurance and operating
expenses in connection with our leased premises.
Under the amendment, Distribution Land Corp. will have the
right to relocate us under specified circumstances. If we are required to
relocate, Distribution Land Corp. will provide alternative space that is
comparable in quality at the same rent. However, we will be required to bear
the costs associated with the relocation. Distribution Land Corp. will agree
to use reasonable efforts to prevent any such relocation from having to take
place before June 30, 2001.
TRADING MARKET
There has been no public market for our common stock. An active
trading market may not develop or be sustained in the future. However, we
expect that a limited market for shares of our common stock will develop on
or shortly before the record date for the spin-off, commonly known as a "when
issued" trading market. We have applied to list our common stock on the New
York Stock Exchange under the ticker symbol "TOO".
We cannot predict the prices at which our common stock may
trade before the spin-off on a "when issued" basis or after the spin-off.
These prices will be determined by the marketplace and may be significantly
below the book value per share of our common stock. Prices at which trading in
shares of our common stock occurs may fluctuate significantly. These prices
may be influenced by many factors, including quarter to quarter variations in
our actual or anticipated financial results or those of other companies in the
retail industry or the markets that we serve. In addition, the stock market in
general has experienced extreme price and volume fluctuations that have
affected the market price of many retail stocks in particular and that have
often been unrelated or disproportionate to the operating performance of these
companies. These are just some factors that may adversely affect the market
price of our common stock. See "Risk Factors--Risk Factors Relating to
Separating Our Company from The Limited--Our Stock Price May Fluctuate
Significantly After the Spin-Off, and You Could Lose All or Part of Your
Investment as a Result."
Shares of our common stock that you will receive in the
spin-off will be freely transferable, except if you are considered an
"affiliate" of us under Rule 144 under the Securities Act of 1933. Persons who
can be considered our affiliates after the spin-off generally include
individuals or entities that directly, or indirectly through one or more
intermediaries, control, are controlled by, or are under common control with,
us. Our affiliates may only sell common stock received in the spin-off:
o under a registration statement that the SEC has declared
effective under the Securities Act of 1933
o under an exemption from registration under the Securities Act
of 1933, such as the exemption afforded by Rule 144
Options to purchase approximately shares of our
common stock will be outstanding immediately after the spin-off. These options
will be granted under the Too, Inc. 1999 Stock Option and Performance Incentive
Plan and the Too, Inc. 1999 Non-Associate Director Stock Plan. See "Executive
Compensation--Too, Inc. 1999 Stock Option and Performance Incentive Plan" and
"Executive Compensation--Too, Inc. 1999 Non-Associate Director Stock Plan."
Shares of our common stock issued upon exercise of these options will be
registered on Form S-8 under the Securities Act of 1933 and will, therefore,
be freely transferable under the securities laws, except by affiliates as
described above.
Except for the shares of our common stock distributed in the
spin-off and the options described above, none of our securities will be
outstanding on or immediately after the spin-off. We have not entered into any
agreement or otherwise committed to register any shares of our common stock
under the Securities Act of 1933 for sale by security holders. None of our
common equity is being, or has been publicly proposed to be, publicly
registered or offered by us, except for:
o the shares registered in connection with the spin-off on the
Form 10 of which this information statement forms a part
o common equity offered under employee benefit plans
DIVIDENDS
We anticipate that future earnings will be used principally to
support operations and finance the growth of our business. Thus, we do not
intend to pay cash dividends on our common stock in the foreseeable future.
Payment of cash dividends will also be restricted by provisions in our credit
facility. If our lenders permit us to declare dividends, the dividend amounts,
if any, will be determined by our board. Our board will consider a number of
factors, including our financial condition, capital requirements, funds
generated from operations, future business prospects, applicable contractual
restrictions and any other factors our board may deem relevant.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Before the spin-off, we operated as part of The Limited. The
following unaudited pro forma consolidated financial statements provide the
historical consolidated financial statements for us, as adjusted for the
spin-off and the related transactions and events described in the notes to the
unaudited pro forma consolidated financial statements. You should read the
unaudited pro forma consolidated financial statements together with our
historical consolidated financial statements and the notes to those
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in this information
statement.
The assumptions and other matters that we note in the above
paragraph and in the notes to the unaudited pro forma consolidated financial
statements include the following:
o the spin-off as described elsewhere in this document
o the unaudited pro forma consolidated statements of operations
give effect to the spin-off as if it had occurred on February
1, 1998 and the unaudited pro forma consolidated balance sheet
gives effect to the spin-off as if it had occurred on May 1,
1999
o long-term financing proceeds of $50 million which will be used
to pay a $50 million dividend to The Limited
o short-term financing proceeds of $1.75 million which will be
used to pay $1.75 million of financing fees to the lenders
under our credit facility
Management believes that the assumptions that we have used
provide a reasonable basis on which to present the unaudited pro forma
consolidated financial statements.
We are providing unaudited pro forma consolidated financial
statements for informational purposes only. You should not construe them to be
indicative of our results of operations or financial condition had the
spin-off and the related transactions and events been completed on the dates
assumed. They may not reflect the results of operations or financial condition
which would have resulted had we been operated as a separate, independent
company during such periods. Finally, they are not necessarily indicative of
our future results of operations or financial condition.
Too, Inc.
Unaudited Pro Forma Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended January 30, 1999
----------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Net sales................................................. $376,943 $376,943
Costs of goods sold, occupancy and buying costs.......... 251,729 251,729
-------- -------
Gross income.............................................. 125,214 125,214
General, administrative and store operating expenses..... 96,758 96,758
-------- -------
Operating income.......................................... 28,456 28,456
Interest expense......................................... -- $3,970 2(a) 3,970
-------- -------
Income (loss) before income taxes......................... 28,456 24,486
Provision for (benefit from) income taxes................ 11,400 (1,600) 2(b) 9,800
-------- ------- -------
Net income (loss)......................................... $ 17,056 $(2,370) $14,686
======== ======= =======
Pro forma net income per share:
Basic....................................................
Diluted.................................................. 2(c)
Assumed weighted average number of shares:
Basic....................................................
Diluted..................................................
</TABLE>
The accompanying notes are an integral part of these unaudited
pro forma consolidated financial statements.
Too, Inc.
Unaudited Pro Forma Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
Thirteen Weeks Ended May 1, 1999 Thirteen Weeks Ended May 2, 1998
------------------------------------------- -------------------------------------------
Pro Forma Pro Forma
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
----------- ----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... $95,048 $95,048 $82,257 $82,257
Costs of goods sold,
occupancy and buying
costs.......................... 63,324 63,324 57,369 57,369
------- ------- ------- -------
Gross income...................... 31,724 31,724 24,888 24,888
General, administrative and
store operating expenses....... 30,412 30,412 24,599 24,599
------- ------- ------- -------
Operating income.................. 1,312 1,312 289 289
Interest expense................. -- $993 2(a) 993 -- $993 2(a) 993
------- ===== ------- ------- ----- -------
Income (loss) before income taxes. 1,312 319 289 (704)
Provision for (benefit from)
income taxes................... 500 (400) 2(b) 100 100 (400) 2(b) (300)
------- ===== ------- ------- ----- -------
Net income (loss)............ $812 $(593) $219 $189 $(593) $(404)
======= ===== ====== ======= ===== =======
Pro forma net income (loss)
per share:
Basic............................
Diluted.......................... 2(c) 2(c)
Assumed weighted average
number of shares:
Basic............................
Diluted..........................
</TABLE>
The accompanying notes are an integral part of these unaudited
pro forma consolidated financial statements.
Too, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
At May 1, 1999
-------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash........................................... $558 $50,000 (3a) $558
(50,000) (3c)
1,750 (3b)
(1,750) (3b)
Receivables.................................... 1,750 1,750
Inventories.................................... 23,584 23,584
Store supplies................................. 5,433 5,433
Deferred income taxes.......................... 2,951 2,951
Other.......................................... 404 404
------- -------
Total current assets......................... 34,680 34,680
Property and equipment, net.................... 48,945 48,945
Deferred income taxes.......................... 6,313 6,313
Other assets................................... -- 1,750 (3b) 1,750
------- -------
Total assets................................... $89,938 $91,688
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable............................... $4,382 $4,382
Accrued expenses............................... 24,206 24,206
Income taxes payable........................... 383 383
Borrowings under revolving credit agreement -- 1,750 (3b)(3e) 1,750
------- -------
Total current liabilities.................... 28,971 30,721
Long-term debt................................. -- 50,000 (3a) 50,000
Other long-term liabilities.................... 1,731 1,731
Shareholders' equity:
Net investment by The Limited.................. 59,236 (50,000) (3c) 9,236
Common stock................................... -- (3d)
Paid in capital................................ -- --
------- -------
Total shareholders' equity................... 59,236 9,236
------- -------
Total liabilities and shareholders' equity... $89,938 $91,688
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited
pro forma consolidated financial statements.
TOO, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The following summary of pro forma adjustments is based on
available information and various estimates and assumptions. We and The
Limited believe that these assumptions provide a reasonable basis for
presenting all of the significant effects of the spin-off and the related
transactions and events and that the pro forma adjustments give appropriate
effect to those assumptions and are properly applied in the unaudited pro
forma consolidated financial statements.
Historical amounts for us were derived from our historical
consolidated financial statements included in this information statement,
which are adjusted as described below.
2. Pro Forma Consolidated Statements of Operations
(a) To record interest expense on approximately $52 million of
indebtedness that we expect to incur under our credit facility shortly before
the date of the spin-off plus a charge for the financing fees paid in
connection with the indebtedness. The financing fee is assumed at 175 basis
points, amortized straight-line over an expected term of five years. Interest
expense was calculated using a weighted average expected borrowing rate of
approximately 7.0%, based on the London Interbank Offered Rate plus a spread.
A 1/2 percentage point change in the borrowing rate would change interest
expense by $260,000.
(b) To record the tax effect of the pro forma interest expense
adjustment at an estimated effective tax rate of 40.0%.
(c) The issuance of the estimated million shares plus
shares related to options and restricted stock assumed to be granted as of the
date of the spin-off under the Too, Inc. 1999 Stock Option and Performance
Incentive Plan and the Too, Inc. 1999 Stock Plan for Non-Associate Directors.
The actual number of dilutive options and restricted stock may vary.
For the calculation of pro forma earnings per share,
is assumed for options and restricted stock to be granted at the date
of the spin-off.
In connection with the spin-off, unvested grants of stock
options on and restricted stock of The Limited's common stock held by Too,
Inc. employees will be replaced with awards of stock options and restricted
stock of Too, Inc.'s common stock (collectively, the "awards"). The awards
will have the same ratio of the exercise price per option to the market value
per share and the same vesting provisions, option periods and other terms as
The Limited's awards that they replace. The aggregate difference between
market value and the exercise price of the awards will not exceed the
aggregate difference between market value and the exercise price of The
Limited's awards. Vested stock options on The Limited's common stock held by
Too, Inc. employees will expire 90 days after the date of the spin-off.
Additional Too, Inc. options to be granted on the date of the spin-off to
employees and independent directors will have an exercise price equal to the
market value of Too, Inc. stock on the date of the spin-off. In addition,
some Too, Inc. restricted stock awards to be granted in connection with the
spin-off may contain performance requirements.
3. Pro Forma Consolidated Balance Sheet
(a) To reflect approximately $52 million of indebtedness we
expect to incur under our credit facility shortly before the date of the
spin-off. Proceeds will be used to pay a $50 million dividend to The Limited.
(b) To reflect borrowings under our revolving credit agreement,
proceeds of which will be used to pay financing fees to the lenders under our
credit facility.
(c) To reflect payment of a $50 million dividend to The Limited.
(d) To reflect the issuance of an estimated million shares
of common stock, par value $.01 per share, as of , 1999. Paid
in capital represents the excess historical carrying values of our net assets
at the date of the spin-off over the amount reflected as common stock.
(e) The pro forma financial statements do not reflect
borrowings under our credit facility for our working capital needs. The
Limited advanced amounts to us for working capital in 1999. We anticipate that
we will repay a portion of these working capital advances made by The Limited
before the spin-off through proceeds from our credit facility and that our
future working capital needs will be funded by our credit facility and other
sources of cash.
Management estimates that our total shareholder's equity at the time of
the spin-off will exceed the pro forma amount of $9.2 million as of May 1,
1999. We expect this net increase in shareholder's equity to result from
investments made by The Limited in 1999 for property, plant and equipment, the
estimated changes in working capital described above and the net impact of our
earnings. However, we cannot assure you that the actual amount of total
shareholder's equity at the time of the spin-off will exceed the pro forma
amount.
CAPITALIZATION
The following table presents our consolidated capitalization as
of May 1, 1999 and is adjusted to give effect to the spin-off and the related
transactions and events described in the notes to our unaudited pro forma
consolidated balance sheet under "Unaudited Pro Forma Consolidated Financial
Statements" as if the spin-off and the related transactions and events had
been consummated on May 1, 1999.
Management believes that the assumptions used provide a
reasonable basis on which to present our consolidated capitalization. You
should read the capitalization table below together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," our
historical consolidated financial statements and the "Unaudited Pro Forma
Consolidated Financial Statements" and the notes to those consolidated
financial statements included in this information statement.
We are providing the capitalization table below for
informational purposes only. You should not construe them to be indicative of
our capitalization or financial condition had the spin-off and the related
transactions and events been completed on the date assumed. The capitalization
table below may not reflect the capitalization or financial condition which
would have resulted had we been operated as a separate, independent company
during such period and is not necessarily indicative of our future
capitalization or financial condition.
<TABLE>
May 1, 1999
-----------------------------
Historical Pro Forma
(unaudited) (unaudited)
----------- -----------
(in thousands)
<S> <C> <C>
Short-term debt....................................................... -- $1,750
Long-term debt........................................................ -- 50,000
------- -------
Total indebtedness................................................... -- $51,750
====== =======
Shareholders' equity:
Net investment by The Limited.................................... $59,236 $9,236
Common stock, par value $.01 per share; 100 million
shares authorized; million shares issued and outstanding(1)....
Paid in capital......................................................
------- -------
Total shareholders' equity ........................................ 59,236 9,236
------- -------
Total capitalization............................................... $59,236 $60,986
======= =======
Debt to total capitalization(2)....................................... -- 0.85
- -----------
(1) The number of shares of our common stock outstanding reflects (a) the
spin-off ratio times (b) the number of shares of The Limited's common stock
outstanding as of May 1, 1999.
(2) Debt-to-total capitalization has been computed by dividing total
indebtedness by total capitalization.
</TABLE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents selected historical and pro forma
financial as well as operating data of Too, Inc. for the last five fiscal
years and for the thirteen weeks ended May 1, 1999 and May 2, 1998. The
information for the fiscal years ended February 3, 1996 and January 28, 1995
is derived from our unaudited consolidated financial statements. The
information for the thirteen weeks ended May 1, 1999 and May 2, 1998 is
derived from the unaudited consolidated financial statements included in this
information statement which, in the opinion of management, reflect all
adjustments, which are of a recurring nature, necessary to present fairly the
financial position and results of operations and cash flows for the interim
periods. Results for the thirteen weeks ended May 1, 1999 are not necessarily
indicative of the results of operations to be expected for the full fiscal
year.
Before the spin-off, we operated as part of The Limited.
Because the data reflects periods during which we did not operate as an
independent company, the data may not reflect the results of operations or the
financial condition which would have resulted if we had operated as a
separate, independent company during the periods shown. In addition, the data
may not necessarily be indicative of our future results of operations or
financial condition.
The data presented in the table below is derived from
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our historical and pro forma consolidated financial statements
and the notes to those consolidated financial statements included in this
information statement. You should read these sections for a further
explanation of the data summarized here.
Earnings per share data is presented elsewhere in this
information statement on a pro forma basis only. See "Unaudited Pro Forma
Consolidated Financial Statements."
<TABLE>
Fiscal Years Ended Thirteen Weeks Ended
----------------------------------------------------------------- -------------------------
January 30, January 31, February 1, February 3, January 28,
1999 1998 1997 1996(1) 1995 May 1, 1999 May 2, 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(dollars in thousands, except per share data and sales per average square foot)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales.......................... $376,943 $322,150 $258,818 $214,302 $173,787 $95,048 $82,257
Gross income(2).................... 125,214 95,247 60,844 38,237 47,928 31,724 24,888
General, administrative and
store operating expenses(3)...... 96,758 82,950 69,698 57,481 44,817 30,412 24,599
Operating income (loss)............ 28,456 12,297 (8,854) (19,244) 3,111 1,312 289
Net income (loss).................. 17,056 7,397 (5,354) (11,544) 1,911 812 189
Pro forma net income (loss)(4)..... 14,686 219 (404)
Pro forma diluted weighted average
number of shares(5)..............
Pro forma diluted net income per
share(5).........................
Balance Sheet Data:
Inventories........................ $27,565 $18,661 $20,437 $16,046 $15,156 $23,584 $17,167
Total assets....................... 89,969 72,974 74,793 72,972 57,828 89,938 71,043
Pro forma long-term debt........... 50,000
Pro forma shareholders' equity..... 9,236
Selected Operating Data:
Comparable store sales
increase (decrease)(6)........... 15% 20% 8% (4)% 13% 10% 23%
Total net sales growth............. 17.0% 24.5% 20.8% 23.3% 18.4% 15.6% 25.3%
Gross income rate(7)............... 33.2% 29.6% 23.5% 17.8% 27.6% 33.4% 30.3%
Operating income (loss) rate(7).... 7.6% 3.8% (3.4)% (9.0)% 1.8% 1.4% 0.4%
Total number of stores open at
period end....................... 319 312 308 288 212 321 313
Total square feet at period end
(thousands)...................... 1,281 1,244 1,224 1,143 838 1,296 1,248
Annual sales per average square
foot(8).......................... $300 $259 $214 $207 $226 NM NM
- ------------
NM= not meaningful
(1) Represents the 53-week fiscal year ended February 3, 1996.
(2) Gross income equals net sales less costs of goods sold, occupancy and
buying costs, including charges and allocations made by The Limited to us.
(3) General, administrative and store operating expenses include charges and
allocations made by The Limited to us.
(4) Pro forma net income includes interest expense and financing fees, net of
the related tax benefit, on approximately $52 million of indebtedness we
expect to incur under our credit facility shortly before the date of the
spin-off. Proceeds from the debt incurred will be used to pay a $50 million
dividend to The Limited and $1.75 million of financing fees to the lenders
under our credit facility. Pro forma net income does not reflect any
interest expense related to working capital advances that are likely to be
made in 1999 as the amounts and timing of such advances are not certain.
(5) Pro forma diluted net income per share is based on pro forma net income and
the diluted weighted average number of shares of our common stock expected
to be outstanding immediately after the spin-off plus shares related to
stock options and restricted stock assumed to be granted as of the date of
the spin-off under the Too, Inc. 1999 Stock Option and Performance
Incentive Plan and the Too, Inc. 1999 Stock Plan for Non-Associate
Directors. The actual number of dilutive options and restricted stock will
vary. Pro forma diluted net income per share is not necessarily indicative
of what actual dilutive net income per share would have been if the
spin-off had occurred on the basis assumed.
(6) A store is included in our comparable store sales calculation once it has
completed 52 weeks of operation. Further, stores that are expanded or
downsized more than 20% in square feet are treated as new stores for
purposes of this calculation.
(7) Calculated as a percentage of net sales.
(8) Sales per average square foot is the result of dividing net sales for the
period by average gross square foot, which reflects the impact of opening
and closing stores in different periods throughout the year.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations in conjunction with our
historical consolidated financial statements and the notes to those
consolidated financial statements included in this information statement and
"Unaudited Pro Forma Consolidated Financial Statements." For the purposes of
the following discussion, unless the context otherwise requires, "Too, Inc.",
"Limited Too", "we", "our" and "us" refer to Too, Inc. and our subsidiaries.
General
In 1987, The Limited established "Limited Too" brand stores
adjacent to or as departments within The Limited stores to provide similar
apparel to young girls, and also apparel for infants. Our initial target
consumer was the mother who shopped at The Limited and wanted to purchase
similar apparel for her daughter. From 1987 to the end of fiscal 1995, we
expanded our locations from two stores to 288 stores. After several years of
inconsistent performance, as indicated by a $(19.2) million operating loss in
1995, The Limited brought in some new members of our current management team
in 1996. Our current management team recognized that its core customer had her
own emerging sense of style and revised our strategy to focus on girls
approximately 7 to 14 years of age as our target customer group. Since then,
we have consistently improved our financial performance.
In the period from fiscal 1996 to fiscal 1998, we:
o increased net sales to $376.9 million from $258.8 million
o improved our pretax operating income to $28.5 million from a
loss of $(8.9) million
o improved our operating income rate as a percentage of sales to
7.6% from a loss of (3.4)% by increasing sales volume,
improving gross income and slowing the growth in general,
administrative and store operating expenses
o improved sales per average square foot to $300 from $214
The strong growth and improved profitability during this period resulted from
an increase in comparable store sales and gross income as we improved our
merchandise assortment and merchandise margins and strengthened our brand
awareness.
Results of Operations
<TABLE>
Fiscal Year Ended Thirteen Weeks Ended
--------------------------------------- ----------------------------
January 30, January 31, February 1,
1999 1998 1997 May 1, 1999 May 2, 1998
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of goods sold, occupancy and buying costs. 66.8 70.4 76.5 66.6 69.7
----- ----- ----- ----- -----
Gross income.................................... 33.2 29.6 23.5 33.4 30.3
General, administrative and store operating
expenses........................................ 25.7 25.8 26.9 32.0 29.9
----- ----- ----- ----- -----
Operating income (loss)......................... 7.5 3.8 (3.4) 1.4 0.4
Provision for (benefit from) income taxes....... 3.0 1.5 (1.3) 0.5 0.1
----- ----- ----- ----- -----
Net income (loss)............................... 4.5% 2.3% (2.1)% 0.9% 0.3%
===== ===== ===== ===== =====
</TABLE>
Financial Summary
Below, you will find summarized annual financial data for the
fiscal periods shown:
<TABLE>
Fiscal Year Ended % Change
------------------------------------------- --------------
January 30, January 31, February 1, 1997- 1996-
1999 1998 1997 1998 1997
----------- ----------- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales (millions)................................. $376.9 $322.2 $258.8 17% 24%
Comparable store sales increase(1)................... 15% 20% 8%
Sales per average square foot(2)..................... $300 $259 $214 16% 21%
Sales per average store (thousands).................. $1,204 $1,039 $849 16% 22%
Average store size at fiscal year end (square feet).. 4,015 3,987 3,974
Total square feet at fiscal year end (thousands)..... 1,281 1,244 1,224
Number of stores:
Beginning of year................................... 312 308 288
Opened.............................................. 10 7 27
Closed.............................................. (3) (3) (7)
----- ----- -----
End of period....................................... 319 312 308
===== ===== =====
- ------------
(1) A store is included in our comparable store sales calculation once it has
completed 52 weeks of operation. Further, stores that are expanded or
downsized more than 20% in square feet are treated as new stores for
purposes of this calculation.
(2) Sales per average square foot is the result of dividing net sales for the
period by average gross square foot, which reflects the impact of opening
and closing stores in different periods throughout the year.
</TABLE>
Thirteen Weeks Ended May 1, 1999 Compared to Thirteen Weeks
Ended May 2, 1998
Net Sales. Net sales for the thirteen weeks ended May 1, 1999
increased 16% to $95.0 million from $82.3 million for the thirteen weeks ended
May 2, 1998. The increase was primarily a result of a 10% increase in
comparable store sales, with the balance attributable to new stores. Within
the merchandise categories, knit tops increased significantly, led by
cut-and-sewn tops, graphic T-shirts and active T-shirts. The add-on
(principally underwear, sleepwear and swimwear) and accessories categories
also increased significantly.
Gross Income. The gross income rate for the first quarter of
1999, expressed as a percentage of net sales, increased to 33.4% from 30.3%
for the first quarter of 1998. The increase in rate was primarily attributable
to higher initial mark-ups on merchandise and a decrease in buying and
occupancy costs, expressed as a percentage of net sales, due to the leverage
achieved through higher comparable store sales.
General, Administrative and Store Operating Expenses. General,
administrative and store operating expenses for the first quarter of 1999,
expressed as a percentage of net sales, increased to 32.0% from 29.9% for the
first quarter 1998. This increase was attributable to increased allocations
for services provided by The Limited, including distribution and information
technology, which included costs associated with becoming year 2000 ready. In
addition, these expenses included web site development and catalog start-up
costs, as well as costs for a direct mail campaign during the first quarter of
1999. Finally, the balance of the increase was attributable to store and home
office payroll costs, principally relating to management and incentive
compensation programs.
Operating Income. Operating income, expressed as a percentage
of net sales, increased to 1.4% for the first quarter of 1999 from 0.4% for
the same period in 1998. Operating income increased to $1.3 million for the
first quarter of 1999 from $289,000 for the same period in 1998. The increase
was attributable to higher merchandise margins and the favorable leveraging of
buying and occupancy costs, partially offset by higher general, administrative
and store operating expenses.
Fiscal Year Ended January 30, 1999 Compared to Fiscal Year
Ended January 31, 1998
Net Sales. Net sales for 1998 increased 17% to $376.9 million
from $322.2 million in 1997. The increase was primarily attributable to a 15%
increase in comparable store sales and the net addition of seven stores.
During the third quarter of fiscal 1997, we exited the infant merchandise
category because it was inconsistent with a store environment that appeals to
our target customer. Therefore, excluding infant sales in 1997, we experienced
a 24% increase in comparable store sales over the prior year. While sales
increased across virtually all merchandise categories, add-on, lifestyles,
personal care products under our "GirlCare" product line and tops experienced
significant increases. Net sales productivity increased 16% to $300 per
average square foot.
Gross Income. The gross income rate, expressed as a percentage
of net sales, increased to 33.2% in 1998 from 29.6% in 1997. The increase in
rate was attributable to an increase in initial markup on merchandise and a
decrease in buying and occupancy costs, expressed as a percentage of net
sales, due to the leverage achieved through higher comparable store sales. The
improvement in these margin components was slightly offset by an increase in
markdowns experienced during the fall season as a result of underperformance
in the ready-to-wear category and overassortment in the bottoms category.
General, Administrative and Store Operating Expenses. General,
administrative and store operating expenses, expressed as a percentage of net
sales, improved slightly to 25.7% in 1998 from 25.8% in 1997. The favorable
leveraging of these expenses associated with improved sales productivity was
partially offset by an increase in overhead allocations from The Limited. The
increase in the allocated expenses included information technology costs,
including Year 2000 costs and central distribution center costs, driven by
unit growth of lower price accessories and "GirlCare" products, which also
have higher handling costs.
Operating Income. Operating income, expressed as a percentage
of net sales, was 7.5% and 3.8% in fiscal 1998 and 1997, respectively. The
improvement in 1998 over 1997 was due principally to the improvement in
merchandise margins and the positive leveraging of buying and occupancy
expenses arising from increases in comparable store sales.
Fiscal Year Ended January 31, 1998 Compared to Fiscal Year
Ended February 1, 1997
Net Sales. Net sales for 1997 increased 24% to $322.2 million
from $258.8 million in 1996. The increase was primarily attributable to a 20%
increase in comparable store sales with the balance arising from the net
addition of four stores. While sales increased in most merchandise categories,
the increase of personal care products, add-on and lifestyles in the overall
mix accounted for nearly half of the sales increase over the prior year. Net
sales per average square foot increased 21% to $259 per square foot.
Gross Income. For fiscal 1997, the gross income rate improved
to 29.6% from 23.5% in 1996. The increase in rate was attributable to improved
merchandise margins as higher initial markups on merchandise were partially
offset by higher markdowns and a decline in the rate for buying and occupancy
costs as a result of an increase in comparable store sales.
General, Administrative and Store Operating Expenses. General,
administrative and store operating expenses, expressed as a percentage of net
sales, improved to 25.8% in 1997 from 26.9% in 1996, due to the favorable
leveraging of expenses associated with improved per store productivity.
Operating Income (Loss). The operating income (loss) rate,
expressed as a percentage of net sales, was 3.8% and (3.4%) in fiscal 1997 and
1996, respectively. As with the improvement in 1998 over 1997, the improvement
in 1997 over 1996 was due principally to the improvement in merchandise
margins and the positive leveraging of buying and occupancy expenses arising
from increases in comparable store sales. Also, 1997 showed further
improvement over 1996 due to the favorable leveraging of general,
administrative and store operating expenses associated with the increase in
comparable store sales.
Seasonality and Quarterly Fluctuations
As illustrated in the table below, our business is highly
seasonal, with significantly higher sales, gross income and net income
realized during the fourth quarter, which includes the holiday selling season.
See "Risk Factors--Risk Factors Relating to Our Business--Our Net Sales, Net
Income and Inventory Levels Fluctuate on a Seasonal Basis."
1998 Quarters First Second Third Fourth
- ------------- ----- ------ ----- ------
(dollars in thousands)
Net sales......... $82,257 $74,746 $96,720 $123,220
% of full year... 21.8% 19.8% 25.7% 32.7%
Gross income...... $24,888 $24,016 $29,870 $ 46,440
% of full year... 19.9% 19.2% 23.8% 37.1%
Net income........ $189 $240 $4,248 $ 12,379
% of full year. 1.1% 1.4% 24.9% 72.6%
1997 Quarters First Second Third Fourth
- ------------- ----- ------ ----- ------
(dollars in thousands)
Net sales......... $65,646 $61,263 $86,430 $108,811
% of full year... 20.4% 19.0% 26.8% 33.8%
Gross income...... $15,590 $15,170 $23,988 $40,499
% of full year... 16.4% 15.9% 25.2% 42.5%
Net income (loss). $(1,686) $(1,619) $2,018 $8,684
% of full year... (22.8)% (21.9)% 27.3% 117.4%
Financial Condition
Our recent improvement in operating income over the last two
years provides evidence of increased financial strength and flexibility. A
more detailed discussion of liquidity, capital resources and capital
requirements follows.
Liquidity and Capital Resources
Cash provided by operating activities and cash funding from The
Limited's centralized cash management system have historically provided the
resources to support operations, including seasonal requirements and capital
expenditures. See "Relationship Between Too, Inc. and The Limited." Cash
requirements for operating purposes during the year and for capital
expenditures were met from this source. We will continue to utilize the
centralized cash management system after the spin-off under a services
agreement until the earlier of when we establish our own system or a year
after the spin-off. See "Relationship Between Too, Inc. and The
Limited--Transitional Services and Separation Agreements--Services Agreement."
Below, you will find a summary of our working capital position
and capitalization.
<TABLE>
Fiscal Year Ended Thirteen Weeks Ended
---------------------------------------- --------------------
January 30, January 31, February 1, May 1, May 2,
1999 1998 1997 1999 1998
----------- ----------- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
(in thousands)
(unaudited)
Net cash provided by (used for) operating activities. $17,361 $30,294 $13,764 $ (486) $(1,724)
Working capital (deficit)............................ 1,394 (8,137) 5,018 5,709 (2,217)
Capitalization
Net investment by The Limited....................... 51,100 37,773 54,400 59,236 41,881
Cash flow to capital investment (net cash provided
by operating activities divided by capital
expenditures)....................................... $1.21 $6.34 $1.62 NM NM
- ------------
NM = not meaningful
</TABLE>
Net cash used for operating activities approximated $500,000
for the first quarter of 1999, down from $1.7 million used by such activities
for the same period in 1998. The $1.2 million improvement for the first
quarter of 1999 principally resulted from the increase in net income after the
impact of depreciation and amortization and a larger decline in inventory
levels from the end of the previous fiscal year.
Net cash provided by operating activities totaled $17.4
million, $30.3 million and $13.8 million for 1998, 1997 and 1996,
respectively. Net income before depreciation and amortization increased $9.6
million from 1997. However, the increase in inventories in 1998 coupled with
an increase in income tax payments more than offset the $9.6 million increase
from operations. The $16.5 million improvement in cash provided by operating
activities in 1997 over 1996 was due primarily to the increase in net income
from operations.
Investing activities were for capital expenditures, which were
primarily for new and remodeled stores.
Historically, financing activities consisted primarily of
activity through The Limited's centralized cash management system. See Note 7
to the Consolidated Financial Statements included in this information
statement.
Capital Expenditures
Capital expenditures, primarily for new and remodeled stores,
approximated $7.3 million for the first quarter of 1999, a $6.3 million
increase from the same period in 1998. Capital expenditures, primarily for new
and remodeled stores, totaled $14.3 million, $4.8 million and $8.5 million for
1998, 1997 and 1996, respectively.
We anticipate spending between $32 to $37 million in 1999 for
capital expenditures, of which $25 to $29 million will be for new stores,
remodeling or expansion of existing stores and related improvements. We intend
to add approximately 145,000 square feet in 1999, which will represent an 11%
increase over year end 1998. We anticipate that the increase will result from
the opening of approximately 40 new stores and the remodeling or expansion of
20 stores. We estimate that the average cost for leasehold improvements,
furniture and fixtures for stores to be opened in 1999 will be approximately
$405,000 per store, after giving effect to landlord allowances. Average
pre-opening costs per store, which will be expensed as incurred, are expected
to be less than $20,000. In addition, inventory purchases are expected to
average approximately $100,000 per store.
We expect that substantially all future capital expenditures
will be funded by net cash provided by operating activities.
Impact of Transitional Services and Separation Agreements
Excluding the store leases agreement, amounts to be charged
under the new transitional services and separation agreements are not expected
to be materially different than amounts charged by The Limited prior to the
date of the spin-off. Since amounts to be charged under the store leases
agreement will be contingently payable based upon positive comparable store
sales performance, it is anticipated that any amounts due will not have a
material adverse impact on liquidity, financial condition or results of
operation.
For a further discussion of the transitional services and
separation agreements, see "Relationship Between Too, Inc. and The
Limited--Transitional Services and Separation Agreement."
Description of Credit Facility
Effective as of the date of the spin-off, we expect to have a
collateralized credit facility for $100 million against which $52 million is
expected to be drawn to pay a $50 million dividend to The Limited. We will
borrow amounts under our credit facility to repay a portion of the working
capital advances made by The Limited to us in 1999 before the spin-off. The
remainder of the credit facility will be available to fund working capital
requirements and for general corporate purposes. We expect the credit facility
to:
o consist of a $50 million amortizing term loan which may begin
amortizing at the end of the third year and a $50 million up to
five-year revolving credit facility
o contain customary representations and warranties and
affirmative, negative and financial covenants
o have interest rates that are based on the London Interbank
Offered Rate plus a spread
o be guaranteed by our present and future domestic subsidiaries
Impact of Inflation
Our results of operations and financial condition are presented
based upon historical cost. While it is difficult to accurately measure the
impact of inflation due to the imprecise nature of the estimates required, we
believe that the effects of inflation, if any, on our results of operations
and financial condition have been minor.
Year 2000 Readiness
The Year 2000 issue arises primarily from computer programs,
commercial systems and embedded chips that will be unable to properly
interpret dates beyond the year 1999. We are currently part of the Year 2000
readiness efforts undertaken by The Limited, which will continue after the
spin-off under a services agreement with The Limited. We use a variety of
proprietary and third-party computer technologies -- both hardware and
software -- directly in our business. We also rely on numerous third parties
and their systems' ability to address the Year 2000 issue. Our critical
information technology functions include point-of-sale equipment, merchandise
distribution, merchandise and non-merchandise procurement, credit card and
banking services, transportation and business and accounting management
systems.
Readiness
We are participating in The Limited's Year 2000 readiness
efforts. We have been part of the package migration group of The Limited,
which involves the migration of software to be Year 2000 ready. We have
installed those systems. Recently, we have decided to explore redeploying our
inventory planning legacy system which is not part of the overall Year 2000
readiness efforts undertaken by The Limited. The Limited has not committed
resources to assist us in our remediation efforts on the inventory planning
legacy system. We have assumed full responsibility to make our legacy system
Year 2000 ready and to identify and respond to any Year 2000 issues associated
with the interaction between our legacy system, our other systems and new
systems installed as part of The Limited's overall efforts. We believe we will
incur incrementally $100,000 in order to make the legacy system Year 2000
ready, along with other programming costs in order to bridge this system to
the other new systems installed. If we are unsuccessful in our efforts to
remediate the inventory planning legacy system, we will continue with the
planning system The Limited has already provided us as part of The Limited's
Year 2000 readiness efforts.
The Limited established a program management office to oversee,
monitor and coordinate the company-wide Year 2000 effort. This office has
developed and is implementing a Year 2000 plan. The implementation includes
five stages:
o awareness, which includes identifying risks and conducting an
education program regarding Year 2000 issues
o assessment, which primarily includes establishing project
resources, developing a Year 2000 renovation strategy,
completing a company-wide inventory of information technology
and determining the necessary training and testing facility
requirements
o renovation/development, which includes the analysis of existing
information systems, the design of remediation activities and
the coding of necessary remedies
o validation, which primarily includes system testing
o implementation, which includes the placement of renovated
systems "in production" and training end users
There are two areas of focus:
o Assessment of Year 2000 readiness at key vendors and suppliers.
A vast network of vendors, suppliers and service providers
located both within and outside the United States provide us
with merchandise for resale, supplies for operational purposes
and services. We have identified key vendors, suppliers and
service providers, and The Limited is making efforts to
determine their Year 2000 status. As a result, The Limited
obtained completed Year 2000 surveys from approximately 40 of
our most critical third-party vendors, representing over half
of our total 1998 purchases, to determine an estimated
compliance date. Of the 40 critical third-party vendors
surveyed, approximately half have indicated that they are Year
2000 compliant. The remaining vendors have indicated estimated
compliance dates through the third quarter of 1999. Based upon
the results of the surveys, we selected 3 of our more
significant vendors for on-site visits to further assess the
vendors' progress and estimated compliance dates. The Limited
will continue to monitor the status of the vendors' estimated
compliance dates in order to identify potential delays.
o Evaluating facilities and distribution equipment with embedded
computer technology. We use various facilities and distribution
equipment with embedded computer technology, such as conveyors,
elevators, security systems, fire protection systems and energy
management systems. The Limited's assessment of these systems
is complete, and all stages of its efforts are expected to be
complete in the second quarter of 1999.
In addition, The Limited also focused on:
o Renovation of legacy systems. All five stages of Year 2000
implementation for renovation of their legacy systems for The
Limited's businesses which have adopted such renovations is
complete.
o Installation of new software packages to replace legacy systems
at five of The Limited's operating businesses. Implementation
of their significant legacy systems with new software packages
is complete.
Cost to Address the Year 2000 Issue
Our total expenditures incurred through 1998 related to
remediation, testing, conversion, replacement and upgrading system
applications were approximately $8.1 million, of which approximately $6.0
million represents capital assets which will be amortized principally over a
period of five years beginning in May 1999. In addition, we have incurred
internal payroll costs (not separately identified) relating to the Year 2000
initiatives.
Additional expenditures are expected to range from $3.5 million
to $3.8 million through July 1999, of which approximately $2.4 million will be
capitalized. Total incremental expenses, primarily depreciation and
amortization of new package systems, are not expected to have a material
impact on our financial condition during 1999 and 2000. Included in the above
costs are expenditures associated with the development of an internal testing
center, which has enabled us to perform comprehensive testing of newly
renovated systems by processing transactions as if they had occurred in the
Year 2000. This internal testing process was used to develop the risk and cost
estimates described in this section of the information statement. Efforts by
employees of The Limited's information technology division represent
approximately three-fourths of the total information technology budgeted hours
for the Year 2000 project. Efforts by numerous external consultants who have
assisted us with risk management, program management and new software package
implementation represent the remaining hours. We have allocated approximately
35% of our information technology budget for the period from fall 1997 through
fall 1999 toward Year 2000 remediation efforts.
Reasonably Likely Worst Case Scenario and Contingency Plans
We believe that the reasonably likely worst case scenario would
involve short-term disruptions of systems affecting its supply and
distribution channels. The Limited is in the early stages of developing
contingency plans, such as alternative sourcing, and identifying the necessary
actions that it would need to take if critical systems or service providers
were not Year 2000 ready. The Limited expects to finalize these contingency
plans in the second half of 1999.
At the present time, we and The Limited are not aware of any
Year 2000 issues that are expected to materially affect our products,
services, competitive position or financial performance. Additionally, we have
not postponed any significant information technology projects due to the Year
2000 project. Thus, we do not believe that the delay of any projects has had a
material impact on our financial condition and results of operations. However,
despite The Limited's significant efforts to make our systems, facilities and
equipment Year 2000 ready, and our efforts to make our inventory planning
legacy system Year 2000 ready, the readiness of third-party service providers
and vendors (including, for instance, governmental entities and utility
companies) is beyond our control. Thus, we cannot assure you that the failure
of systems of other companies on which The Limited's or our systems rely, or
the failure of key suppliers or other third parties to comply with Year 2000
requirements, will not have a material adverse effect on us.
In connection with the spin-off, we will indemnify The Limited
against any liabilities caused by or arising from The Limited's Year 2000
readiness assistance. We have also agreed not to make any claims against The
Limited caused by or arising from The Limited's Year 2000 readiness assistance
and in connection with the failure of any of our systems to be Year 2000
ready. See "Relationship Between Too, Inc. and The Limited--Transitional
Services and Separation Agreements--Services Agreement."
Adoption of New Accounting Standards
In March 1998, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." Statement of Position 98-1 requires that certain
external costs and internal payroll and payroll related costs be capitalized
during the application development and implementation stages of a software
development project and amortized over the software's useful life. Statement
of Position 98-1 became effective in the first quarter of 1999 and did not
have a material adverse effect on our results of operations.
Additionally, the Accounting Standards Executive Committee
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," in April 1998. Statement of Position 98-5 requires that entities
expense start-up costs and organization costs as they are incurred. Statement
of Position 98-5 became effective in the first quarter of 1999 and did not
have a material adverse effect on our results of operations.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995
Any forward-looking statements contained in this information
statement or made by our management involve risks and uncertainties and may
change based on various important factors, many of which may be beyond our
control. Thus, our future performance and financial results may differ
materially from those expressed or implied in any such forward-looking
statements. Forward-looking statements are indicated by words such as
"anticipate," "estimate," "expect," "intend," "risk," "could," "may," "will,"
"pro forma," "likely," "possible," "potential" and similar words and phrases
and the negative forms and variations of these words and phrases. See, for
example, "Summary," "Risk Factors," "Relationship Between Too, Inc. and The
Limited," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
The following factors, among others, in some cases have
affected and in the future could affect our financial performance and actual
results and could cause actual results for 1999 and beyond to differ
materially from those expressed or implied in any such forward-looking
statements:
o changes in consumer spending patterns
o consumer preferences and overall economic conditions
o the impact of competition and pricing
o changes in weather patterns
o political stability, currency and exchange risks and changes in
existing or potential duties, tariffs or quotas
o the availability of suitable store locations at appropriate
terms
o the ability to develop new merchandise
o the ability to hire and train personnel, including sales
associates
Any forward-looking statements as to costs and dates relating
to the Year 2000 effort are forward-looking and are based on our current best
estimates that may be proven incorrect as additional information becomes
available. Our Year 2000-related forward-looking statements are also based on
assumptions about many important factors, including the technical skills of
employees and independent contractors, the representations and preparedness of
third parties, the ability of vendors to deliver merchandise or perform
services required by us and the collateral effects of the Year 2000 issues on
our business partners and customers. While we believe that our assumptions are
reasonable, we caution that it is impossible to predict factors that could
cause actual costs or timetables to differ materially from the expected
results.
BUSINESS
Limited Too is a rapidly growing specialty retailer that sells
apparel, underwear, sleepwear, swimwear, lifestyle and personal care products
for fashion-aware, trend-setting young girls. As of May 1, 1999, we had 321
stores in 43 states. We design, source and market our products under our
proprietary "Limited Too" brand name. In fiscal 1998, we opened 10 new stores
and remodeled or expanded 15 existing stores.
In 1987, The Limited established "Limited Too" brand stores
adjacent to or as departments within The Limited stores to provide similar
apparel to young girls, and also apparel for infants. From 1987 to the end of
fiscal 1995, we expanded our locations from two stores to 288 stores. In 1996,
a new management team recognized that its core customer had her own emerging
sense of style and revised our strategy to focus on girls approximately 7 to 14
years of age as our target customer group.
Our merchandise includes:
o casual clothing, such as jeans and other jeanswear and bottoms,
knit tops and T-shirts containing our brand name or other
graphics, dresses and outerwear
o accessories, such as costume jewelry, hair ornaments, slippers,
key chains, wallets, backpacks, purses and watches
o lifestyle products, such as inflatable furniture, lamps,
writing instruments, folders and posters
o personal care products under our "GirlCare" line, such as
glitter cosmetics, body splash and anti-bacterial hand gel
o add-on, such as underwear, sleepwear and swimwear
Business Strengths
We believe that our six core business strengths developed over
the last three years have contributed to our success and will enable us to
continue growing profitably.
Target Customer Group. We have identified our target customer
group to be girls approximately 7 to 14 years of age who are active, creative
and image-conscious, enjoy shopping and want to describe themselves as "fun"
and "cool". We believe our target customers want a broad assortment of
merchandise for their range of dressing occasions, including school, leisure
activities and parties. To attract our target customer, we continually update
our merchandise assortment, which includes non-apparel merchandise, such as
cosmetics and lifestyle furnishings for her room. We also create an in-store
atmosphere that is visually appealing and provides an enjoyable, safe and
exciting shopping experience. We believe that girls interested in the latest
fashions are attracted to our image and are made to feel secure in their
fashion choices when they purchase our brand. At the same time, we believe that
parents defer to many choices that their daughters make in our stores because
they find our products to be appropriate for their daughters' age.
Focused and Differentiated Brand. We have created a focused and
differentiated brand image for fashion-aware girls aged 7 to 14 who follow
the latest trends. We believe that the brand's appeal has been augmented by,
and should continue to benefit from, trends that emphasize the latest fashions
and the aspirational lifestyle of today's younger girls who want to look and
dress like older girls consistent with the latest trends in junior fashions.
We communicate our brand image through all aspects of our business, including
merchandise assortment and our exciting, colorful in-store presentation. We
believe that the strength of our brand provides opportunities for increased
penetration of current merchandise categories and entry into newer product
categories such as our "GirlCare" line of toiletries and cosmetics introduced
in 1996.
Entertaining Store Environment. A major element of our recent
success is the consistent store-level execution of our brand strategy. We
design our stores to provide a "theme park" destination in the mall and to
encourage our customers to touch and sample our products. All of our stores
contain a wide variety of merchandise for a "one-stop shopping" experience,
which has been specifically designed to embody "a store for her" theme. Our
stores feature colorful window displays; photographic sticker booths; ear
piercing stations; gumball machines; and eye-catching photographs. Our newer
store formats may also have:
o our daisy logo on our front signage
o a personal care sampling table in the front of the store at
which our customers can experiment with our "GirlCare" products
and consult their friends and our sales associates
o light shows
o mock pay telephones from which our customers can listen to
music or call their friends within the store
We tightly control our in-store presentation by basing it on
detailed and comprehensive store plans. These plans use visual displays and
fixtures designed to brand our stores in a manner tailored to appeal to our
target customer group.
Proprietary Design and Merchandising Capabilities. A cornerstone
of our business is our ability to design products which embody our brand image.
We develop substantially all of our merchandise assortment through our own
design group, which allows us to:
o create exclusive merchandise under our proprietary brand
o develop complementary fashionable outfits
o offer a vast array of merchandise within a fashion season
o introduce new non-apparel items
o bring our products to market faster
In addition, because our merchandise is sold exclusively in our
own stores, we are able to control the presentation and pricing of our
merchandise and provide a higher level of customer service. Our merchandising
strategy of offering a broad assortment allows us to constantly introduce
elements of the latest fashion trends. We believe that these capabilities
provide us with competitive advantages over other brand manufacturers that
market their goods through department and other specialty apparel stores.
Proven Management Team. Since early 1996, when some of the
senior members of our current management team assumed responsibility, we have
increased the level of brand awareness and consistently reported improved
financial results. We believe that our management has a distinct understanding
of our customers and is able to execute design, sourcing and marketing
strategies to penetrate our target customer group. With over 125 years of
collective experience in the retail industry, they have demonstrated a track
record of highly profitable growth which strongly positions us for the future.
Attentive Customer Service. Our sales associates convey and
reinforce our brand image through their attitude, enthusiasm and awareness of
current fashion trends. We train them to greet each customer, to inform the
customer about new fashion trends, to guide her through the store and to
suggest merchandise to suit the customer's wardrobe and lifestyle needs. We
strive to give each of our young customers the same level of respect and
attention that adult customers expect in a retail shopping experience.
Growth Strategy
We have implemented a growth strategy to capitalize on our
business strengths. Our growth strategy focuses on four goals:
o opening approximately 40 new stores per year in 1999 and 2000
o remodeling or expanding approximately 20 existing stores in
1999
o increasing comparable store sales through product extensions
and our continued execution of merchandise and other
initiatives to satisfy our target customers' needs
o increasing our distribution channels to include direct
marketing through catalog and website initiatives.
Below, we summarize the principal ways by which we plan to
achieve these goals:
Store Openings, Remodelings and Expansions. We began our new
store expansion program in 1997, with the opening of seven new stores (four of
which were in our newest "GirlPower" format) and the opening of ten new stores
in 1998. Given the strength of our brand and our customer demographics, our
management believes that there will be approximately 100 to 150 mall sites
available for new stores, with an additional 100 to 150 sites available in
smaller markets, specialty centers and major urban locations. We intend to
continue our store expansion program by opening approximately 40 new stores
per year in 1999 and 2000. Substantially all of the stores to be opened in
1999 will be in regional shopping malls, as we believe that malls provide a
heavy and steady flow of our target customers. We intend to open new stores in
non-major cities as well as part of our expansion into smaller markets, which
has proved to be successful.
We also plan to remodel or expand approximately 20 of our
existing stores in 1999 into our "GirlPower" store format and continue our
remodeling and expansion program for the next several years.
Merchandise Initiatives and Product Extensions. We plan to
continue to increase the variety of sizes offered in many of our tops and
bottoms categories and to continue to develop the new product lines we recently
introduced, including add-on, such as underwear, sleepwear and swimwear;
personal care products under our "GirlCare" line, such as glitter make-up and
nail polish; and lifestyle products and other accessories for our target
customer's room, such as inflatable furniture and glitter telephones.
We believe that our ability to design and market new
merchandise quickly and effectively has been a key element of our success. In
recent years, we have significantly broadened our assortment in existing
categories to increase volume and productivity. In 1999, we will continue to
expand key categories. We also plan to continue to increase the variety of
sizes offered. These changes in our product mix allow us to offer a broader
assortment of merchandise to our customers.
Increase Consumer Feedback and Awareness. An important source
of customer feedback has been our focus groups and other formats for customer
communication, which we intend to continue. We expect to enhance our customer
relationships and increase our brand awareness through our frequent buyer
program and our catalog and website initiatives. We use our frequent buyer
program to obtain customer information, and our customers will also be asked
to provide information when they register on our website. Additionally, our
frequent buyer program rewards our customers with incentives based on the
frequency of their purchases and incorporates in-store events such as "Too
Punch Toosday". As of May 1, 1999, our frequent buyer database contained
approximately 900,000 names. We plan to increase this database by having our
sales associates continue to encourage customers to complete customer profile
cards when they obtain frequent buyer cards, allowing Internet browsers to
provide their profile information on-line and obtaining names from Visa and
MasterCard, since over 600,000 of our customers use these two credit cards. To
further develop our marketing efforts, we are working to improve the
effectiveness of our frequent buyer database. In late April 1999, we executed
our first direct mail campaign that targeted not only customers in our
frequent buyer database but prospective customers as well.
Expand Distribution Channels. We are committed to enhancing our
brand recognition and plan to expand our marketing efforts in the following
areas.
o Catalog. We are currently working with a number of third
parties regarding the establishment of fulfillment
infrastructures, catalog production and circulation plans in
order to launch a catalog for the 1999 holiday season with a
planned October mailing. We will use our frequent buyer
database as the primary source for our catalog mailing lists.
In addition, we may purchase or rent qualified names from other
third parties' mailing lists to increase our circulation
quantities.
o Website. We plan to create a fun, informational website with an
expected launch in the fall of 1999. Because more customers,
especially customers within our target demographic group, are
turning to the Internet to access consumer information and make
retail purchases, we believe that an attractive website will be
critical to our brand-recognition efforts and, in turn, our
sales growth. We intend to further develop our website to allow
our customers to order our products on-line during the year
2000.
The Industry
We believe that our target customer group is under-served in
the specialty apparel retailer market since no other retailer focuses
exclusively on a single gender in the 7 to 14 age group. Industry sources
estimate that the amount spent on apparel in our target customer group grew
from $6.9 billion in fiscal 1995 to $8.2 billion in fiscal 1998, or at a
compound annual growth rate of approximately 6.3%. Our 20.7% compound annual
growth rate in net sales, which includes non-apparel merchandise during this
period, has outpaced that of the industry. Industry sources also estimate that
no single retailer has more than 9% of the market share for our target
customer group. We believe that the size and changing dynamics of our market,
coupled with our business strengths and growth strategies, should provide
significant opportunities for growth and increased market share in the future.
Our Stores
Existing Store Environments
Our stores and point-of-sale marketing are designed to convey
the principal elements and personality of our brand -- creativity, fashion
awareness and excitement for increasingly independent girls. We thoughtfully
plan and coordinate our store design, furniture, fixtures and music to create
a shopping experience that is consistent with the fashionable and energetic
lifestyle of our target customer group. We believe that our customers
experience our stores as entertaining and multisensory destinations, in which
they feel welcomed and pampered.
As of the end of fiscal 1998, we had four store formats:
o 139 of our stores, or 44%, were modeled to be consistent with
The Limited store design using the same black marble and black
woodgrain cabinets
o 121 of our stores, or 38%, were substantially similar to The
Limited store design with a front signage that includes a red
script "Too"
o 30 of our stores, or 9%, also had a front signage that includes
a red script "Too" but with blond wood and light-colored
fixtures
o 29 of our stores, or 9%, were developed in our newest format,
or what we refer to as "GirlPower"
In fiscal 1998, the average sales per store were substantially
higher for stores with the "GirlPower" format compared to stores with the
other three formats.
We vary the extent of the presentation detail of our stores
depending on the customer demographic or the traffic volume of a particular
mall. This enables us to be cost-effective in recognizing each store's ability
to support additional features while maintaining a uniformly positive shopping
experience for our customers.
For each store format, we maintain a uniform appearance
consistent with that particular store format throughout our store base, in
terms of merchandise display and location on the selling floor. Store managers
receive detailed store plans that dictate fixture and merchandise placement to
ensure uniform execution of the merchandising strategy at the store level and
the portrayal of our brand in a manner designed to appeal to our target
customer group. Standardization of store design and merchandise presentation
also creates cost savings in store furnishings, maximizes usage and
productivity of selling space and allows us to efficiently open new stores.
Each year, we have four major floor sets with matching window
displays to correspond with our spring, summer, "back to school" and December
holiday periods. Every two to three weeks, our management coordinates and
directs our stores to modify these floor sets, and usually the window displays
at the same time, by highlighting different merchandise and moving displays to
different areas within the store. These frequent changes enable us to profile
new merchandise while fostering our brand image as featuring the "hottest"
fashions.
Our sales associates are a central element in creating our
stores' distinctive atmosphere. In addition to providing a high level of
customer service, our sales associates reinforce the fashion-awareness of our
brand and cater to the energetic lifestyle of today's girls. In conjunction
with other components of the store environment, we believe that our sales
associates significantly contribute to a store atmosphere that is consistent
with making it a "store for her" -- our target customer.
Store Remodeling and Expansion Program
Our stores are located principally in regional shopping malls,
as we believe that malls provide a heavy and steady flow of our target
customers. At May 1, 1999, we operated 321 stores nationwide, averaging over
4,000 gross square feet, with approximately 3,200 selling square feet. For the
number of store locations in each state, see "--Properties." The table below
highlights the store expansion strategy that we have pursued:
<TABLE>
Fiscal Year Ended
--------------------------------------------------------
May 1, January January February February January
1999 30, 1999 31, 1998 1, 1997 3, 1996 28, 1995
------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Number of stores:
Beginning of year.............................. 319 312 308 288 212 184
Opened......................................... 9 10 7 27 78 31
Closed......................................... 7 3 3 7 2 3
Remodeled...................................... 6 15 -- -- -- --
Total square feet at period end (thousands)..... 1,296 1,281 1,244 1,224 1,143 838
Average store size at period end (square feet).. 4,034 4,015 3,987 3,974 3,969 3,953
Annual sales per average square foot(1)......... NM $300 $259 $214 $207 $226
- ------------
NM=not meaningful
(1) Sales per average square foot is the result of dividing net sales for the
period by average gross square foot, which reflects the impact of opening
and closing stores in different periods throughout the year.
</TABLE>
In addition to opening new stores, we are in the process of
remodeling or expanding some of our stores into our new "GirlPower" store
format. The remodeling process for our stores that are adjacent to or
departments within The Limited stores may involve building walls in the
cross-over space between the two stores, creating separate back rooms and
utilities and in some instances, creating separate access to corridors to make
them into free-standing stores completely separate from The Limited. Management
believes that remodeling or expansion has a positive impact on our sales and
intends to leverage our unique opportunity to increase profitability through
remodeling or expanding existing stores.
We plan to open approximately 40 new stores per year in 1999
and 2000, of which nine have been opened as of May 1, 1999, and we have also
signed leases for an additional ten stores. We have identified all of the 21
stores remaining to be opened in 1999 and expect all of them to be in
operation before the holiday season. We also plan to remodel or expand
approximately 20 of our existing stores in 1999.
In evaluating real estate locations we consider a variety of
criteria. Regional malls are measured based on:
o location of the mall and proposed stores within the mall
o strength of anchor stores
o the fashion and quality mix of other specialty tenants
o population and income characteristics of the surrounding area
In addition to regional stores, we intend to expand our stores
in smaller markets where we believe the potential return on sales in these
locations will be high. We may also consider specialty centers and upscale
strip malls, major urban centers for non-mall locations and retail outlets for
additional store sites.
A key element of our new store strategy is to open new stores
with trained managers in place. The vast majority of managers of new stores
have prior experience in our existing stores in either the manager or assistant
manager position.
Store Economics
Our average costs for remodeling or expanding existing stores
were $470,000 per store in fiscal 1998. We estimate that the average cost for
leasehold improvements, furniture and fixtures for stores to be opened in 1999
will be approximately $405,000 per store, after adjusting for landlord
allowances. Average pre-opening costs per store, which will be expensed as
incurred, are expected to be less than $20,000. In addition, inventory
purchases are expected to average approximately $100,000 per store.
New stores opened in fiscal 1998 have typically exceeded
management's store operating profitability and return on asset targets to
date. In addition, 12 out of 15 remodeled stores have exceeded their targets,
with 10 of those stores increasing their volume an aggregate of 33% over the
previous year since the reopening date without materially changing their gross
square footage.
New Distribution Channels
As part of our growth strategy, we intend to launch a catalog
and a website as new distribution channels for our products:
o Catalog. We intend to launch our first catalog for the holiday
season of 1999 with an October mailing of 1.5 million copies of
our premiere issue. We have hired a vice president of catalog
operations to head this effort and are in the process of hiring
additional personnel. In addition, we have engaged third
parties to assist us with print production and other creative
services, circulation and third-party fulfillment. Our catalog
format will consist primarily of merchandise content with some
space devoted to articles and other editorial content. We will
use our frequent buyer database as the primary source for our
catalog mailing lists. In addition, we may purchase or rent
qualified names from other third parties' mailing lists to
increase our circulation quantities. We executed a direct-mail
campaign in late April 1999 to test our circulation quantities
and our database. During the year 2000, we intend to publish up
to six catalogs.
o Website. Because more customers, especially customers within
our target demographic group, are turning to the Internet to
access consumer information and make retail purchases, we
believe that an attractive website will be critical to our
brand and, in turn, our sales growth. We are working to launch
an informational website by the fall of 1999. During the year
2000, we intend for our customers to be able to order our
products on-line. We also intend to use our website as an
additional method of increasing our customer database because
we will allow Internet browsers to register with us at their
option by providing their customer profile information on-line.
See "Risk Factors--Risk Factors Relating to Our Business--Our
Expansion into Catalog and Internet Distribution Channels May Not Be
Successful" for a description of the risks that we face in launching these new
distribution channels.
Merchandising
Product Mix
We design and sell all of our apparel under our proprietary
"Limited Too" brand. Our merchandise assortment covers a broad array of
classifications in girls' apparel, including jeans and other jeanswear and
bottoms, knit tops, T-shirts, shorts, skirts, dresses and outerwear. For many
of these products, we have a basic item that we sell at a low price point and
more elaborate versions that we sell at higher price points. To make our
customers feel more secure in their fashion choices, we generally display our
merchandise as complete outfits (for example, tops and bottoms displayed
together), instead of displaying garments together with type (for example,
sweaters with other sweaters). Our outfits are complemented by matching
accessories and other related items which we believe helps promote higher
sales volume through multiple unit sales.
In addition to apparel and add-on, our other product categories
are:
o related accessories including costume jewelry, hair ornaments,
slippers, key chains, wallets, backpacks, purses and watches
o our "GirlCare" line including toiletries, such as shower gel
and body splash; accessories, such as hairbrushes and manicure
sets; and cosmetics, such as glitter nail polish and lip gloss.
These "GirlCare" products are generally displayed prominently
in our stores on personal care sampling tables in the front of
the stores so that our customers can experiment with our
products and consult their friends and our sales associates. A
substantial portion of this merchandise category is under $10
so that our target customer can spend her own money
o our lifestyle products including products for her room such as
inflatable furniture, candles, lamps and posters, as well as
small toys, candy, stickers and stationery
The following table summarizes our merchandise mix by major
category as a percentage of net sales for the years 1996 to 1998:
1998 1997 1996
------ ------ ------
Apparel............................................ 72.1% 71.0% 75.0%
Add-on (e.g., underwear, sleepwear and swimwear),
accessories and lifestyle products............... 21.6 17.7 14.7
"GirlCare" products................................ 6.3 5.8 2.3
Infant............................................. -- 5.5 8.0
----- ----- -----
Total........................................... 100.0% 100.0% 100.0%
===== ===== =====
We believe that there are significant opportunities to increase
volume through both increased penetration of existing classifications and
addition of new merchandise classifications. Management believes that our
ability to design and market new merchandise quickly and effectively has been
a key element of our success. In recent years, we have broadened our
assortment in existing categories to increase volume and productivity. In
1999, we will continue to expand key categories. An example is an increased
number of sizes offered to the 7 to 14 age group. Starting in late spring of
1998, we have added "3", "5" and "7" junior sizes, slim sizes in bottoms and
"XXL" and "XXXL" sizes for tops.
Our point-of-sale information system allows management to track
the performance of merchandise items on a stock-keeping units basis. Reorder
"triggers" are used to replenish inventory of strong selling items. In
addition, performance by store at a stock-keeping units level is tracked to
allow inventory to be replenished based on differences in selling trends by
store.
Product Design
A cornerstone of our business is our ability to design products
which embody our brand image. Since 1996, one of our major strategies has been
to develop an internal design group. Between 1996 and 1998, the design group
has grown from a staff of two to more than 18.
The product development process begins as senior management in
the merchandising and design areas develop seasonal merchandise themes and
concepts. These concepts are used to create line lists of items that are then
developed by the designers. Designs cover not only fabric content,
specifications and colors, but also labels, hang tags and other descriptive
marketing. In developing concepts and designs, our executives identify trends
through domestic and foreign travel, retail shopping and awareness of
activities favored by our target customer group.
We develop substantially all of our merchandise assortment
through our own design group, which allows us to create exclusive merchandise
and offer a vast array of merchandise within a fashion season. In addition,
because our merchandise is sold exclusively in our own stores, we are able to
control the presentation and pricing of our merchandise, provide a higher
level of customer service and closely monitor retail sell-through, which
provides competitive advantages over other brand manufacturers that market
their goods through department and other specialty apparel stores.
Product Timeliness
Since the inception of the "Limited Too" brand, we have catered
to the fashion-aware customer by providing the latest fashions featured in
movies, television and publications aimed at our target customer group. At the
same time, we believe that we can reach a broader market by appealing to
mainstream consumers who seek to feel secure in their fashion choices, rather
than experimenting with uncertain styles. We believe that this strategy is
consistent with our philosophy of responding to and respecting our customers'
fashion preferences as opposed to attempting to establish new fashion trends.
As part our strategy to deliver our merchandise in a timely
manner, we strive to stock our inventory with new merchandise reflecting the
latest fashion or trends on a continual basis.
Marketing and Promotion
Our marketing and promotional strategies are consistent with
our focused and differentiated brand. To appeal to the fun-loving nature of
our target customer group, we have created several promotional programs:
Colorful Window Displays. We concentrate our advertising
efforts on our colorful window displays. We place bright, cheerful graphics or
photographs in at least one of our display windows, the size of which span
almost the entire window. We change our displays frequently and often pursue
holiday themes. We believe our window displays attract customer attention in a
busy mall environment and immediately allow shoppers to recognize our store as
a place for young girls. Our in-store displays include a series of distinctive
color photographs that are enlarged and prominently displayed throughout the
stores. These photographs contain images of young girls engaged in popular
social activities which we believe reinforce the peer-acceptance quality of
our brand.
Frequent Buyer Program. Our ongoing frequent buyer program uses
a wallet-sized punch card (the "Frequent Buyer Card") that can be punched up
to ten times for every purchase over $20 made in our stores. On the first
Tuesday of every month, through our "Too Punch Toosday" program, customers
receive two punches on their Frequent Buyer Card for purchases made. For every
ten punches, a customer will receive a coupon for $20 off her next purchase.
Through April 1999, approximately 2.0 million Frequent Buyer Cards have been
fully punched and redeemed since the program began in September 1996. In
fiscal 1998, approximately 27% of all transactions used a Frequent Buyer Card
in the purchase, and approximately 10% of all transactions used a Frequent
Buyer Card that was redeemed, an increase from 7.2% in fiscal 1997. In order
to receive a Frequent Buyer Card, our customers are asked to fill out an
information sheet containing their name, address, birthday and their sister's
name. We use such information to establish our frequent buyer database, which
in 1998 contained approximately 830,000 names.
"Too Bucks" Program. Our event-oriented frequent buyer program
occurs three times a year around Easter, the fall "back to school" period and
Christmas. The program provides customers who purchase $50 or more in our
stores with $25 off coupons which can be used toward purchases over $50 made
during the two or three weeks after distribution. Aggregating the three
campaigns, the coupons are distributed for approximately 15 weeks and redeemed
for seven weeks; therefore, the campaign is part of our promotion strategy for
22 weeks of the year. For fiscal 1998, approximately 45% of the coupons were
redeemed.
Sales Associates
Customer service is a defining feature of our corporate culture
and one of our core business strengths. We believe that knowledgeable and
enthusiastic sales associates have a direct impact on our customers'
perception of the brand. Thus, we focus significant resources on the selection
and training of sales associates. Our sales associates are expected to convey
and reinforce our brand image through their attitude, enthusiasm and awareness
of current fashion trends.
Our sales associates are required to be familiar with the full
range of our merchandise. They are trained to be particularly sensitive to the
needs of our target customer and the concerns of her parents. Our sales
associates provide a high level of customer service by talking with our
customers, assisting them in putting together fashionable outfits and related
accessories and helping them experiment with our "GirlCare" products. We
encourage our sales associates to focus primarily on being friendly and
helpful rather than aggressively pursuing a sale. We minimize sales
associates' time spent on administrative functions by centrally determining
merchandise display and replenishment, markdowns and labor scheduling. By
emphasizing friendliness, product knowledge and personal attention, management
believes that we have established a reputation for a high level of customer
service.
The typical management of one of our stores consists of one
store manager and two to three assistant managers. We compensate our district
and store managers with a base salary plus a performance bonus based primarily
on store sales. Our store, district and regional managers spend a majority of
their work week on our selling floors, providing leadership through coaching
the staff and assisting customers.
At January 30, 1999, we had approximately 6,200 sales
associates, of whom approximately 800 were full-time salaried sales associates
and approximately 300 were full-time hourly sales associates. A significant
number of sales associates are hired on a seasonal basis to meet demand during
holiday gift-buying seasons. The balance were part-time hourly associates.
None of our sales associates is represented by a labor union. We believe that
our relationship with our sales associates is good.
Sourcing
We use a variety of sourcing arrangements. Historically, our
largest apparel supplier has been Mast Industries, Inc., a wholly owned
subsidiary of The Limited. Mast Industries supplied approximately 29% of the
apparel that we purchased in 1998 and will supply approximately 30% of our
1999 business. We believe that all transactions that we have entered into with
Mast Industries have been on terms that would have been obtained on an arm's
length basis since we treat them as if they were a third party. We were not,
and will not be, obligated to source products through Mast Industries.
In 1998, we sourced over 60% of our merchandise from foreign
factories located primarily in East and Southeast Asia. We do not have any
long-term merchandise supply contracts, and many of our imports are subject
to existing or potential duties, tariffs or quotas that may limit the quantity
of goods which may be imported into the United States from countries in that
region. We compete with other companies, including The Limited and The
Limited's other subsidiaries, for production facilities and import quota
capacity. In addition, although the General Agreement on Tariffs and Trade
adopted on December 8, 1994 requires the elimination of duties, tariffs and
quotas on apparel and textile products by January 1, 2005, the GATT treaty is
not expected to have any meaningful effect on the import of merchandise used
in our business for several years. We attempt to monitor manufacturing to
ensure that no one company or country is responsible for a disproportionate
amount of our merchandise.
We typically transact business on an order-by-order basis and do
not maintain any long-term or exclusive commitments or arrangements to purchase
from any vendor. We believe that we have good relationships with our vendors and
that, as the number of our stores increases, there will be adequate sources to
produce a sufficient supply of quality goods in a timely manner and on
satisfactory economic terms. See "Risk Factors --Risk Factors Relating to Our
Business--We Rely Significantly on Foreign Sources of Production."
Central Store Planning
Our store design and construction operations are handled
centrally by Limited Store Planning, the store planning division of The Limited.
Limited Store Planning is organized into teams comprised of designers,
construction managers, architects, purchasing agents and financial personnel who
are responsible for all phases of store design and construction. Teams are
assigned to work with the senior management of a specific retail business of The
Limited, including us, and to develop and implement store designs that are
consistent with and promote the image of a given retail business. We intend to
enter into an agreement under which The Limited will continue to provide such
services to us on a basis consistent with past practices for a year following
the spin-off. The Limited will charge us fees based on its costs of providing
such services plus 5% of these costs. See "Relationship Between Too, Inc. and
The Limited--Transitional Services and Separation Agreements--Services
Agreement." We intend to add in-house staff and contract for outside services
before the services agreement expires.
Central Real Estate Management
The Limited's real estate division centrally handles our real
estate operations, including all aspects of lease negotiations. We intend to
enter into an agreement under which The Limited will continue to provide such
services to us on a basis consistent with past practices for a year following
the spin-off. The Limited will charge us fees based on its costs of providing
such services plus 5% of these costs. See "Relationship Between Too, Inc. and
The Limited--Transitional Services and Separation Agreements--Services
Agreement." We intend to add in-house staff and contract for outside services
before the services agreement expires.
Potential new stores, locations, expansions and relocations are
identified by us and by The Limited's real estate division. In choosing new
sites for retail stores, The Limited's real estate division provides us with
financial details regarding the proposed lease arrangement. We then evaluate
the net required investment and potential rates of return relative to our
expected store sales and profits, before we sign the lease and approve the
store for construction. The actual construction of the store is managed by
Limited Store Planning. Although the real estate division retains control over
the allocation of space within a given mall among the various retail
businesses of The Limited, including us, each individual business is entitled
to reject any transaction negotiated by the real estate division of The
Limited. Real estate decisions are based on a number of factors, including:
o location of the mall and proposed store location within the
mall
o consistency with our target customer group and market
o sales and profit potential
o the overall economic condition, demographic characteristics of
the market and shopping patterns of the market
o the identity of the other tenants in close proximity
o the availability of acceptable lease terms
We also consider a variety of other criteria related to the
malls in which we locate our stores. Although our arrangement with The Limited
may raise the potential for conflicts of interest, management believes that the
arrangement has provided us with a significant competitive strength. Given The
Limited's substantial size, our management believes that The Limited has been
able to obtain lease terms and store sites on our behalf that were more
favorable than those that we would have been able to obtain on our own. At the
same time, management has been able to draw from The Limited's experience.
While we believe that the transitional period will give us ample time to
develop our own resources in these areas, we cannot assure you we will be able
to achieve the same economies of scale and bargaining leverage as does The
Limited. In addition, some of our direct leases which are guaranteed by The
Limited may be affected. See "Risk Factors--Risk Factors Relating to
Separating Our Company from The Limited--We May Not Be Able to Obtain Suitable
Real Estate to Implement Our Growth Strategy."
Merchandise Distribution
Our distribution operations are managed in a warehouse leased
from Distribution Land Corp., a wholly owned subsidiary of The Limited. See
"Relationship Between Too, Inc. and The Limited--Transitional Services and
Separation Agreements--Amendment to Building Lease Agreement." The warehouse is
located in Columbus, Ohio. Once the warehouse receives any merchandise, the
merchandise is inspected, packed for delivery to the stores and forwarded to a
central shipping facility operated by Limited Distribution Services Inc., a
wholly owned subsidiary of The Limited, which also provides engineering services
to the warehouse.
Limited Distribution Services also maintains a worldwide
logistics network of agents and space availability arrangements to support the
in-bound movement of merchandise into the warehouse. The outbound shipping
system consists of common carrier line routes connecting the distribution
complex to a network of delivery agents. Each store receives several
deliveries each week and receives daily deliveries during the peak holiday
shopping season. We believe that this delivery schedule ensures more frequent
deliveries than those of our smaller competitors. Limited Distribution
Services does not own or operate trucks or trucking facilities.
We intend to enter into an agreement under which Limited
Distribution Services will continue to provide such services to us on a basis
consistent with past practices for three years. The Limited will charge us fees
based on its costs of providing such services plus 5% of these costs. See
"Relationship Between Too, Inc. and The Limited--Transitional Services and
Separation Agreements--Services Agreement."
Management Information Systems
Our management information systems and electronic data
processing systems consist of a full range of retail, financial and
merchandising systems, including:
o credit
o inventory distribution and control
o sales reporting
o accounts payable
o merchandise reporting
o distribution
o financial reporting
Our information system is uniquely structured to address the
needs of our business. The Limited owns some of the equipment used in the
management information systems. We intend to enter into an agreement under which
The Limited will continue to provide these information technology services to us
on a basis consistent with past practices for a year following the spin-off. The
Limited will generally charge us fees based on its costs of providing such
services plus 5% of these costs. See "Relationship Between Too, Inc. and The
Limited--Transitional Services and Separation Agreements--Services Agreement."
Our merchandise reporting system updates sales information on a
daily basis by polling the information from each store's point-of-sale, or
POS, terminals. Our POS system consists of registers providing price look-up,
scanning of bar-coded tickets and credit authorization. Through daily two-way
electronic communication with each store:
o sales information, payroll hours, store-initiated inventory
transfers and details of physical inventory counts are uploaded
to the host system
o price changes are downloaded to in-store POS devices
o we are able to send electronic mail
We evaluate information obtained through daily reporting to
implement merchandising decisions regarding markdowns and allocation of
merchandise.
Current hardware and network infrastructure in being upgraded
through:
o the creation of store, marketing and customer databases to
improve controls and enhance sales and operational capabilities
o the implementation of a new warehouse management system
o the upgrading of distribution facilities to expand capacity
We may not be able to complete our planned upgrades on a timely basis or in a
successful manner. See "Risk Factors--Risk Factors Relating to Our
Business--The Planned Upgrades of the Management Information Systems That We
Use May Not Be Successful."
Trademarks and Service Marks
Limco, Inc., a wholly owned subsidiary of The Limited owns the
brand name "Limited Too", which is registered in the United States and in
numerous foreign countries. Limco, Inc. licenses the brand name to LimToo,
Inc., our wholly owned subsidiary. We and The Limited intend to cause Limco,
Inc. and LimToo, Inc. to enter into a trademark and service mark licensing
agreement that will allow us to operate under the "Limited Too" brand name in
connection with our business. The agreement will be for an initial term of
five years after the spin-off, renewable annually at our option. See
"Relationship Between Too, Inc. and The Limited--Transitional Services and
Separation Agreements--Trademark and Service Mark Licensing Agreement."
We are the owner in the United States of trademarks and service
marks used to identify our merchandise and services, other than our brand
name. Many of these merchandise marks are registered in the United States
Patent and Trademark Office. These merchandise marks are important to us, and
we intend to, directly or indirectly, maintain these marks and their
registrations. However, we may choose not to renew a registration of one or
more of our merchandise marks if we determine that the mark is no longer
important to our business. We do not believe that any material claims of
infringement or other challenges to our right to register or use our
merchandise marks in the United States in a manner consistent with our current
practices are pending.
We also conduct business in foreign countries, principally
because a substantial portion of our merchandise is manufactured outside the
United States. We own registrations of our merchandise marks in foreign
countries to the degree necessary to protect these marks, although there may
be restrictions on the use of our marks in a limited number of foreign
jurisdictions.
We have not licensed any of our trademarks or service marks to
any other entity.
Competition
Although no other specialty apparel retailer focuses
exclusively on our target customers, all aspects of our business are highly
competitive since other retailers offer merchandise designed for our customers.
Our primary competitors target the same customer group and
include:
o other specialty apparel and accessory retailers, such as
GapKids, abercrombie and Claire's
o department stores, such as J.C. Penney's
o discount retailers, such as Target and Kohl's
Newly emerging store-based retailers may provide additional
competition to the existing competitive market.
In addition to the traditional store-based retailers, we also
compete with direct marketers who target customers through catalogs and
Internet shopping. Direct marketers also include traditional store-based
retailers like us who are expanding into catalogs and the Internet as
additional distribution channels.
We believe that the principal bases upon which we compete are
design, price, service, selection, quality and distribution channels:
o Design. We believe that we have a significant advantage over
our competitors in this area because substantially all of our
merchandise is designed internally and sold exclusively through
our stores. See "--Merchandising--Product Design."
o Price. We determine appropriate initial markups for all items
and determine when prices should be lowered so that older
inventory can make way for new inventory.
o Service. Our sales associates are expected to personify our
brand image through their attitude, enthusiasm and awareness of
current fashion trends. See "--Sales Associates."
o Selection. We offer a wide range of apparel for our target
customer group, as well as a broad assortment of non-apparel
items, including related accessories, personal care products
under our "GirlCare" line and lifestyle products, such as
furnishings for our target customer's room. See
"--Merchandising--Product Mix."
o Quality. Because we target fashion-aware customers, quality is
important to us. Currently, we believe that we source our
merchandise from reliable suppliers and we require our
suppliers to test our products to ensure that they comply with
federal and state standards and regulations.
o Distribution Channels. Our exciting stores located throughout
the United States are our premiere distribution channel for our
merchandise. See "--Our Stores--Existing Store Environment" and
"--Properties." As part of our growth strategy, we intend to
launch a catalog and a website as new distribution channels for
our products. See "--Our Stores--New Distribution Channels."
We believe that we have significant competitive advantages
because of high consumer recognition, acceptance of our brand name, our strong
presence in the major shopping malls in the United States, our history with The
Limited and the experience of our management team and sales associates. Most
of our competitors provide clothing to both boys and girls. We believe that
among single-gender retailers, we are the only specialty retailer to
specifically target girls approximately 7 to 14 years of age. This unique
aspect of our retail strategy contributes to our "just for her" brand image.
However, some of our competitors have greater financial, marketing and other
resources available to them. We cannot assure you that we will be able to
compete successfully with them in the future, particularly in distribution
channels in which we have less experience, such as catalogs and the Internet.
See "Risk Factors--Relating to Our Business--Our Expansion into Catalog and
Internet Distribution Channels May Not Be Successful."
Properties
Our main offices are located in Columbus, Ohio. These
headquarters are owned by Distribution Land Corp., a wholly owned subsidiary of
The Limited, and leased to us. See "Relationship Between Too, Inc. and The
Limited--Transitional Services and Separation Agreements--Amendment to Building
Lease Agreement." We believe that our facilities are well maintained, in good
operating condition and adequate for our current needs.
As of May 1, 1999, we operated 321 stores, which are located
primarily in shopping malls throughout the United States. Of these stores, 194
were leased directly from third parties -- principally shopping mall developers
- -- and 127 are governed by leases where the tenant is The Limited or an
affiliate of The Limited, other than us. See "Relationship Between Too, Inc. and
The Limited--Transitional Services and Separation Agreements--Store Leases
Agreement." We believe that as approximately 98% of our stores are located in
shopping malls, there are growth opportunities for expansion to free-standing
locations.
Leases with third parties are typically between 10 and 15 years
in duration. In most cases, the business unit pays an annual base rent plus a
contingent rent based on the store's annual sales in excess of pre-established
performance milestones. Leases with The Limited or an affiliate of The
Limited, other than us, are on terms that represent the proportionate share of
the base rent payable in accordance with the underlying lease plus the portion
of any contingent rent payable in accordance with the underlying lease
attributable to our performance.
Some of the leases that we enter into are guaranteed by The
Limited. See "Risk Factors--We May Not Be Able to Obtain Suitable Real Estate
to Implement Our Growth Strategy" and "Relationship Between Too, Inc. and The
Limited--Transitional Services and Separation Agreements--Store Leases
Agreement."
The map below provides the number of stores by state that we
operate in the continental United States as of May 1, 1999:
Graphic Omitted
Environmental Matters
Various federal, state and local environmental protection and
health and safety laws and regulations govern our activities, including the
manufacture and transportation of our products and the disposal of waste. We
also could be held responsible as owners or operators of real property for all
of the costs relating to any contamination at our past or present facilities.
These laws often impose liability even if the owner or operator did not know
of, or was not responsible for, the contamination.
Based on our present knowledge and current laws and
regulations, we do not believe that environmental matters are likely to have a
material adverse effect on our business, assets or financial condition.
However, if we become aware of additional facts or if the laws change,
environmental matters could become material to us.
Litigation
We are a defendant in 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 that had been filed against The Limited and some of its
subsidiaries, including us, by the American Textile Manufacturers Institute
("ATMI"), a textile industry trade association. The amended complaint 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 a judge of the United States District Court for
the Southern District of Ohio, Western Division. On May 21, 1998, this judge
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 appealed to
the United States Court of Appeals for the Sixth Circuit, where the matter
remains pending.
Although it is not possible to predict with certainty the
eventual outcome of any litigation, in the opinion of management, the
foregoing proceeding is not expected to have a material adverse effect on our
financial position or results of operations.
Employees
As of May 1, 1999, we had approximately 5,900 employees, of
whom approximately 1,350 were employed full-time and 4,550 were part-time
employees. We also hire temporary employees during the peak "back to school"
and holiday seasons. We believe that we have good relationships with our
employees.
MANAGEMENT
The following table provides material information concerning
our board of directors and our executive officers who will be serving or in
office as of the date of the spin-off.
Name Age Position
- ---- --- --------
Michael W. Rayden................ 50 President and Chief Executive Officer
and Director
Sally A. Boyer................... 38 Vice President--Merchandising Operations
Kent A. Kleeberger............... 47 Vice President and Chief Financial
Officer
Kathleen C. Maurer............... 39 Vice President--Human Resources
James C. Petty................... 40 Vice President--Stores
Nancy Jean Kramer................ 43 Director
David A. Krinsky................. 50 Director
James U. McNeal.................. 67 Director
Kenneth James Strottman.......... 50 Director
Michael W. Rayden. Mr. Rayden has served as our President and
Chief Executive Officer since March 1996. For the past 28 years, Mr. Rayden's
career has been focused on the retail industry. Before joining us, he served as
the President, Chief Executive Officer and Chairman of the Board of Pacific
Sunwear of California, Inc. from 1990 to 1996, the President and Chief
Executive Officer of The Stride Rite Corporation from 1987 to 1989 and the
President and Chief Executive Officer of Eddie Bauer Inc. from 1984 to 1987.
In connection with the spin-off, Mr. Rayden will be elected a director.
Sally A. Boyer. Ms. Boyer has served as our Vice
President--Merchandising Operations since May 1998. Ms. Boyer previously held
various positions with us and The Limited, including as our Vice
President--Planning and Distribution from 1995 to 1998. Before joining The
Limited in 1991, she served as a Financial Consultant for Andersen Consulting
from 1990 to 1991, a Merchandise Planner for The Limited from 1989 to 1990 and
Merchandise Controller of Youthland, Inc. from 1984 to 1989.
Kent A. Kleeberger. Mr. Kleeberger joined us as Vice President
and Chief Financial Officer in March 1998 after a 10-year career with The
Limited, including Victoria's Secret Catalogue. From 1995 to 1998, Mr.
Kleeberger served as Corporate Controller of The Limited. Before that, he was
Vice President and Controller of Victoria's Secret Catalogue after having
worked there for approximately four years. Before joining The Limited in 1988,
he held various positions, including Senior Manager, Audit, with Peat Marwick
during his 13-year tenure.
Kathleen C. Maurer. Ms. Maurer has served as our Vice
President--Human Resources since April 1996 after serving 13 years in the
human resources sector of the retail apparel industry. Before her current
position with us, Ms. Maurer was the Vice President--Human Resources of
Structure from 1991 to 1996, a Director of Human Resources of Express from
1985 to 1991 and a Personnel Administrator of The Limited from 1984 to 1985.
James C. Petty. Mr. Petty has served as our Vice
President--Stores since June 1997. Mr. Petty previously held various positions
involving store management and operations with Old Navy Inc., Banana Republic,
Inc. and The Gap, Inc. during his 13-year tenure with The Gap and its
subsidiaries, including Vice President--Store Operations of Old Navy from 1994
to 1997 and Vice President--Store Operations of Banana Republic from 1991 to
1994.
Nancy Jean Kramer. Ms. Kramer has been the President and Chief
Executive Officer of Resource Marketing, Inc. since 1981. Resource Marketing,
Inc. was founded by Ms. Kramer and specializes in integrated marketing
solutions for high technology clients.
David A. Krinsky. Mr. Krinsky is a member of the firm of
O'Melveny & Myers LLP in Newport Beach, California. Before joining that firm
as a partner in 1994, he was a partner at the law firm of Pettis, Tester,
Kruse & Krinsky. He practices as a business and securities lawyer.
James U. McNeal. Dr. McNeal has been Professor of Marketing at
Texas A&M University since 1967. Dr. McNeal established the Department of
Marketing and was head of this department from 1967 to 1975. Dr. McNeal is a
frequent consultant to public companies and the federal government. Since
1976, he has been a marketing consultant specializing in marketing to children
as consumers.
Kenneth James Strottman. Mr. Strottman is the founder,
President and Chief Executive Officer of Strottman International, Inc., a
marketing agency specializing in developing promotional programs targeting
children and families. Before founding his firm in 1983, Mr. Strottmann served
as Vice President, Marketing, at Mattel, Inc.
Before the spin-off, we will amend our certificate of
incorporation to provide for a classified board consisting of a total of five
directors. Members of our board will be divided into three classes and will
serve staggered three-year terms. The term of office of our first class of
directors will expire at the 2000 annual meeting of shareholders (expected to
occur in the second quarter of 2000). The term of office of our second class
of directors will expire at the 2001 annual meeting of shareholders. The term
of office of our third class of directors will expire at the 2002 annual
meeting of shareholders.
Our board will have an audit committee, consisting entirely of
independent directors, which will review the results and scope of the audit
and other services provided by our independent accountants. In addition, our
board will have a compensation committee, comprised of two or more members of
our board who qualify as "outside directors" within the meaning of Section
162(m) of the Internal Revenue Code and "non-employee directors" within the
meaning of Rule 16b-3(b)(3)(i) under the Securities Exchange Act of 1934. The
compensation committee will determine the compensation, including salaries,
bonuses, restricted stock and option grants, for our executive officers.
Compensation of Directors
Directors who are not associates of Too, Inc. will receive an
annual retainer of $10,000 per year (increased by $1,500 for each committee
chair held), plus a fee of $1,000 for each board meeting attended ($400 for a
telephonic meeting). As committee members, they will also receive $600 per
committee meeting attended ($200 for a telephonic meeting). Each action in
writing that our board or any committee of our board takes entitles each
director on the board or the committee to be paid $200. Associates and
officers who are directors receive no additional compensation for services
rendered as directors. Under the Too, Inc. 1999 Non-Associate Director Stock
Plan, each director who is not an associate of Too, Inc. will:
o receive an initial grant to purchase of 5,000 shares of our
common stock
o receive annual grants of options to purchase 1,000 shares of
our common stock at a price equal to the fair market value of
the shares at the grant date
o be paid 50% of the annual retainer in shares of Too, Inc.'s
common stock
Employment Agreements with Executive Officers
We expect to enter into an employment agreement with Mr. Rayden
shortly after the spin-off. We anticipate that Mr. Rayden's agreement will
have an initial multi-year term and will be renewable automatically for one
year every year after the initial term, unless either party gives written
notice to the contrary. We also anticipate that Mr. Rayden's agreement will
provide for:
o an initial base salary comparable to his current salary
o a grant of an option to purchase shares of our common stock
o a grant of performance-based awards of restricted shares of our
common stock
o participation in our Incentive Compensation Performance Plan
and our Stock Option and Performance Incentive Plan, as
determined by our board (for a discussion of these plans, see
"Executive Compensation")
o additional life insurance coverage
o additional disability benefits
o severance benefits under specified circumstances
o non-solicitation and non-competition covenants
We also anticipate that after the spin-off, we will enter into
employment agreements, which could include non-compete covenants, with some of
our other named executive officers.
Transactions with Management
During its fiscal year ended June 30, 1998, a division of
Strottman International, Inc. purchased approximately $456,000 of lifestyle
products from us in an arm's length transaction. The president and chief
executive officer of Strottman International is Kenneth James Strottman. Mr.
Strottman will be serving as one of our directors as of the date of the
spin-off.
Shares Eligible for Future Sale
Shares of our common stock that you will receive in the
spin-off will be freely transferable, except if you can be considered an
"affiliate" of us under Rule 144 under the Securities Act of 1933. Persons who
can be considered our affiliates after the spin-off generally include
individuals or entities that directly, or indirectly through one or more
intermediaries, control, are controlled by, or are under common control with,
us. Our affiliates may only sell common stock received in the spin-off
pursuant to an effective registration statement under the Securities Act of
1933 or pursuant to an exemption from registration under the Securities Act of
1933, such as the exemption afforded by Rule 144.
EXECUTIVE COMPENSATION
Summary
The following table presents specific information regarding the
compensation that The Limited has paid for the period indicated to:
o Michael W. Rayden, our President and Chief Executive Officer
o Sally A. Boyer, our Vice President--Merchandising Operations
o Kent A. Kleeberger, our Vice President and Chief Financial
Officer
o Kathleen C. Maurer, our Vice President--Human Resources
o James C. Petty, our Vice President--Stores
who have become our executive officers. Before the named individuals became
our executive officers, they were associates of The Limited. The named
executive officers will not continue their employment with The Limited after
the spin-off. After the spin-off, we anticipate that we will make future
awards of options to purchase our common stock and restricted shares of our
common stock to a number of our executive officers, including the named
executive officers under the Too, Inc. 1999 Stock Option and Performance
Incentive Plan described below. The Limited paid the compensation stated below
to these individuals because of their employment with The Limited.
The principal components of each named executive officer's cash
compensation from The Limited have been:
o the annual base salary
o a bonus
as shown in the "Summary Compensation Table." The bonus amounts represent
amounts that the compensation committee of The Limited's board approved for
each named individual based on the performance of The Limited and us during
1998. The long-term compensation shown in the "Summary Compensation Table" was
provided under The Limited, Inc. 1993 Stock Option and Performance Incentive
Plan (as amended and restated from time to time, "The Limited's Stock Plan"),
which provides for various types of awards such as options to acquire common
stock of The Limited and restricted common stock of The Limited. The Limited
will be responsible for payments relating to equity-based awards relating to
The Limited's common stock that it granted before the spin-off. We will pay
all of the other compensation to be paid to our named executive officers after
the spin-off.
Immediately after the spin-off, the annual base salaries and
annual bonus opportunities of the named executive officers will be at the
levels as was determined by The Limited's compensation committee.
Subsequently, the annual base salary and the annual bonus opportunity of the
named executive officers will be determined by our compensation committee. We
anticipate that the base salary that we pay to the named executive officers
and to all other executive officers will initially be generally comparable to
present levels of base salary received from The Limited, subject to such
adjustments as may be determined in the normal course of business.
In addition, in connection with the spin-off, we anticipate
that we will adopt a number of compensation plans. Under the Too, Inc. 1999
Non-Associate Director Stock Plan described below, on the effective date of
the spin-off and on the day of each annual meeting of our shareholders
beginning after the spin-off, we will grant options to purchase
shares of our common stock to each of our non-associate directors. Under the
Too, Inc. 1999 Incentive Compensation Performance Plan described below, our
named executive officers and other eligible associates will be eligible to
receive cash bonuses based on attainment by us of specified performance goals.
All of the named executive officers will be eligible to
participate in our Stock Option and Performance Incentive Plan and our
Incentive Compensation Performance Plan, under which we anticipate granting
incentive compensation awards after the spin-off.
We also expect that in connection with the spin-off, options to
purchase shares of The Limited's common stock will be equitably adjusted to
reflect the spin-off. These equitable adjustments may involve:
o adjustments of the exercise price and number of shares subject
to the options, or
o conversion into options to purchase our common stock, or
o a combination of both
We also anticipate that The Limited will make equitable
adjustments to restricted shares of The Limited's common stock to reflect the
spin-off.
The following table presents specific information regarding the
compensation that The Limited has paid for the period indicated to all of the
persons listed below who have become our executive officers.
Long-Term Incentive Plans--Awards in Fiscal 1998
No awards were granted in respect of fiscal 1998 to the named
executive officers, other than the restricted stock performance awards granted
in shares of The Limited's common stock to our named executive officers, as
disclosed in the "Summary Compensation Table."
Summary Compensation Table
<TABLE>
Annual Compensation Long-Term Compensation Awards
-------------------------------------------------- ---------------------------------------------
Securities
Other Annual Restricted Underlying All Other
Fiscal Year Bonus Compensation Stock Awards Options Awarded Compensation
Name and Principal Position (1) Salary ($)(2) ($)(3) ($)(4) (#)(5) ($)(6)
- --------------------------- ----------- -------- -------- ------------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael W. Rayden
President and Chief
Executive Officer......... 1998 $669,231 $1,188,250 $12,383 $141,311 101,770 $189,819
Sally A. Boyer
Vice President --
Merchandising
Operations................ 1998 216,538 157,520 -- 122,615 5,088 43,993
Kent A. Kleeberger
Vice President and
Chief Financial Officer... 1998 237,308 171,840 -- 183,923 10,177 42,982
Kathleen C. Maurer
Vice President --
Human Resources........... 1998 193,846 139,620 -- 122,615 5,089 44,271
James C. Petty
Vice President --
Stores.................... 1998 238,846 171,840 -- 183,923 5,089 14,940
- ------------
(1) Under rules promulgated by the SEC, since we were not a reporting company
during the three immediately preceding fiscal years, only the information
with respect to the most recent completed fiscal year is noted in the
"Summary Compensation Table."
(2) Represents for fiscal 1998 the aggregate of the performance-based
incentive compensation for the spring and fall selling seasons.
(3) Represents reimbursement of taxes on term life insurance premiums paid on
behalf of Mr. Rayden.
(4) Represents for each executive officer the restricted stock awards for
fiscal 1998 under The Limited's Stock Plan. The information in the table is
based on the closing price of The Limited's common stock on the date that
the awards were made.
On June 1, 1998, 4,266 restricted shares of The Limited's Common Stock were
granted to Mr. Rayden. The per share value of The Limited's common stock on
this date was $33.125. This award was granted in connection with the May
1998 split-off of Abercrombie & Fitch. The vesting of this award is the same
as the vesting of the previously granted restricted stock awards to which
this adjustment grant relates.
On February 1, 1999, 3,580, 5,370, 3,580 and 5,370 restricted shares of The
Limited's common stock were granted to Ms. Boyer, Mr. Kleeberger, Ms. Maurer
and Mr. Petty, respectively, based on business performance for fiscal 1998.
The per share value of The Limited's common stock on this date was $34.25.
These awards vest 10% on the grant date and 20%, 30% and 40% on the first
through third anniversaries of the grant date, in each case, subject to
continued employment with The Limited.
Dividends will not be paid or accrue with respect to shares of restricted
stock until such shares vest.
As of January 30, 1999, the aggregate restricted stock holdings and the
value of such holdings for each of the named executive officers were: Mr.
Rayden, 245,286 shares, $8,370,385; Ms. Boyer, 9,017 shares, $307,705; Mr.
Kleeberger, 7,826 shares, $267,062; Ms. Maurer, 9,017 shares, $307,705; and
Mr. Petty,10,770 shares, $367,526 (based on the $34.125 fair market value of
a share of The Limited's common stock as of Friday, January 29, 1999).
(5) Options have been adjusted to reflect the May 1998 split-off of
Abercrombie & Fitch.
(6) Includes employer matching and supplemental contributions allocated to
each executive officer's account under qualified and non-qualified defined
contribution plans maintained by The Limited during the 1998 calendar year
in the amount of $176,294, $40,840, $41,558 and $41,118 and $11,808, for
Mr. Rayden, Ms. Boyer, Mr. Kleeberger, Ms. Maurer and Mr. Petty,
respectively. We anticipate that after the spin-off, the named executive
officers will continue to participate in similar plans that we will adopt.
Includes term life insurance premiums in the amount of $13,525 paid on
behalf of Mr. Rayden.
Includes one-time cash payments related to the May 1998 split-off of
Abercrombie & Fitch. The payments are in the amount of $3,153, $1,424,
$3,153 and $3,132 to Ms. Boyer, Mr. Kleeberger, Ms. Maurer and Mr. Petty,
respectively.
</TABLE>
Stock Options
The following table sets forth material information regarding
options to acquire The Limited's common stock that The Limited granted to the
named executive officers during The Limited's 1998 fiscal year.
Option Grants in Fiscal Year 1998 (1)
<TABLE>
Individual Grants Potential Realizable Value at
--------------------------------------------------------------------- Assumed Annual Rates of Stock
Securities Percentage of Total Price Appreciation for Option
Underlying Options Granted to Term(3)
Options Associates in Exercise Price Expiration -----------------------------
Name Granted (#)(2) Fiscal Year Per Share($) Date 5%($) 10%($)
- ------------------- -------------- ------------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Rayden.. 101,770 2.41% $26.6532 02/02/08 $1,784,086 $4,447,559
Sally A. Boyer..... 5,088 0.12% 26.6532 02/02/08 89,196 222,356
Kent A. Kleeberger. 7,633 0.18% 26.6532 02/02/08 133,811 333,578
2,544 0.06% 27.9429 03/23/08 46,756 116,558
Kathleen C. Maurer. 5,089 0.12% 26.6532 02/02/08 89,213 222,400
James C. Petty..... 5,089 0.12% 26.6532 02/02/08 89,213 222,400
- ------------
(1) All options granted relate to shares of The Limited's common stock.
(2) On February 2, 1998, options were granted to Mr. Rayden, Ms. Boyer, Mr.
Kleeberger, Ms. Maurer and Mr. Petty pursuant to The Limited's Stock Plan.
The options granted to Mr. Rayden vest 10%, 10%, 10%, 15%, 20% and 35% on
the first through sixth anniversaries of the grant date, respectively,
subject to continued employment with The Limited. The options granted to Ms.
Boyer, Mr. Kleeberger, Ms. Maurer and Mr. Petty become exercisable in four
equal annual installments commencing on the first anniversary of the grant
date, in each case, subject to the holder's continued employment with The
Limited.
On March 23, 1998, options were granted to Mr. Kleeberger pursuant to The
Limited's Stock Plan. These options become exercisable in four equal annual
installments commencing on the first anniversary of the grant date, subject
to continued employment with The Limited.
Options have been adjusted to reflect the May 1998 split-off of Abercrombie
& Fitch.
(3) The assumed rates of growth were selected by the SEC for illustrative
purposes only and are not intended to predict or forecast future stock
prices.
</TABLE>
The following table provides information relating to the number
and value of shares of The Limited's common stock subject to options held by
the named executive officers as of January 30, 1999.
Aggregated Option Exercises in 1998 Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options at Fiscal Year-
Shares Options at Fiscal Year-End (#) End($)(2)
Acquired on Value Realized ------------------------------ -----------------------------
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Rayden.. -- -- 36,636 382,656 $552,725 $4,968,111
Sally A. Boyer..... -- -- 13,484 12,977 226,774 175,198
Kent A. Kleeberger. 18,000 $152,426 13,610 20,482 218,089 247,061
Kathleen C. Maurer. -- -- 17,809 12,214 260,845 162,490
James C. Petty..... -- -- 2,544 12,722 36,194 146,620
- ------------
(1) Calculated on the basis of the number of shares exercised, multiplied by
the excess of the fair market value of a share of The Limited's common
stock on the date of exercise over the exercise price of such option.
(2) Value is calculated on the basis of the number of shares of The Limited's
common stock subject to each such option multiplied by the excess of the
$34.125 fair market value of a share of The Limited's common stock at
fiscal year-end over the exercise price of such option.
</TABLE>
Options have been adjusted to reflect the split-off of
Abercrombie & Fitch in May 1998.
Too, Inc. 1999 Incentive Compensation Performance Plan
We anticipate that before the spin-off occurs, our board will
adopt, and The Limited, as our sole shareholder, will approve, effective on
the completion of the spin-off, the Too, Inc. 1999 Incentive Compensation
Performance Plan. This section of the information statement summarizes the
material provisions of the plan. You should also read the Incentive
Compensation Performance Plan, which we have filed as an exhibit to the Form
10 of which this information statement forms a part.
This plan is intended to satisfy the applicable provisions of
Section 162(m) of the Internal Revenue Code. Our compensation committee will
select those key executives of our company with significant operating and
financial responsibility and who are likely to be "covered employees" within
the meaning of Section 162(m) for the relevant fiscal year to be eligible to
receive seasonal or annual incentive compensation payments under the plan.
Before the beginning of each spring and fall selling season,
our compensation committee may establish our performance goals. The
performance goals that our compensation committee selects will be based on one
or more of the following:
o price of our common stock or the stock of any affiliate
o shareholder return
o return on equity
o return on investment
o sales productivity
o comparable store sales growth
o economic profit
o net income growth
o market share
These factors will have a minimum performance standard below which, and a
maximum performance standard above which, no payments will be made. Our
compensation committee may base our performance goals on an analysis of
historical performance and growth expectations for the business, financial
results of other comparable businesses and progress towards achieving the
long-range strategic plan for our business. These objectives and determination
of results are based entirely on financial measures, and discretion may not be
used to modify award results. Our compensation committee may not use any
discretion to modify results except as permitted under Section 162(m) of the
Internal Revenue Code.
Annual incentive compensation targets established for eligible
executives will range from 10% to 150% of base salary. Incentive compensation
targets would equal a percentage of an eligible executive's total compensation
as established by the pay guidelines. Executives earn their target incentive
compensation if the business achieves the established performance goals. The
target incentive compensation percentage for each executive is based on the
following:
o the level of the officer's position
o the functional responsibility of the officer's position
o competitive practices
in that order of priority. For the named executive officers, annual incentive
compensation targets can range from 30% to 150% of base salary. Incentive
compensation paid to executives can range from zero to double their targets,
based upon the extent to which performance goals are achieved. Except as
permitted by Section 162(m) of the Internal Revenue Code, the minimum level at
which an executive would earn any incentive payment, and the level at which an
executive would earn the maximum incentive payment of double the target, are
established by our compensation committee before the commencement of each
bonus period. Actual payouts must be based on a preestablished interpolation
based on these minimum and maximum levels and the performance goals.
The maximum dollar amount to be paid for any year under our
Incentive Compensation Performance Plan to each participant may not exceed
$3,000,000.
Too, Inc. 1999 Stock Option and Performance Incentive Plan
We anticipate that before the spin-off occurs, our board will
adopt, and The Limited, as our sole shareholder, will approve, effective on
the completion of the spin-off, the Too, Inc. 1999 Stock Option and Performance
Incentive Plan. This section of the information statement summarizes the
material provisions of the plan. You should also read our Stock Option and
Performance Incentive Plan, which we have filed as an exhibit to the Form 10
of which this information statement forms a part.
Purpose of Plan
The purpose of our Stock Option and Performance Incentive Plan
is to attract and retain the best available executive and key management
associates for us and our subsidiaries and to encourage the highest level of
performance by those associates, thereby enhancing our value for the benefit
of our shareholders. The plan is also intended to motivate executive and key
management associates to contribute to our future growth and profitability and
to reward their performance in a manner that provides them with a means to
increase their holdings of our common stock and aligns their interests with
the interests of our shareholders.
Administration of Plan
Our Stock Option and Performance Incentive Plan will be
administered by our compensation committee. Our compensation committee will
have the power, in its discretion, to grant awards under the plan, to
determine the terms of these awards, to interpret the provisions of the plan
and to take any action that it deems necessary or advisable for the
administration of the plan.
Eligibility and Participation
Eligibility to participate in our Stock Option and Performance
Incentive Plan is limited to our executive and key management associates and
those of our subsidiaries. Participation in the plan is at the discretion of
our compensation committee and will be based upon the associate's present and
potential contributions to our success and such other factors as our
compensation committee deems relevant. No associate may be granted in any
calendar year awards covering more than 1,100,000 shares of our common stock.
Type of Awards Under Our Stock Option and Performance Incentive
Plan
The Stock Option and Performance Incentive Plan provides that
our compensation committee may grant awards to eligible associates in any of
the following forms, subject to such terms, conditions and provisions as our
compensation committee may determine to be necessary or desirable:
o incentive stock options
o nonstatutory stock options
o stock appreciation rights
o restricted shares of our common stock
o performance shares
o performance units
o unrestricted shares of our common stock
o tax reimbursement payments
Number of Authorized Shares
We have authorized a maximum of shares of our common
stock for our associates and those of our subsidiaries under the Stock Option
and Performance Incentive Plan during the term of the plan. Corresponding tax
reimbursement payments also may be awarded at the discretion of our
compensation committee. Our compensation committee may adjust the number and
class of shares available under the plan and/or subject to outstanding awards
to prevent dilution or enlargement of rights in the event of various changes
in our capitalization.
Term of Our Stock Option and Performance Incentive Plan
Unless earlier terminated by our board, our Stock Option and
Performance Incentive Plan will terminate on the tenth anniversary of the
earlier of the adoption of the plan by our board or the date of the spin-off.
Amendment and Termination
Our board may suspend, terminate, modify or amend our Stock
Option and Performance Incentive Plan at any time. Any material increase in
the maximum number of shares that may be issued under the plan or any
repricing of outstanding options, other than antidilution or equitable
adjustments, must be approved by our shareholders.
Too, Inc. 1999 Stock Plan for Non-Associate Directors
We anticipate that, before the spin-off occurs, our board will
adopt and The Limited, as our sole shareholder, will approve, effective on the
completion of the spin-off, the Too, Inc. 1999 Stock Plan for Non-Associate
Directors. This section of the information statement summarizes the material
provisions of the plan. You should also read the Non-Associate Director Stock
Plan, which we have filed as an exhibit to the Form 10 of which this
information statement forms a part.
Purpose of Plan and Administration
The purpose of the Non-Associate Director Stock Plan is to
promote our interests and those of our shareholders by increasing the
proprietary interest of non-associate directors in our growth and performance.
Our board will administer the Non-Associate Director Stock
Plan. Subject to the provisions of the plan, our board will be authorized to
interpret the plan, to establish, amend and rescind any rules and regulations
relating to it and to make all other determinations necessary or advisable for
its administration. However, our board will have no discretion with respect to
the selection of directors to receive options, the number of shares of our
common stock subject to any such options, the purchase price of these options
or the timing or term of grants of options. The determinations of our board in
the administration of the plan will be final and conclusive.
Eligibility
The Non-Associate Director Stock Plan provides for awards of
nonqualified options to our directors who are not associates of us or our
affiliates ("Eligible Directors").
Types of Awards
Under the Non-Associate Director Stock Plan, on the date of
initial election to our board, each Eligible Director will be granted an
option to purchase 5,000 shares of our common stock with a fair market value
exercise price. Subsequently, on the day of each annual meeting of our
shareholders beginning after the spin-off, each Eligible Director will be
granted an option to purchase 1,000 shares of our common stock as of the day
of the annual meeting at a per share exercise price equal to the fair market
value of a share of our common stock on this date. Each option will:
o vest in annual 25% increments beginning on the first
anniversary of the grant date
o expire on the earlier of the tenth anniversary of the grant
date and one year from the date on which the optionee ceases to
be an Eligible Director
The exercise price of options must be satisfied in cash.
In addition, the Non-Associate Director Stock Plan provides
that each Eligible Director may receive 50% of his or her annual retainer in
unrestricted shares of our common stock in quarterly installments, valued as
of the last business day of each fiscal quarter beginning after the date of
the spin-off.
Number of Authorized Shares
We have authorized a maximum of 50,000 shares of our common
stock to grant options and to award shares of our common stock instead of
giving an Eligible Director 50% of his or her annual retainer under the
Non-Associate Director Stock Plan. Shares of our common stock subject to
options that are forfeited, terminated or canceled will again be available for
awards. The shares of our common stock to be delivered under the plan will be
made available from the authorized but unissued shares of our common stock or
from treasury shares. The number and class of shares available under the plan
and/or subject to outstanding options may be adjusted by our board to prevent
dilution or enlargement of rights in the event of various changes in our
capitalization.
Transferability
The options granted under the Non-Associate Director Stock Plan
may not be assigned or transferred, except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order.
Shares issued in payment of the annual retainer are
transferable.
Term of Plan
Our board may not grant any shares under the Non-Associate
Director Stock Plan after the tenth annual meeting of our shareholders after
the date of the spin-off.
Amendments
Our board may amend the Non-Associate Director Stock Plan as it
deems advisable or to conform to any change in any law or regulation
applicable to the plan subject, to the extent deemed necessary or desirable to
comply with applicable law, to the approval of our shareholders.
SECURITY OWNERSHIP OF THE LIMITED AND TOO, INC.
The Limited beneficially and of record holds, and will hold
before the spin-off, all of the outstanding shares of our common stock. Below,
you will find a table with information as of February 28, 1999 providing the
number of shares of The Limited's common stock beneficially owned by:
o each of our directors and nominees as directors
o each of our named executive officers
o all of our directors and named executive officers as a group
To our knowledge, other than as disclosed below, there are no persons or
entities that own more than 5% of the outstanding common stock of The Limited.
The table also provides the number of shares of our common
stock, rounded to the nearest whole share, that each such person or entity
would own immediately after the spin-off on a pro forma basis. To our
knowledge, unless we state otherwise, each person or entity has sole voting
and investment power with respect to the shares set forth opposite the
person's name.
<TABLE>
The Limited Too, Inc. Pro Forma
---------------------------------- -----------------------------
Number of Number of
Shares Percent of Shares Percent of
Beneficially Outstanding Beneficially Outstanding
Beneficial Owner Owned(1) Shares Owned Shares
- ---------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
The Limited's Directors and Named
Executive Officers(2)
Leslie H. Wexner.......................... 58,625,235 (3) (4) 25.8%
Kenneth B. Gilman......................... 449,302 (3) (5) *
Martin Trust.............................. 2,505,229 (3) (5) *
Arnold F. Kanarick........................ 166,594 (3) *
V. Ann Hailey............................. 34,914 *
Eugene M. Freedman........................ 6,430 *
E. Gordon Gee............................. 3,492 *
David T. Kollat........................... 202,492 *
Claudine B. Malone........................ 4,517 *
Leonard A. Schlesinger.................... 3,492 *
Donald B. Shackelford..................... 72,430 (5) *
Allan R. Tessler.......................... 22,694 (5) *
Abigail S. Wexner......................... 1,009 *
Raymond Zimmerman......................... 8,692 (6) *
All Directors and Named Executive
Officers of The Limited as a Group (14
persons).................................. 62,106,522 (3) (7) 27.2
Too, Inc.'s Directors and Named
Executive Officers(8)
Michael W. Rayden......................... 70,995 *
Kent A. Kleeberger........................ 18,890 *
Sally A. Boyer............................ 22,136 *
Kathleen C. Maurer........................ 36,934 (9) *
James C. Petty............................ 4,816 *
Nancy Jean Kramer......................... 310 *
David A. Krinsky.......................... -- -- -- --
James U. McNeal........................... -- -- -- --
Kenneth James Strottman................... -- -- -- --
All Directors and Officers of Too, Inc. as
a Group (9 persons).......................
- ------------
(*) Less than 1%.
(1) Of the shares of stock shown as beneficially owned, the following shares
are not currently owned but are subject to options which were outstanding
on February 28, 1999 and were exercisable within 60 days after that: Mr.
Wexner, 437,610; Mr. Gilman, 253,981; Mr. Trust, 165,884; Mr. Kanarick,
127,210; Ms. Hailey, 26,714; Mr. Freedman, 1,271; Dr. Gee, 1,272; Mr.
Kollat, 1,272; Ms. Malone, 1,272. Dr. Schlesinger, 1,272; Mr. Shackelford,
1,272; Mr. Tessler, 1,272; Ms. Wexner, 254; Mr. Zimmerman, 1,272; Mr.
Rayden, 49,866; Ms. Boyer, 19,081; Mr. Kleeberger, 17,378; Ms. Maurer,
22,516; and Mr. Petty, 3,816. The foregoing information does not reflect
any adjustments to the options to be made as a result of the spin-off.
(2) The address of each director and named executive officer of The Limited is
c/o The Limited, Inc., Three Limited Parkway, Columbus, Ohio 43230.
(3) Includes the following number of shares held as of February 28, 1999 in an
employee benefit plan under which the participant has the power to dispose
or withdraw shares: Mr. Wexner, 539,436; Mr. Gilman, 34,270; Mr. Kanarick,
422; Mr. Trust, 29,077; and all directors and named executive officers of
The Limited as a group, 603,205. Also includes the following number of
shares held as of February 28, 1999 in an employment benefit plan under
which the participant has the power to dispose or withdraw shares: Mr.
Kleeberger, 282; Ms. Maurer, 2,708; and all directors and named executive
officers of Too, Inc. as a group, 3,090.
(4) Includes 350,000 shares held by Health and Science Interests II, 883,317
shares held by the Wexner Foundation, 81,081 shares held by the Harry,
Hannah & David Wexner Trust, 5,000,000 shares held by the Harry, Hannah,
David & Sarah Wexner Trust and 18,750,000 shares held by The Wexner
Children's Trust. Mr. Wexner disclaims beneficial ownership of the shares
held by Health and Science Interests II and the Wexner Foundation. Mr.
Wexner shares investment and voting power with others with respect to
shares held by the Wexner Foundation.
(5) Includes the following number of shares owned by family members, as to
which beneficial ownership is disclaimed: Mr. Gilman, 1,117; Mr.
Shackelford, 18,955; Mr. Tessler, 202; and Mr. Trust, 207,890.
(6) Includes 1,200 shares, which are Mr. Zimmerman's proportionate share of
3,600 shares owned by a corporation of which Mr. Zimmerman is president and
a 33% shareholder plus 2,000 shares held by a partnership which is 45%
owned by Mr. Zimmerman and 45% owned by his wife.
(7) Includes 1,461,481 shares, as to which beneficial ownership is disclaimed.
(8) The address of each director and named executive officer of Too, Inc. is
c/o Too, Inc., 3885 Morse Road, Columbus, Ohio 43219.
(9) Includes the following number of shares owned by family members, as to
which beneficial ownership is disclaimed: Ms. Maurer, 6,476.23.
</TABLE>
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock will consist of:
o 100 million shares of our common stock, par value $.01 per
share
o 50 million shares of our preferred stock, of which no shares
are outstanding as of the date of this information statement
Below, you will find a summary of the material provisions of our certificate
of incorporation affecting the relative rights of our common and preferred
stock. You should also read our certificate of incorporation, which we have
filed as an exhibit to the Form 10 of which this information statement forms a
part.
Common Stock
Voting Rights
The holders of our common stock will be entitled to one vote
per share on all matters to be voted on by shareholders. Holders of our common
stock will not be entitled to cumulate their votes in the election of
directors. Generally, all matters on which shareholders will vote must be
approved by a majority of the votes entitled to be cast by all shares of
common stock present in person or represented by proxy, subject to any voting
rights granted to holders of any preferred stock. However, our certificate of
incorporation includes some supermajority requirements, including:
o a requirement that the holders of at least 75% of our
outstanding common stock must approve:
- a merger or consolidation with persons or entities that
beneficially own at least 5% of our common stock
- a sale of all or substantially all of our assets to those
persons or entities
- other control transactions
unless, in each case, the proposed transaction is approved by a
majority of the directors who were in office immediately before
the time when such ownership was acquired, or by their approved
successors
o a requirement that the vote of 75% of our outstanding voting
shares is required to remove a director for cause
o a requirement that only the holders of at least 75% of our
outstanding common stock may approve any amendment or repeal of
our bylaws and specified provisions of our certificate of
incorporation
Dividends
We anticipate that future earnings will be used principally to
support operations and finance the growth of our business. Thus, we do not
intend to pay cash dividends on our common stock in the foreseeable future.
Payment of dividends will also be restricted by provisions in our credit
facility. If our lenders permit us to declare dividends, the dividend amounts,
if any, will be determined by our board. Our board will consider a number of
factors, including our financial condition, capital requirements, funds
generated from operations, future business prospects, applicable contractual
restrictions and any other factors our board may deem relevant.
Other Rights
If we are liquidated, dissolved or wound up, we will pay the
full amounts required to be paid to holders of shares of any outstanding
preferred stock before we make any payments to holders of shares of our common
stock. All holders of shares of our common stock are entitled to share ratably
in any assets available for distribution to these holders, after all of our
other creditors have been satisfied.
No shares of our common stock may be redeemed. Holders of
shares of our common stock do not have any preemptive rights to purchase
additional shares of our common stock.
Immediately after the spin-off, all of the outstanding shares
of our common stock will be validly issued, fully paid and nonassessable.
Preferred Stock
We may issue preferred stock from time to time in one or more
series and with the terms of each series stated in our board's resolutions
providing for the designation and issue of that series. Our certificate of
incorporation authorizes our board to determine the dividend, voting,
conversion, redemption and liquidation preferences, rights, privileges and
limitations pertaining to each series of preferred stock that we issue.
Without seeking any shareholder approval, our board may issue preferred stock
with voting and other rights that could adversely affect the voting power of
the holders of our common stock and could have anti-takeover effects.
Specifically, our certificate of incorporation authorizes our board to adopt a
rights plan with continuing director provisions, which means that the rights
plan may be redeemed only by:
o a majority of directors who were in office when the rights plan
was adopted
o their successors whose nomination is recommended or approved by
a majority of those directors
The ability of our board to adopt a rights plan to issue preferred stock
without shareholder approval could delay, defer or prevent a change in control
of us or the removal of existing management.
We do not have any shares of preferred stock outstanding as of
the date of this information statement.
Transfer Agent
The transfer agent and registrar for our common stock is First
Chicago Trust Company of New York. The contact information for First Chicago
is:
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
(800) 317-4445
STATUTORY, CHARTER AND BYLAW PROVISIONS
Below, you will find a summary of the provisions of our
certificate of incorporation and bylaws that may have anti-takeover effects
and may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
shareholders. You should also read our certificate of incorporation and
bylaws, which we have filed as exhibits to the Form 10 of which this
information statement forms a part.
Classified Board of Directors
Our certificate of incorporation provides for our board to be
divided into three classes of directors. The term of office of the first class
expires at the 2000 annual meeting, the term of office of the second class
expires at the 2001 annual meeting and the term of office of the third class
expires at the 2002 annual meeting. At each annual meeting held after 2002, a
class of directors will be elected to replace the class whose term has then
expired. As a result, approximately one-third of the members of our board will
be elected each year and, except as described above, each of the directors
will serve a staggered three-year term. See "Management." Moreover, our
certificate of incorporation provides that directors may be removed only for
cause, upon the vote of 75% of our outstanding voting shares, as permitted by
the Delaware General Corporation Law only in the case of a corporation having a
classified board.
These provisions could prevent a shareholder (or group of
shareholders) having majority voting power from obtaining control of our board
until the second annual shareholders' meeting following the date that the
shareholder, or group of shareholders, obtains majority voting power. Thus,
these provisions may discourage a potential acquiror from making a tender
offer or otherwise attempting to obtain control of us.
Shareholder Action by Written Consent; Special Meetings
Our certificate of incorporation provides that no action may be
taken by the shareholders except at an annual or special meeting of
shareholders. As a result, our shareholders may not take any action by written
consent instead of a meeting. Our bylaws provide that special meetings of our
shareholders may only be called by our board or the chairperson of our board,
or his or her designee. These provisions may make it more difficult for
shareholders to take an action that our board opposes.
Advance Notice Provisions
Our bylaws establish an advance written notice procedure for
shareholders seeking:
o to nominate candidates for election as directors at any annual
meeting of shareholders
o to bring business before an annual meeting of our shareholders
Our bylaws provide that only persons who are nominated by our
board, or by a shareholder who has given timely written notice to our
secretary before the meeting to elect directors, will be eligible for election
as our directors. Our bylaws also provide that the business to be conducted at
any meeting of shareholders must be brought either by our board or by a
shareholder in compliance with the written notice procedures. In the case of an
annual meeting of shareholders, a shareholder must give timely written notice
to our secretary of its intention to bring business before the meeting, which
is then considered by our board.
Under our bylaws, for any shareholder notice to be timely, we
must receive the notice between 120 days to 150 days before the first
anniversary of our last proxy statement. Under our bylaws, a shareholder's
notice must also contain the information specified in the bylaws. These
provisions may preclude or deter some shareholders from bringing matters
before a shareholders' meeting or from making nominations for directors at an
annual meeting.
Preferred Stock
Under our certificate of incorporation, our board will have the
authority, without further shareholder approval:
o to create one or more series of preferred stock
o to issue shares of preferred stock in a series up to the
maximum number of shares of preferred stock authorized
o to determine the preferences, rights, privileges,
qualifications, limitations and restrictions of any series,
including the dividend rights, voting rights, conversion
privileges, rights and terms of redemption, liquidation
preferences, the number of shares constituting any series and
the designation of any series
With this authority, our board could create and issue a series
of preferred stock with such rights, privileges or restrictions as it may
decide upon and could adopt a rights plan. Our board is also authorized to
adopt a rights plan that may be redeemed only by a majority of the directors
who were in office when the plan was adopted (or by their successors whose
nomination is recommended or approved by a majority of those directors). These
actions could have the effect of discriminating against an existing or
prospective shareholder who beneficially owns, or tenders for, a substantial
amount of shares of our outstanding common stock. One possible effect of
authorized, but unissued and unreserved, shares of capital stock could be to
ensure the continuity of management by rendering it more difficult for a
potential acquiror to obtain control of us. If we issue shares of our capital
stock, we may be able to delay or prevent a change in control of us without
any further action by our shareholders.
Amendment of Charter and Bylaw Provisions
Our certificate of incorporation provides that our board may
adopt, repeal, alter, amend or rescind any provision of our bylaws. Our
certificate of incorporation also provides that only the holders of at least
75% of the total number of votes entitled to vote generally in the election of
directors may adopt, repeal, alter, amend or rescind bylaw provisions.
The affirmative vote of holders of at least 75% of the total
number of votes entitled to vote generally in the election of directors is
also required for any amendment, modification or repeal of the provisions of
our certificate of incorporation or bylaws relating to:
o the amendment of our certificate of incorporation
o classified board provisions
o the prohibition on action by written consent
o the limitation of liability
o the election and removal of directors
o a vote required to effect specified business combinations
o the authorization of a rights plan that may be redeemed only by
a majority of the directors who were in office when the plan
was adopted or by their approved successors
o the right to call special meetings
o indemnification of officers and directors
In all other cases, our charter may be amended by the affirmative vote of 50%
of the number of votes entitled to vote generally in the election of directors.
Delaware General Corporation Law
Because we are a Delaware corporation, Section 203 of the
Delaware General Corporation Law applies to us. Section 203 provides that,
except for transactions specified in Section 203, a corporation will not
engage in any "business combination" with any "interested shareholder" for a
three-year period after the date that the shareholder became an interested
shareholder unless:
o before the date that the shareholder became an interested
shareholder, the board approved either the business combination
or the transaction which resulted in the shareholder becoming
an interested shareholder
o upon completion of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares
outstanding, shares owned by:
- persons who are both directors and officers
- employee stock plans in some circumstances
o on or after the date that the shareholder became an interested
shareholder, the business combination is approved by the board
of the corporation and authorized at an annual or special
meeting of shareholders by the affirmative vote of at least 66%
of the outstanding voting stock which is not owned by the
interested shareholder
A "business combination" includes a merger, consolidation,
asset sale or other transaction resulting in a financial benefit to an
interested shareholder. An "interested shareholder" is a person who, together
with affiliates and associates, owns (or within three years, did own) 15% or
more of a corporation's outstanding voting stock.
Section 203 makes it more difficult under some circumstances
for an interested shareholder to effect a business combination with us for a
three-year period, although our shareholders may elect to exclude us from the
restrictions imposed under Section 203.
The restrictions imposed by Section 203 will not apply to a
corporation in some circumstances, including if:
o the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by
Section 203
o twelve months have passed after the corporation, by action of
its shareholders holding a majority of the shares entitled to
vote, amends its certificate of incorporation expressly
electing not to be governed by Section 203
We have not elected to opt out of Section 203. Thus, the restrictions imposed
by Section 203 will apply to us.
Liability and Indemnification of Directors and Officers
Delaware General Corporation Law, our certificate of
incorporation and our bylaws contain provisions relating to the limitation of
liability and indemnification of our directors and officers. We describe these
provisions below.
Our certificate of incorporation provides that our directors
are not personally liable to us or our shareholders for monetary damages for
breach of their fiduciary duties as directors to the fullest extent permitted
by Delaware law. Existing Delaware law permits the elimination or limitation
of directors' personal liability to us or our shareholders for monetary
damages for breach of their fiduciary duties as directors, except liability
for:
o any breach of a director's duty of loyalty to us or our
shareholders
o acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law
o any transaction from which a director derived improper personal
benefit
o the unlawful payment of dividends
o unlawful stock repurchases or redemptions
Because of these exculpation provisions, shareholders may be
unable to recover monetary damages against directors for actions taken by them
that constitute negligence or that otherwise violate their fiduciary duties as
directors, although it may be possible to obtain injunctive or other equitable
relief with respect to such actions. If equitable remedies are not available
to shareholders, shareholders may not have an effective remedy against a
director in connection with the director's conduct.
Our bylaws also provide that we will indemnify and hold
harmless any person who was or is a party or is threatened to be made a party
to, or is involved in, any threatened, pending or completed civil, criminal,
administrative or investigative action, suit or proceeding by reason of the
fact that the person:
o is or was one of our directors or officers
o is or was serving at our request as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or as a member of any
committee or similar body
to the fullest extent permitted by Delaware Law. We will also pay the expenses
incurred in connection with any such proceeding in advance of its final
disposition to the fullest extent authorized by Delaware Law. This right to
indemnification will be a contract right. We may, by action of our board,
provide indemnification to our employees and agents to the extent and to the
effect that our board determines to be appropriate and authorized by Delaware
law.
We intend to purchase and maintain insurance on behalf of any
person who:
o is or was one of our directors, officers, employees or agents
o is or was serving at our request as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise
against any liability asserted against and incurred by the person in any such
capacity, or arising out of the person's status as such, whether or not we
would have the power or obligation to indemnify the person against such
liability under our bylaws.
INDEPENDENT ACCOUNTANTS
The Limited has appointed PricewaterhouseCoopers LLP as our
independent accountants to audit our historical consolidated financial
statements included in this information statement for fiscal years 1998, 1997
and 1996. PricewaterhouseCoopers LLP has served as The Limited's independent
accountants throughout the periods covered by the consolidated financial
statements included in this information statement.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC the Form 10 with respect to the
shares of our common stock that The Limited's shareholders will receive in the
spin-off. This information statement does not contain all of the information
contained in the Form 10 and the exhibits and schedules to the Form 10. Some
items are omitted in accordance with the rules and regulations of the SEC. For
additional information relating to us and the spin-off, reference is made to
the Form 10 and the exhibits to the Form 10, which are on file at the offices
of the SEC. Statements contained in this information statement as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance, if the contract or document is filed as an
exhibit, reference is made to the copy of the contract or other documents
filed as an exhibit to the Form 10. Each statement is qualified in all
respects by the relevant reference.
You may inspect and copy the Form 10 and the exhibits to the
Form 10 that we have filed with the SEC at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, DC 20549, as well as at the Regional
Offices of the SEC at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Please call the SEC at 1-800-SEC-0330 for further information
on the Public Reference Room. In addition, the SEC maintains an Internet site
at http://www.sec.gov, from which you can electronically access the Form 10,
including the exhibits and schedules to the Form 10.
Because of the spin-off, we will be required to comply with the
full informational requirements of the Securities Exchange Act of 1934. We
will fulfill our obligations with respect to these requirements by filing
periodic reports and other information with the SEC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF LIMITED TOO, INC.
Report of Independent Accountants..........................................F-2
Consolidated Statements of Operations......................................F-3
Consolidated Balance Sheets................................................F-4
Consolidated Statements of Cash Flows......................................F-5
Notes to Consolidated Financial Statements.................................F-6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Limited Too, Inc.
In our opinion, the accompanying consolidated balance sheets
and the related consolidated statements of operations and cash flows present
fairly, in all material respects, the consolidated financial position of
Limited Too, Inc. and its subsidiaries at January 30, 1999 and January 31,
1998, and the consolidated results of their operations and their cash flows
for each of the three fiscal years in the period ended January 30, 1999 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these consolidated statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Columbus, Ohio
April 22, 1999
LIMITED TOO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
Fiscal Years Ended Thirteen Weeks Ended
---------------------------------------- ---------------------
January 30, January 31, February 1, May 1, May 2,
1999 1998 1997 1999 1998
----------- ----------- ----------- ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales.................................... $376,943 $322,150 $258,818 $95,048 $82,257
Costs of goods sold, occupancy and buying
costs..................................... 251,729 226,903 197,974 63,324 57,369
------- ------- ------- ------ ------
Gross income................................. 125,214 95,247 60,844 31,724 24,888
General, administrative and store operating
expenses.................................. 96,758 82,950 69,698 30,412 24,599
------- ------- ------- ------ ------
Operating income (loss)...................... 28,456 12,297 (8,854) 1,312 289
------- ------- ------- ------ ------
Provision for (benefit from) income taxes.... 11,400 4,900 (3,500) 500 100
------- ------- ------- ------ ------
Net income (loss)............................ $ 17,056 $ 7,397 $ (5,354) $ 812 $ 189
======= ======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
LIMITED TOO, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
Fiscal Years Ended Thirteen
-------------------------- Weeks
January 30, January 31, Ended
1999 1998 May 1, 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash ......................................... $987 $1,649 $558
Receivables................................... 1,440 1,090 1,750
Inventories................................... 27,565 18,661 23,584
Store supplies................................ 5,237 3,701 5,433
Deferred income taxes......................... 2,951 776 2,951
Other......................................... 582 183 404
------ ------ ------
Total current assets........................... 38,762 26,060 34,680
Property, plant and equipment, net............. 44,894 42,871 48,945
Deferred income taxes.......................... 6,313 4,043 6,313
------ ------ ------
Total assets................................... $89,969 $72,974 $89,938
====== ====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.............................. $3,108 $2,454 $4,382
Accrued expenses.............................. 22,377 21,391 24,206
Income taxes payable.......................... 11,883 10,352 383
------ ------ ------
Total current liabilities...................... 37,368 34,197 28,971
Other long-term liabilities.................... 1,501 1,004 1,731
Commitments and contingencies
Net investment by The Limited ................. 51,100 37,773 59,236
------ ------ ------
Total liabilities and shareholder's equity .... $89,969 $72,974 $89,938
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
LIMITED TOO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
Fiscal Years Ended Thirteen Weeks Ended
--------------------------------------- ---------------------
January 30, January 31, February 1, May 1, May 2,
1999 1998 1997 1999 1998
----------- ----------- ----------- ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) ................................... $17,056 $7,397 $(5,354) $812 $ 189
Impact of other operating activities on cash flows
Depreciation and amortization...................... 10,563 10,626 9,959 3,216 2,589
Change in assets and liabilities
Inventories...................................... (8,904) 1,776 (4,391) 3,981 1,494
Accounts payable and accrued expenses............ 1,640 235 8,441 3,103 4,125
Income taxes..................................... (2,914) 9,448 4,468 (11,500) (10,394)
Other assets and liabilities..................... (80) 812 641 (98) 273
------ ------ ------ ------ ------
Net cash provided by (used for) operating
activities....................................... 17,361 30,294 13,764 (486) (1,724)
------ ------ ------ ------ ------
Investing activities
Capital expenditures................................. (14,294) (4,780) (8,504) (7,267) (1,005)
------ ------ ------ ------ ------
Cash used for investing activities................. (14,294) (4,780) (8,504) (7,267) (1,005)
Financing activities
Increase (decrease) in net investment by The Limited. (3,729) (24,024) (5,213) 7,324 3,919
------ ------ ------ ------ ------
Net cash provided by (used for) financing
activities....................................... (3,729) (24,024) (5,213) 7,324 3,919
Net increase (decrease) in cash....................... (662) 1,490 47 (429) 1,190
Cash, beginning of period............................ 1,649 159 112 987 1,649
------ ------ ------ ------ ------
Cash, end of period.................................. $ 987 $1,649 $ 159 $558 $ 2,839
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
LIMITED TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Financial Statement Presentation
The accompanying financial statements include the accounts of
Limited Too, Inc. and its subsidiaries ("Limited Too" or the "Company") and
reflect the Company's assets, liabilities, results of operations and cash
flows on a historical cost basis. The Company was established in 1987 and is a
wholly-owned subsidiary of The Limited, Inc.
The accompanying interim consolidated financial statements as
of and for the thirteen week period ended May 1, 1999 and May 2, 1998 are
unaudited and are presented to comply with the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
accompanying interim 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
period, but are not necessarily indicative of the results of operations for a
full fiscal year.
Limited Too is a specialty retailer that sells apparel,
underwear, sleepwear, swimwear, lifestyle and personal care products for girls
aged seven to fourteen years and has stores in over 40 states. The Company has
one reportable segment which includes all of its products.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
Limited Too and all significant subsidiaries which are more than 50% owned and
controlled. All significant intercompany balances and transactions have been
eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to
January 31. Fiscal years are designated in the financial statements and notes
by the calendar year in which the fiscal year commences. The results for the
first quarter of 1999 and 1998 represent the 13-week period ended May 1, 1999
and May 2, 1998. The results for fiscal years 1998, 1997 and 1996 represent
the 52-week periods ended January 30, 1999, January 31, 1998 and February 1,
1997.
Inventories
Inventories are principally valued at the lower of average cost
or market, on a first-in first-out basis, utilizing the retail method.
Store Supplies
The initial inventory of supplies for new stores including, but
not limited to, hangers, signage, security tags, packaging and point-of-sale
supplies is capitalized at the store opening date. In lieu of amortizing the
initial balance, subsequent shipments are expensed, except for new merchandise
presentation programs, which are capitalized. Store supplies are periodically
inventoried and adjusted as appropriate for changes in supply levels or costs.
Advertising
Advertising costs consist of in-store photographs and
promotions in selected national publications and are expensed at the time the
promotion first appears in media or in the store. Advertising costs amounted
to $227,000 and $199,000 in the first quarter 1999 and 1998, and $567,000,
$755,000 and $615,000 for the fiscal years 1998, 1997 and 1996.
Property and Equipment
Depreciation and amortization of property and equipment are
computed for financial reporting purposes on a straight-line basis, using
service lives ranging principally from 7 to 10 years for building improvements
and 3 to 10 years for other property and equipment. The cost of assets sold or
retired and the related accumulated depreciation or amortization are removed
from the accounts with any resulting gain or loss included in net income.
Maintenance and repairs are charged to expense as incurred. Major renewals and
betterments that extend service lives are capitalized. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate
that full recoverability is questionable. Factors used in the valuation
include, but are not limited to, management's plans for future operations,
recent operating results and projected cash flows. No impairment charges have
been taken based on management's review.
Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes," which requires the use of the liability method. Under this
method, deferred tax assets and liabilities are recognized based on the
difference between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect in the years in
which those temporary differences are expected to reverse. Under SFAS No. 109,
the effect on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date.
The Company is included in The Limited's consolidated Federal
and certain state income tax groups for income tax reporting purposes and is
responsible for its proportionate share of income taxes calculated upon its
Federal taxable income at a current estimate of the annual effective tax rate.
Revenue Recognition
Sales are recorded when the customer takes possession of
merchandise -- that is, the point of sale. Markdowns associated with the
Frequent Buyer and "Too Bucks" Programs are recognized upon redemption in
conjunction with a qualifying purchase.
Store Pre-Opening Expenses
Pre-opening expenses related to new store openings are charged
to operations as incurred.
Fair Value of Financial Instruments
The recorded values of financial instruments, including cash,
accounts receivable and accounts payable, approximate fair value due to their
short maturity.
Earnings Per Share
Historical earnings per share data is omitted from the
consolidated statements of operations as it is not meaningful.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Since actual results may differ from
those estimates, the Company revises its estimates and assumptions as new
information becomes available.
Adoption of New Accounting Standards
In March 1998, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." The SOP requires that certain
external costs and internal payroll and payroll related costs be capitalized
during the application development and implementation stages of a software
development project and amortized over the software's useful life. The SOP was
effective in the first quarter of 1999 and its adoption did not have a
material adverse effect on the Company's results of operations.
Additionally, SOP 98-5, "Reporting on the Costs of Start-Up
Activities," was issued in April 1998. The SOP requires that entities expense
start-up costs and organization costs as they are incurred. The SOP was
effective in the first quarter of 1999 and its adoption did not have a
material adverse effect on the Company's results of operations.
3. Property and Equipment
Property and equipment, at cost, consisted of (in thousands):
<TABLE>
January 30, January 31, May 1,
1999 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Furniture, fixtures and equipment.................. $69,523 $62,581 $ 73,061
Leaseholds and improvements........................ 28,950 28,186 31,504
------ ------ -------
Total.............................................. 98,473 90,767 104,565
Less: accumulated depreciation and amortization.... 53,579 47,896 55,620
------ ------ -------
Property and equipment, net........................ $44,894 $42,871 $ 48,945
====== ====== =======
</TABLE>
4. Leased Facilities and Commitments
Annual store rent is comprised of a fixed minimum amount, plus
contingent rent based on a percentage of sales exceeding a stipulated amount.
Store lease terms generally require additional payments covering taxes, common
area costs and certain other expenses.
A summary of rent expense for the thirteen weeks ended May 1,
1999 and May 2, 1998 and the years 1998, 1997 and 1996 follows (in thousands):
<TABLE>
Year Thirteen Thirteen
-------------------------------- Weeks Ended Weeks Ended
1998 1997 1996 May 1, 1999 May 2, 1998
------ ------ ------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Fixed minimum............. $28,916 $28,198 $27,400 $7,509 $7,149
Contingent................ 375 296 435 51 86
------ ------ ------ ----- -----
Total store rent.......... 29,291 28,494 27,835 7,560 7,235
Equipment and other....... 880 879 925 293 203
------ ------ ------ ----- -----
Total rent expense........ $30,171 $29,373 $28,760 $7,853 $7,438
====== ====== ====== ===== =====
</TABLE>
Rent expense includes charges from The Limited and its
subsidiaries for store, office and warehouse space. Limited Too is committed
to noncancellable leases with remaining terms of one to fourteen years. These
commitments primarily include store leases with an initial term of ten to
fifteen years. Certain store leases have been guaranteed by The Limited. A
summary of minimum rent commitments under noncancellable leases as of January
30, 1999 follows (in thousands):
1999........................................... $ 29,247
2000........................................... 28,909
2001........................................... 28,457
2002........................................... 27,479
2003........................................... 26,578
Thereafter..................................... 69,585
5. Accrued Expenses
Accrued expenses consisted of (in thousands):
January 30, January 31, May 1,
1999 1998 1999
----------- ----------- -----------
(unaudited)
Compensation, payroll taxes and benefits... $ 5,907 $ 6,133 $ 6,373
Rent....................................... 7,187 5,922 7,469
Taxes, other than income................... 2,252 1,310 2,346
Other...................................... 7,031 8,026 8,018
------ ------ ------
Total...................................... $22,377 $21,391 $24,206
====== ====== ======
6. Income Taxes
Limited Too consolidated financial statements reflect a charge
(benefit) for federal and state income taxes as if Limited Too had been
subject to tax on a separate company basis during the periods presented.
This provision for (benefit from) income taxes consisted of (in
thousands):
<TABLE>
Thirteen Weeks Ended
Year --------------------
------------------------------- May 1, May 2,
1998 1997 1996 1999 1998
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Currently payable
Current:
Federal..................... $12,326 $7,804 $(3,045) $441 $ 87
State....................... 2,832 1,790 (762) 59 13
------ ----- ----- --- ---
15,158 9,594 (3,807) 500 100
Deferred:
Federal..................... (2,893) (3,800) 230 -- --
State....................... (865) (894) 77 -- --
------ ----- ----- --- ---
(3,758) (4,694) 307 -- --
------ ----- ----- --- ---
Total provision (benefit)...... $11,400 $4,900 $(3,500) $500 $100
====== ===== ===== === ===
</TABLE>
A reconciliation between the statutory federal income tax rate
and the effective income tax rate follows:
<TABLE>
Year Thirteen Weeks Ended
---------------------- ---------------------
May 1, May 2,
1998 1997 1996 1999 1998
---- ---- ---- ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal income tax rate............................... 35.0% 35.0% 35.0% 35.0% 35.0%
State income taxes, net of Federal income tax effect.. 4.5 4.5 4.5 4.5 3.5
Other items, net...................................... 0.5 0.3 -- (1.4) (3.9)
---- ---- ---- ---- ----
Total................................................. 40.0% 39.8% 39.5% 38.1% 34.6%
==== ==== ==== ==== ====
</TABLE>
Income tax obligations (benefits) are treated as having been
settled through the net investment by The Limited account as if the Company
were filing its income tax returns on a separate company basis. Such amounts
were approximately $12,000 and $10,500 for the thirteen weeks ended May 1,
1999 and May 2, 1998 and $14,300, $(4,500) and $(8,000) for the years 1998,
1997 and 1996.
The effect of temporary differences which give rise to deferred
income tax balances was as follows (in thousands):
January 30, January 31,
1999 1998
----------- -----------
Assets Assets
----------- -----------
Tax under book depreciation....... $3,204 $1,865
Rent.............................. 2,476 1,737
Inventory......................... 881 160
Other............................. 2,732 1,081
------ ------
Total deferred income taxes....... $9,293 $4,843
====== ======
No valuation allowance has been provided for deferred tax
assets because management believes that it is more likely than not that the
full amount of the net deferred tax assets will be realized in the future.
7. Related Party and Equity Transactions
Transactions between Limited Too and The Limited and its
wholly-owned subsidiaries have primarily consisted of the following:
Merchandise purchases
Capital expenditures
Inbound and outbound shipping
Store leasing, construction and management
Distribution center, MIS and home office expenses
Corporate services and centrally managed benefits
Information with regard to these transactions is as follows:
Significant purchases are made from Mast, a wholly-owned
subsidiary of The Limited. Purchases are also made from Gryphon, an indirect
subsidiary of The Limited. Mast is a contract manufacturer and apparel importer
while Gryphon is a developer of fragrance and personal care products and also
a contract manufacturer. Prices are negotiated on a competitive basis by
merchants of Limited Too with Mast, Gryphon and manufacturers.
Limited Too's inbound and outbound transportation expenses are
managed centrally by Limited Distribution Services, a wholly owned subsidiary
of The Limited. Inbound freight is charged to Limited Too based on actual
receipts and related charges, while outbound freight is charged based on a
percentage of cartons shipped.
Limited Too's real estate operations, including all aspects of
lease negotiations and ongoing dealings with landlords and developers, are
handled centrally by the real estate division of The Limited ("Real Estate
Division"). Real Estate Division expenses are allocated to Limited Too based
on a combination of Limited Too's pro rata share of new and remodeled store
construction projects and open selling square feet. Additionally, Limited Too
is charged rent expense, common area maintenance charges and utilities for
stores shared with other consolidated subsidiaries of The Limited. The charges
are based on square footage and represent the proportionate share of the
underlying leases with third parties.
Limited Too is charged for usage of certain of The Limited's
MIS facilities. Limited Too is also charged rent expense and utilities for
certain distribution and home office space occupied.
Limited Too's store design and construction operations are
coordinated centrally by the store planning division of The Limited ("Store
Planning Division"). The Store Planning Division facilitates the design and
construction of the stores and upon completion transfers the stores to Limited
Too at actual cost net of construction allowances, if any. Store Planning
Division expenses are charged to Limited Too based on a combination of Limited
Too's pro rata share of new and remodeled store construction projects and open
selling square feet.
The Limited provides certain services to Limited Too including,
among other things, certain tax, treasury, legal, corporate secretary,
accounting, auditing, corporate development, risk management, associate
benefit plan administration, human resource and compensation, government
affairs and public relation services. Identifiable costs are charged directly
to Limited Too. All other services-related costs not specifically attributable
to an operating business have been allocated to Limited Too based upon a
percentage of sales.
Limited Too has participated in The Limited's centralized cash
management system. Under this system, cash received from Limited Too
operations was transferred to The Limited's centralized cash accounts and cash
disbursements were funded from the centralized cash accounts on a daily basis.
No interest has been charged or earned on the cash management account.
Management believes the charges and allocations described above
are fair and reasonable. However, these charges and allocations are not
necessarily indicative of the amounts that would have been or that will be
recorded by Limited Too on a stand-alone basis.
The following table summarizes the related party transactions
between Limited Too and The Limited and its other wholly owned subsidiaries,
for the periods indicated (in thousands):
<TABLE>
Year Thirteen
-------------------------------- Weeks Ended
1998 1997 1996 May 1, 1999
------ ------ ------ -----------
(unaudited)
<S> <C> <C> <C> <C>
Merchandise purchases................................. $58,456 $42,255 $39,171 $3,737
Capital expenditures.................................. 11,818 2,359 7,964 5,890
Inbound and outbound shipping......................... 6,023 5,702 4,290 1,110
Store leasing, construction and management............ 50,044 23,044 21,856 13,985
Distribution center, MIS and home office expenses..... 9,140 6,675 5,948 2,656
Corporate services and centrally managed benefits..... 13,920 9,153 8,792 4,904
------- ------ ------ ------
$149,401 $89,188 $88,021 $32,282
======= ====== ====== ======
</TABLE>
The following is a summary of the activity in the net
investment by The Limited account (in thousands):
<TABLE>
Year Thirteen
-------------------------------- Weeks Ended
1998 1997 1996 May 1, 1999
------ ------ ------ -----------
(unaudited)
<S> <C> <C> <C> <C>
Beginning balance..................................... $37,773 $54,400 $64,967 $51,100
Transactions with related parties..................... 149,401 89,188 88,021 32,282
Centralized cash management........................... (167,444) (108,664) (85,266) (36,958)
Settlement of income taxes............................ 14,314 (4,548) (7,968) 12,000
Net income (loss)..................................... 17,056 7,397 (5,354) 812
------- ------ ------ ------
Ending balance........................................ $51,100 $37,773 $54,400 $59,236
======= ====== ====== ======
</TABLE>
The Company has no arrangements with The Limited which result
in the Company's guarantee, pledge of assets or stock to provide security for
The Limited's debt obligations.
8. Retirement Benefits
The Company participates in a qualified defined contribution
retirement plan and a nonqualified supplemental retirement plan sponsored by
The Limited. Participation in the qualified plan is available to all
associates who have completed 1,000 or more hours of service with the Company
during certain 12-month periods and attained the age of 21. Participation in
the nonqualified plan is subject to service and compensation requirements. The
Company's contributions to these plans are based on a percentage of the
associates' eligible annual compensation. The cost of these plans was $1.2
million, $1.9 million and $1.6 million in years 1998, 1997 and 1996.
9. Employee Benefits
Officers and key employees were granted options to participate
in The Limited stock option and restricted stock plans. The market value of
The Limited's restricted stock granted to the Company's employees is being
amortized ratably as compensation expense over the vesting period.
Compensation expense for The Limited's restricted stock granted to the
Company's employees amounted to $1.2 million and $1.0 million in 1998 and 1997.
Limited Too adopted the disclosure requirements of SFAS No.
123, "Accounting for Stock-Based Compensation," effective with the 1996
financial statements, but elected to continue to measure compensation expense
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation expense for The Limited stock
options has been recognized. If compensation had been determined based on the
estimated fair value of The Limited options granted since 1995, consistent
with the methodology in SFAS No. 123, the pro forma effects on net income
would have been a reduction of approximately $375 thousand in 1998, $225
thousand in 1997 and $45 thousand in 1996.
The weighted-average per share fair value of The Limited
options granted ($6.61, $5.22 and $4.83 during 1998, 1997 and 1996) was used
to calculate the pro forma compensation expense. The fair value was estimated
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for 1998, 1997 and 1996: dividend yields of 2.2%,
3.1% and 2.8%; volatility of 29%, 27% and 31%; risk-free interest rates of 5%,
6% and 5.25%; assumed forfeiture rates of 20%, 15% and 20% and expected lives
of 6.0 years, 7.0 years and 5.0 years. The pro forma effect on net income for
1997 and 1996 is not representative of the pro forma effect on net income in
future years because it does not take into consideration pro forma
compensation expense related to grants made before 1995.
Information about The Limited stock options held by the
Company's employees and related activity is as follows:
<TABLE>
Options Outstanding Options Exercisable
----------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$15-$19................... 435,000 7.5 $19 88,000 $18
$20-$24................... 37,000 6.0 $21 24,000 $21
$25-$29................... 191,000 8.3 $27 10,000 $27
$30-$34................... 12,000 8.9 $33 -- --
------- --- -- ------- --
$15-$34................... 675,000 7.7 $21 122,000 $19
======= === == ======= ==
</TABLE>
<TABLE>
1998 1997 1996
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Option Option Option
Number of Price per Number of Price per Number of Price per
Stock Option Activity Shares Share Shares Share Shares Share
- --------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year... 534,000 $19 180,000 $19 176,000 $19
Granted............................ 191,000 27 378,000 19 49,000 16
Exercised.......................... (47,000) 19 (23,000) 19 (7,000) 17
Canceled........................... (3,000) 17 (1,000) 17 (38,000) 19
------- --- ------- --- ------- ---
Outstanding at end of year......... 675,000 $21 534,000 $19 180,000 $19
======= === ======= === ======= ===
Options exercisable at end of year. 122,000 $19 97,000 $20 84,000 $20
======= === ======= === ======= ===
</TABLE>
The pro forma amounts above are not necessarily representative
of the effects of stock-based awards on future pro forma net earnings, because
(1) future grants of employee stock options by the Company may not be
comparable to awards made to employees while the Company was a part of The
Limited and (2) the assumptions used to compute the fair value of any future
stock option awards will be specific to the Company and therefore may not be
comparable to the assumptions used.
In connection with the spin-off, unvested grants of The Limited
stock options and restricted stock held by Company employees will be replaced
with awards of the Company's stock options and restricted stock (collectively,
the "awards"). The awards will have the same ratio of the exercise price per
option to the market value per share and the same vesting provisions, option
periods and other terms as The Limited's awards that they replace. The
aggregate difference between market value and the exercise price of the awards
will not exceed the aggregate difference between market value and the exercise
price of The Limited's awards. The Limited stock options that have vested and
are held by Company employees will expire 90 days after the date of the
spin-off. Additional options on the Company's common stock to be granted on
the date of the spin-off to employees and independent directors will have an
exercise price equal to the market value of the Company's common stock on the
date of the spin-off. In addition, some Company restricted stock awards to be
granted in connection with the spin-off may contain performance requirements.
10. Legal Matters
There are various claims, lawsuits and pending actions against
Limited Too incident to the operations of its business. It is the opinion of
management that the ultimate resolution of these matters will not have a
material effect on Limited Too's results of operations, cash flows or
financial position.
11. Quarterly Financial Data (Unaudited) (in thousands)
First Second Third Fourth
----- ------ ----- ------
1998 Quarter
Net sales........ $82,257 $74,746 $96,720 $123,220
Gross income..... 24,888 24,016 29,870 46,440
Net income....... 189 240 4,248 12,379
First Second Third Fourth
----- ------ ----- ------
1997 Quarter
Net sales........... $65,646 $61,263 $86,430 $108,811
Gross income........ 15,590 15,170 23,988 40,499
Net income (loss)... (1,686) (1,619) 2,018 8,684
12. Subsequent Events (Unaudited)
On May 3, 1999, the Company announced its plans to establish
its Limited Too business as a fully independent public company under the name
Too, Inc. The business will be separated via a 100% spin-off which is expected
to occur in late July or early August 1999.
Credit Facility
Before the spin-off, the Company will pay a $50 million dividend
to The Limited. Prior to the date of the spin-off, the Company expects to have
a collateralized $100 million credit facility in place, proceeds from which will
fund the dividend.
The Company expects the credit facility to:
o consist of a $50 million amortizing term loan which may begin
amortizing at the end of the third year and a $50 million up to
five-year revolving credit facility
o contain customary representations and warranties and
affirmative, negative and financial covenants
o have interest rates that are based on the London Interbank
Offered Rate plus a spread
o be guaranteed by the Company's present and future domestic
subsidiaries
Plans
Before the spin-off, the Company's board of directors will
adopt, and The Limited, as the sole shareholder of the Company, will approve,
effective on the completion of the spin-off:
o the Too, Inc. 1999 Incentive Compensation Performance Plan (the
"Incentive Compensation Performance Plan")
o the Too, Inc. 1999 Stock Option and Performance Incentive Plan
(the "Stock Option and Performance Incentive Plan")
o the Too, Inc. 1999 Stock Plan for Non-Associate Directors (the
"Non-Associate Director Stock Plan")
The Incentive Compensation Performance Plan is intended to
satisfy the applicable provisions of Section 162(m) of the Internal Revenue
Code. Awards will be based on the satisfaction of performance goals, and annual
incentive compensation targets established for eligible executives will range
from 10% to 150% of base salary.
Under the Stock Option and Performance Incentive Plan and the
Non-Associate Director Stock Plan, eligible directors and executive and key
management associates may be granted stock options and other incentive awards
to purchase shares of the Company's common stock. Each option will vest over
four to six years and will have a maximum term of ten years from the grant
date.
Distribution Agreement and Other Agreements
In connection with the spin-off, the Company, The Limited
and/or their respective subsidiaries will enter into a distribution agreement
and various transitional services and separation agreements, including a store
leases agreement, trademark and service mark licensing agreement, a services
agreement, a tax separation agreement and an amendment to an existing building
lease agreement.
Excluding the store leases agreement, amounts to be charged
under the new transitional services and separation agreements are not expected
to be materially different than amounts charged by The Limited prior to the
date of the spin-off. Since amounts to be charged under the stores leases
agreement will be contingently payable based upon positive comparable store
sales performance, it is anticipated that any amounts due will not have a
material adverse impact on liquidity, financial condition or results of
operations.
TOO, INC.
Item 15. Exhibits.
Exhibit
Number Description
------- -----------
2.1 Form of Distribution Agreement between The Limited, Inc. and
Too, Inc.
3.1 Amended and Restated Certificate of Incorporation of Too, Inc.
3.2 Amended and restated Bylaws of Too, Inc.
4.1 Specimen Certificate of Common Stock of Too, Inc.*
10.1 Form of Credit Agreement among the Too, Inc., the banks listed in
the Credit Agreement and Morgan Guaranty Trust Company of New
York, as Agent.*
10.2 Form of Store Leases Agreement by and among The Limited Stores,
Inc., Victoria Secret Stores, Inc., Lerner New York, Inc.,
Express, LLC, Structure, Inc., The Limited, Inc. and Too, Inc.
10.3 Form of Trademark and Service Mark Licensing Agreement between
Limco, Inc. and LimToo, Inc.*
10.4 Form of Services Agreement by and between The Limited, Inc. and
Too, Inc.*
10.5 Form of Tax Separation Agreement between The Limited, Inc., on
behalf of itself and the members of The Limited Group, and Too,
Inc., on behalf of itself and the members of the Too Group.
10.6 Building Lease Agreement dated July 1, 1995 by and between
Distribution Land Corp. and Limited Too, Inc., the predecessor
company of Too, Inc.
10.7 Form of Amendment to Building Lease Agreement between Distribution
Land Corp. and Too, Inc.*
10.8 Form of Too, Inc. 1999 Incentive Compensation Performance Plan.
10.9 Form of Too, Inc. 1999 Stock Option and Performance Incentive
Plan.
10.10 Form of Too, Inc. 1999 Stock Plan for Non-Associate Directors.
11.1 Statement regarding computation of per share earnings.*
21.1 Subsidiaries of Too, Inc.
- ------------
* To be filed by amendment or on a Form 8-K.
TOO, INC.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
TOO, INC.
By: /s/ Kent A. Kleeberger
---------------------------------
Name: Kent A. Kleeberger
Title: Vice President and
Chief Financial Officer
Date: June 28, 1999
Exhibit 2.1
FORM OF
DISTRIBUTION AGREEMENT
between
The Limited, Inc.,
and
Too, Inc.
------------------------------------
Dated as of _________, 1999
1
<PAGE>
TABLE OF CONTENTS
----------------------
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions....................................................1
ARTICLE 2
CONTRIBUTIONS TO TOO, INC.
SECTION 2.01. Contribution of Contributed Subsidiaries.......................5
SECTION 2.02. Transfers of Certain Assets; Assumption of Certain
Liabilities..................................................5
SECTION 2.03. Agreement Relating To Consents Necessary To Transfer
Assets.......................................................7
ARTICLE 3
THE DISTRIBUTION
SECTION 3.01. Cooperation Prior to the Distribution..........................7
SECTION 3.02. The Limited Board Action; Conditions Precedent to the
Distribution.................................................8
SECTION 3.03. The Distribution...............................................9
SECTION 3.04. Subdivision of Too, Inc. Common Stock to Accomplish the
Distribution.................................................9
SECTION 3.05. Fractional Shares..............................................9
ARTICLE 4
INDEMNIFICATION
SECTION 4.01. Too, Inc. Indemnification of The Limited Group................10
SECTION 4.02. The Limited Indemnification of Too, Inc. Group................10
SECTION 4.03. Insurance; Third Party Obligations; Tax Benefits..............11
SECTION 4.04. Notice and Payment of Claims..................................11
SECTION 4.05. Notice and Defense of Third-Party Claims......................12
SECTION 4.06. Contribution..................................................13
SECTION 4.07. Non-Exclusivity of Remedies...................................13
ARTICLE 5
EMPLOYEE MATTERS
SECTION 5.01. Employee Matters Generally....................................13
SECTION 5.02. Restriction on Solicitation or Employment of Employees........13
i
<PAGE>
PAGE
ARTICLE 6
ACCESS TO INFORMATION
SECTION 6.01. Provision of Corporate Records................................14
SECTION 6.02. Access to Information.........................................14
SECTION 6.03. Litigation Cooperation........................................14
SECTION 6.04. Reimbursement.................................................14
SECTION 6.05. Retention of Records..........................................15
SECTION 6.06. Confidentiality...............................................15
SECTION 6.07. Inapplicability of Article to Tax Matters....................15
ARTICLE 7
CERTAIN OTHER AGREEMENTS
SECTION 7.01. Intercompany Accounts.........................................16
SECTION 7.02. Certain Rights Upon a Third Party Obtaining Above a
Specified Ownership Level of Too, Inc. Common Stock.........16
SECTION 7.03. Further Assurances and Consents...............................16
ARTICLE 8
MISCELLANEOUS
SECTION 8.01. Notices.......................................................17
SECTION 8.02. Amendments; No Waivers........................................18
SECTION 8.03. Expenses......................................................18
SECTION 8.04. Successor and Assigns.........................................18
SECTION 8.05. Governing Law.................................................18
SECTION 8.06. Counterparts; Effectiveness...................................18
SECTION 8.07. Entire Agreement..............................................19
SECTION 8.08. Tax Separation Agreement; Set-Off; Payment of After-Tax
Amounts.....................................................19
SECTION 8.09. Jurisdiction..................................................20
SECTION 8.10. Existing Arrangements.........................................20
SECTION 8.11. Termination Prior to the Distribution.........................20
SECTION 8.12. Termination After the Distribution............................20
SECTION 8.13. Captions......................................................20
Schedule 2.01 -- Contributed Subsidiaries
Schedule 5.01 -- Employee Matters
Schedule 7.01 -- Intercompany Accounts
ii
<PAGE>
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT dated as of ___________, 1999 (the
"Agreement") between The Limited, Inc., a Delaware corporation ("The
Limited"), and Too, Inc., a Delaware corporation ("Too, Inc.").
W I T N E S S E T H:
WHEREAS, Too, Inc. is presently a wholly owned subsidiary of The
Limited;
WHEREAS, the Board of Directors of The Limited has determined that it
is in the best interest of The Limited, its shareholders and Too, Inc. that
all shares of Too, Inc. Common Stock owned by The Limited be distributed pro
rata to The Limited's shareholders;
WHEREAS, The Limited and Too, Inc. are concurrently herewith entering
into the Tax Separation Agreement; and
WHEREAS, the parties hereto desire to set forth herein the principal
corporate transactions to be effected in connection with the Distribution (as
defined below) and certain other matters relating to the relationship and the
respective rights and obligations of the parties following the Distribution.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have
the following meanings:
"Action" means any claim, suit, action, arbitration, inquiry,
investigation or other proceeding by or before any court, governmental or
other regulatory or administrative agency or commission or any other tribunal.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with, such
other Person. For the purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting
<PAGE>
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Ancillary Agreement" means each of the Tax Separation Agreement, the
Services Agreement, the Store Leases Agreement, the Building Lease Amendment
and the Trademark and Service Mark Licensing Agreement.
"Building Lease Amendment" means the Amendment, dated as of the
date hereof, to the Building Lease Agreement dated as of July 1, 1995 between
Distribution Land Corp. and Too, Inc.
"Commission" means the Securities and Exchange Commission.
"Distribution" means a distribution by The Limited on the
Distribution Date of all Too, Inc. Common Stock owned by it to the holders of
The Limited Common Stock as of the Record Date.
"Distribution Agent" means Equiserve, First Chicago Division.
"Distribution Date" means the day as of which the Distribution shall be
effected.
"Distribution Documents" means all of the agreements and other
documents entered into in connection with the Distribution as contemplated
hereby, including, without limitation, this Agreement and the other Ancillary
Agreements.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, permits, licenses and governmental
restrictions, whether now or hereafter in effect, relating to the environment,
the effect of the environment on human health or to emissions, discharges,
releases, manufacturing, storage, processing, distribution, use, treatment,
disposal, transportation or handling of pollutants, contaminants, petroleum or
petroleum products, chemicals or industrial, toxic, radioactive or hazardous
substances or wastes or the clean-up or other remediation thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Finally Determined" means, with respect to any Action or other
matter, that the outcome or resolution of such Action or matter has been
judicially determined by judgment or order not subject to further appeal or
discretionary review.
2
<PAGE>
"Form 10" means the registration statement on Form 10 filed by Too,
Inc. with the Commission on May 4, 1999 to effect the registration of Too,
Inc. Common Stock pursuant to the Exchange Act in connection with the
Distribution, as such registration statement may be amended from time to time.
"Group" means, as the context requires, the Too, Inc. Group or The
Limited Group.
"Indemnified Party" has the meaning set forth in Section 4.04.
"Indemnifying Party" has the meaning set forth in Section 4.04.
"Information Statement" means the information statement to be sent to
each holder of The Limited Common Stock in connection with the Distribution.
"IRS" means the Internal Revenue Service.
"Liabilities" means any and all claims, debts, liabilities and
obligations, absolute or contingent, matured or not matured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including all costs and expenses relating thereto, and including, without
limitation, those debts, liabilities and obligations arising under this
Agreement, any law, rule, regulation, any action, order, injunction or consent
decree of any governmental agency or entity, or any award of any arbitrator of
any kind, and those arising under any agreement, commitment or undertaking.
"Losses" means, with respect to any Person, any and all damage, loss,
liability and expense incurred or suffered by such Person (including, without
limitation, reasonable expenses of investigation and reasonable attorneys'
fees and expenses in connection with any and all Actions or threatened
Actions).
"Person" means an individual, corporation, limited liability company,
partnership, association, trust or other entity or organization, including a
governmental or political subdivision or an agency or instrumentality thereof.
"Record Date" means the date determined by The Limited's Board of
Directors (or determined by a committee of such Board of Directors pursuant to
authority delegated to such committee by The Limited's Board of Directors) as
the record date for determining the holders of The Limited Common Stock
entitled to receive the Distribution.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
3
<PAGE>
"Services Agreement" means the Services Agreement dated as of the
date hereof between The Limited and Too, Inc.
"Store Leases Agreement" means the Store Leases Agreement dated as
of the date hereof between The Limited Stores, Inc. and Too, Inc.
"Subsidiary" means, with respect to any Person, any other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Tax" means Tax as such term is defined in the Tax Separation
Agreement.
"Tax Separation Agreement" means the Tax Separation Agreement dated
as of the date hereof between The Limited and Too, Inc.
"The Limited Common Stock" means the common stock, par value fifty
cents ($.50) per share, of The Limited.
"The Limited Group" means The Limited and its Subsidiaries (other than
any Subsidiary or member of, or other entity in, the Too, Inc. Group).
"The Limited Liabilities" means all (i) Liabilities of The Limited
Group under this Agreement and (ii) except as otherwise specifically provided
herein or in any Ancillary Agreements, other Liabilities, whether arising
before, on or after the Distribution Date, of or relating to The Limited Group
or arising from or in connection with the conduct of the businesses of The
Limited Group (other than the Too, Inc. Business) or the ownership or use of
assets in connection therewith, including without limitation any Liabilities
arising under or relating to Environmental Laws. Notwithstanding the
foregoing, "The Limited Liabilities" shall exclude (x) any Liabilities for
Taxes (since such Liabilities shall be governed by the Tax Separation
Agreement) and (y) any Liabilities specifically retained or assumed by Too,
Inc. pursuant to this Agreement.
"Third-Party Claim" has the meaning set forth in Section 4.05.
"Too, Inc. Business" means the business of Too, Inc. and its
Subsidiaries as at the date hereof, including the manufacture, packaging,
advertising, promotion and sale of apparel, accessories, lifestyle and
personal care products for girls approximately 7 to 14 years of age.
"Too, Inc. Common Stock" means the common stock, par value $.01 per
share, of Too, Inc.
4
<PAGE>
"Too, Inc. Group" means Too, Inc. and its Subsidiaries as of and after
the Distribution Date (including all predecessors to such Persons).
"Too, Inc. Liabilities" means all (i) Liabilities of the Too, Inc.
Group under this Agreement, (ii) except as otherwise specifically provided
herein or in any Ancillary Agreement, other Liabilities, whether arising
before, on or after the Distribution Date, of or relating to the Too, Inc.
Group or arising from or in connection with the conduct of the Too, Inc.
Business or the ownership or use of assets in connection therewith, including
without limitation any Liabilities arising under or relating to Environmental
Laws, and (iii) Liabilities of the Too, Inc. Group set forth in Schedule 5.01
hereto. Notwithstanding the foregoing, "Too, Inc. Liabilities" shall exclude:
(x) any Liabilities for Taxes (since such Liabilities shall be governed by the
Tax Separation Agreement) and (y) any Liabilities specifically retained or
assumed by The Limited pursuant to this Agreement.
"Trademark and Service Mark Licensing Agreement" means the Trademark
and Service Mark Licensing Agreement dated as of the date hereof between The
Limited and Too, Inc.
ARTICLE 2
CONTRIBUTIONS TO TOO, INC.
SECTION 2.01. Contribution of Contributed Subsidiaries. Effective
prior to or as of the Distribution Date, The Limited shall contribute or
transfer to Too, Inc. or to one or more wholly owned Subsidiaries of Too, Inc.
all the outstanding shares of capital stock of, or other ownership interests
in, each of the subsidiaries set forth in Schedule 2.01 hereto.
SECTION 2.02. Transfers of Certain Assets; Assumption of Certain
Liabilities. (a) Effective prior to or as of the Distribution Date or as soon
as practicable after the Distribution Date, subject to receipt of any
necessary consents or approvals of third parties or of governmental or
regulatory agencies or authorities and subject to Section 7.03, (i) The
Limited shall, or shall cause the relevant member of The Limited Group to,
assign, contribute, convey, transfer and deliver ("Transfer") to Too, Inc. or
to one or more of Too, Inc.'s wholly owned Subsidiaries all of the right,
title and interest of The Limited or such member of The Limited Group in and
to all assets held by any member of The Limited Group that relate solely to
the Too, Inc. Business (and not to the businesses of The Limited Group) and
Too, Inc. shall assume and take transfer of all liabilities associated with
such assets, and (ii) Too, Inc. shall, or shall cause the relevant member of
the Too, Inc. Group to, Transfer to The Limited or to one or more members of
The Limited Group all of the right, title and interest of Too, Inc.
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or such member of the Too, Inc. Group in and to all assets held by any member
of the Too, Inc. Group that relate solely to the businesses of The Limited
Group (and not to the Too, Inc. Business) and The Limited shall assume and
take transfer of all liabilities associated with such assets.
(b) Without limiting the generality of Section 2.02(a), Too, Inc.
agrees that any rights, claims and refunds that relate to any period ending on
or before the Distribution Date and related to the real estate currently
leased or subleased or previously leased or subleased by any member of The
Limited Group or the Too, Inc. Group are assets relating solely to The Limited
Business and Too, Inc. shall have no rights or claims in respect thereof, and
The Limited or any member of The Limited Group shall have exclusive authority
to negotiate and prosecute such rights, claims and refunds.
(c) Effective as of the time of Transfer of any asset by The Limited
Group to the Too, Inc. Group pursuant to Section 2.02(a), the Too, Inc. Group
shall assume all Tax liabilities attributable to such asset and the businesses
related thereto (to the extent attributable to the Too, Inc. Business) in
respect of all periods prior to such time.
(d) Without limiting the generality of Section 2.02(a), Too, Inc.
shall assume its ratable share of any judgment or settlement ultimately
reached in respect of any claims asserted against Too, Inc. or any member of
the Too, Inc. Group, whether arising prior to or after the Distribution Date,
including without limitation any claims for which The Limited or any member of
The Limited Group may be found jointly and severally liable with Too, Inc. or
any member of the Too, Inc. Group. For purposes hereof, Too, Inc.'s ratable
share of any judgment or settlement shall be deemed to be the portion of any
judgment or settlement for which Too, Inc. and any member of the Too, Inc.
Group are determined to be liable by a court of competent jurisdiction or if
no such apportionment is made, Too, Inc.'s ratable share shall be (unless
otherwise agreed to between Too, Inc. and The Limited) the Too, Inc. Group's
proportionate share of Too, Inc. Group's and The Limited Group's combined
sales (as measured by revenue) of the products or services to which the
judgment or settlement relates during the period to which such judgment or
settlement relates.
SECTION 2.03. Agreement Relating To Consents Necessary To Transfer
Assets. Notwithstanding anything in this Agreement to the contrary, this
Agreement shall not constitute an agreement to transfer or assign any asset or
any claim or right or any benefit arising thereunder or resulting therefrom if
an attempted assignment thereof, without the necessary consent of a third
party, would constitute a breach or other contravention thereof or in any way
adversely affect the rights of Too, Inc. or The Limited thereunder. Too, Inc.
and The Limited will, subject to Section 7.03, use their reasonable efforts to
obtain the
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consent of any third party or any governmental or regulatory agency or
authority, if any, required in connection with the transfer or assignment
pursuant to Section 2.02 of any such asset or any claim or right or any
benefit arising thereunder. If such required consent is not obtained, or if an
attempted assignment thereof would be ineffective or would adversely affect
the rights of the transferor thereunder so that the intended transferee would
not in fact receive all such rights, Too, Inc. and The Limited will cooperate
in a mutually agreeable arrangement under which the intended transferee would
obtain the benefits and assume the obligations thereunder in accordance with
this Agreement, including sub-contracting, sub- licensing or sub-leasing to
such transferee, or under which the transferor would enforce for the benefit
of the transferee, with the transferee assuming the transferor's obligations,
any and all rights of the transferor against a third party thereto.
ARTICLE 3
THE DISTRIBUTION
SECTION 3.01. Cooperation Prior to the Distribution. (a) The Limited
and Too, Inc. shall prepare, and Too, Inc. shall file with the Commission, the
Form 10, which shall include or incorporate by reference the Information
Statement which shall set forth appropriate disclosure concerning Too, Inc.
and the Distribution. The Limited and Too, Inc. shall use reasonable efforts
to cause the Form 10 to become effective under the Exchange Act as soon as
practicable. After the Form 10 has become effective, The Limited shall mail
the Information Statement to the holders of The Limited Common Stock as of the
Record Date.
(b) The Limited and Too, Inc. shall cooperate in preparing, filing
with the Commission and causing to become effective any registration
statements or amendments thereto that are appropriate to reflect the
establishment of or amendments to any employee benefit and other plans
contemplated by this Agreement.
(c) The Limited and Too, Inc. shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement.
(d) Too, Inc. shall prepare, file and pursue an application to
permit listing of the Too, Inc. Common Stock on the New York Stock Exchange
("NYSE").
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SECTION 3.02. The Limited Board Action; Conditions Precedent to the
Distribution. The Limited's Board of Directors shall, in its discretion,
establish (or delegate authority to establish) the Record Date and the
Distribution Date and any appropriate procedures in connection with the
Distribution. In no event shall the Distribution occur unless the following
conditions shall have been waived by The Limited or shall have been satisfied:
(i) the Form 10 shall have become effective under the Exchange
Act;
(ii) the Too, Inc. Common Stock to be delivered in the
Distribution shall have been approved for listing on the NYSE,
subject to official notice of issuance;
(iii) the Board of Directors of The Limited shall be satisfied that
the Distribution will be made out of surplus within the meaning of
Section 170 of the General Corporation Law of the State of Delaware;
(iv) The Limited's Board of Directors shall have approved the
Distribution and shall not have abandoned, deferred or modified the
Distribution at any time prior to the Record Date;
(v) the contributions referred to in Section 2.01 of this
Agreement shall have been effected;
(vi) Too, Inc.'s Board of Directors, as named in the Information
Statement, shall have been elected by The Limited, as sole
stockholder of Too, Inc., and Too, Inc.'s certificate of
incorporation (the "Restated Too, Inc. Charter") and bylaws, in
substantially the forms attached as Exhibits A and B, respectively,
hereto shall be in effect;
(vii) each of the Ancillary Agreements shall have been duly
executed and delivered by the parties thereto;
(viii) The Limited shall have received an opinion of Davis Polk &
Wardwell as to the tax-free nature of the Distribution; and
(ix) a credit facility shall have been made available to Too,
Inc. by its lenders on terms and in an amount satisfactory to The
Limited and Too, Inc.
SECTION 3.03. The Distribution. Subject to the terms and conditions
set forth in this Agreement, (i) prior to the Distribution Date, The Limited
shall deliver to the Distribution Agent for the benefit of holders of record
of The
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Limited Common Stock on the Record Date, a stock certificate or certificates,
endorsed by The Limited in blank, representing all of the then outstanding
shares of Too, Inc. Common Stock owned by The Limited, (ii) the Distribution
shall be effective on the Distribution Date and (iii) The Limited shall
instruct the Distribution Agent to distribute, on or as soon as practicable
after the Distribution Date, to each holder of record of The Limited Common
Stock as of the Record Date ____ shares of Too, Inc. Common Stock for each one
share of The Limited Common Stock so held. Too, Inc. agrees to provide all
certificates for shares of Too, Inc. Common Stock that The Limited shall
require (after giving effect to Section 3.04) in order to effect the
Distribution.
SECTION 3.04. Subdivision of Too, Inc. Common Stock to Accomplish the
Distribution. Effective upon the filing of the Restated Too, Inc. Charter with
the Secretary of State of the State of Delaware, each share of Too, Inc.
Common Stock then issued and outstanding shall, without any action on the part
of the holder thereof, be subdivided and converted into that number of fully
paid and non-assessable shares of Too, Inc. Common Stock issued and
outstanding equal to the number of shares of The Limited Common Stock
outstanding on the Record Date (excluding shares of restricted stock held by
The Limited employees expected to remain The Limited employees after the
Distribution) times ____ divided by the number of shares of Too, Inc. Common
Stock outstanding immediately prior to such filing.
SECTION 3.05. Fractional Shares. No certificates representing
fractional shares of Too, Inc. Common Stock will be distributed in the
Distribution. The Distribution Agent will be directed to determine the number
of whole shares and fractional shares of Too, Inc. Common Stock allocable to
each holder of The Limited Common Stock as of the Record Date. Upon the
determination by the Distribution Agent of such number of fractional shares,
as soon as practicable after the Distribution Date, the Distribution Agent,
acting on behalf of the holders thereof, shall sell such fractional shares for
cash on the open market and shall disburse to each holder entitled thereto the
appropriate portion of the resulting cash proceeds (calculated by multiplying
the average gross selling price per share times the number of fractional
shares allocable to such holder). The Limited shall bear the cost of all
commissions incurred in connection with the sale of fractional shares pursuant
to this Section 3.05.
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ARTICLE 4
INDEMNIFICATION
SECTION 4.01. Too, Inc. Indemnification of The Limited Group. (a)
Subject to Section 4.03, on and after the Distribution Date, Too, Inc. shall
indemnify, defend and hold harmless The Limited Group and the respective
directors, officers and Affiliates of each Person in The Limited Group (the "The
Limited Indemnitees") from and against any and all Losses incurred or suffered
by any of The Limited Indemnitees arising out of, or due to the failure of any
Person in the Too, Inc. Group to pay, perform or otherwise discharge, any of the
Too, Inc. Liabilities.
(b) Subject to Section 4.03, Too, Inc. shall indemnify, defend and
hold harmless each of The Limited Indemnitees and each Person, if any, who
controls any The Limited Indemnitee within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act from and against any and
all Losses caused by any untrue statement or alleged untrue statement of a
material fact contained in the Form 10 or any amendment thereof or the
Information Statement (as amended or supplemented if Too, Inc. shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except insofar as such Losses are caused by any such
untrue statement or omission or alleged untrue statement or omission based
upon information furnished to Too, Inc. in writing by The Limited expressly
for use therein.
SECTION 4.02. The Limited Indemnification of Too, Inc. Group. (a)
Subject to Section 4.03, on and after the Distribution Date, The Limited shall
indemnify, defend and hold harmless the Too, Inc. Group and the respective
directors, officers and Affiliates of each Person in the Too, Inc. Group (the
"Too, Inc. Indemnitees") from and against any and all Losses incurred or
suffered by any of the Too, Inc. Indemnitees and arising out of, or due to the
failure of any Person in The Limited Group to pay, perform or otherwise
discharge, any of The Limited Liabilities.
(b) Subject to Section 4.03, The Limited shall indemnify, defend and
hold harmless each of the Too, Inc. Indemnitees and each Person, if any, who
controls any Too, Inc. Indemnitee within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act from and against any and
all Losses caused by any untrue statement or alleged untrue statement of a
material fact contained in the Form 10 or any amendment thereof or the
Information Statement (as amended or supplemented if Too, Inc. shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein,
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<PAGE>
in the light of the circumstances under which they were made, not misleading,
in each case to the extent, but only to the extent, that such Losses are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information furnished to Too, Inc. in writing by The
Limited expressly for use therein.
SECTION 4.03. Insurance; Third Party Obligations; Tax Benefits. Any
indemnification pursuant to Sections 4.01 or 4.02 shall be paid net of the
amount of any insurance or other amounts that would be payable by any third
party to the Indemnified Party (as defined below) in the absence of this
Agreement (irrespective of time of receipt of such insurance or other amounts)
and net of any tax benefit to the Indemnified Party attributable to the
relevant payment or Liability. Such indemnification shall be increased to
reflect any tax liability of the indemnified party so that the indemnified
party receives 100% of the after-tax amount of any payment or liability. It is
expressly agreed that no insurer or any other third party shall be (i)
entitled to a benefit it would not be entitled to receive in the absence of
the foregoing indemnification provisions, (ii) relieved of the responsibility
to pay any claims to which it is obligated or (iii) entitled to any
subrogation rights with respect to any obligation hereunder.
SECTION 4.04. Notice and Payment of Claims. If any The Limited
Indemnitee or Too, Inc. Indemnitee (the "Indemnified Party") determines that
it is or may be entitled to indemnification by any party (the "Indemnifying
Party") under Article 4 (other than in connection with any Action subject to
Section 4.05), the Indemnified Party shall deliver to the Indemnifying Party a
written notice specifying, to the extent reasonably practicable, the basis for
its claim for indemnification and the amount for which the Indemnified Party
reasonably believes it is entitled to be indemnified. Within 30 days after
receipt of such notice, the Indemnifying Party shall pay the Indemnified Party
such amount in cash or other immediately available funds unless the
Indemnifying Party objects to the claim for indemnification or the amount
thereof. If the Indemnifying Party does not give the Indemnified Party written
notice objecting to such indemnity claim and setting forth the grounds
therefor within such 30-day period, the Indemnifying Party shall be deemed to
have acknowledged its liability for such claim and the Indemnified Party may
exercise any and all of its rights under applicable law to collect such
amount. In the event of such a timely objection by the Indemnifying Party, the
amount, if any, that is Finally Determined to be required to be paid by the
Indemnifying Party in respect of such indemnity claim shall be paid by the
Indemnifying Party to the Indemnified Party in cash within 15 days after such
indemnity claim has been so Finally Determined.
SECTION 4.05. Notice and Defense of Third-Party Claims. Promptly
following the earlier of (i) receipt of notice of the commencement by a third
party of any Action against or otherwise involving any Indemnified Party or
(ii) receipt
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of information from a third party alleging the existence of a claim against an
Indemnified Party, in either case, with respect to which indemnification may
be sought pursuant to this Agreement (a "Third-Party Claim"), the Indemnified
Party shall give the Indemnifying Party written notice thereof. The failure of
the Indemnified Party to give notice as provided in this Section 4.05 shall
not relieve the Indemnifying Party of its obligations under this Agreement,
except to the extent that the Indemnifying Party is prejudiced by such failure
to give notice. Within 15 days after receipt of such notice, the Indemnifying
Party may (i) by giving written notice thereof to the Indemnified Party,
acknowledge liability for such indemnification claim and at its option elect
to assume the defense of such Third-Party Claim at its sole cost and expense
or (ii) object to the claim for indemnification set forth in the notice
delivered by the Indemnified Party pursuant to the first sentence of this
Section 4.05; provided that if the Indemnifying Party does not within such
15-day period give the Indemnified Party written notice objecting to such
indemnification claim and setting forth the grounds therefor, the Indemnifying
Party shall be deemed to have acknowledged its liability for such
indemnification claim. If the Indemnifying Party has elected to assume the
defense of a Third-Party Claim, (x) the defense shall be conducted by counsel
retained by the Indemnifying Party and reasonably satisfactory to the
Indemnified Party, provided that the Indemnified Party shall have the right to
participate in such proceedings and to be represented by counsel of its own
choosing at the Indemnified Party's sole cost and expense; and (y) the
Indemnifying Party may settle or compromise the Third Party Claim without the
prior written consent of the Indemnified Party so long as such settlement
includes an unconditional release of the Indemnified Party from all claims
that are the subject of such Third Party Claim, provided that the Indemnifying
Party may not agree to any such settlement pursuant to which any remedy or
relief, other than monetary damages for which the Indemnifying Party shall be
responsible hereunder, shall be applied to or against the Indemnified Party,
without the prior written consent of the Indemnified Party, which consent
shall not be unreasonably withheld. If the Indemnifying Party does not assume
the defense of a Third-Party Claim for which it has acknowledged liability for
indemnification hereunder, the Indemnified Party may require the Indemnifying
Party to reimburse it on a current basis for its reasonable expenses of
investigation, reasonable attorney's fees and reasonable out-of-pocket
expenses incurred in defending against such Third-Party Claim and the
Indemnifying Party shall be bound by the result obtained with respect thereto
by the Indemnified Party; provided that the Indemnifying Party shall not be
liable for any settlement effected without its consent, which consent shall
not be unreasonably withheld. The Indemnifying Party shall pay to the
Indemnified Party in cash the amount, if any, for which the Indemnified Party
is entitled to be indemnified hereunder within 15 days after such Third Party
Claim has been Finally Determined, in the case of an indemnity claim as to
which the Indemnifying Party has acknowledged liability or, in the case of any
indemnity claim as to which the Indemnifying Party has not acknowledged
liability, within
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15 days after such Indemnifying Party's objection to liability hereunder has
been Finally Determined.
SECTION 4.06. Contribution. If for any reason the indemnification
provided for in Section 4.01 or 4.02 is unavailable to any Indemnified Party,
or insufficient to hold it harmless, then the Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses in such proportion as is appropriate to reflect all relevant
equitable considerations.
SECTION 4.07. Non-Exclusivity of Remedies. The remedies provided for
in this Article 4 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any Indemnified Party at law or in equity.
ARTICLE 5
EMPLOYEE MATTERS
SECTION 5.01. Employee Matters Generally. With respect to employee
matters and employee benefits arrangements, the parties hereto agree as set
forth in Schedule 5.01.
SECTION 5.02. Restriction on Solicitation or Employment of Employees.
For a period of three years following the Distribution Date, each of The
Limited Group and the Too, Inc. Group agrees that (without the prior written
consent of the other) it will not, directly or indirectly, (i) solicit or
otherwise attempt to induce or influence any associate of the other Group to
leave employment with his or her then-current employer or (ii) employ any
exempt or salaried associate of the
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other Group other than any such associates who were assigned solely to a
single store location; provided that any and all (x) non exempt labor and (y)
their related or associated supervisory exempt associates assigned to Too,
Inc.'s distribution center services shall be made available to Too, Inc.upon
Too, Inc.'s request and upon completion of its own distribution facilities
located in Columbus, Ohio or the surrounding area.
ARTICLE 6
ACCESS TO INFORMATION
SECTION 6.01. Provision of Corporate Records. Immediately prior to or
as soon as practicable following the Distribution Date, each Group shall
provide to the other Group all documents, contracts, books, records and data
(including but not limited to minute books, stock registers, stock
certificates and documents of title) in its possession relating to such other
Group or such other Group's business and affairs; provided that if any such
documents, contracts, books, records or data relate to both Groups or the
business and operations of both Groups, each such Group shall provide to the
other Group true and complete copies of such documents, contracts, books,
records or data.
SECTION 6.02. Access to Information. From and after the Distribution
Date, each Group shall, for a reasonable period of time, afford promptly to
the other Group and its accountants, counsel and other designated
representatives reasonable access during normal business hours to all
documents, contracts, books, records, computer data and other data in such
Group's possession relating to such other Group or the business and affairs of
such other Group (other than data and information subject to an
attorney/client or other privilege), insofar as such access is reasonably
required by such other Group, including, without limitation, for audit,
accounting, litigation, regulatory compliance and disclosure and reporting
purposes.
SECTION 6.03. Litigation Cooperation. Each Group shall use reasonable
efforts to make available to the other Group and its accountants, counsel, and
other designated representatives, upon written request, its directors,
officers, employees and representatives as witnesses, and shall otherwise
cooperate with the other Group, to the extent reasonably required in
connection with any legal, administrative or other proceedings arising out of
either Group's business and operations prior to the Distribution Date in which
the requesting party may from time to time be involved.
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SECTION 6.04. Reimbursement. Each Group providing information or
witnesses to the other Group, or otherwise incurring any expense in connection
with cooperating, under Sections 6.01, 6.02 or 6.03 shall be entitled to
receive from the recipient thereof, upon the presentation of invoices
therefor, payment for all out-of-pocket costs and expenses as may be
reasonably incurred in providing such information, witnesses or cooperation.
SECTION 6.05. Retention of Records. Except as otherwise required by
law or agreed to in writing, each party shall, and shall cause the members of
its respective Group to, retain all information relating to the other Group's
business and operations in accordance with the past practice of such party.
Notwithstanding the foregoing, any party may destroy or otherwise dispose of
any such information at any time, provided that, prior to such destruction or
disposal, (i) such party shall provide not less than 90 days' prior written
notice to the other party, specifying the information proposed to be destroyed
or disposed of, and (ii) if the recipient of such notice shall request in
writing prior to the scheduled date for such destruction or disposal that any
of the information proposed to be destroyed or disposed of be delivered to
such requesting party, the party proposing the destruction or disposal shall
promptly arrange for the delivery of such of the information as was requested
at the expense of the requesting party.
SECTION 6.06. Confidentiality. Each party shall hold and shall cause
its directors, officers, employees, agents, consultants and advisors
("Representatives") to hold in strict confidence all information (other than
any such information relating solely to the business or affairs of such party)
concerning the other party unless (i) such party is compelled to disclose such
information by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law or (ii) such information can be shown to
have been (A) in the public domain through no fault of such party or (B)
lawfully acquired after the Distribution Date on a non-confidential basis from
other sources. Notwithstanding the foregoing, such party may disclose such
information to its Representatives so long as such Persons are informed by
such party of the confidential nature of such information and are directed by
such party to treat such information confidentially. If such party or any of
its Representatives becomes legally compelled to disclose any documents or
information subject to this Section, such party will promptly notify the other
party so that the other party may seek a protective order or other remedy or
waive such party's compliance with this Section. If no such protective order
or other remedy is obtained or waiver granted, such party will furnish only
that portion of the information which it is advised by counsel is legally
required and will exercise its reasonable efforts to obtain reliable assurance
that confidential treatment will be accorded such information. Such party
agrees to be responsible for any breach of this Section by it and its
Representatives.
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SECTION 6.07. Inapplicability of Article 6 to Tax Matters.
Notwithstanding anything to the contrary in Article 6, Article 6 shall not
apply with respect to information, records and other matters relating to
Taxes, all of which shall be governed by the Tax Separation Agreement.
ARTICLE 7
CERTAIN OTHER AGREEMENTS
SECTION 7.01. Intercompany Accounts. All intercompany receivable,
payable and loan balances in existence as of the Distribution Date between The
Limited Group and Too, Inc. Group will be eliminated as provided in Schedule
7.01 hereto.
SECTION 7.02. Certain Rights Upon a Third Party Obtaining Above a
Specified Ownership Level of Too, Inc. Common Stock. No Person or group
(within the meaning of Section 13(d) under the Exchange Act) of Persons shall
become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 35% of the Too, Inc. Common Stock unless (i) The
Limited shall have received prior written notice that such Person or group
proposes to acquire beneficial ownership of more than 35% of the Too, Inc.
Common Stock and (ii) prior to such acquisition such Person or group provides
to The Limited (unless waived by The Limited in writing) a guarantee, in form
and substance acceptable to The Limited, of the obligations of Too, Inc. and
the Too, Inc. Group under this Distribution Agreement and each Ancillary
Agreement.
SECTION 7.03. Further Assurances and Consents. In addition to the
actions specifically provided for elsewhere in this Agreement, each of the
parties hereto shall use its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things, reasonably necessary,
proper or advisable under applicable laws, regulations and agreements or
otherwise to consummate and make effective the transactions contemplated by
this Agreement, including but not limited to using its reasonable efforts to
obtain any consents and approvals and to make any filings and applications
necessary or desirable in order to consummate the transactions contemplated by
this Agreement; provided that no party hereto shall be obligated to pay any
consideration therefor (except for filing fees and other similar charges) to
any third party from whom such consents or approvals are requested or to take
any action or omit to take any action if the taking of or the omission to take
such action would be unreasonably burdensome to the party, its Group or its
Group's business.
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ARTICLE 8
MISCELLANEOUS
SECTION 8.01. Notices. All notices and other communications to any
party hereunder shall be in writing (including telecopy or similar writing)
and shall be deemed given when received addressed as follows:
If to The Limited, to:
The Limited, Inc.
Three Limited Parkway
Columbus, OH 43230
Telecopy: (614) 415-7188
Attention: Samuel P. Fried
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
Attention: Dennis S. Hersch
If to Too, Inc., to:
Too, Inc.
3885 Morse Road
Columbus, OH 43219
Telecopy: (614) 479-3610
Attention: Kent A. Kleeberger
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
Attention: Dennis S. Hersch
Any party may, by written notice so delivered to the other parties,
change the address to which delivery of any notice shall thereafter be made.
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SECTION 8.02. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver
is in writing and signed, in the case of an amendment, by The Limited and Too,
Inc., or in the case of a waiver, by the party against whom the waiver is to
be effective.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of
any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by
law.
SECTION 8.03. Expenses. Except as specifically provided otherwise in
this Agreement or any Ancillary Agreement, all costs and expenses incurred in
connection with the preparation, execution and delivery of the Distribution
Documents and the consummation of the Distribution and the other transactions
contemplated hereby (including the fees and expenses of all counsel,
accountants and financial and other advisors of both Groups in connection
therewith, and all expenses in connection with preparation, filing and
printing of the Form 10 and the Information Statement) shall be paid by The
Limited; provided that Too, Inc. shall be responsible for and pay the fees,
expenses and other amounts payable to the lenders under Too, Inc.'s credit
facilities and all other fees and expenses incurred in connection therewith
(including the fees and expenses of Too, Inc.'s counsel in connection with the
preparation and negotiation of all documentation relating to such credit
facilities).
SECTION 8.04. Successor and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that neither party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto.
SECTION 8.05. Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware, without regard
to the conflicts of laws rules thereof.
SECTION 8.06. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other parties hereto.
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SECTION 8.07. Entire Agreement. This Agreement and the other
Distribution Documents constitute the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersedes all prior
agreements, understandings and negotiations, both written and oral, between
the parties with respect to the subject matter hereof and thereof. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein or in the other Distribution Documents has been made or
relied upon by any party hereto. Neither this Agreement nor any provision
hereof is intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder. To the extent that the provisions of this
Agreement are inconsistent with the provisions of any other Distribution
Document, the provisions of such other Distribution Document shall prevail.
SECTION 8.08. Tax Separation Agreement; Set-Off; Payment of After-Tax
Amounts. (a) Except as otherwise provided herein and not inconsistent with the
Tax Separation Agreement, this Agreement shall not govern any Tax, and any and
all claims, losses, damages, demands, costs, expenses or liabilities relating
to Taxes shall be exclusively governed by the Tax Separation Agreement.
(b) If, at the time Too, Inc. is required to make any payment to The
Limited under this Agreement, and The Limited owes Too, Inc. any amount under
this Agreement or any Ancillary Agreement, then such amounts shall be offset
and the excess shall be paid by the party liable for such excess. Similarly,
if at the time The Limited is required to make any payment to Too, Inc. under
this Agreement, and Too, Inc. owes The Limited any amount under this Agreement
or any Ancillary Agreement, then such amounts shall be offset and the excess
shall be paid by the party liable for such excess.
(c) If any amount paid by The Limited, Too, Inc. or their respective
Post-Distribution Affiliates pursuant to Section 4.01 or 4.02 of this
Agreement results in any increased Tax liability or reduction of any Tax Asset
of any member of the Too, Inc. Group, Too, Inc. or its Post-Distribution
Affiliates, or The Limited Group, The Limited or its Post-Distribution
Affiliates, respectively, then The Limited or Too, Inc., as the case may be,
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, 100 percent of the After-Tax Amount. All capitalized terms used in this
Section 8.08(c) and not otherwise defined in this Agreement are used as
defined in the Tax Separation Agreement. This Section 8.08(c) shall be subject
to the dispute resolution provisions contained in Section 16 of the Tax
Separation Agreement.
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SECTION 8.09. Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may be
brought in the United States District Court for the Southern District of New
York or any other New York State court sitting in New York County, and each of
the parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such
suit, action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient form. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 8.01 shall
be deemed effective service of process on such party.
SECTION 8.10. Existing Arrangements. Except as otherwise contemplated
hereby, all prior agreements and arrangements, including those relating to
goods, rights or services provided or licensed, between the Too, Inc. Group
and The Limited Group shall be terminated effective as of the Distribution
Date, if not theretofore terminated. No such agreements or arrangements shall
be in effect after the Distribution Date unless embodied in the Distribution
Documents.
SECTION 8.11. Termination Prior to the Distribution. The Limited
Board of Directors may at any time prior to the Distribution abandon the
Distribution and, by notice to Too, Inc., terminate this Agreement (whether or
not The Limited Board of Directors has theretofore approved this Agreement
and/or the Distribution).
SECTION 8.12. Termination After the Distribution. Except upon the
mutual consent of both parties hereto, this Agreement shall not be terminable
until the [third] anniversary of the Distribution Date, and thereafter shall
be terminable upon [six months'] prior written notice by either party to the
other party.
SECTION 8.13. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
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IN WITNESS WHEREOF the parties hereto have caused this Distribution
Agreement to be duly executed by their respective authorized officers as of
the date first above written.
THE LIMITED, INC.
By:
------------------------------------
Name:
Title:
TOO, INC.
By:
------------------------------------
Name:
Title:
21
Exhibit 3.1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
TOO, INC.
* * * *
Too, Inc. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
does hereby amend the Certificate of Incorporation of the Corporation, which
was originally filed with the Secretary of State of the State of Delaware on
August 21, 1991, under the name Limited Too, Inc. The name of the corporation
is currently Limited Too, Inc. and is being changed to Too, Inc. pursuant to
this instrument.
FIRST: The name of the Corporation is: Too, Inc.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is Corporation Service Company, 1013 Centre Road, City
of Wilmington, County of New Castle, Delaware 19805. The name of its
registered agent at such address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as the same exists or may hereafter
be amended ("Delaware Law").
FOURTH:
SECTION 1. Capital Stock. (a) The total number of shares of stock
which the Corporation shall have authority to issue is 150,000,000, consisting
of 100,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), and 50,000,000 shares of Preferred Stock, par value $.01 per share
(the "Preferred Stock"). The Common Stock of the Corporation shall be all of
one class. The Preferred Stock may be issued in one or more series having such
designations as may be fixed by the Board of Directors.
(b) The Board of Directors is expressly authorized to provide for
the issue of all or any shares of the Common Stock and the Preferred Stock, to
determine the number of shares of each class and to fix for the Common Stock
and for any series of Preferred Stock such voting powers, full or limited, or
no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and such qualifications,
limitations or restrictions
<PAGE>
thereof, as shall be stated and expressed in the resolution or resolutions
adopted by the Board of Directors or a duly authorized committee thereof
providing for the issue of such series and as may be permitted by Delaware
Law.
(c) The number of authorized shares of any class or classes of stock
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of a majority of the Common Stock of the
Corporation irrespective of the provisions of Section 242(b)(2) of Delaware
Law.
SECTION 2. Common Stock. (a) Issuance and Considerations. Any
unissued or treasury shares of the Common Stock may be issued for such
consideration as may be fixed in accordance with applicable law from time to
time by the Board of Directors.
(b) Dividends. Subject to the rights of the holders of the Preferred
Stock, the holders of the Common Stock shall be entitled to receive, when and
as declared by the Board of Directors, out of the assets of the Corporation
which are by law available therefor, dividends payable either in cash, in
property, or in shares of stock and the holders of the Preferred Stock shall
not be entitled to participate in any such dividends (unless otherwise
provided by the Board of Directors in any resolution providing for the issue
of a series of Preferred Stock).
(c) Powers, Preferences, Etc. The following is a statement of the
powers, preferences, and relative participating, optional and other special
rights and qualifications, limitations and restrictions of the Common Stock of
the Corporation:
(i) Subject to the rights of the holders of the Preferred Stock,
and subject to any other provisions of this Amended and Restated
Certificate of Incorporation, the holders of the Common Stock shall
be entitled to receive such dividends and other distributions in
cash, stock of any corporation or property of the Corporation as may
be declared thereon by the Board of Directors from time to time out
of assets or funds of the Corporation legally available therefor and
shall share equally on a per share basis in all such dividends and
other distributions.
(ii) (A) At every meeting of the stockholders of the Corporation
every holder of Common Stock shall be entitled to one vote in person
or by proxy for each share of Common Stock standing in his or her
name on the transfer books of the Corporation in connection with the
election of directors and all other matters submitted to a vote of
stockholders. Except as may be otherwise required by law or by this
ARTICLE FOURTH, the holders of Common Stock shall vote as a single
class, subject to any
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voting rights which may be granted to the holders of Preferred Stock,
on all matters submitted to a vote of the holders of Common Stock.
(B) Every reference in this Amended and Restated Certificate of
Incorporation to a majority or other proportion of shares of Common
Stock shall refer to such majority or other proportion of the votes
to which such shares of Common Stock are entitled.
(iii) In the event of any dissolution, liquidation or winding up
of the affairs of the Corporation, whether voluntary or involuntary,
after payment in full of the amounts required to be paid to the
holders of Preferred Stock, the remaining assets and funds of the
Corporation shall be distributed pro rata to the holders of Common
Stock. For the purposes of this paragraph (c)(iii), the voluntary
sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all
of the assets of the Corporation or a consolidation or merger of the
Corporation with one or more other corporations (whether or not the
Corporation is the corporation surviving such consolidation or
merger) shall not be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary.
(d) Immediately upon the effectiveness of this Amended and Restated
Certificate of Incorporation each share of common stock of the Corporation,
par value $1.00 per share, that is issued and outstanding immediately prior to
such effectiveness, shall be changed into and reclassified as [_______] shares
of Common Stock.
SECTION 3. Series and Limits of Variations between Series of
Preferred Stock. Any unissued or treasury shares of the Preferred Stock may be
issued from time to time in one or more series for such consideration as may
be fixed from time to time by the Board of Directors and each share of a
series shall be identical in all respects with the other shares of such
series, except that, if the dividends thereon are cumulative, the date from
which they shall be cumulative may differ. Before any shares of Preferred
Stock of any particular series shall be issued, a certificate shall be filed
with the Secretary of State of Delaware setting forth the designation, rights,
privileges, restrictions, and conditions to be attached to the Preferred Stock
of such series and such other matters as may be required, and the Board of
Directors shall fix and determine, and is hereby expressly empowered to fix
and determine, in the manner provided by law, the particulars of the shares of
such series (so far as not inconsistent with the provisions of this ARTICLE
FOURTH applicable to all series of Preferred Stock), including, but not
limited to, the following:
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(i) the distinctive designation of such series and the number of
shares which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors
in creating such series) or decreased (but not below the number of
shares thereof then outstanding) from time to time by like action of
the Board of Directors;
(ii) the annual rate of dividends payable on shares of such
series, the conditions upon which such dividends shall be payable and
the date from which dividends shall be cumulative in the event the
Board of Directors determines that dividends shall be cumulative;
(iii) whether such series shall have voting rights, in addition to
the voting rights provided by law and, if so, the terms of such voting
rights;
(iv) whether such series shall have conversion privileges and, if
so, the terms and conditions of such conversion, including, but not
limited to, provision for adjustment of the conversion rate upon such
events and in such manner as the Board of Directors shall determine;
(v) whether or not the shares of such series shall be redeemable
and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and
the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates;
(vi) whether such series shall have a sinking fund for the
redemption or purchase of shares of that series and, if so, the terms
and amount of such sinking fund;
(vii) the rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
(viii) any other relative rights, preferences and limitations of
such series.
SECTION 4. No Preemptive Rights. Except as otherwise set forth above
in this ARTICLE FOURTH, no holder of shares of this Corporation of any class
shall be entitled, as such, as a matter of right, to purchase or subscribe for
shares of any class of stock now or hereafter authorized, or to purchase or
subscribe for securities convertible into or exchangeable for shares of the
Corporation or to
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<PAGE>
which there shall be attached or appertain any warrants or rights entitling
the holders thereof to purchase or subscribe for shares of the Corporation.
FIFTH:
SECTION 1. Amendment of Bylaws by Directors. In furtherance and not
in limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to make, repeal, alter, amend and rescind the bylaws of
the Corporation.
SECTION 2. Amendment of Bylaws by the Stockholders. The bylaws shall
not be made, repealed, altered, amended or rescinded by the stockholders of
the Corporation except by the vote of not less than 75 percent of the
outstanding shares of the Corporation entitled to vote thereon. Any amendment
to the Certificate of Incorporation which shall contravene any bylaw in
existence on the record date of the stockholders meeting at which such
amendment is to be voted upon by the stockholders shall require the vote of
not less than 75 percent of the outstanding shares entitled to vote thereon.
SIXTH:
SECTION 1. Management of the Corporation. Except as otherwise
provided in ARTICLE TWELFTH, the business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors. Officers of
the Corporation shall be elected by, or in the manner approved by, the Board
of Directors.
SECTION 2. Number of Directors. The Board of Directors shall consist
of not less than four nor more than nine directors, with the exact number of
directors to be determined from time to time by resolution adopted by the
Board of Directors.
SECTION 3. Classified Board. Effective immediately upon the issuance
of more than 1,000 shares of Common Stock of the Corporation, the Board of
Directors (exclusive of directors to be elected by the holders of any one or
more series of Preferred Stock voting separately as a class or classes) shall
be divided into three classes, Class A, Class B, and Class C. The number of
directors in each class shall be the whole number contained in the quotient
arrived at by dividing the authorized number of directors by three, and if a
fraction is also contained in such quotient, then if such fraction is
one-third, the extra director shall be a member of Class A and if the fraction
is two-thirds, one of the extra directors shall be a member of Class A and the
other shall be a member of Class B. Each director shall serve for a term
ending on the date of the third annual meeting
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<PAGE>
following the annual meeting at which such director was elected; provided,
however, that the directors first elected to Class A shall serve for a term
ending on the date of the annual meeting next following the end of the
calendar year 1999, the directors first elected to Class B shall serve for a
term ending on the date of the second annual meeting next following the end of
the calendar year 1999, and the directors first elected to Class C shall serve
for a term ending on the date of the third annual meeting next following the
end of the calendar year 1999. Notwithstanding the foregoing formula
provisions, in the event that, as a result of any change in the authorized
number of directors, the number of directors in any class would differ from
the number allocated to that class under the formula provided in this ARTICLE
SIXTH immediately prior to such change, the following rules shall govern:
(a) each director then serving as such shall nevertheless continue
as a director of the class of which such director is a member until the
expiration of his current term, or his prior death, resignation or removal;
(b) at each subsequent election of directors, even if the number of
directors in the class whose term of office then expires is less than the
number then allocated to that class under said formula, the number of
directors then elected for membership in that class shall not be greater than
the number of directors in that class whose term of office then expires,
unless and to the extent that the aggregate number of directors then elected
plus the number of directors in all classes then duly continuing in office
does not exceed the then authorized number of directors of the Corporation;
(c) at each subsequent election of directors, if the number of
directors in the class whose term of office then expires exceeds the number
then allocated to that class under said formula, the Board of Directors shall
designate one or more of the directorships then being elected as directors of
another class or classes in which the number of directors then serving is less
than the number then allocated to such other class or classes under said
formula;
(d) in the event of the death, resignation or removal of any
director who is a member of a class in which the number of directors serving
immediately preceding the creation of such vacancy exceeded the number then
allocated to that class under said formula, the Board of Directors shall
designate the vacancy thus created as a vacancy in another class in which the
number of directors then serving is less than the number then allocated to
such other class under said formula;
(e) in the event of any increase in the authorized number of
directors, the newly created directorships resulting from such increase shall
be apportioned by
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<PAGE>
the Board of Directors to such class or classes as shall, so far as possible,
bring the composition of each of the classes into conformity with the formula
in this ARTICLE SIXTH, as it applies to the number of directors authorized
immediately following such increase; and
(f) designation of directorships or vacancies into other classes and
apportionments of newly created directorships to classes by the Board of
Directors under the foregoing items (c), (d) and (e) shall, so far as
possible, be effected so that the class whose term of office is due to expire
next following such designation or apportionment shall contain the full number
of directors then allocated to said class under said formula.
Notwithstanding any of the foregoing provisions of this ARTICLE
SIXTH, each director shall serve until his successor is elected and qualified
or until his death, resignation or removal.
SECTION 4. Voting; Quorum. Subject to ARTICLE TWELFTH, each member of
the Board of Directors shall have one vote on all matters presented to the
Board of Directors, and a majority of the total number of directors at any
time shall constitute a quorum for the transaction of business at that time.
Subject to ARTICLE TWELFTH, the Board of Directors may act by the unanimous
written consent of the directors.
SECTION 5. Election by Holders of Preferred Stock. During any period
when the holders of any Preferred Stock or any one or more series thereof,
voting as a class, shall be entitled to elect a specified number of directors,
by reason of dividend arrearages or other provisions giving them the right to
do so, then and during such time as such right continues (i) the then
otherwise authorized number of directors shall be increased by such specified
number of directors, and the holders of such Preferred Stock or such series
thereof, voting as a class, shall be entitled to elect the additional
directors so provided for, pursuant to the provisions of such Preferred Stock
or series; (ii) each such additional director shall serve for such term, and
have such voting powers, as shall be stated in the provisions pertaining to
such Preferred Stock or series; and (iii) whenever the holders of any such
Preferred Stock or series thereof are divested of such rights to elect a
specified number of directors, voting as a class, pursuant to the provisions
of such Preferred Stock or series, the terms of office of all directors
elected by the holders of such Preferred Stock or series, voting as a class,
pursuant to such provisions or elected to fill any vacancies resulting from
the death, resignation or removal of directors so elected by the holders of
such Preferred Stock or series, shall forthwith terminate and the authorized
number of directors shall be reduced accordingly.
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<PAGE>
SECTION 6. Ballots. Elections of directors at an annual or special
meeting of stockholders need not be by written ballot unless the bylaws of the
Corporation shall provide otherwise.
SECTION 7. Elimination of Certain Personal Liability of Directors. A
director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of any fiduciary duty as a
director to the fullest extent permitted by Delaware Law.
SEVENTH: After the issuance of more than 1,000 shares of Common Stock
of the Corporation, no action shall be taken by the stockholders except at an
annual or special meeting of stockholders.
EIGHTH: The Board of Directors of the Corporation, when evaluating
any offer of another party to (1) make a tender or exchange offer for any
equity security of the Corporation, (2) merge or consolidate the Corporation
with another corporation, or (3) purchase or otherwise acquire all or
substantially all of the properties and assets of the Corporation, shall in
connection with the exercise of its judgment in determining what is in the
best interests of the Corporation and its stockholders, give due consideration
to all relevant factors, including without limitation the social and economic
effects on the employees, customers, suppliers and other constituents of the
Corporation and its subsidiaries and on the communities in which the
Corporation and its subsidiaries operate or are located.
NINTH: Any director may be removed at any annual or special
stockholders' meeting upon the affirmative vote of not less than 75 percent of
the outstanding shares of the Corporation at that time entitled to vote
thereon; provided, however, that such director may be removed only for cause
and shall receive a copy of the charges against him, delivered to him
personally or by mail at his last known address at least 10 days prior to the
date of the stockholders' meeting; provided further, that directors who shall
have been elected by the holders of a series or class of Preferred Stock,
voting separately as a class, shall be removed only pursuant to the provisions
establishing the rights of such series or class to elect such directors.
TENTH:
SECTION 1. Amendment of Certain Articles. The provisions set forth in
this ARTICLE TENTH and in ARTICLE FIFTH, Sections 2, 3 and 7 of ARTICLE SIXTH,
and ARTICLES SEVENTH, EIGHTH, NINTH, ELEVENTH AND TWELFTH may not be amended,
altered, changed, or repealed in any respect unless such amendment,
alteration, change or repealing is approved by the
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affirmative vote of not less than 75 percent of the outstanding shares of the
Corporation entitled to vote thereon.
SECTION 2. Amendments Generally. Subject to the provisions of Section
1 of this ARTICLE TENTH, the Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Amended and Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred on stockholders herein are granted subject
to this reservation.
ELEVENTH:
SECTION 1. Vote Required for Certain Business Combinations. The
affirmative vote of not less than 75 percent of the outstanding shares of
"Voting Stock" (as hereinafter defined) held by stockholders other than the
"Interested Person" (as hereinafter defined) seeking to effect a "Business
Combination" (as hereinafter defined) shall be required for the approval or
authorization of any Business Combination with any Interested Person; provided
that the provisions of this ARTICLE ELEVENTH shall not apply to any Business
Combination, and such Business Combination shall require only such affirmative
vote, if any, as is required by law or otherwise, if such Business Combination
shall have been approved by a majority (whether such approval is made prior or
subsequent to the acquisition of Beneficial Ownership of the Voting Stock that
caused the Interested Person to become an Interested Person) of the Article 11
Continuing Directors (as hereinafter defined).
SECTION 2. Definitions. Certain words and terms as used in this
ARTICLE ELEVENTH shall have the meanings given to them by the definitions
and descriptions in this Section.
(a) Business Combination. The term "Business Combination" shall
mean: (i) any merger or consolidation of the Corporation or a subsidiary of
the corporation with or into an Interested Person, (ii) any sale, lease,
exchange, transfer or other disposition, including without limitation, a
mortgage or any other security device, of all or any "Substantial Part" (as
hereinafter defined) of the assets either of the Corporation (including
without limitation, any voting securities of a subsidiary) or of a subsidiary
of the Corporation to an Interested Person, (iii) any merger or consolidation
of an Interested Person with or into the Corporation or a subsidiary of the
Corporation, (iv) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage or other security device, of all or
any Substantial Part of the assets of an Interested Person to the Corporation
or a subsidiary of the Corporation, (v) the issuance or transfer by the
Corporation or any subsidiary of the Corporation of any securities of the
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Corporation or a subsidiary of the Corporation to an Interested Person, (vi)
any reclassification of securities, recapitalization or other comparable
transaction involving the Corporation that would have the effect of increasing
the voting power of any Interested Person with respect to Voting Stock of the
Corporation, and (vii) any agreement, contract or other arrangement providing
for any of the transactions described in this definition of Business
Combination.
(b) Interested Person. The term "Interested Person" shall mean and
include any individual, corporation, partnership or other person or entity
which, together with its "Affiliates" and "Associates" (as defined in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act
of 1934 as in effect at the date of the adoption of this ARTICLE ELEVENTH by
the stockholders of the Corporation), "Beneficially Owns" (as defined in Rule
13d-3 of the General Rules and Regulations under the Securities Exchange Act
of 1934 as in effect at the date of the adoption of this ARTICLE ELEVENTH by
the stockholders of the Corporation) in the aggregate five percent or more of
the outstanding Voting Stock of the Corporation, and any Affiliate or
Associate of any such individual, corporation, partnership or other person or
entity. Without limiting the generality of the foregoing, any share of Voting
Stock of the Corporation that any Interested Person has the right to acquire
at any time (notwithstanding that Rule 13d-3 deems such shares to be
beneficially owned only if such right may be exercised within 60 days)
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, shall be deemed to be Beneficially Owned by the
Interested Person and to be outstanding for purposes of this definition. An
Interested Person shall be deemed to have acquired a share of the Voting Stock
of the Corporation at the time when such Interested Person became the
Beneficial Owner thereof.
(c) Voting Stock. The term "Voting Stock" shall mean all of the
outstanding shares of Common Stock of the Corporation and any outstanding
shares of Preferred Stock entitled to vote on each matter on which the holders
of record of Common Stock shall be entitled to vote, and each reference to a
proportion of shares of Voting Stock shall refer to such proportion of the
votes entitled to be cast by such shares.
(d) Substantial Part. The term "Substantial Part" shall mean more
than 20 percent of the fair market value, as determined by two-thirds of the
Article 11 Continuing Directors, of the total consolidated assets of the
Corporation and its subsidiaries taken as a whole as of the end of its most
recent fiscal year ended prior to the time the determination is being made.
(e) Article 11 Continuing Director. For purposes of this ARTICLE
ELEVENTH, the term "Article 11 Continuing Director" shall mean a Director
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who was a member of the Board of Directors of the Corporation immediately
prior to the time that the Interested Person involved in a Business
Combination became an Interested Person or a Director who was elected or
appointed by a majority of the then-current Article 11 Continuing Directors to
fill a vacancy after the date the Interested Person became an Interested
Person.
TWELFTH.
SECTION 1. Issuance of Rights. Without in any way limiting the
authority of the Board of Directors under the Delaware Law (including without
limitation Sections 141(a) and 157 thereof), the Board of Directors is
expressly authorized to issue rights pursuant to Section 157 of the Delaware
Law and, in that connection, to enter into any agreements necessary or
convenient for such issuance. Any such agreement may include provisions
limiting, in certain circumstances, the ability of future boards of directors
of the Corporation to redeem the securities issued pursuant thereto or to
amend or supplement such rights agreement unless there are Article 12
Continuing Directors (as defined below) then in office and such redemption,
amendment or supplement shall have been approved by a majority vote of the
Article 12 Continuing Directors then in office at a meeting at which the
Article 12 Continuing Directors then in office are present.
SECTION 2. Definition. For purposes of this ARTICLE TWELFTH, the term
"Article 12 Continuing Directors" shall mean those directors who were members
of the Board of Directors of the Corporation at the time the Corporation
entered into such rights agreement and any director who subsequently becomes a
member of the Board of Directors, if such director's nomination for election
to the Board of Directors is recommended or approved by the majority vote of
the Article 12 Continuing Directors then in office at a meeting at which the
Article 12 Continuing Directors then in office are present.
SECTION 3. Article 12 Continuing Directors' Powers. Pursuant to
Section 141(a) of the Delaware Law, the Article 12 Continuing Directors shall
have the sole power and authority to make all decisions and determinations
provided for in any agreement entered into under Section 1 above.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation, having been duly adopted by the written consent of the sole
stockholder of the Corporation in accordance with the provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware, has
been executed this ____ day of ____ 1999.
TOO, INC.
By:_______________________________
Name:
Title:
Exhibit 3.2
FORM OF
BYLAWS
OF
TOO, INC.
Adopted __________ __, 1999
ARTICLE 1
Stockholders
Section 1.01. Annual Meeting. The annual meeting of the stockholders
of this corporation, for the purpose of fixing or changing the number of
directors of the corporation, electing directors and transacting such other
business as may come before the meeting, shall be held on such date, at such
time and at such place as may be designated by the Board of Directors.
Section 1.02. Special Meetings. Special meetings of the stockholders
may be called at any time by the chairman of the board, the vice chairman of
the board, or in case of the death, absence or disability of the chairman of
the board and the vice chairman of the board, the president, or in case of the
president's death, absence, or disability, the vice president, if any,
authorized to exercise the authority of the president, or a majority of the
Board of Directors acting with or without a meeting; provided, that if and to
the extent that any special meeting of stockholders may be called by any other
person or persons specified in any provision of the certificate of
incorporation or any amendment thereto or any certificate filed under Section
151(g) of the Delaware General Corporation Law (or its successor statute as in
effect from time to time), then such special meeting may also be called by the
person or persons, in the manner, at the times and for the purposes so
specified.
Section 1.03. Place of Meetings. Meetings of stockholders shall be
held at the principal office of the corporation in the State of Ohio, unless
the Board of Directors decides that a meeting shall be held at some other
place and causes the notice thereof to so state.
Section 1.04. Notice of Meetings. (a) Unless waived, a written,
printed, or typewritten notice of each annual or special meeting, stating the
date, hour and place and the purpose or purposes thereof shall be served upon
or mailed to each stockholder of record entitled to vote or entitled to
notice, not more than 60 days nor less than 10 days before any such meeting.
If mailed, such notice shall be
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directed to a stockholder at his or her address as the same appears on the
records of the corporation. If a meeting is adjourned to another time or place
and such adjournment is for 30 days or less and no new record date is fixed
for the adjourned meeting, no further notice as to such adjourned meeting need
be given if the time and place to which it is adjourned are fixed and
announced at such meeting. In the event of a transfer of shares after notice
has been given and prior to the holding of the meeting, it shall not be
necessary to serve notice on the transferee. Such notice shall specify the
place where the stockholders list will be open for examination prior to the
meeting if required by Section 1.08 hereof. If the adjournment is for more
than 30 days, or after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
(b) A written waiver of any such notice signed by the person
entitled thereto, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 1.05. Fixing Date for Determination of Stockholders of
Record. In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any other change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than 60 nor less than 10 days before the date of
such meeting, nor more than 60 days prior to any other action. If the Board
shall not fix such a record date, (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held, and (ii) in any case
involving the determination of stockholders for any purpose other than notice
of or voting at a meeting of stockholders, the record date for determining
stockholders for such purpose shall be the close of business on the day on
which the Board of Directors shall adopt the resolution relating thereto.
Determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of such meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.
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Section 1.06. Organization. At each meeting of the stockholders, the
chairman of the board, or in his absence, the vice chairman of the board, or
in his absence, the president, or, in his absence, any vice-president, or, in
the absence of the chairman of the board, the vice chairman of the board, the
president and a vice-president, a chairman chosen by a majority in interest of
the stockholders present in person or by proxy and entitled to vote, shall act
as chairman, and the secretary of the corporation, or, if the secretary of the
corporation not be present, the assistant secretary, or if the secretary and
the assistant secretary not be present, any person whom the chairman of the
meeting shall appoint, shall act as secretary of the meeting.
Section 1.07. Quorum. A stockholders' meeting duly called shall not
be organized for the transaction of business unless a quorum is present.
Except as otherwise expressly provided by law, the certificate of
incorporation, these bylaws, or any certificate filed under Section 151(g) of
the Delaware General Corporation Law (or its successor statute as in effect
from time to time), (i) at any meeting called by the Board of Directors, the
presence in person or by proxy of holders of record entitling them to exercise
at least one-third of the voting power of the corporation shall constitute a
quorum for such meeting and (ii) at any meeting called other than by the Board
of Directors, the presence in person or by proxy of holders of record
entitling them to exercise at least a majority of the voting power of the
corporation shall constitute a quorum for such meeting. The stockholders
present at a duly organized meeting can continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum. If a meeting cannot be organized because a quorum has not
attended, a majority in voting interest of the stockholders present may
adjourn, or, in the absence of a decision by the majority, any officer
entitled to preside at such meeting may adjourn the meeting from time to time
to such time (not more than 30 days after the previously adjourned meeting)
and place as they (or he) may determine, without notice other than by
announcement at the meeting of the time and place of the adjourned meeting. At
any such adjourned meeting at which a quorum is present any business may be
transacted which might have been transacted at the meeting as originally
called.
Section 1.08. Order of Business and Procedure. The order of business
at all meetings of the stockholders and all matters relating to the manner of
conducting the meeting shall be determined by the chairman of the meeting.
Meetings shall be conducted in a manner designed to accomplish the business of
the meeting in a prompt and orderly fashion and to be fair and equitable to
all stockholders, but it shall not be necessary to follow any manual of
parliamentary procedure.
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Section 1.09. Advance Notice of Stockholder Proposals. In order to
properly submit any business to an annual meeting of stockholders, a
stockholder must give timely notice in writing to the secretary of the
corporation. To be considered timely, a stockholder's notice must be delivered
either in person or by United States certified mail, postage prepaid, and
received at the principal executive offices of the corporation (a) not less
than 120 days nor more than 150 days before the first anniversary date of the
corporation's proxy statement in connection with the last annual meeting of
stockholders or (b) if no annual meeting was held in the previous year or the
date of the applicable annual meeting has been changed by more than 30 days
from the date contemplated at the time of the previous year's proxy statement,
not less than a reasonable time, as determined by the Board of Directors,
prior to the date of the applicable annual meeting.
Nomination of persons for election to the Board of Directors may be
made by the Board of Directors or any committee designated by the Board of
Directors or by any stockholder entitled to vote for the election of directors
at the applicable meeting of stockholders. However, nominations other than
those made by the Board of Directors or its designated committee must comply
with the procedures set forth in this Section 1.09, and no person shall be
eligible for election as a director unless nominated in accordance with the
terms of this Section 1.09.
A stockholder may nominate a person or persons for election to the
Board of Directors by giving written notice to the secretary of the
corporation in accordance with the procedures set forth above. In addition to
the timeliness requirements set forth above for notice to the corporation by a
stockholder of business to be submitted at an annual meeting of stockholders,
with respect to any special meeting of stockholders called for the election of
directors, written notice must be delivered in the manner specified above and
not later than the close of business on the seventh day following the date on
which notice of such meeting is first given to stockholders.
The secretary of the corporation shall deliver any stockholder
proposals and nominations received in a timely manner for review by the Board
of Directors or a committee designated by the Board of Directors.
A stockholder's notice to submit business to an annual meeting of
stockholders shall set forth (i) the name and address of the stockholder, (ii)
the class and number of shares of stock beneficially owned by such
stockholder, (iii) the name in which such shares are registered on the stock
transfer books of the corporation, (iv) a representation that the stockholder
intends to appear at the meeting in person or by proxy to submit the business
specified in such notice, (v) any material interest of the stockholder in the
business to be submitted and (vi) a brief description of the business desired
to be submitted to the annual meeting,
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including the complete text of any resolutions to be presented at the annual
meeting, and the reasons for conducting such business at the annual meeting.
In addition, the stockholder making such proposal shall promptly provide any
other information reasonably requested by the corporation.
In addition to the information required above to be given by a
stockholder who intends to submit business to a meeting of stockholders, if
the business to be submitted is the nomination of a person or persons for
election to the Board of Directors then such stockholder's notice must also
set forth, as to each person whom the stockholder proposes to nominate for
election as a director, (a) the name, age, business address and, if known,
residence address of such person, (b) the principal occupation or employment
of such person, (c) the class and number of shares of stock of the corporation
which are beneficially owned by such person, (d) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors or is otherwise required by the rules and
regulations of the Securities and Exchange Commission promulgated under the
Securities Exchange Act of 1934, as amended, (e) the written consent of such
person to be named in the proxy statement as a nominee and to serve as a
director if elected and (f) a description of all arrangements or
understandings between such stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
Any person nominated for election as director by the Board of
Directors or any committee designated by the Board of Directors shall, upon
the request of the Board of Directors or such committee, furnish to the
secretary of the corporation all such information pertaining to such person
that is required to be set forth in a stockholder's notice of nomination.
Notwithstanding the foregoing provisions of this Section 1.09, a
stockholder who seeks to have any proposal included in the corporation's proxy
statement shall comply with the requirements of Regulation 14A under the
Securities Exchange Act of 1934, as amended.
Section 1.10. Voting. (a) Each stockholder shall, at each meeting of
the stockholders, be entitled to vote in person or by proxy each share or
fractional share of the stock of the corporation having voting rights on the
matter in question and which shall have been held by him and registered in his
name on the books of the corporation on the date fixed pursuant to Section
1.05 of these bylaws as the record date for the determination of stockholders
entitled to notice of and to vote at such meeting.
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(b) Shares of its own stock belonging to the corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor be
counted for quorum purposes.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto
authorized and delivered to the secretary of the meeting in sufficient time to
permit the necessary examination and tabulation thereof before the vote is
taken; provided, however, that no proxy shall be valid after the expiration of
three years after the date of its execution, unless the stockholder executing
it shall have specified therein the length of time it is to continue in force.
At any meeting of the stockholders all matters, except as otherwise provided
in the certificate of incorporation, in these bylaws or by law, shall be
decided by the vote of a majority in voting interest of the stockholders
present in person or by proxy and voting thereon, a quorum being present. The
vote at any meeting of the stockholders on any question need not be by ballot,
unless so directed by the chairman of the meeting or required by the
certificate of incorporation. On a vote by ballot each ballot shall be signed
by the stockholder voting, or by his proxy, if there be such proxy, and it
shall state the number of shares voted.
Section 1.11. Inspectors. The Board of Directors, in advance of any
meeting of the stockholders, may appoint one or more inspectors to act at the
meeting. If inspectors are not so appointed, the person presiding at the
meeting may appoint one or more inspectors. If any person so appointed fails
to appear or act, the vacancy may be filled by appointment made by the Board
of Directors in advance of the meeting or at the meeting by the person
presiding thereat. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector at the meeting with strict impartiality and according to the best of
his ability. The inspectors so appointed, if any, shall determine the number
of shares outstanding, the shares represented at the meeting, the existence of
a quorum and the authenticity, validity and effect of proxies and shall
receive votes, ballots, waivers, releases, or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count
and tabulate all votes, ballots, waivers, releases, or consents, determine and
announce the results and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated and of the vote as certified by them.
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ARTICLE 2
Board of Directors
Section 2.01. General Powers of Board. The powers of the corporation
shall be exercised, its business and affairs conducted, and its property
controlled by or under the direction of the Board of Directors, except as
otherwise provided by the law of Delaware or in the certificate of
incorporation.
Section 2.02. Number of Directors. The number of directors of the
corporation (exclusive of directors to be elected by the holders of any one or
more series of Preferred Stock voting separately as a class or classes) shall
not be less than four nor more than nine, the exact number of directors to be
such number as may be set from time to time within the limits set forth above
by resolution adopted by affirmative vote of a majority of the whole Board of
Directors. As used in these Bylaws, the term "whole Board" means the total
number of directors which the corporation would have if there were no
vacancies.
Section 2.03. Election of Directors. At each meeting of the
stockholders for the election of directors, the persons receiving the greatest
number of votes shall be the directors. Directors need not be stockholders.
Section 2.04. Nominations. (a) Nominations for the election of
directors may be made by the Board of Directors or by any stockholder entitled
to vote for the election of directors.
(b) Such nominations, if not made by the Board of Directors, shall
be made by notice in writing, delivered or mailed by first class United States
mail, postage prepaid, to the secretary of the corporation not less than 14
days nor more than 50 days prior to any meeting of the stockholders called for
the election of directors; provided, however, that if less than 21 days'
notice of the meeting is given to stockholders, such written notice shall be
delivered or mailed, as prescribed, to the secretary of the corporation not
later than the close of the seventh day following the day on which notice of
the meeting was mailed to stockholders. Each such notice shall set forth (i)
the name, age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or employment
of each such nominee, and (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee.
(c) Notice of nominations which are proposed by the Board of
Directors shall be given on behalf of the Board by the chairman of the
meeting.
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(d) The chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with
the foregoing procedure, and if the chairman should so determine, the chairman
shall so declare to the meeting and the defective nomination shall be
disregarded.
Section 2.05. Resignations. Any director of the corporation may
resign at any time by giving written notice to the chairman of the board or
the secretary of the corporation. Such resignation shall take effect at the
time specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 2.06. Vacancies. In the event that any vacancy shall occur in
the Board of Directors, whether because of death, resignation, removal, newly
created directorships resulting from any increase in the authorized number of
directors, the failure of the stockholders to elect the whole authorized
number of directors, or any other reason, such vacancy may be filled by the
vote of a majority of the directors then in office, although less than a
quorum. A director elected to fill a vacancy, other than a newly created
directorship, shall hold office for the unexpired term of his predecessor.
Whenever the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors by the certificate of incorporation,
vacancies and newly created directorships of such class or classes or series
may be filled by a majority of directors elected by such class or classes or
series thereof then in office, or by a sole remaining director so elected.
Section 2.07. Removal of Directors. Directors may be removed only as
provided in the certificate of incorporation.
Section 2.08. Place of Meeting, etc. The Board of Directors may hold
any of its meetings at the principal office of the corporation or at such
other place or places as the Board of Directors (or the chairman in the
absence of a determination by the Board of Directors) may from time to time
designate. Directors may participate in any regular or special meeting of the
Board of Directors by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board of Directors can hear each other and such participation shall constitute
presence in person at such meeting.
Section 2.09. Annual Meeting. A regular annual meeting of the Board
of Directors shall be held each year at the same place as and immediately
after the annual meeting of stockholders, or at such other place and time as
shall theretofore have been determined by the Board of Directors and notice
thereof need not be given. At its regular annual meeting the Board of
Directors shall
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organize itself and elect the officers of the corporation for the ensuing
year, and may transact any other business.
Section 2.10. Regular Meetings. Regular meetings of the Board of
Directors may be held at such intervals at such time as shall from time to
time be determined by the Board of Directors. After such determination and
notice thereof has been once given to each person then a member of the Board
of Directors, regular meetings may be held at such intervals and time and
place without further notice being given.
Section 2.11. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Board of Directors or by the
chairman or by a majority of directors then in office to be held on such day
and at such time as shall be specified by the person or persons calling the
meeting.
Section 2.12. Notice of Meetings. Notice of each special meeting or,
where required, each regular meeting, of the Board of Directors shall be given
to each director either by being mailed on at least the third day prior to the
date of the meeting or by being telegraphed, faxed or given personally or by
telephone on at least 24 hours notice prior to the date of meeting. Such
notice shall specify the place, date and hour of the meeting and, if it is for
a special meeting, the purpose or purposes for which the meeting is called. At
any meeting of the Board of Directors at which every director shall be
present, even though without such notice, any business may be transacted. Any
acts or proceedings taken at a meeting of the Board of Directors not validly
called or constituted may be made valid and fully effective by ratification at
a subsequent meeting which shall be legally and validly called or constituted.
Notice of any regular meeting of the Board of Directors need not state the
purpose of the meeting and, at any regular meeting duly held, any business may
be transacted. If the notice of a special meeting shall state as a purpose of
the meeting the transaction of any business that may come before the meeting,
then at the meeting any business may be transacted, whether or not referred to
in the notice thereof. A written waiver of notice of a special or regular
meeting, signed by the person or persons entitled to such notice, whether
before or after the time stated therein shall be deemed the equivalent of such
notice, and attendance of a director at a meeting shall constitute a waiver of
notice of such meeting except when the director attends the meeting and prior
to or at the commencement of such meeting protests the lack of proper notice.
Section 2.13. Quorum and Voting. At all meetings of the Board of
Directors, the presence of a majority of the directors then in office shall
constitute a quorum for the transaction of business. Except as otherwise
required by law, the certificate of incorporation, or these bylaws, the vote
of a majority of the directors
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present at any meeting at which a quorum is present shall be the act of the
Board of Directors. At all meetings of the Board of Directors, each director
shall have one vote.
Section 2.14. Committees. The Board of Directors may appoint an
executive committee and any other committee of the Board of Directors, to
consist of one or more directors of the corporation, and may delegate to any
such committee any of the authority of the Board of Directors, however
conferred, other than the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation. No
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock unless the resolution creating such committee
expressly so provides. Each such committee shall serve at the pleasure of the
Board of Directors, shall act only in the intervals between meetings of the
Board of Directors and shall be subject to the control and direction of the
Board of Directors. Any such committee may act by a majority of its members at
a meeting or by a writing or writings signed by all of its members. Any such
committee shall keep written minutes of its meetings and report the same to
the Board of Directors at the next regular meeting of the Board of Directors.
Section 2.15. Compensation. The Board of Directors may, by resolution
passed by a majority of those in office, fix the compensation of directors for
service in any capacity and may fix fees for attendance at meetings and may
authorize the corporation to pay the traveling and other expenses of directors
incident to their attendance at meetings, or may delegate such authority to a
committee of the board.
Section 2.16. Action by Consent. Any action required or permitted to
be taken at any meeting of the board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the board or such committee.
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ARTICLE 3
Officers
Section 3.01. General Provisions. The principal officers of the
corporation shall be the chairman of the board (who shall be a director), a
vice chairman of the board (who shall be a director), a president (who shall
be a director), such number of vice-presidents as the board may from time to
time determine, a secretary and a treasurer. Any person may hold any two or
more offices and perform the duties thereof, except the offices of chairman of
the board and vice chairman of the board, or the offices of president and
vice-president or the offices of president and secretary.
Section 3.02. Election, Terms of Office, and Qualification. The
officers of the corporation named in Section 3.01 of this Article III shall be
elected by the Board of Directors for an indeterminate term and shall hold
office at the pleasure of the Board of Directors.
Section 3.03. Additional Officers, Agents, etc. In addition to the
officers mentioned in Section 3.01 of this Article III, the corporation may
have such other officers or agents as the Board of Directors may deem
necessary and may appoint, each of whom shall hold office for such period,
have such authority and perform such duties as the Board of Directors may from
time to time determine. The Board of Directors may delegate to any officer the
power to appoint any subordinate officers or agents. In the absence of any
officer of the corporation, or for any other reason the Board of Directors may
deem sufficient, the Board of Directors may delegate, for the time being, the
powers and duties, or any of them, of such officer to any other officer, or to
any director.
Section 3.04. Removal. Except as set forth below, any officer of the
corporation may be removed, either with or without cause, at any time, by
resolution adopted by the Board of Directors at any meeting, the notice (or
waivers of notice) of which shall have specified that such removal action was
to be considered. Any officer appointed not by the Board of Directors but by
an officer or committee to which the Board of Directors shall have delegated
the power of appointment may be removed, with or without cause, by the
committee or superior officer (including successors) who made the appointment,
or by any committee or officer upon whom such power of removal may be
conferred by the Board of Directors.
Section 3.05. Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors, or to the chairman of the
board, the vice chairman of the board, the president, or the secretary of the
corporation.
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Any such resignation shall take effect at the time specified therein, and
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Section 3.06. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, shall be filled in the
manner prescribed in these bylaws for regular appointments or elections to
such office.
ARTICLE 4
Duties of the Officers
Section 4.01. The Chairman of the Board. The chairman of the board
shall have general supervision over the property, business and affairs of the
corporation and over its several officers, subject, however, to the control of
the Board of Directors. The chairman shall, if present, preside at all
meetings of the stockholders and of the Board of Directors. The chairman may
sign, with the secretary, treasurer or any other proper officer of the
corporation thereunto authorized by the Board of Directors, certificates for
shares in the corporation.
Section 4.02. Vice Chairman of the Board. The vice chairman of the
board shall perform such duties as are conferred upon him by these bylaws or
as may from time to time be assigned to him by the chairman of the board or
the Board of Directors. The authority of the vice chairman of the board to
sign in the name of the corporation all certificates for shares and deeds,
mortgages, leases, bonds, contracts, notes and other instruments, shall be
coordinate with like authority of the chairman of the board. In the absence or
disability of the chairman of the board, the vice chairman of the board shall
perform all the duties of the chairman of the board, and when so acting, shall
have all the powers of the chairman of the board.
Section 4.03. The President. The president shall be chief executive
officer of the corporation and shall perform such duties as are conferred upon
him by these bylaws or as may from time to time be assigned to him by the
chairman of the board or the vice chairman of the board or the Board of
Directors. The president may sign, execute and deliver in the name of the
corporation all deeds, mortgages, bonds, leases, contracts, or other
instruments either when specially authorized by the Board of Directors or when
required or deemed necessary or advisable by him in the ordinary conduct of
the corporation's normal business, except in cases where the signing and
execution thereof shall be expressly delegated by these bylaws to some other
officer or agent of the corporation or
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shall be required by law or otherwise to be signed or executed by some other
officer or agent, and the president may cause the seal of the corporation, if
any, to be affixed to any instrument requiring the same.
Section 4.04. Vice-Presidents. The vice-presidents shall perform such
duties as are conferred upon them by these bylaws or as may from time to time
be assigned to them by the Board of Directors, the chairman of the board, the
vice chairman of the board or the president. At the request of the chairman of
the board, in the absence or disability of the president, the vice-president
designated by the chairman of the board shall perform all the duties of the
president, and when so acting, shall have all of the powers of the president.
Section 4.05. The Treasurer. The treasurer shall be the custodian of
all funds and securities of the corporation. Whenever so directed by the Board
of Directors, the treasurer shall render a statement of the cash and other
accounts of the corporation, and the treasurer shall cause to be entered
regularly in the books and records of the corporation to be kept for such
purpose full and accurate accounts of the corporation's receipts and
disbursements. The treasurer shall have such other powers and shall perform
such other duties as may from time to time be assigned to him by the Board of
Directors, the chairman of the board or the vice chairman of the board.
Section 4.06. The Secretary. The secretary shall record and keep the
minutes of all meetings of the stockholders and the Board of Directors in a
book to be kept for that purpose. The secretary shall be the custodian of, and
shall make or cause to be made the proper entries in, the minute book of the
corporation and such other books and records as the Board of Directors may
direct. The secretary shall be the custodian of the seal of the corporation,
if any, and shall affix such seal to such contracts, instruments and other
documents as the Board of Directors or any committee thereof may direct. The
secretary shall have such other powers and shall perform such other duties as
may from time to time be assigned to him by the Board of Directors, the
chairman of the board or the vice chairman of the board.
ARTICLE 5
Indemnification of Directors and Officers
Section 5.01. Indemnification. (a) The corporation shall indemnify
and hold harmless any person (and the heirs, executors or administrators of
such person) who was or is a party or is threatened to be made a party to, or
is involved
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in, any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
he, his testator, or intestate is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, or as a member of any committee or
similar body, to the fullest extent permitted by the laws of Delaware as they
may exist from time to time. The right to indemnification conferred in this
Article V shall also include the right to be paid by the corporation the
expenses incurred in connection with any such proceeding in advance of its
final disposition to the fullest extent permitted by the laws of Delaware as
they may exist from time to time.
(b) The corporation may, by action of its Board of Directors,
provide indemnification to such of the employees and agents of the corporation
to such extent and to such effect as the Board of Directors shall determine to
be appropriate and authorized by the laws of Delaware as they may exist from
time to time.
Section 5.02. Insurance. The proper officers of the corporation,
without further authorization by the Board of Directors, may in their
discretion purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent for another corporation, partnership, joint venture, trust or other
enterprise, against any liability.
Section 5.03. ERISA. To assure indemnification under this Article of
all such persons who are or were "fiduciaries" of an employee benefit plan
governed by the Act of Congress entitled "Employee Retirement Income Security
Act of 1974", as amended from time to time, the provisions of this Article V
shall, for the purposes hereof, be interpreted as follows: an "other
enterprise" shall be deemed to include an employee benefit plan; the
corporation shall be deemed to have requested a person to serve as an employee
of an employee benefit plan where the performance by such person of his duties
to the corporation also imposes duties on, or otherwise involves services by,
such person to the plan or participants or beneficiaries of the plan; excise
taxes assessed on a person with respect to an employee benefit plan pursuant
to said Act of Congress shall be deemed "fines"; and action taken or omitted
by a person with respect to an employee benefit plan in the performance of
such person's duties for a purpose reasonably believed by such person to be in
the interest of the participants and beneficiaries of the plan shall be deemed
to be for a purpose which is not opposed to the best interests of the
corporation.
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Section 5.04. Contractual Nature. The foregoing provisions of this
Article V shall be deemed to be a contract between the corporation and each
director and officer who serves in such capacity at any time while this
Article is in effect. Neither any repeal or modification of this Article or,
to the fullest extent permitted by the laws of Delaware, any repeal or
modification of laws, shall affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts.
Section 5.05. Construction. For the purposes of this Article V,
references to "the corporation" include in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was
a director or officer of such constituent corporation or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise or as a member of any committee or similar body shall stand in the
same position under the provisions of this Article with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued.
ARTICLE 6
Depositories, Contracts and Other Instruments
Section 6.01. Depositories. The chairman of the board, the vice
chairman of the board, the president, the treasurer, and any vice-president of
the corporation whom the Board of Directors authorizes to designated
depositories for the funds of the corporation are each authorized to designate
depositories for the funds of the corporation deposited in its name and the
signatories and conditions with respect thereto in each case, and from time to
time, to change such depositories, signatories and conditions, with the same
force and effect as if each such depository, the signatories and conditions
with respect thereto and changes therein had been specifically designated or
authorized by the Board of Directors; and each depository designated by the
Board of Directors or by the chairman of the board, the vice chairman of the
board, the president, the treasurer, or any such vice-president of the
corporation, shall be entitled to rely upon the certificate of the secretary
or any assistant secretary of the corporation setting forth the fact of such
designation and of the appointment of the officers of the corporation or of
other persons who are to be signatories with respect to the withdrawal of
funds
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deposited with such depository, or from time to time the fact of any change in
any depository or in the signatories with respect thereto.
Section 6.02. Execution of Instruments Generally. In addition to the
powers conferred upon the chairman of the board in Section 4.01 and the vice
chairman of the board in Section 4.02 and except as otherwise provided in
Section 6.01 of this Article VI, all contracts and other instruments entered
into in the ordinary course of business requiring execution by the corporation
may be executed and delivered by the president, the treasurer, or any vice
president and authority to sign any such contracts or instruments, which may
be general or confined to specific instances, may be conferred by the Board of
Directors upon any other person or persons. Any person having authority to
sign on behalf of the corporation may delegate, from time to time, by
instrument in writing, all or any part of such authority to any person or
persons if authorized so to do by the Board of Directors.
ARTICLE 7
Shares and Their Transfer
Section 7.01. Certificate for Shares. Every owner of one or more
shares in the corporation shall be entitled to a certificate, which shall be
in such form as the Board of Directors shall prescribe, certifying the number
and class of shares in the corporation owned by him. When such certificate is
counter-signed by an incorporated transfer agent or registrar, the signature
of any of said officers may be facsimile, engraved, stamped or printed. The
certificates for the respective classes of such shares shall be numbered in
the order in which they shall be issued and shall be signed in the name of the
corporation by the chairman of the board or the vice chairman of the board, or
the president or a vice president, and by the secretary or an assistant
secretary or the treasurer or an assistant treasurer. A record shall be kept
of the name of the person, firm, or corporation owning the shares represented
by each such certificate and the number of shares represented thereby, the
date thereof, and in case of cancellation, the date of cancellation. Every
certificate surrendered to the corporation for exchange or transfer shall be
cancelled and no new certificate or certificates shall be issued in exchange
for any existing certificates until such existing certificates shall have been
so cancelled.
Section 7.02. Lost, Destroyed and Mutilated Certificates. If any
certificates for shares in the corporation become worn, defaced, or mutilated
but are still substantially intact and recognizable, the directors or
authorized officers, upon production and surrender thereof, shall order the
same cancelled and shall
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issue a new certificate in lieu of same. The holder of any shares in the
corporation shall immediately notify the corporation if a certificate therefor
shall be lost, destroyed, or mutilated beyond recognition, and the corporation
may issue a new certificate in the place of any certificate theretofore issued
by it which is alleged to have been lost or destroyed or mutilated beyond
recognition, and the Board of Directors may, in its discretion, require the
owner of the certificate which has been lost, destroyed, or mutilated beyond
recognition, or his legal representative, to give the corporation a bond in
such sum and with such surety or sureties as it may direct, not exceeding
double the value of the stock, to indemnify the corporation against any claim
that may be made against it on account of the alleged loss, destruction, or
mutilation of any such certificate. The Board of Directors may, however, in
its discretion, refuse to issue any such new certificate except pursuant to
legal proceedings, under the laws of the State of Delaware in such case made
and provided.
Section 7.03. Transfers of Shares. Transfers of shares in the
corporation shall be made only on the books of the corporation by the
registered holder thereof, his legal guardian, executor, or administrator, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the secretary of the corporation or with a transfer agent appointed
by the Board of Directors, and on surrender of the certificate or certificates
for such shares properly endorsed or accompanied by properly executed stock
powers and evidence of the payment of all taxes imposed upon such transfer.
The person in whose name shares stand on the books of the corporation shall,
to the full extent permitted by law, be deemed the owner thereof for all
purposes as regards the corporation.
Section 7.04. Regulations. The Board of Directors may make such rules
and regulations as it may deem expedient, not inconsistent with these bylaws
concerning the issue, transfer, and registration of certificates for shares in
the corporation. It may appoint one or more transfer agents or one or more
registrars, or both, and may require all certificates for shares to bear the
signature of either or both.
ARTICLE 8
Seal
Section 8.01. Corporate Seal. The Board of Directors may provide a
corporate seal, which shall be circular and contain the name of the
corporation engraved around the margin and the words "corporate seal", the
year of its organization, and the word "Delaware".
17
Exhibit 10.2
FORM OF
STORE LEASES AGREEMENT
This STORE LEASES AGREEMENT is entered into as of ________,
1999 (this "Agreement"), by and among THE LIMITED STORES, INC.
("TLS"), VICTORIA'S SECRET STORES, INC. ("Victoria's Secret"),
LERNER NEW YORK, INC. ("Lerner"), EXPRESS, LLC ("Express"),
STRUCTURE, INC. ("Structure"), THE LIMITED, INC. ("Limited") and TOO,
INC., a Delaware corporation and successor to Limited Too, Inc. ("Too, Inc.").
WITNESSETH:
WHEREAS, each of TLS, Victoria's Secret, Lerner, Express and Structure
are subsidiaries of Limited;
WHEREAS, one of TLS, Victoria's Secret, Lerner, Express or Structure
is the prime tenant (as to each individual lease, the "Prime Tenant") under
each of the lease agreements described on Schedule 1 hereto;
WHEREAS, prior to the date hereof, Too, Inc. has occupied all or a
portion of the premises leased by such Prime Tenant under such lease
agreements, as such premises are described on Schedule 1 hereto, without a
written agreement;
WHEREAS, the parties hereto desire to memorialize their prior
agreements and understandings with respect to such premises, as such
agreements and understandings are amended by this Agreement;
WHEREAS, Too, Inc. leases directly the additional premises described on
Schedule 2 hereto, all of which are presently guaranteed by Limited;
WHEREAS, all of Too, Inc.'s premises described on Schedule 1 hereto
and all of Too, Inc.'s directly-leased premises described on Schedule 3 hereto
are adjacent to or shared with premises of a Prime Tenant; and
WHEREAS, as a consequence of the spin-off of Too, Inc. by Limited
pursuant to the Distribution Agreement dated as of _______, 1999 between
Limited and Too, Inc. (the "Distribution Agreement"), Too, Inc. will no longer
be an Affiliate (as hereafter defined) of Limited or the Prime Tenants,
Limited, each Prime Tenant and Too, Inc. desire to evidence their agreement
relating to the shared occupancy of such premises as well as the continuation
of Limited's guarantees of Too, Inc.'s directly-leased premises, in each case
upon the terms and conditions set forth below.
<PAGE>
NOW, THEREFORE, in consideration of the covenants set forth herein,
the parties agree as follows:
1. Definitions.
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:
"Adjacent Premises" means premises where, as of the date
hereof, Too, Inc. stores are either adjacent to, not fully separated
from or operated as a department within, a Prime Tenant store. As of
the date hereof, such premises constitute all of the Subleased
Premises plus the additional premises listed on Schedule 3 hereto.
"Affiliate" means a corporation, partnership, limited
liability company or other business entity, which, directly or
indirectly, controls, is controlled by, or is under common control
with, another corporation, partnership, limited liability company or
other business entity. If more than 50 percent of the voting stock of
a corporation is owned by another corporation, partnership, limited
liability company or other business entity, the corporation whose
stock is so owned shall be deemed to be controlled by the
corporation, partnership, limited liability company or business
entity owning such stock.
"Distribution Date" is defined in the Distribution Agreement.
"Excess Rent" means, in respect of any Leased Premises, rent
or any other amount payable under the relevant Prime Lease, which is
calculated on the basis of a fixed percentage of sales over a
pre-determined sales level, and is in addition to the fixed base rent
or other fixed payment required by the relevant Prime Lease.
"Gross Sales" shall mean the term (or any similar term) used
in the relevant Prime Lease to determine the basis for calculating
the payments due to the landlord thereunder, regardless of whether
the relevant Prime Lease refers to such term as gross sales, net
sales or a similar term. In the absence of any such term being
defined in the applicable Prime Lease, "Gross Sales" shall have the
meaning attributed thereto in the Lease Agreement dated __________
between Limited and _____________.
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"Guaranteed Lease" means, as of the date hereof, each Too,
Inc. lease set forth on Schedule 2 hereto, as such Schedule may be
deemed modified after the date hereof in accordance with Section 23
and as such Schedule may be amended from time to time by agreement of
all parties to the relevant Guaranteed Lease; all such leases are
collectively referred to as the "Guaranteed Leases."
"Landlord" means the landlord under a Prime Lease.
"Lease Term" means, in respect of any Prime Lease, the
initial term of such Prime Lease, excluding any renewal or extension
option thereunder.
"Leased Premises" means the premises in which a Prime Tenant
has a leasehold interest under a Prime Lease or all such premises
collectively, as the context may require.
"Percentage Rent" means, in respect of any Leased Premises,
monthly rent which, in lieu of a fixed monthly rent or any other
amount payable under the relevant Prime Lease, is calculated
exclusively as a percentage of the gross sales of the tenant of such
Leased Premises for such month.
"Prime Lease" means each of the leases described on Schedule
1; all such leases are collectively referred to as the "Prime
Leases."
"Ratably" means, in respect of any Leased Premises, divided
equally among all persons occupying any portion of such Premises
(regardless of the portion of such Premises which each person
occupies or uses).
"Space Size Ratios" means,
(i) in respect of any Subleased Premises, the ratio of (x)
the size of the selling space in the Subleased Premises to (y) the
size of the selling space in the entire Leased Premises and
(ii) in respect of the portion of the Leased Premises
retained by the Prime Tenant, the ratio of (x) the size of the
selling space in such retained premises to (y) the size of the
selling space in the entire Leased Premises.
All such sizes, as of the date hereof, are as reflected on Schedule
1. The applicable Space Size Ratios shall be adjusted accordingly in
the event of
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any change in the size of either a Leased Premises or a Subleased
Premises, or in the event of the presence of any other tenants in the
Leased Premises, but shall not be adjusted solely due to a
reallocation between the total amount of selling space and the total
amount of storage space in a given Leased Premises or Subleased
Premises.
"Store Separation Costs" means all costs reasonably
necessary to physically separate, in a manner and to an extent
mutually satisfactory to Limited, the applicable Prime Tenant and
Too, Inc., the Prime Tenant store from the corresponding Too, Inc.
Adjacent Premises, including any segregation of selling or storage
space, construction of firewalls, construction of access corridors,
necessary modifications to the HVAC system or utilities (e.g. to
enable separate metering) and, where applicable, purchase of cabinets
and fixtures for use on the newly constructed separation wall, in
each case on both sides of a separation wall and of comparable
quality to other cabinets and fixtures already used in the relevant
store.
"Subleased Premises" means the portion of the Leased
Premises occupied by Too, Inc. in accordance with this Agreement,
individually or collectively, as the context may require. Each of the
Subleased Premises on the date hereof is described on Schedule 1
hereto.
2. Sublease.
Each Prime Tenant, in consideration of the covenants and agreements
to be performed by Too, Inc. and upon the terms and conditions hereinafter
stated, does hereby sublease, demise and let unto Too, Inc., and Too, Inc.
does hereby sublease from each Prime Tenant, each of the Subleased Premises
upon the terms and conditions set forth below.
3. Priority of Prime Lease.
(a) Except to the extent otherwise expressly set forth in this
Agreement, this Agreement, as it relates to the Subleased Premises, is
expressly subject and subordinate to the applicable Prime Lease and all the
terms, conditions and covenants therein contained. Except to the extent
otherwise expressly set forth in this Agreement, in which event the terms of
this Agreement shall prevail, all the terms, covenants and conditions of a
Prime Lease shall be applicable with respect to the corresponding Subleased
Premises with the same force and effect as if Prime Tenant were the landlord
under the Prime Lease and Too, Inc. were the tenant thereunder and the
provisions of the Prime Lease are
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incorporated herein by reference with the same force and effect as if they were
fully set forth herein.
(b) Too, Inc. agrees that nothing in this Agreement shall be deemed
to grant Too, Inc. any rights that would conflict with any of the covenants
and conditions of the Prime Lease, and Too, Inc. agrees that it will do
nothing in, on or about the Subleased Premises that would result in the breach
by Prime Tenant of its undertakings and obligations under the Prime Lease.
Too, Inc. hereby assumes and shall fully perform and discharge, with regard to
the Subleased Premises, all the obligations of Prime Tenant as tenant under
the Prime Lease during the Lease Term and shall abide by and adhere to all
restrictions and all other terms, covenants and conditions of the Prime Lease.
Nothing contained in this Agreement shall be construed as a guarantee by Prime
Tenant of any of the obligations, covenants, warranties, agreements or
undertakings of the Landlord in the Prime Lease, nor as an undertaking by
Prime Tenant to Too, Inc. on the same or similar terms as are contained in the
Prime Lease.
(c) In the event of any breach by Too, Inc. of any term, covenant or
condition of this Agreement, in addition to the rights and remedies provided
in this Agreement, Prime Tenant shall have all the rights against Too, Inc. as
would be available to the Landlord against Prime Tenant as tenant under the
applicable Prime Lease if such breach were by Prime Tenant thereunder,
including the right to terminate the sublease under circumstances and upon
notice to Too, Inc. that is similar to that which the applicable Landlord
would be entitled to assert against Prime Tenant under the applicable Prime
Lease.
4. Term; Renewals.
(a) The term of the sublease granted herein with respect to each of
the Subleased Premises shall be coextensive, less one day, with the Lease Term
of the corresponding Prime Lease, unless sooner terminated as provided herein.
Too, Inc. acknowledges that the Lease Term shall not include renewal or
extension options exercisable by Prime Tenant (whether or not Prime Tenant in
fact exercises same) and that the exercise of any such option shall be
determined by Prime Tenant in its sole and absolute discretion.
(b) Prime Tenant will notify Too, Inc. no later than the 60th day
prior to the expiration of any renewal or extension option in respect of the
Prime Lease if Prime Tenant has determined not to exercise any such option,
and will first offer to assign the Prime Lease to Too, Inc., to the extent
permitted under such Prime Lease or by the Landlord, or otherwise to cooperate
with Too, Inc. to allow Too, Inc., in its discretion, to exercise any such
option with respect to the Leased Premises, so long as Limited and its
Affiliates have no responsibility or liability
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under the Prime Lease after expiration of the Lease Term (without giving
effect to such renewal option). If Too, Inc. decides to, and is permitted to,
assume the Prime Lease on such terms, then Too, Inc. shall assume
responsibility for and pay any and all costs relating to such premises
(including, without limitation, all liabilities and obligations under the
Prime Lease as so extended). Too, Inc. acknowledges that in the event of any
expiration of a Lease Term, this Agreement shall terminate with respect to the
corresponding Prime Lease.
(c) If Prime Tenant desires to renew or extend a Prime Lease, then it
shall notify Too, Inc. thereof no later then 60 days prior to the expiration
of the applicable Prime Lease. Within 10 days of Too, Inc.'s receiving such
notice, it shall notify Prime Tenant as to whether it wishes to remain in the
Leased Premises. If both parties have decided to renew or extend their
respective lease arrangements, then, unless otherwise agreed, the parties
shall each negotiate and enter into separate lease arrangements with the
applicable Landlord with respect their respective premises, and the parties
shall divide Ratably all Store Separation Costs relating to such premises. If
Prime Tenant intends to extend or renew the Prime Lease notwithstanding that
Too, Inc. has not elected to continue its sublease arrangements, and Prime
Tenant does not intend to use all of the floor space in the Prime Lease, then
Prime Tenant shall assume responsibility for and pay all Store Separation
Costs which the Landlord may require in relation to such premises in exchange
for Landlord's consent to such renewal or extension.
5. Utilities/Other Services.
(a) Except as otherwise specified herein, the only services,
utilities or rights to which Too, Inc. is entitled under this Agreement with
respect to the Subleased Premises are those to which the applicable Prime
Tenant is entitled from the Landlord under the applicable Prime Lease and
Prime Tenant shall have no liability to Too, Inc. for the failure to provide
such services, utilities or rights unless such failure is the result of some
act or omission of Prime Tenant under the Prime Lease. In addition, Too, Inc.
shall not, without the consent of Prime Tenant, claim any entitlement to
utility services greater than that which it was receiving (if Too, Inc. was in
possession) prior to the date hereof.
(b) If any utility services to the Leased Premises are not separately
metered as between the Subleased Premises and the remainder of the Leased
Premises, the accounts shall be in the name of Prime Tenant, or the Landlord
if required by the Prime Lease, and the payments to the utility companies or
the Landlord, as the case may be, shall be shared pro rata by Too, Inc., Prime
Tenant and any other occupant of the premises based on their respective Space
Size Ratios, and without regard to consumption. Either party shall have the
right to cause the utility services furnished to their respective premises to
be separately
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<PAGE>
metered or sub-metered, subject to applicable law and the
obtaining of any necessary consent from the Landlord and provided that the
party causing separate metering or sub-metering pays all costs and expenses
related thereto and that the other party's utility services are not thereby
diminished. For so long as utility services in respect of the Subleased
Premises are paid for by Landlord or Prime Tenant, they shall be considered to
be "monetary obligations" for purposes of Section 6 and invoiced and paid in
accordance therewith.
6. Monetary Obligations Under the Prime Lease.
(a) Except as specified in Section 7 and except with respect to
Percentage Rent, all monetary obligations of Prime Tenant (including, without
limitation, base, fixed or minimum rent, common area maintenance charges, real
estate taxes and assessments, insurance charges, waste removal, merchants
association dues, marketing, advertising and other promotional fund
contributions, utilities (if applicable), HVAC and chilled water charges,
whether same are payable pursuant to the Prime Lease, any other covenant or
restriction, or otherwise) shall be shared pro rata by Too, Inc. and Prime
Tenant in proportion to their respective Space Size Ratios. Any Excess Rent
payable under a Prime Lease shall be paid exclusively by Prime Tenant, and
shall not be passed on to, or payable by, Too, Inc.
(b) On or before the 14th day of each fiscal month of Limited, the
Prime Tenant shall provide an invoice to Too, Inc. setting forth Too, Inc.'s
pro rata share of such fiscal month's estimated monetary obligations for all
Subleased Premises. To the extent that the estimated payment invoiced by Prime
Tenant in respect of any such fiscal month ultimately differs from Too, Inc.'s
pro rata share of the monetary obligations actually incurred by Prime Tenant
in such fiscal month, Prime Tenant's monthly invoice in the following fiscal
month shall include an adjustment to correct such difference; provided that
any failure by Prime Tenant to effect such adjustment shall not preclude such
Prime Tenant from effecting such adjustment at any subsequent time. Too, Inc.
shall pay to the Prime Tenant, on or before the last day of each fiscal month
of Limited, the amount so invoiced. Too, Inc. may request to audit the source
of Prime Tenant's billing records up to twice per year. All costs of any such
audit will be paid by Too, Inc. unless the audit reveals there to have been an
overcharge by Limited in excess of 5%, in which case the costs of such audit
shall be shared equally by Limited and Too, Inc.. The scope of any audits will
be limited to charges paid by the Prime Tenant and invoiced to Too, Inc. All
monthly payments by Too, Inc. will be due regardless of any dispute regarding
any payments hereunder; and retroactive adjustments, if any, will be paid
following dispute resolution procedure set forth in Section 34. Any remedial
payments made by either party shall be without interest, except that remedial
payments relating to a period ending more than 30
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<PAGE>
days prior to the
commencement of the applicable audit shall bear interest at the prime rate (as
quoted from time to time in the Wall Street Journal).
(c) If rent under a Prime Lease is based upon Percentage Rent, then
such rent shall be divided between Prime Tenant and Too, Inc. in proportion to
the percentage which each party's Gross Sales in the store occupied under such
Prime Lease represents of the total Gross Sales attributable to such store.
Too, Inc. shall pay its share of the Percentage Rent to Prime Tenant for any
fiscal month on or before the last day of the following fiscal month.
(d) Too, Inc. agrees to provide the relevant Prime Tenant promptly
with all sales and other information as may be reasonably requested by such
Prime Tenant in connection with the calculation of the Prime Tenant's monetary
obligations to the relevant landlord required under the relevant Prime Lease
or in connection with Prime Tenant's calculation of Percentage Rent or Excess
Rent. At Prime Tenant's request, Too, Inc. shall certify the accuracy of any
information so submitted.
(e) All obligations of Too, Inc. hereunder shall survive the
termination of the relevant Prime Lease or the sublease hereunder for the same
period that the relevant Prime Tenant has any obligation to the relevant
Landlord.
7. Non-Monetary Obligations.
(a) Except as set forth in subsection (b), if any non-monetary
obligation of the tenant under a Prime Lease, other than those for which
specific provision is made in this Agreement, is not attributable either to
the Subleased Premises exclusively or the remainder of the Leased Premises
exclusively (e.g., the maintenance of insurance or the repair of any HVAC unit
serving the entire Leased Premises or the roof), such obligation shall be
performed by Prime Tenant and the cost of performing same shall be shared pro
rata by Too, Inc. and Prime Tenant based on their respective Space Size
Ratios, unless the parties have agreed to a different cost-sharing arrangement
under a separate written agreement.
(b) If any individual capital expenditure or repair is estimated to
be in excess of $50,000, Prime Tenant shall notify Too, Inc. of such estimate
prior to entering into any binding agreement with respect thereto, and Too,
Inc. shall have the right (i) to challenge such estimate or find a lower
estimate within 10 business days of receiving such notice from Prime Tenant
and (ii) to decline to share the costs of such capital expenditure or repair
if the remaining term of the applicable sublease is less than one year (unless
such expenditure or repair is reasonably necessary or is mandated by the Prime
Lease, in which case Too, Inc. may pay only its ratable share of the costs of
any reasonable, lower cost alternative which
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would be permissible under the Prime Lease if the Prime Tenant were not
renewing the Prime Lease upon its expiration).
8. Tenant Inducements
(a) The parties acknowledge that all monetary tenant inducements
arising prior to the date hereof, including, without limitation, tenant
improvement allowances and moving allowances, under a Prime Lease have been or
will be received by Prime Tenant for its sole and exclusive benefit, unless
the parties have made prior arrangements (through a written agreement) to
share any such monetary inducement. Except as specified in paragraph (c), all
monetary inducements arising after the date hereof, including, without
limitation, tenant improvement allowances, moving allowances and key money,
under a Prime Lease shall be shared pro rata by Too, Inc. and Prime Tenant
based on the applicable Space Size Ratios, unless otherwise agreed by the
parties under a separate written agreement. Any reporting obligation to
Landlord arising under Section 110 of the Internal Revenue Code in respect of
tenant inducements shall be effected jointly by Prime Tenant and Too, Inc. if
such tenant inducements relate wholly or partially to the Subleased Premises.
(b) Except as specified in paragraph (c), if a Prime Tenant is
entitled to an abatement or reduction of rent (e.g., as a result of a
condemnation or casualty) under a Prime Lease, as same exists as of the date
hereof, Too, Inc. shall be entitled to a share of such abatement or reduction
of rent in an equitable manner taking into account the extent to which the
Subleased Premises are affected by the circumstances resulting in such
abatement or rent reduction.
(c) If a Prime Tenant or Limited recovers from a landlord under a
Prime Lease, whether before, on or after the Distribution Date, any amounts in
respect of such Prime Lease (including without limitation common area charges,
maintenance or related charges) in respect of any period ending on or prior to
the Distribution Date, such amounts shall belong exclusively to Prime Tenant
or Limited (regardless of whether such amounts are actually paid or take the
form of a reduction or abatement in rent or other charges otherwise
subsequently payable to Landlord under the Prime Lease). If, however, Prime
Tenant becomes entitled at any time after the Distribution Date to any
abatement or reduction in common charges, maintenance or related charges
relating, in each case, solely to the period or periods commencing after the
Distribution Date, then Prime Tenant and Too, Inc. shall share such abatement
or reduction in proportion to their respective Space Size Ratios after the
party incurring any out-of-pocket costs and expenses related to obtaining such
abatements and reductions has been fully reimbursed for such costs and
expenses.
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9. Tenant Termination Rights.
Subject only to Prime Tenant's obligations set forth in Section 18,
all rights of the tenant to terminate a Prime Lease, including, without
limitation, any "kickout" or "cotenancy" rights or rights to terminate in the
event of a casualty or condemnation or default of the Landlord, shall belong
exclusively to Prime Tenant and may be exercised by Prime Tenant in its sole
and absolute discretion without liability to Too, Inc.; provided, that Prime
Tenant will promptly notify Too, Inc. of its intent to terminate a Prime Lease
and will first offer to assign the Prime Lease to Too, Inc., to the extent
permitted under such Prime Lease or by the Landlord, so long as neither Prime
Tenant nor any of its Affiliates has any responsibility or liability under the
Prime Lease after such assignment. Too, Inc. acknowledges that in the event of
any such termination, this Agreement shall terminate with respect to such
Prime Lease.
10. Access; Alterations.
(a) The parties acknowledge that certain of the Leased Premises may
be configured in such a manner that Prime Tenant may need access to the
Subleased Premises and Too, Inc. may need access to the remainder of the
Leased Premises for purposes of maintaining or making adjustments or repairs
to facilities (e.g., pipes, conduits, electrical and telecommunication wiring,
etc.) serving such party's premises or for purposes of using restroom
facilities or stock or storage rooms or for such other reasonable purposes.
The parties hereby grant each other access through their respective premises
for such purposes, provided that such access is limited to business hours (or,
if outside of regular business hours, is requested at least 48 hours in
advance) and the party exercising such right does not unreasonably interfere
with the business of the other party.
(b) No party may make any alterations to its premises that would
adversely affect the other party's business or use or occupancy of its
premises, including without limitation any alterations that would (i) reduce
the availability of utilities, HVAC or other services to the other party's
premises, (ii) impair access to the other party's premises or (iii) cause the
other party's premises not to comply with applicable law. No party make may
make any alterations or effect any renovations to its premises without first
obtaining all necessary consents from the Landlord and any other necessary
persons, and ensuring the compliance of such alterations or renovations with
applicable building codes. The party making such alterations or renovations
shall bear the entire cost of obtaining such consents and ensuring such
compliance.
(c) If either Prime Tenant or Too, Inc. seeks, in one or more
projects in any twelve consecutive months, to remodel premises which are the
subject of a
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Prime Lease or which otherwise abut upon Adjacent Premises, and the total
budgeted or actual cost of such renovations exceeds $160,000, then the party
undertaking such renovations shall notify the other party of its renovation
plans and budget and Prime Tenant and Too, Inc. shall cooperate and use
reasonable efforts (i) to obtain the consent of the lessor of such premises to
the physical separation of the Prime Tenant store from the Too, Inc. store and
(ii) to ensure that such renovations comply with all applicable building
codes. If such consent is granted and such codes can be complied with, then
the party undertaking such renovations shall pay all Store Separation Costs
reasonably necessary to physically separate, in a manner and to an extent
mutually satisfactory to Prime Tenant and Too, Inc., the Too, Inc. store
premises from the Adjacent Premises.
11. Assignment and Subletting.
(a) Too, Inc. may not assign this Agreement, or allow it to be
assigned, in whole or in part, by operation of law or otherwise or mortgage or
pledge the same, or sublet the Subleased Premises, or any part thereof (any of
the foregoing transactions is herein referred to as a "Transfer"), without the
prior written consent of Prime Tenant, which consent may be withheld by Prime
Tenant in its sole and absolute discretion without regard to standards of
reasonableness. Notwithstanding the foregoing, but subject to the terms of the
Prime Lease, Too, Inc. may effect a Transfer, without the consent of Prime
Tenant, to an Affiliate of Too, Inc., provided that if at any time after such
permitted Transfer the transferee is no longer an Affiliate of Too, Inc., the
event terminating such affiliation shall be deemed a Transfer subject to Prime
Tenant's consent pursuant to the preceding sentence.
(b) In the event of any Transfer, whether or not Prime Tenant grants
its consent to such Transfer or withholds its consent to such Transfer, Too,
Inc. shall remain fully liable to perform its duties under this Agreement
following a Transfer. If Too, Inc. enters into a Transfer, Too, Inc. shall pay
to Prime Tenant 50% of all consideration received by Too, Inc. in such
transaction (as rent or inducement for such Transfer) that is in excess of the
total sums that Too, Inc. is obligated to pay Prime Tenant under this
Agreement, or the prorated portion thereof if only a portion of the Subleased
Premises is Transferred; provided that if the Prime Lease requires that any
such excess amounts received in connection with any Transfer be remitted to
the Landlord under the Prime Lease, then all such amounts shall be so
remitted.
(c) Any proposed Transfer shall also be subject to the restrictions
and requirements set forth in the Prime Lease. Any purported Transfer
consummated in violation of the provisions of this Section 11 shall be null
and void and of no force or effect.
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(d) If Prime Tenant intends to assign a Prime Lease or further sublet
the Leased Premises exclusive of the Subleased Premises to a person or entity
that is not an Affiliate of Limited, Prime Tenant shall give Too, Inc. written
notice of such proposed assignment or sublease at least 60 days prior to the
effective date of such assignment or sublease, and Too, Inc. shall have the
right to terminate this Agreement with respect to such Prime Lease by giving
written notice thereof to Prime Tenant prior to such effective date. Too,
Inc.'s termination notice shall specify the termination's effective date,
which shall be no later than 60 days after the effective date of Prime
Tenant's assignment or sublease. If Too, Inc. does not elect to terminate this
Agreement with respect to such Prime Lease or such assignment or sublease is
to an Affiliate of Limited, the following shall be conditions precedent to the
effectiveness of such assignment or sublease:
(i) in the case of an assignment, Prime Tenant shall cause
the assignee to assume and be bound by the terms of this Agreement,
but only to the extent such terms apply to such Prime Lease, and,
notwithstanding such assignment, Prime Tenant shall not be released
from and shall remain fully liable under the terms of this Agreement
with respect to such Prime Lease; and
(ii) in the case of a sublease, Prime Tenant shall cause the
transferee to acknowledge the rights of Too, Inc. under this
Agreement with respect to the Subleased Premises and the remainder of
the Leased Premises and agree that its possession is subject to such
rights of Too, Inc.
Any sublet or assignment by Prime Tenant to a non-Affiliate under this
Section shall not be deemed to be an early termination of the Prime Lease by
Prime Tenant for purposes of Section 18 hereof unless Prime Tenant, in its
discretion, concludes that such sublease or assignment would materially impair
Too, Inc.'s business as then conducted in the adjacent Subleased Premises.
Furthermore, if, as a condition to such sublease or assignment, the Prime
Tenant is obliged to incur Store Separation Costs:
(x) in excess of $160,000, then such costs shall be paid
entirely by Prime Tenant, or
(y) of $160,000 or less, then such costs shall be divided
Ratably by Prime Tenant and Too, Inc.,
and, in either case, the sublessee or assignee shall be relieved of any
obligation it might otherwise have hereunder to pay any such costs in respect
of the subleased or assigned premises.
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12. Shared Back Rooms in Adjacent Premises.
With respect to Adjacent Premises which share back rooms, Prime
Tenant and Too, Inc. agree, as practicable, to take all steps reasonably
necessary in order to physically segregate and secure their respective
inventory in such back rooms. The cost of any renovations necessary to achieve
this end shall be divided Ratably among Prime Tenant, Too, Inc. and any other
tenant sharing such premises.
13. No Default Under Prime Lease.
(a) Too, Inc. shall do nothing nor permit anything to be done that
would cause the Prime Lease to be terminated or forfeited because of any right
of termination or forfeiture reserved or vested in the Landlord under the
Prime Lease or that would cause Prime Tenant to be in default under the Prime
Lease or to pay damages or any penalty (e.g., late charges). Except as may be
due to the default by Prime Tenant under the Prime Lease or except as may be
due to the negligence or willful misconduct of Prime Tenant, Too, Inc. will
defend, indemnify and hold harmless Limited and its Affiliates from and
against all claims, damages, losses, liabilities, obligations and costs
(including, without limitation, reasonable attorney's fees) of any kind
arising from any breach or default on the part of Too, Inc. by reason of which
the Prime Lease is or may be terminated or forfeited or Prime Tenant found to
be in default thereunder or the Landlord is or may be entitled to damages or a
penalty.
(b) Prime Tenant shall do nothing nor permit anything to be done that
would cause the Prime Lease to be terminated or forfeited because of any right
of termination or forfeiture reserved or vested in the Landlord under the
Prime Lease or that would cause Prime Tenant to be in default under the Prime
Lease or to pay damages or any penalty (e.g., late charges); provided that the
foregoing shall not limit the rights of Prime Tenant to early terminate a
Prime Lease pursuant to Section 18. Except as may be due to the default by
Too, Inc. under this Agreement or except as may be due to the negligence or
willful misconduct of Too, Inc., Prime Tenant will defend, indemnify and hold
harmless Too, Inc. from and against all claims, damages, losses, liabilities,
obligations and costs (including, without limitation, reasonable attorney's
fees) of any kind arising from any breach or default on the part of Prime
Tenant by reason of which the Landlord is or may be entitled to damages or a
penalty.
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14. Prime Leases.
Limited shall make available to Too, Inc. a copy of any Prime Lease
requested by Too, Inc.. Too, Inc. acknowledges that it has been provided with
an opportunity to make copies of such Prime Leases as it desires, and that it
accepts to be bound by all of the obligations of the Prime Leases as if it
were a party thereto.
15. Consent/Approvals.
To the extent that the Landlord under a Prime Lease has reserved the
power to consent to or to object to an action to be performed by the tenant
under the Prime Lease, Prime Tenant reserves the same right to consent to or
object to such action by Too, Inc. under this Agreement. If Too, Inc. seeks a
consent or approval from Prime Tenant with respect to any matter to which such
consent or approval is required under this Agreement or the Prime Lease, then
(i) the time period, if any, in which Prime Tenant shall be required to
respond to Too, Inc. shall be extended by ten days after the expiration of any
time period in which the Landlord has to respond under the Prime Lease and
(ii) the denial of such consent or approval by the Landlord shall be
conclusive and binding on Too, Inc.; provided that, where consent or approval
of the Landlord under a Prime Lease is required, Prime Tenant shall use good
faith efforts, unless a different standard is specified herein with respect to
a particular matter, to obtain such consent or approval from the Landlord,
except that nothing herein shall require Prime Tenant to make any payment, or
to amend any terms of such Prime Lease in a way that would have an adverse
effect on Prime Tenant, in respect of such consent or approval.
16. Default Notice from Landlord.
If Prime Tenant receives a notice of default from the Landlord with
respect to any matter pertaining to the Subleased Premises or any obligation
of Too, Inc. under this Agreement, Prime Tenant shall immediately notify Too,
Inc. of same in writing, and if Too, Inc. fails to promptly commence the cure
of such default or fails to cure such default as of a date that is at least 15
days prior to the expiration of the applicable cure period under the Prime
Lease, Prime Tenant shall have the right, but no obligation, to immediately
cure such default and Too, Inc. shall reimburse Prime Tenant for the costs
incurred in connection with curing such default within 30 days after receipt
of an invoice therefor from Prime Tenant.
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17. Signage.
Too, Inc. shall have the right to maintain any existing signage it
may have in respect of any Subleased Premises. If Too, Inc. does not have a
storefront sign in respect of any Subleased Premises, Too, Inc. shall have the
right to install a sign on the storefront of such Subleased Premises, provided
the same is permitted under the Prime Lease as well as the Trademark and
Service Mark Licensing Agreement, dated the date hereof, between Limco, Inc.
and LimToo, Inc., and does not impair the rights of Prime Tenant to maintain
signage on its storefront. If any Leased Premises does not have a separate
storefront for each party, the parties shall mutually agree on the locations
of their respective signs.
18. Early Discretionary Termination of Prime Lease by Prime Tenant.
(a) If Prime Tenant decides to early terminate a Prime Lease (other
than pursuant to the exercise of "kickout" rights, "cotenancy" rights or any
right to terminate in the event of a casualty or condemnation or default of
the Landlord), or if any event of default occurs under a Prime Lease
attributable to any cessation of operations by Prime Tenant which could or
does give rise to Landlord's right to early terminate such Prime Lease, then
the Prime Tenant shall offer to assign the Prime Lease to Too, Inc., to the
extent permitted under such Prime Lease or by the Landlord, so long as neither
Limited nor any of its Affiliates has any responsibility or liability under
the Prime Lease after such assignment. If Too, Inc. elects to assume the
entire Prime Lease on such terms, and the Landlord consents thereto, then the
parties shall cause such assignment to be effective no later than the date on
which the Prime Lease would otherwise have been terminated pursuant to the
first sentence hereof (such date, as well as any date on which a Prime Lease
is actually terminated, being herein referred to as a "Lease Early Termination
Date").
(b) If a Prime Lease has been early terminated in accordance with
this Section 18 then, subject to subsection (c) hereof, Prime Tenant or its
Affiliates shall provide to Too, Inc. a combination of cash and loans for each
Prime Lease so terminated, as set forth below, in accordance with the number
of years remaining in the applicable Lease Term after the applicable Lease
Early Termination Date:
Remaining Term of
Prime Lease Cash Payment Loan Amount
----------- ------------ ------------
Less than one year -- $ 100,000.00
One to two years $ 50,000.00 $ 100,000.00
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Three to four years $ 100,000.00 $ 100,000.00
Greater than four years $ 100,000.00 $ 150,000.00
All such amounts shall be funded by Limited or one of its Affiliates to Too,
Inc. no later than the 90th day after the applicable Lease Early Termination
Date.
(c) Too, Inc. shall be entitled to the cash payments and loans pursuant
to subsection (b) or (e) if and only if:
(x) (i) Too, Inc. continues to have store operations in
excess of 1,000 square feet of selling space in the shopping mall or
other commercial premises in which the relevant Prime Lease was
located during and after the 90-day period commencing on the
applicable Lease Early Termination Date, or (ii) Too, Inc. reopens
another store within such shopping mall or commercial premises within
a year of the Lease Early Termination Date; and
(y) Too, Inc. shall operate a store in the shopping mall or
other commercial premises in which the corresponding Prime Lease was
located for (A) more than 18 months after (i) the Lease Early
Termination Date, if Too, Inc. maintained a store presence in the
Subleased Premises on and after the Lease Early Termination Date, or
(ii) the date on which Too, Inc. reopened a store in accordance with
clause (x)(ii) above, if Too, Inc. vacated the Subleased Premises on
or before the Lease Early Termination Date or (B) the remainder of the
lease term for the stores where the balance of the Prime Lease term is
less than a year.
(d) Any loans made available by Limited or its Affiliates pursuant to
subsection (b) hereof shall have the following terms: (i) principal of the
loan shall be repaid in one installment on the fifth anniversary of the making
of such loan, (ii) interest shall accrue at a rate equal to Limited's
five-year borrowing rate in effect from time to time and shall be payable
annually in arrears by Too, Inc, (iii) each loan shall be prepayable in whole
or in part (together with accrued but unpaid interest thereon) at any time
prior to the due date, and (iv) each loan shall have other terms and
conditions customary for similar loans.
(e) At any time after Limited or its Affiliates have closed pursuant
to this Section 18 an aggregate of 98 stores to which Too, Inc. has Adjacent
Premises, Limited or one of its Affiliates shall, subject to subsection (c)
hereof, pay to Too, Inc. no later than the 90th day after the applicable Lease
Early Termination Date an additional cash payment of $50,000 (which amount
shall be
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in addition to any other cash or loan amount payable to Too, Inc.
under this Section 18) for each additional Limited store (x) which a Prime
Tenant closes, (y) to which Too, Inc. has Adjacent Premises and (z) as to
which the remaining term of the Prime Lease at the time of such closure is
greater than four years.
(f) If, on any date after the payment to Too, Inc. of any
compensatory amounts pursuant to this Section 18, Too, Inc. loses its right to
such compensation pursuant to paragraph (c) hereof, then Too, Inc. shall
promptly after the date of such loss (and in any event no later than the 60th
day after the date of such loss) repay to Limited (x) all cash amounts paid to
Too, Inc. under this Section 18 (together with interest accrued on such cash
payments from the date of Too, Inc.'s non-compliance through the date of
repayment by Too, Inc. at a rate equal to the rate of interest charged to Too,
Inc. on the loans extended pursuant to Section 18) and (y) all loans (together
with accrued but unpaid interest thereon through the date of repayment)
extended to Too, Inc., in each case with respect to the store or stores for
which compensation was provided to Too, Inc. pursuant to paragraphs (b) or (e)
hereof.
(g) Too, Inc. acknowledges that any amount received pursuant to this
Section 18 shall constitute complete satisfaction of any claims that it might
otherwise have against Limited or any Affiliate of Limited, whether in tort or
contract, in any way related to Prime Tenant's early termination of a Prime
Lease, and hereby waives, to the maximum extent permitted by law, any such
claim. Too, Inc. hereby also waives any right, claim or entitlement that it
may have to any other type or amount of payment for any early termination of a
Prime Lease by Prime Tenant, regardless of the actual costs incurred by Too,
Inc., any loss of business to Too, Inc., any consequential damages or losses
to Too, Inc. or any disruption experienced by Too, Inc. as a result of such
early termination by Prime Tenant.
(h) Any cash payment made pursuant to this Section 18 (exclusive of
loan amounts) in connection with the termination of a store occupying
Subleased Premises is being made in cancellation of the sublease hereunder, in
accordance with Section 1241 of the Internal Revenue Code. Too, Inc. and each
Prime Tenant hereby expressly acknowledge that Prime Tenant is receiving no
present or future benefit in respect of such cancellation in connection with
the Leased Premises or other premises.
(i) Too, Inc. agrees that if it enters into any agreement or
instrument providing for an incurrence or guarantee of indebtedness for
borrowed money by Too, Inc. or any of its subsidiaries (including without
limitation any agreement or instrument relating to term loans, revolving
loans, lines of credit, reimbursement obligations in respect of letters of
credit, notes or bonds), it shall provide in such
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agreement or instrument that all obligations of Too, Inc. or its subsidiaries
thereunder shall be subordinated to the obligations of Too, Inc. arising under
the loans contemplated by this Section 18; provided that the foregoing shall
not apply to the credit agreement to be entered into by Too, Inc. prior to the
Distribution Date in connection with the spin-off of Too, Inc. to the
shareholders of Limited, or to any refinancing thereof (unless such
refinancing provides for a maximum borrowing greater than that under the
original credit agreement).
(j) All obligations of Limited under paragraphs (b) and (e) shall
terminate if Too, Inc. fails to comply with its obligations hereunder with
respect to two or more stores.
19. Indemnity; Subrogation.
(a) Prime Tenant shall defend, indemnify and hold harmless Too, Inc.
and its employees, officers, directors, partners and agents against and from
any and all claims, liabilities, demands, fines, suits, actions, proceedings,
orders, decrees and judgments (collectively, "Claims") of any kind or nature
by, or in favor of, anyone whomsoever, and against and from any and all costs,
damages and expenses, including attorneys' fees, resulting from, or in
connection with, loss of life, bodily or personal injury or property damage
(i) arising, directly or indirectly, out of, or from, or on account of any
accident or other occurrence in, upon or from the Leased Premises exclusive of
the Subleased Premises or (ii) occasioned in whole or in part through the use
and occupancy of the Leased Premises exclusive of the Subleased Premises or
any construction, repair, alterations or improvements therein or appurtenances
thereto, or by any act or omission of Prime Tenant or any subtenant,
concessionaire or licensee of Prime Tenant (other than Too, Inc. or any of its
Affiliates), or its employees, agents, contractors or invitees in, upon, at or
from the Leased Premises exclusive of the Subleased Premises.
(b) Too, Inc. shall defend, indemnify and hold harmless Limited and
its Affiliates, employees, officers, directors, partners and agents against
and from any and all Claims of any kind or nature by, or in favor of, anyone
whomsoever, and against and from any and all costs, damages and expenses,
including without limitation attorneys' fees, resulting from, or in connection
with, loss of life, bodily or personal injury or property damage (i) arising,
directly or indirectly, out of, or from, or on account of any accident or
other occurrence in, upon or from the Subleased Premises or (ii) occasioned in
whole or in part through the use and occupancy of the Subleased Premises or
any construction, repair, alterations or improvements therein or appurtenances
thereto, or by any act or omission of Too, Inc. or any subtenant,
concessionaire or licensee of Too, Inc., or its employees, agents, contractors
or invitees in, upon, at or from the Subleased Premises.
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(c) Each party hereto (the "Releasing Party") hereby releases the
other (the "Released Party"), from any loss, damage, claim or liability which
the Released Party would, but for this Section 19(c), have had to the
Releasing Party arising out of or in connection with any damage to the
property of the Releasing Party to the extent such damage or the cause thereof
is covered by insurance maintained by the Releasing Party. Such insurance
coverage maintained shall be deemed to include any deductible or self-insured
retention in effect or permitted pursuant to this Agreement. SUCH RELEASE
SHALL EXTEND TO ANY LOSS, DAMAGE, CLAIM OR LIABILITY THAT MAY HAVE RESULTED IN
WHOLE OR IN PART FROM ANY ACT OR NEGLECT OF THE RELEASED PARTY, ITS OFFICERS,
AGENTS OR EMPLOYEES. Each party hereto shall immediately give to each
insurance company which has issued to it property insurance policies written
notice of the terms of such mutual releases and have such insurance policies
properly endorsed, if necessary, to prevent the invalidation of such insurance
coverages by reason of such releases and to waive the Releasing Party's
insurer's right of subrogation that would exist had the Releasing Party not
given the foregoing release.
20. Required Notice Under Prime Lease.
Too, Inc. shall promptly give written notice to Prime Tenant of (i)
all claims, demands or controversies by or with the Landlord under the Prime
Lease or (ii) any injury, death or property damage arising on or about the
Subleased Premises. Prime Tenant shall promptly give written notice to Too,
Inc. of (i) all claims, demands or controversies by or with the Landlord under
the Prime Lease with respect to the Subleased Premises or (ii) any injury,
death or property damage arising on or about the Leased Premises.
21. Accepting Subleased Premises "As Is".
Too, Inc. represents that it is familiar with the Subleased Premises
and has inspected same prior to the date hereof. Too, Inc. accepts and has
accepted possession of the Subleased Premises "as is". Too, Inc. acknowledges
that, notwithstanding anything to the contrary in the Prime Lease, Prime
Tenant has made no representations or warranties with respect to the Subleased
Premises or to the condition thereof.
22. No Waiver.
The failure of a party to insist in any instance upon the strict
keeping, observance or performance of any covenant, agreement, term, provision
or condition of this Agreement or to exercise any election herein contained
shall not be construed as a waiver or relinquishment for the future of such
covenant,
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agreement, term, provision, condition or election, but the same
shall continue and remain in full force and effect. No waiver or modification
by a party of any covenant, agreement, term, provision or condition of this
Agreement shall be deemed to have been made unless expressed in writing and
signed by such party. No surrender by Too, Inc. of possession of the Subleased
Premises or of any part thereof or of any remainder of the term of this
Agreement shall release Too, Inc. from any of its obligations hereunder.
23. Lease Guarantees.
(a) Limited shall continue to guarantee the full amount of lease
payments under each Guaranteed Lease until any of the following occurs in
respect of a Guaranteed Lease:
(i) the initial Lease Term in respect of such Guaranteed Lease
(excluding any renewals or extensions thereunder) expires,
or such Guaranteed Lease earlier terminates according to its
terms;
(ii) the first day on which such Guaranteed Lease is amended,
extended or renewed; or
(iii) the first day on which the landlord under such Guaranteed
Lease consents to any amendment to or waiver under the
Guaranteed Lease (other than any consent, amendment or
waiver relating to the spin-off of Too, Inc. on the
Distribution Date).
Upon the earliest occurrence of any of the preceding with respect to any
Guaranteed Lease, Limited's guarantee obligations in respect of such
Guaranteed Lease shall immediately cease, and such lease shall be deemed to
have been deleted from Schedule 2 hereto.
(b) Limited shall have no obligation to provide any guarantee or
other assurance for any lease entered into, modified or amended by Too, Inc.
after the Distribution Date.
24. Amounts Payable Upon Achievement of Threshold Sales.
(a) No later than the first Sunday of each fiscal month of Limited,
Too, Inc. shall provide to Limited a data file, in a file format acceptable to
both parties, with the following information: (i) for each store occupying
Subleased Premises, the prior fiscal month's Gross Sales and (ii) for each
store which is the subject of a Guaranteed Lease, the prior fiscal month's
total sales and Excess Rent paid to third party landlords. In furtherance of
and not in limitation of the
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foregoing, Too, Inc. shall provide to Limited
such further information as Limited may request in order to comply with
Limited's obligations to third party landlords.
(b) In addition to any other amounts payable by Too, Inc. hereunder,
Too, Inc. shall also pay to Limited such additional amounts as are set forth
in Schedule 4 hereto as consideration for Limited's guarantee of the
Guaranteed Leases and for the Prime Tenants' implicit guarantee of Subleased
Premises as to which they are the Prime Tenant. On the 14th day after the end
of each fiscal year of Limited, Limited shall furnish to Too, Inc. an invoice
of such additional amounts, calculated by Limited in accordance with Schedule
4 hereto, in respect of all Guaranteed Leases and Subleased Premises. Such
invoice shall be accompanied by sufficient supporting detail to enable Too,
Inc. to verify the calculations and the amounts due to Limited. Too, Inc.
shall pay all such amounts in full by no later than 30 days after the
submission of such invoice, whether or not all or any part of any amount so
invoiced by Limited is being disputed by Too, Inc.
25. Notices.
Any notice or demand which either party may or must give to the other
under this Agreement shall be given in the same manner for giving notices
under the Prime Lease, but addressed as follows:
If to Limited or any
Prime Tenant: The Limited, Inc.
Three Limited Parkway
P.O. Box 16000
Columbus, Ohio 43216
(Columbus, Ohio 43230 for non-U.S. mail)
Attn: C. David Zoba,
Senior Vice President
If to Too, Inc.: Too, Inc.
3885 Morse Road
Columbus, Ohio 43219
Attn: Kent A. Kleeberger,
Chief Financial Officer
Either party may, by notice in writing, direct that future notices or demands
be sent to a different address.
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26. Successors.
Subject to Section 11, the covenants and agreements herein contained
shall bind and inure to the benefit of Limited, each Prime Tenant and Too,
Inc. and their respective permitted successors and assigns.
27. Captions.
The captions or headings of paragraphs in this Agreement are inserted
for convenience only, and shall not be considered in construing the provisions
hereof if any question of intent should arise.
28. Severability.
If any provisions of this Agreement shall be held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions of
this Agreement shall not be affected thereby.
29. Governing Law.
This Agreement shall be construed in accordance with, and governed
by, the laws of the State of Ohio.
30. Further Assurances.
Limited, each Prime Tenant and Too, Inc. shall execute, acknowledge
and deliver such instruments and take such other action as may be necessary or
advisable to carry out their rights and obligations under this Agreement,
including the execution of any agreement or instrument required by the
Landlord under the Prime Lease. In addition, if Too, Inc. or a Prime Tenant
desires to enter into a direct and separate lease with a Landlord for the
Subleased Premises or the remainder of the Leased Premises, respectively, the
other party shall cooperate in good faith and likewise agree to enter into a
direct and separate lease for its premises; provided that such other party's
new lease is for a term equal to the term remaining under the Prime Lease and
is on terms at least as favorable as the terms of this Agreement, in the case
of Too, Inc., or the terms of the Prime Lease, in the case of Prime Tenant;
and provided further that the party initiating a separate lease shall (i) pay
the full amount of all Store Separation Costs relating to such premises and
(ii) perform all of the construction and other separation services related to
such premises (such construction and other separation services to be performed
in a manner which does not unreasonably interfere with the operations of the
other party hereto).
22
<PAGE>
31. Amendment to Prime Lease.
No Prime Tenant may make any amendment to a Prime Lease that would
impair or reduce the rights or increase the obligations of Too, Inc. under
this Agreement, without the written consent of Too, Inc., except that Prime
Tenant shall have the right, without Too, Inc.'s consent, to amend the Prime
Lease to reduce or enlarge the Leased Premises so long as the size and space
of the Subleased Premises is not thereby changed, and in such event the Space
Size Ratios shall be adjusted. Prime Tenant reserves the right to amend a
Prime Lease to switch the rental payments from fixed amounts to Percentage
Basis; provided that such change shall not impair or reduce the rights or
increase the obligations of Too, Inc. under this Agreement except with the
written consent of Too, Inc. Except as otherwise provided in Section 8(c)
hereof, any amendments to a Prime Lease made after the date hereof by Prime
Tenant that increases the rights or reduces the obligations of, or grants
monetary or non-monetary inducements to, Prime Tenant shall be shared ratably
(in proportion to the parties' respective Space Size Ratios) between Prime
Tenant and Too, Inc. Prime Tenant shall furnish Too, Inc. with a copy of any
amendment to the Prime Lease.
32. Reasonable Efforts of Prime Tenants.
To the extent in this Agreement that a Prime Tenant has conveyed to
Too, Inc. such utilities, services and similar entitlements as the Landlord
may provide under a Prime Lease, or to which Prime Tenant may be entitled
under a Prime Lease, Prime Tenant agrees and covenants to use its reasonable
efforts to obtain delivery of same to Too, Inc. With respect to all such
entitlements, as well as any covenants, warranties, representations,
obligations or other agreements of the Landlord (not otherwise expressly
limited in this Agreement), Prime Tenant's "reasonable efforts" shall require
the performance by such Prime Tenant, at Too, Inc.'s reasonable request and at
Too, Inc.'s sole cost and expense, of one or more of the following:
(i) the execution by Prime Tenant and delivery to the
Landlord, promptly following receipt of Too, Inc.'s written request
therefor, of notices, requests and other similar writings; and
(ii) the institution by Prime Tenant, promptly following
receipt of Too, Inc.'s written request therefor, of arbitration (if
permitted under the Prime Lease) or legal proceedings to enforce,
interpret or define the Landlord's obligations under the Prime Lease;
provided that any legal proceedings instituted by Prime Tenant
hereunder shall be under the exclusive control of Prime Tenant and
shall include all reasonable preliminary and trial proceedings in the
court of original jurisdiction.
23
<PAGE>
Too, Inc. shall defend, indemnify and hold Limited and its Affiliates
harmless from and against any and all court costs, costs of filing, attorneys'
fees and awards resulting from, or incurred in connection with, legal
proceedings instituted by Prime Tenant pursuant to this Section 32.
33. Reasonableness and Good Faith.
Whenever this Agreement grants a Prime Tenant or Too, Inc. the right
to take action, exercise discretion or make other determinations regarding the
Subleased Premises, each party agrees to act reasonably and in good faith
unless a different standard is specified herein.
34. Arbitration.
Except for the non-payment of rental or other charges due by Too,
Inc. under this Agreement (unless Too, Inc. first pays under protest as
provided for below), or in the event that any action or inaction taken by Too,
Inc. would cause a Prime Tenant to be in default under a Prime Lease, all
disputes and disagreements between such Prime Tenant and Too, Inc. shall be
resolved pursuant to an arbitration proceeding pursuant to the rules of the
American Arbitration Association. The provisions of this Agreement contain the
sole and exclusive method, means and procedure to resolve, as between such
Prime Tenant and Too, Inc., any and all disputes or disagreements, including
whether any particular matter constitutes, or with the passage of time would
constitute, a default. As to any matter submitted to arbitration to determine
whether it would, with the passage of time, constitute a default, such passage
of time shall not commence to run until any such affirmative determination, so
long as it is simultaneously determined that the challenge of such matter as a
potential default was made in good faith, except with respect to the payment
of money. With respect to the payment of money, such passage of time shall not
commence to run in the event that the party which is obligated to make the
payment does in fact make payment to the other party. Such payment can be
accompanied by a good-faith notice stating why the party has elected to make a
payment under protest. Such protest will be deemed waived unless the subject
matter identified in the protest is submitted to arbitration pursuant to this
Section 34.
35. Defaults. If Too, Inc. fails to comply with its obligations
hereunder with respect to two or more stores, then Limited and Prime Tenants
shall have the right (but not the obligation) to treat such failure as a
default by Too, Inc. of its obligations hereunder with respect to any or all
of the Subleased Premises. In such event, Limited may exercise all remedies in
respect of any or all of the Subleased Premises (whether or not such failure
relates to the Subleased Premises with respect to which the remedies are being
exercised by Limited) to
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<PAGE>
the same extent that the Landlord of such Subleased Premises could exercise
remedies against Prime Tenant under the relevant Prime Lease in the event of a
default by such Prime Tenant.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these presents to
be executed the day and year first written above.
THE LIMITED STORES, INC.
By:________________________________________
Name:
Title:
ATTEST:
_________________________________
VICTORIA'S SECRET STORES, INC.
By:________________________________________
Name:
Title:
ATTEST:
_________________________________
LERNER NEW YORK, INC.
By:________________________________________
Name:
Title:
ATTEST:
_________________________________
<PAGE>
EXPRESS, LLC
By:________________________________________
Name:
Title:
ATTEST:
_________________________________
STRUCTURE, INC.
By:________________________________________
Name:
Title:
ATTEST:
_________________________________
THE LIMITED, INC.
By:________________________________________
Name:
Title:
ATTEST:
_________________________________
27
<PAGE>
TOO, INC.
By:________________________________________
Name:
Title:
ATTEST:
_________________________________
28
Exhibit 10.5
FORM OF
TAX SEPARATION AGREEMENT
between
The LIMITED, INC.,
on behalf of itself
and the members
of The LIMITED GROUP
and
TOO, INC.,
on behalf of itself
and the members
of the TOO GROUP
<PAGE>
TAX SEPARATION AGREEMENT
This Agreement is entered into as of the __th day of ___, 1999 between
The Limited, Inc. ("The Limited"), a Delaware corporation, on behalf of itself
and the members of The Limited Group, and Too, Inc. ("Too, Inc."), a Delaware
corporation, on behalf of itself and the members of the Too, Inc. Group.
W I T N E S S E T H:
WHEREAS, pursuant to the tax laws of various jurisdictions, certain
members of the Too, Inc. 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 Too, Inc. intend that The Limited distribute
to its shareholders all of the Too, Inc. common stock held by The Limited (the
"Distribution");
WHEREAS, The Limited and Too, Inc. desire to set forth their agreement
on the rights and obligations of The Limited, Too, Inc. and the members of The
Limited Group and the Too, Inc. 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:
1. Definitions.
(a) As used in this Agreement:
"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. The After-Tax Amount shall reflect, for example, the effect of the
deductions available for interest paid or accrued and for taxes such as state
and local income taxes.
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Combined State Tax" shall mean, with respect to each state or local
taxing jurisdiction, any income, franchise or similar tax (together with any
related interest or penalty) payable to such state or local taxing jurisdiction
in which a member of the Too, Inc. Group files tax returns with a member of The
Limited Group, on a consolidated, combined or unitary basis.
"Deferred Tax Balance" shall mean the amount of deferred tax balance
shown on the schedule attached as Exhibit A, and any amendments thereto.
"Distribution Date" shall mean the date on which the Distribution is
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 IRS
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.
"FY 1998" shall mean the tax year of The Limited ending on January 30,
1999.
"FY 1999" shall mean the tax year of The Limited ending on January 29,
2000.
"IRS" shall mean the Internal Revenue Service.
"Net Book Income" shall mean the amount described as "Income before
Income Taxes" (or comparable item if not titled as such) on the Consolidated
Statement of Income for Too, Inc.
"Post-Distribution Tax Period" means (i) any tax period beginning after
the Distribution Date and (ii) with respect to a tax period that begins before
and ends after the Distribution Date, the portion of the tax period that
commences on the day immediately after the Distribution Date.
2
<PAGE>
"Post-Distribution FY 1999" means the Post-Distribution Tax Period
ending on or before January 29, 2000.
"Pre-Distribution FY 1999" means (i) a Pre-Distribution Tax Period
commencing on or after January 30, 1999, and (ii) with respect to a
Pre-Distribution Tax Period that begins before and ends after the Distribution
Date, the portion of the tax period ending on and including the Distribution
Date.
"Pre-Distribution Tax Period" means (i) any tax period ending before or
on the Distribution Date and (ii) with respect to a period that begins before
and ends after the Distribution Date, the 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.
"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.
"Separate State Tax" shall mean, with respect to each state or local
taxing jurisdiction, any income, franchise or similar tax (together with any
related interest or penalty) payable to such state or local taxing jurisdiction
in which a member of the Too, Inc. Group files a separate state or local tax
return.
"Tax Asset" shall mean any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or any other
loss, 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 tax period in which the information is
relevant, 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 a member of the Too, Inc. Group,
that is eligible to join with The Limited in the filing of (i) for Federal Tax
3
<PAGE>
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 Too, Inc. Group.
"Too, Inc. Federal Tax Liability" shall mean, with respect to any
taxable year, the Too, Inc. Group's Federal Tax liability for such taxable year,
computed as if the Too, Inc. 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 Too, Inc. Group, (B) by taking account of any Tax Asset of the
Too, Inc. Group in accordance with Section 3(c)(iii) hereof, (C) including net
operating loss and capital loss carryforwards and carrybacks and minimum tax
credits from earlier years of the Too, Inc. Group, (D) as though the highest
rate of tax specified 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 Too, Inc.
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 Too, Inc. Group prior to the Distribution Date,
and (G) without regard to gain attributable to the recognition by The Limited of
any excess loss account with respect to the stock of Too, Inc. or by Too, Inc.
of any excess loss account with respect to stock of its subsidiaries, in each
case as a result of the Distribution.
"Too, Inc. Group" shall mean, at any time, Too, Inc. and any direct or
indirect corporate subsidiaries of Too, Inc. that would be eligible to join with
Too, Inc., 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.
4
<PAGE>
"Too, Inc. State Tax Liability" shall mean, with respect to any taxable
year and any jurisdiction, the amount of Separate State Taxes plus the amount of
Combined State Taxes determined in accordance with the principles set forth in
the definition of Too, Inc. 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 Too, Inc. 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 Too, Inc. Group been included in such returns, except to the
extent attributable to the recognition by The Limited of any excess loss account
with respect to the stock of Too, Inc. 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 Too, Inc. Group been included in
the returns of such Combined Jurisdiction.
"Too, Inc. Tax Liability" shall mean, with respect to any taxable year,
the sum of Too, Inc. Combined State Tax Liability and Too, Inc. Federal Tax
Liability.
(b) Any term used in this Agreement that 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 (as
interpreted in administrative pronouncements and judicial decisions) 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 Too, Inc. Group shall be terminated as of
the date of this Agreement. As of the date of this Agreement, neither the
members of the Too, Inc. Group nor the members of The Limited Group shall have
any further rights or liabilities under any such preexisting tax sharing
agreements, and this Agreement shall be the sole tax sharing agreement between
the members of the Too, Inc. Group and the members of The Limited Group.
Notwithstanding the foregoing, if any such termination is not binding on any
taxing authority, the Too, Inc. Group shall hold the affected member of The
Limited Group harmless against any adverse effect that would have been avoided
if such termination had been given effect by such taxing authority.
5
<PAGE>
(b) Designation of Agent. Each member of the Too, Inc. 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 covenants to Too, Inc. 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.
(i) Preparation of Returns. The Limited will prepare,
consistently with past practice and applicable law and with the assistance of
the Too, Inc. Group, the consolidated Federal Tax Returns and Combined State Tax
Returns of The Limited Consolidated Group and the separate returns of Too, Inc
for all Tax Periods that end on or prior to or that include the Distribution
Date. The Limited shall have the right with respect to such Returns to determine
(A) 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, (B) whether any
extensions should be requested, and (C) the elections that will be made by any
member of The Limited Group or the Too, Inc. Group.
(ii) Audits and Refunds. With respect to all consolidated Federal
Tax Returns and Combined State Tax Returns of The Limited Consolidated Group and
separate returns of Too, Inc. for all Tax Periods that end on or prior to or
that include the Distribution Date, The Limited shall have the right to (A)
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, (B) file,
prosecute, compromise or settle any claim for refund, and (C) 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; provided that, with respect to separate returns of Too, Inc.
for periods which include a Post-Distribution Tax Period, The Limited may not
take the actions described above in (A), (B), or (C) of this subparagraph
(c)(ii) without the consent of Too, Inc.
(iii) Delivery of Tax Packages. No later than 60 days after the
Distribution Date, Too, Inc. shall prepare and deliver to The Limited Tax
6
<PAGE>
Packages that include information of the Too, Inc. Group for the
Pre-Distribution Tax Period that includes the Distribution Date. In addition,
Too, Inc. shall prepare and deliver to The Limited Tax Packages that include
information of the Too, Inc. Group for FY 1999 no later than 60 days after the
end of such tax period.
(d) Allocation. The Limited may, at its option, elect and Too, Inc.
will join The Limited (if necessary) in electing to ratably allocate items
(other than extraordinary items) of the Too, Inc. Group in accordance with
relevant provisions of Treasury Regulation Section 1.1502-76. If The Limited
exercises its option to make the election, each member of the Too, Inc. Group
will provide a statement stating its consent to such election as required under
the regulations.
(e) Post-Distribution Tax Period Returns of the Too, Inc. Group. Too,
Inc. shall be solely responsible for the preparation and filing of the Returns
of the Too, Inc. Group for all Post-Distribution Tax Periods that begin after
the Distribution Date.
(f) Short-Year State and Local Returns. The Limited and Too, Inc. agree
that Combined State Tax Returns and separate state and local returns filed for
tax periods beginning prior to the Distribution Date will reflect a short
taxable year for Too, Inc. ending on the Distribution Date in any state or local
taxing jurisdiction in which such tax year is allowed by administrative
practice, whether or not required by law.
3. Tax Sharing.
(a) FY 1998 Tax Sharing. At the time The Limited files The Limited
Consolidated Group's consolidated Federal Tax return for FY 1998, The Limited
shall determine the amount by which the Deferred Tax Balance should be adjusted
to reflect Federal Taxes actually shown on such return. No later than 15 days
after The Limited provides a statement describing the adjustment to the Deferred
Tax Balance, Too, Inc. shall pay to The Limited, or The Limited shall pay to
Too, Inc., as appropriate, an amount equal to the adjustment.
(b) FY 1999 Tax Sharing.
(i) Distribution Payment. Prior to the Distribution, The Limited
shall determine an estimated amount equal to [40.2]% of the Net Book Income of
Too, Inc. for Pre-Distribution FY 1999. Too, Inc. shall pay this amount to The
Limited within 5 days of receipt of notice of the amount.
7
<PAGE>
(ii) True Up of Distribution Payment to Reflect Audited Financial
Statements. No later than 5 days after The Limited receives final audited
financial statements for FY 1999, The Limited shall determine the amount of
difference between (x) [40.2%] of the Net Book Income of Too, Inc. for
Pre-Distribution FY 1999 as stated on the final audited financial statements for
FY 1999 and (y) the estimated amount in paragraph (b)(i) above. No later than 15
days after The Limited provides a statement stating the difference, Too, Inc.
shall pay to The Limited, or The Limited shall pay to Too, Inc., as appropriate,
an amount equal to the difference.
(iii) True Up of Distribution Payment to Reflect Returns as
Filed. At the time The Limited files The Limited Consolidated Group's
consolidated Federal Tax Returns for FY 1999, The Limited shall determine an
amount equal to 40.2% of the timing differences attributable to Too, Inc. for
Pre-Distribution FY 1999. This amount shall be calculated without regard to any
income reflected in such return solely as a result of making the election
provided for in Treasury Regulation Section 1502-76.
(c) Provision of Returns to Too, Inc. and Payment of Post-Distribution
Period Taxes.
(i) Too, Inc. Returns. At the time The Limited files The Limited
Consolidated Group's consolidated Federal Tax Returns for FY 1998 and FY 1999,
The Limited shall deliver to Too, Inc. a copy of the portion of such returns
relating to Too, Inc. At the time The Limited files any Combined State Tax
Returns that include Too, Inc. or any separate state and local tax returns for
Too, Inc., The Limited shall deliver a copy of such returns to Too, Inc.
(ii) Federal Allocation Adjustment. If The Limited elects to
ratably allocate the income of Too, Inc. pursuant to Treasury Regulation Section
1502-76, The Limited shall provide a statement at the time The Limited
Consolidated Group's consolidated Federal Tax Return for FY 1999 is filed that
states the increase, if any, of Federal Tax attributable to the election. No
later than 15 days after the receipt of such statement, Too, Inc. shall pay the
amount to The Limited.
(iii) State Allocation Adjustment. If, by reason of ratably
allocating the income of the Too, Inc. Group for FY 1999 under any state or
local law, regulation or election comparable to the election provided for in
Treasury Regulation Section 1502-76, any State Return of the Limited
Consolidated Group or separate return filed for Too, Inc. reflects an amount of
income attributable to the Too, Inc. Group as a result of the allocation, The
Limited shall prepare a statement which states the amount of additional tax
attributable to the allocation.
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<PAGE>
No later than 15 days after the receipt of such statement, Too, Inc. shall pay
the amount to The Limited.
(iv) State Tax Liability. The Limited shall provide a statement
accompanying each FY 1999 Pro Forma Combined State Return or separate return
filed for Too, Inc. which states the Too, Inc. State Tax Liability with respect
to Post-Distribution FY 1999. No later than 15 days after the receipt of such
statement, Too, Inc. shall pay the amount to The Limited.
(v) Tax Assets. 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 Too, Inc. 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 Too, Inc. 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 to a taxing
authority with respect to such taxable period as compared to the taxes that
would have been payable to a taxing authority with respect to such taxable
period in the absence of such Tax Asset.
(d) Carrybacks From Post-Distribution Years.
(i) Too, Inc. agrees not to carry back any Tax Asset of the Too,
Inc. Group from a Post-Distribution Tax Period without the advance written
consent of The Limited. If the Limited consents to such carryback, The Limited
agrees to pay to Too, Inc. 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 Too, Inc. 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.
(ii) If, subsequent to the payment by The Limited Group to the
Too, Inc. Group of any amount, there is (A) a Final Determination that 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 Too, Inc.
Group shall repay to The Limited, within 90 days of such event described in (A)
or (B)
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<PAGE>
(an "Event") any amount which would not have been payable to the Too, Inc. Group
pursuant to this Section 3(e) had the amount of the benefit been determined in
light of such Event. In addition, the Too, Inc. 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 Too, Inc. 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 State Taxes that The
Limited, in its sole discretion, has determined lacks substantial authority, as
defined in the Code and the regulations thereunder.
(e) Audit Payments.
(i) Responsibility for Payment. Except as provided in paragraph
(e)(ii) below, The Limited shall be responsible for any payment due to taxing
authorities as a result of an audit adjustment to any Return which relates
solely to a Pre-Distribution Tax Period. Too, Inc. shall be responsible for any
payment due to taxing authorities as a result of an adjustment to any Return of
the Too, Inc. Group which relates solely to a Post-Distribution Tax Period. In
the case of any adjustment not covered in the preceding sentence, The Limited
shall determine the amount to be paid by each party in a manner consistent with
the principles of this Agreement and with past practice.
(ii) Timing Differences. To the extent that any audit adjustment
of a Return relating to a Pre-Distribution Tax Period is attributable to timing
differences attributable to Too, Inc., The Limited shall pay to Too, Inc., or
Too, Inc. shall pay to The Limited, as appropriate, an amount reflecting the
timing differences. In the case of a federal Return, this amount shall be equal
to the actual amount of the adjustment which is attributable to the timing
differences as determined by The Limited. In the case of a state or local
Return, the amount shall be equal to the difference between the tax actually due
on the adjusted Return and the amount that would have been due on the adjusted
Return had Too, Inc. not been included as a member of The Limited Consolidated
Group.
4. Certain Representations and Covenants.
(a)(i) Too, Inc. Representations. Too, Inc. and each member of the Too,
Inc. Group represent as of the date hereof, and covenant that on the
Distribution Date, there is no plan or intention (A) to liquidate Too, Inc. or
to merge or consolidate Too, Inc., or any member of the Too, Inc. 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 otherwise dispose of any asset
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(or close any store) of Too, Inc. or any member of the Too, Inc. 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 Davis Polk & Wardwell in connection with the opinion to be
delivered by Davis Polk & Wardwell with respect to certain federal income tax
consequences of the Distribution, (D) to repurchase stock of Too, Inc. 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 opinion to be
delivered by Davis Polk & Wardwell with respect to certain federal income tax
consequences of 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) that may cause the Distribution to be treated as part of a plan
pursuant to which one or more persons acquire directly or indirectly Too, Inc.
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 represents as of
the date hereof, and covenants that on the Distribution Date, there is no plan
or intention to take any action inconsistent with the information and
representations furnished to Davis Polk & Wardwell in connection with the
opinion to be delivered by Davis Polk & Wardwell with respect to certain federal
income tax consequences of the Distribution.
(iii) Too, Inc. and The Limited Representations. Each of Too,
Inc., The Limited and the members of the Too, Inc. Group, respectively,
represent as of the date hereof, and covenant that on the Distribution Date,
neither Too, Inc., The Limited nor the members of the Too, Inc. 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
Too, Inc. subsequent to the Distribution.
(b) Too, Inc. Covenants. Too, Inc. covenants to The Limited that (i)
during the two-year period following the Distribution Date, neither Too, Inc.
nor any member of the Too, Inc. 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, Too, Inc. will not sell, exchange, distribute or otherwise
dispose of its assets or those of any member of the Too, Inc. Group, or close
any of its stores or those of any member of the Too, Inc. Group, except in the
ordinary course of business, (iii) following the Distribution, Too, Inc. will,
for a minimum of two years, continue the active conduct of the historic business
that was conducted by Too, Inc. throughout the five year period prior to the
Distribution, (iv) Too, Inc. will not,
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nor will it permit any member of the Too, Inc. Group to, take any action
inconsistent with the information and representations furnished to Davis Polk &
Wardwell in connection with the opinion to be delivered by Davis Polk & Wardwell
with respect to certain federal income tax consequences of the Distribution, (v)
Too, Inc. will not repurchase stock of Too, Inc. 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 opinion to be delivered by Davis
Polk & Wardwell with respect to certain federal income tax consequences of the
Distribution, (vi) on or after the Distribution Date, it will not, nor will it
permit any member of the Too, Inc. Group to, make or change any accounting
method, change its taxable year, amend any tax Return or take any tax position
on any 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 Too, Inc. Group
that begins immediately after the Distribution Date, Too, Inc. will not, nor
will it permit any member of the Too, Inc. 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) that
may cause the Distribution to be treated as part of a plan pursuant to which one
or more persons acquire directly or indirectly Too, Inc. 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, Too, Inc. and the
members of the Too, Inc. Group may take actions inconsistent with the covenants
contained in Section 4(b)(i) through (vii) above, if:
(i) Too, Inc. 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) Too, Inc. obtains an opinion of counsel recognized as an
expert in federal income tax matters and acceptable to The Limited to the same
effect as in Section 4(c)(i), provided that such opinion is reasonably
acceptable to The Limited.
(d) Deductions and Certain Taxes Related to Options.
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(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 that are held by
employees or former employees of the Too, Inc. Group or (y) any other similar
compensation-related tax deductions. The Returns of The Limited Group and the
Too, Inc. 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 Too, Inc. 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
Too, Inc. 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 Too, Inc. Group (as agent for The Limited
Group) shall prepare and file all applicable 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) Too, Inc. shall file Returns claiming (x) the tax deductions
attributable to the exercise of options to purchase stock of Too, Inc. that 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 Too, Inc. Group shall reflect the entitlement of the Too, Inc. 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 Too, Inc.'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 Too, Inc. Group an amount equal to the tax paid by the Too,
Inc. 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 the Too, Inc. Group) shall prepare
and file all applicable 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.
5. Indemnities.
(a) Too, Inc. Indemnity. Too, Inc. and each member of the Too, Inc.
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 Too, Inc. Group) against and hold them harmless from:
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(i) any Too, Inc. Tax Liability which relates to a
Post-Distribution Tax Period;
(ii) any liability or damage resulting from a breach by Too, Inc.
or any member of the Too, Inc. Group of any representation or covenant made by
Too, Inc. herein;
(iii) any tax liability resulting from the Distribution and
attributable to any action of Too, Inc. or any member of the Too, Inc. Group,
without regard to whether The Limited or any agent or officer of The Limited has
consented to such action; and
(iv) 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), (ii) or (iii), 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 will jointly indemnify Too, Inc.
and the members of the Too, Inc. 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 tax liability of The Limited Group and any tax liability
resulting from the Distribution, other than any such liabilities described in
Section 5(a);
(ii) any Too, Inc. Tax Liability with respect to a
Pre-Distribution Tax Period, except for any payment or liability with respect to
a Pre-Distribution Tax Period provided for or addressed elsewhere in this
Agreement;
(iii) any Too, Inc. Tax Liability resulting from an adjustment to
a return filed by The Limited with respect to a Pre-Distribution Tax Period;
(iv) 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
(v) 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
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<PAGE>
imposition, assessment or assertion of any tax liability or damage described in
(i), (ii) or (iii), 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.
(c) Discharge of Indemnity. Too, Inc., The Limited and the members of
the Too, Inc. 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 under
Section 5(a) of Too, Inc. or any member of the Too, Inc. Group, The Limited
shall send a statement to Too, Inc. showing the amount due thereunder. After a
Final Determination of an obligation under Section 5(b) of The Limited Too, Inc.
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 Too, Inc., The
Limited or any member of the Too, Inc. 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 Too, Inc. 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 Too, Inc. Group or a
member of The Limited Group, respectively, any deduction, amortization,
exclusion from income or other allowance (a "Tax Benefit") that would not, but
for such adjustment, be allowable, then any payment by any member of The Limited
Group or any member of the Too, Inc. 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 by (i) 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 Too, Inc. Group or a member of The Limited Group (as the case may
be) or (ii) in the case of a credit, 100 percent. The present value of such
product shall be 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 member. Too, Inc. agrees and
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<PAGE>
acknowledges that Too, Inc. shall be responsible for the performance by each
member of the Too, Inc. Group of the obligations hereunder applicable to such
member.
7. Communication and Cooperation.
(a) Consult and Cooperate. Too, Inc. and The Limited shall consult and
cooperate (and shall cause each member of the Too, Inc. Group or The Limited
Group, respectively, to cooperate) fully at such time and to such extent as are
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 Too, Inc. Group,
any necessary explanations of information, and access to personnel, in each case
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
(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 Too, Inc. 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 Too, Inc. 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, Too, Inc., The Limited Group, the
Too, Inc. Group or any member of the Too, Inc. 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 Too, Inc.
Group in accordance with applicable laws.
8. Audits and Contest.
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(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 The Limited Consolidated
Group. 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) Too, Inc. and the members of the Too, Inc. Group shall have full
control over all matters relating to any Tax Proceeding with respect to Returns
of the Too, Inc. Group relating to a Post-Distribution Tax Period that does not
include a Pre-Distribution Tax Period. Too, Inc. and the members of the Too,
Inc. 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 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 Too, Inc.
or the members of the Too, Inc. Group, as the case may be, pursuant to this
Agreement results in any increased tax liability or reduction of any Tax Asset
of Too, Inc. or any member of the Too, Inc. Group or The Limited or any member
of The Limited Group, respectively, then The Limited or Too, Inc., 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.
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):
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If to The Limited, to:
The Limited, Inc.
Three Limited Parkway
Columbus, OH 43230
Attention: Timothy B. Lyons
Fax: 614-479-7020
If to Too, Inc., to:
Too, Inc.
3885 Morse Road
Columbus, OH 43219
Attention: Kent A. Kleeberger
Fax: 614-479-3610
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 Too, Inc. Tax Liability as described in Sections 2 and 3.
As compensation for these services, Too, Inc. shall pay The Limited a fee. The
Limited shall calculate the fee payable and invoice Too, Inc. for such fee, and
Too, Inc. shall pay the invoiced amount, in a manner consistent with the invoice
and payment procedures provided for in the Services Agreement between Too, Inc.
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 Too, Inc. Group that do
not relate to Federal Taxes or Combined State Taxes for any Pre-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
attorneys' fees, accountant fees and other related professional fees and
disbursements.
12. Effectiveness; Termination and Survival.
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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. 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 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 Too, Inc., 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
thereof 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 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 determined to be
so invalid, illegal or unenforceable, shall remain in full force and effect to
the fullest extent permitted by law and shall not be affected by such
determination, 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.
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16. Dispute Resolution.
(a) Tax Matters Not Covered In This Agreement. The parties agree that
they will each make a good faith effort to resolve any tax matter not covered in
this Agreement by allocating tax assets and tax liabilities in a manner
consistent with past practice.
(b) Referee. 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 that is 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 or dispute 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 Too, Inc. as determined by
such Referee in such manner as the Referee deems reasonable, taking into account
the circumstances of the disagreement or dispute, the conduct of the parties and
the result of the disagreement or 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 other person shall be a third party beneficiary hereof.
19. Further Assurances.
The Limited and Too, Inc. 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.
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20. Authorization.
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.
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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:
----------------------------------------
Name: Timothy Lyons
Title: Vice President, Taxes
Too, Inc. on its own behalf and on behalf of
each member of the Too, Inc. Group.
By:
----------------------------------------
Name: Kent A. Kleeberger
Title: Vice President--Chief Financial
Officer
22
Exhibit 10.6
Morse Road Annex
BUILDING LEASE AGREEMENT
This Lease Agreement (this "Lease") is entered into and made as of the
1st day of July, 1995, by and between Distribution Land Corp., a Delaware
corporation (hereinafter referred to as "Landlord") and Limited Too, Inc., a
Delaware corporation (hereinafter referred to as "Tenant").
WITNESSETH:
WHEREAS, Landlord is the owner of the fee simple title to an
approximately 11,479 acre parcel of land located on Morse Road, Columbus, Ohio,
which land is depicted on Exhibit A attached hereto and incorporated herein by
this reference (the "Campus"); and
WHEREAS, the Campus is improved with, among other things, a certain
office/warehouse distribution facility containing approximately 100,600 square
feet of floor space as identified on the drawing of the Campus attached hereto
as Exhibit A (the "Building"); and
WHEREAS, Landlord wishes to (i) lease to Tenant the entire Building;
(ii) grant to Tenant the right to utilize, subject to the terms and conditions
of this Lease, portions of the land and improvements surrounding the Building;
and (iii) provide for the payment, by Tenant, of rent therefor and the
performance, by Tenant, of certain obligations with respect thereto; and
WHEREAS, Landlord, Tenant and certain other parties have entered into a
Services Agreement (the "Services Agreement") which relates, in part, to
certain aspects of the management, operation and ownership of the Building and
the Campus.
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:
I - LEASE OF BUILDING
1.01 -- Lease of Building. Landlord, in consideration of the rents and
covenants hereinafter set forth, does hereby demise, let and lease to Tenant,
and Tenant does hereby hire, take and lease from Landlord, on the terms and
conditions hereinafter set forth, the Building, to have and to hold the same,
with all appurtenances, unto Tenant for the Term hereinafter specified. Tenant
agrees that it will comply with the terms and conditions of the Services
Agreement as it relates to the Building and the Campus.
1.02 -- Basic Lease Provisions.
A. Building Address: 3885 Morse Road
Columbus, Ohio 43219
B. Building Description: a one-story office/distribution facility,
containing approximately 100,600 square feet of floor space,
33,248 square feet of which is office space, 7,112 square feet of
which is Building common area and 60,240 square feet of which is
distribution space
C. Building Square Footage: approximately 100,600 square feet
D. Term: Five (5) years, beginning on July 1, 1995 (the
"Commencement Date") and ending on June 30, 2000 (the
"Expiration Date")
E. Annual Base Rent:
(i) Office space -- $11.00 per square foot, or $365,728
(ii) Building common areas -- $11.00 per square foot, or
$78,232
(iii) Distribution space -- $2.85 per square foot, or $171,684
(iv) Total Annual Base Rent (for distribution and office space)
of $615,644
(v) The annual Base Rent shall be subject to periodic
adjustments as are provided in Section 4.02 of this Lease
F. Monthly Installments of Base Rent (for distribution and office
space): $51,303.67
G. Use: office-distribution use related to distribution for retail
sale of men's, women's and children's apparel, accessories,
personal care items and other products, and for all
administrative activities relating thereto
1.03 -- Description of the Building and the Common Areas.
H. The Building. The Building is depicted in the attached Exhibit A.
The address and description of the Building are specified in
Items A and B of the Basic Lease Provisions (which are set forth
in Section 1.02 of this Lease).
I. Common Areas. The Building is located within, and constitutes
a part of, the Campus. The Campus has been improved with the
Building, security buildings and facilities and roadways,
driveways, walkways, parking areas, loading areas, fences,
walls, hedges, plantings, poles, ponds, lakes, signs, utility
improvements, trees, plantings and other landscaping features
(the Campus, excluding the Building, all other buildings and
structures not subject to this Lease and further excluding those
areas and facilities identified on Exhibit B attached hereto and
made a part hereof by this reference, as said Exhibit B may be
amended from time to time, being referred to herein as the
"Common Areas").
II -- COMMON AREAS
2.01 -- Use of Common Areas. Subject to Landlord's right at any time to
use the Common Areas for its own purposes, Landlord hereby gives to Tenant, its
subtenants and their respective employees, agents, customers and invitees, the
nonexclusive right to use the Common Areas in common with and subject to the
same rights given to the tenants of other buildings and structures within the
Campus and their respective subtenants, employees, agents, customers and
invitees.
2.02 -- Rules and Regulations for Common Areas. The Common Areas shall
at all times be subject to the exclusive management and control of Landlord,
and Landlord shall have the right, from time to time, to establish, modify and
enforce reasonable rules and regulations with respect to all the Common Areas,
and the use of the Common Areas by Tenant, its subtenants and their respective
employees, agents, customers and invitees shall be subject to such rules and
regulations. Such rules and regulations may include, but shall not be limited
to, restrictions and parking, hours of operation, access routes, entry points
and similar matters.
2.03 -- Changes in Common Areas. Landlord may do and perform such acts
in and to the Common Areas as, in Landlord's business judgment, Landlord shall
determine to be advisable. Landlord hereby reserves the right to make
reconfigurations, alterations, additions, deletions or changes to the Common
Areas including, but not limited to, changes in size and configuration of the
Common Areas. Landlord also reserves the right to restrict and limit the use of
the Common Areas by Tenant, its subtenants and their respective employees,
agents, customers and invitees.
2.04 -- Maintenance of Common Areas. Subject to the provisions of
Section 4.03 hereof, Landlord shall adequately maintain the Common Areas in a
good and usable condition throughout the Term of this Lease.
2.05 -- Common Area Capital Improvements. Landlord may make capital
improvements to the Common Areas. In such case, Landlord may charge, as an
Operating Expense (as hereinafter defined), an amount equal to the annual
depreciation or amortization allowance with respect to the cost of such capital
improvements, as determined by Landlord in accordance with generally accepted
accounting principles, together with interest on such costs or the unamortized
balance thereof, at the rate as may be paid by or accrued on the books of
Landlord on the unamortized balance.
III -- TERM AND POSSESSION
3.01 -- Term. The Term of this Lease shall be for the period of years
and months specified in Item D of the Basic Lease Provisions, and shall begin
and end on the Commencement Date and Expiration Date, respectively, specified
in Item D of the Basic Lease Provisions, unless the Term of this Lease is
renewed, modified or terminated as provided elsewhere herein. If the
Commencement and Expiration Dates have not been established at the time of the
execution of this Lease, then Landlord and Tenant agree, upon demand of the
other, to execute a writing establishing the Commencement and Expiration Dates
as soon as the Commencement Date has been determined.
3.02 -- Tenant's Acceptance of the Building. Tenant hereby accepts the
Building in an "as is" condition and acknowledges that Landlord has made no
representations or warranties with respect thereto, and that Tenant has
inspected the Building and found it to be in satisfactory condition.
3.03 -- Surrender of the Building. Upon the expiration or earlier
termination of this Lease, or upon the exercise by Landlord of its right to
re-enter the Building without terminating this Lease, Tenant shall immediately
surrender the Building to Landlord, together with all alterations, improvements
and other property as provided elsewhere herein, in broom-clean condition and
in good order, condition and repair, except for ordinary wear and tear and
damage which Tenant is not obligated to repair, failing which Landlord may
restore the Building to such condition at Tenant's expense. Upon such
expiration or termination, Tenant may, provided Tenant is not then in default
and unless prohibited from doing so by other provisions of this Lease, remove
its personal property and trade fixtures. Tenant shall promptly repair any
damage caused by any such removal, and shall restore the Building to the
condition existing prior to the installation of the items so removed, ordinary
wear and tear and damage which Tenant is not obligated to repair excepted. If
Tenant fails to remove any and all such trade fixtures from the Building on the
Expiration Date or earlier termination of this Lease, all such trade fixtures
shall become the property of Landlord, unless Landlord elects to require their
removal, in which case Tenant shall, at its cost, promptly remove the same and
restore the Building to its prior condition.
3.04 -- Holding Over. In the event that Tenant shall not immediately
surrender the Building on the Expiration Date of the Term hereof, Tenant shall,
by virtue of the provisions hereof, become a tenant by the month at the monthly
rent in effect during the last month of the Term of this Lease, which monthly
tenancy shall commence with the first day next after the expiration of the Term
of this Lease. Tenant, as a monthly tenant, shall be subject to all of the
terms, conditions, covenants and agreements of this Lease. Tenant shall give to
Landlord at least thirty (30) calendar days written notice of any intention to
quit the Building, and Tenant shall be entitled to thirty (30) calendar days
written notice to quit the Building, unless Tenant is in default hereunder, in
which event Tenant shall not be entitled to any notice to quit, the usual
thirty (30) calendar days notice to quit being hereby expressly waived.
Notwithstanding the foregoing provisions of this Section 3.04, in the event
that Tenant shall hold over after the expiration of the Term of this Lease, and
if Landlord shall desire to regain possession of the Building promptly at the
expiration of the Term of this Lease, then, at any time prior to Landlord's
acceptance of rent from Tenant as a monthly tenant hereunder, Landlord, at its
option, may forthwith re-enter and take possession of the Building without
process, or by any legal process in force.
3.05 -- Termination of Lease. Upon at least thirty (30) days prior
written notice to the other at any time after the Commencement Date, either
Landlord or Tenant may terminate and cancel this Lease. Upon such cancellation
and termination, Tenant shall surrender the Building to Landlord in accordance
with Section 3.03 of this Lease.
IV -- RENT
4.01 -- Base Rent. Commencing on July 1, 1995, Tenant shall pay to
Landlord, as Base Rent for the Building, the annual sum specified in Item E of
the Basic Lease Provisions, payable in equal consecutive monthly installments
as specified in Item F of the Basic Lease Provisions, in advance, on or before
the first day of each and every calendar month during the Term of this Lease;
provided, however, that if the Expiration Date shall be a day other than the
last day of a calendar month, the Base Rent installment for such last
fractional month shall be prorated on the basis of the number of days during
the month this Lease was in effect in relation to the total number of days in
such month.
4.02 -- Base Rent Adjustments.
A. CPI Adjustments. On the third anniversary of the Commencement Date,
the Base Rent due and payable to Landlord shall be adjusted for the next
succeeding two (2) year period. The adjusted Base Rent for each year in each
such two (2) year period shall be equal to the Base Rent paid during the
immediately preceding twelve (12) month period (the "lease year") increased by
a percentage equal to the percentage increase in the CPI (as hereinafter
defined) computed by comparing the CPI figure for that month which is two
months prior to the adjustment date (the "adjustment month") with the CPI
figure for that month occurring thirty-six (36) months prior to the adjustment
month (the "base month"). For example, in computing the percentage increase for
the lease year commencing July 1, 2000, the percentage increase in the CPI
would be determined by comparing the CPI figure for May, 2000, the adjustment
month, with the CPI figure for May, 1997, the base month. For the purposes
hereof, "CPI" shall mean the Consumer Price Index, published by the Bureau of
Labor Statistics of the United States Department of Labor, in the column for
"all items" in the table titled "Consumer Price Index for all Urban Consumers:
U.S. City average, 1982-1984 = 100".
If the Index at any time herein is no longer published or issued,
Landlord and Tenant shall agree on such other index as is then generally
recognized for determination of purchasing power in the United States.
B. Capital Improvements. If Landlord shall, at any time after the
Commencement Date, install any equipment or make any other capital improvement
to the Building, then Landlord may add to the Base Rent (to be paid in monthly
installments), in each year during the useful life of such equipment or other
capital improvement, an amount equal to the annual depreciation or amortization
allowance with respect to the cost of such equipment or other capital
improvement, as determined by Landlord in accordance with generally accepted
accounting principles, together with interest on such cost or the unamortized
balance thereof at the rate as may be paid by or accrued on the books of
Landlord on the unamortized balance.
4.03 -- Additional Rent.
A. Definitions. For purposes of this Section 4.03, the following
definitions shall apply:
1. "Additional Rent"-- shall mean Tenant's proportionate share of
Landlord's Operating Expenses.
2. "Operating Expenses"--shall mean all costs and expenses of
any kind or nature incurred by Landlord in managing,
operating, equipping, policing, protecting, lighting, repairing,
replacing and maintaining the Common Areas in such manner as
Landlord shall deem to be appropriate, including, but not
limited to, the cost of management services for the Campus as
paid by Landlord pursuant to the Services Agreement (as
hereinafter defined), the costs incurred in connection with
security services and security personnel within the Common
Areas, the annual depreciation or amortization allowance with
respect to the cost of capital improvements made with respect to
the Common Areas, all the costs and expenses of management,
illumination and maintenance of common signs, cleaning,
lighting, snow removal, landscaping, supplies, the cost of
maintenance and replacement of equipment, reasonable
depreciation of maintenance equipment used in the operation and
maintenance of the Common Areas, total compensation and
benefits (including premiums for workers' compensation and
other insurance) paid to or on behalf of the employees involved
in the performance of the work specified herein, and an amount
equal to fifteen percent (15%) of the total of all the foregoing
costs and expenses to cover Landlord's administrative costs.
3. Tenant's proportionate share of the foregoing shall be
determined by multiplying the total expenses incurred by
Landlord or Landlord's designee for Operating Expenses by a
fraction, the numerator of which shall be the Building Square
Footage and the denominator of which shall be the total number
of square feet in all other office/distribution buildings
(including the shipping building but excluding security buildings,
maintenance and storage sheds and similar improvements)
located within the Campus; with the method of measurement to
be as reasonably determined by Landlord.
B. Payment Obligation. In addition to the Base Rent specified in this
Lease, Tenant shall, in each calendar year or partial calendar year during the
Term of this Lease, pay to Landlord the Additional Rent. The Additional Rent
shall be paid by Tenant in monthly installments, in such amounts as are
estimated and billed by Landlord at the beginning of each calendar year, each
installment being due on the first day of each calendar month. Within one
hundred twenty (120) days (or such additional time thereafter as is reasonable
under the circumstances) after the end of each calendar year, Landlord shall
deliver to Tenant a Statement of Additional Rent for such calendar year, and
the monthly installments paid or payable shall be adjusted between Landlord and
Tenant, the parties hereby agreeing that Tenant shall pay to Landlord or
Landlord shall credit Tenant's account or (if such adjustment is at the end of
the Lease Term) pay Tenant, as the case may be, within thirty (30) days of
receipt of such statement, such amounts as may be necessary to effect
adjustment to the actual Additional Rent for such calendar year. If the
Commencement Date shall be a day other than the first day of a calendar year,
or if the Expiration Date or other date of termination of this Lease shall be a
day other than the last day of a calendar year, then the Additional Rent for
such partial calendar year shall be prorated on the basis of the number of days
during the year this Lease was in effect in relation to the total number of
days in such year.
C. Tenant Verification. Tenant or its accountants shall have the right to
inspect, at reasonable times and in a reasonable manner during the forty-five
(45) calendar day period following the delivery of Landlord's statement of
Additional Rent, such of Landlord's books of account and records as pertain to
and contain information concerning such costs and expenses, in order to verify
the amounts thereof. If Tenant shall dispute any item or items included in the
determination of Additional Rent for a particular calendar year, and such
dispute is not resolved by the parties hereto within forty-five (45) calendar
days after the statement for such year was delivered to Tenant, then either
party may, within thirty (30) calendar days thereafter, request that a firm of
independent certified public accountants selected by Landlord render an opinion
as to whether or not the disputed item or items may properly be included in the
determination of Additional Rent for such year; and the opinion of such firm on
the matter shall be conclusive and binding upon the parties hereto. The fees
and expenses incurred in obtaining such an opinion shall be borne by the party
adversely affected thereby; and if more than one item is disputed and the
opinion adversely affects both parties, the fees and expenses shall be
apportioned accordingly. If Tenant shall not dispute any item or items included
in the determination of Additional Rent for a particular calendar year within
forty-five (45) calendar days after the statement for such year was delivered
to it, Tenant shall be deemed to have approved such statement.
4.04 -- Late Payment Service Charge; Interest. In the event any
installment of Base Rent, or any installment of Additional Rent, is not paid
when due, and such nonpayment continues for a period of ten (10) days after
Landlord gives to Tenant written notice of such nonpayment, then, for each and
every such payment, Tenant shall immediately pay a service charge equal to five
percent (5%) of the amount not timely paid, together with interest on the
amount not timely paid at the rate of eight percent (8%) per annum, from the
due date of such payment until paid. The provisions of this Section 4.04 shall
not be construed to extend the date for payment of Base Rent or Additional Rent
or to relieve Tenant of its obligations to pay all such items at the time or
times herein stipulated, and neither demand for, nor collection by Landlord of,
late payment service charges and interest pursuant to this Section 4.04 shall
be construed as a cure of any default in payment by Tenant.
V -- USE OF BUILDING
5.01 -- Specific Use. The Building shall be occupied and used
exclusively for the purposes-specified in Item I of the Basic Lease Provisions
and for purposes incidental thereto, and shall not be used for any other
purposes.
5.02 -- Covenants Regarding Use. In connection with its use of the
Building, Tenant agrees to do the following:
A. Tenant shall use the Building and conduct its business therein in a
safe, careful, reputable and lawful manner; shall keep any garbage, trash,
rubbish or other refuse in sealed containers within the interior of the
Building until removed and placed in a dumpster or other authorized container
for the deposit of garbage and refuse, which shall be located in an area
designated by Landlord; shall not permit such garbage, trash, rubbish or refuse
to accumulate; and shall have such garbage, trash, rubbish and refuse removed
from said designated area at least once per week.
B. Tenant shall not commit, nor allow to be committed, in, on or about
the Building any act of waste, including any act which might deface, damage or
destroy the Building or any part thereof; use or permit to be used within the
Building any hazardous substance, equipment, or other thing which might cause
injury to person or property or increase the danger of fire or other casualty
in, on or about the Building; or permit any objectionable or offensive noise or
odors to be emitted from the Building. Notwithstanding the foregoing, Landlord
acknowledges that Tenant will utilize certain distribution equipment which, but
for this sentence, might be deemed to violate this provision and use of such
equipment is expressly permitted.
C. Tenant shall not use the Building, or allow the Building to be used,
for any purpose or in any manner other than the permitted uses which would, in
Landlord's opinion, invalidate any policy of insurance now or hereafter carried
on the Building or increase the rate of premiums payable on any such insurance
policy. Should Tenant fail to comply with this covenant, Landlord may, at its
option, require Tenant to stop engaging in such activity or to reimburse
Landlord as additional rent for any increase in premiums charged during the
Term of this Lease on the insurance carried by Landlord on the Building and
attributable to the use being made of the Building by Tenant.
5.03 -- Access to and Inspection of the Building. Landlord, its
employees and agents shall have the right to enter any part of the Building, at
all reasonable times after reasonable notice, for the purpose of examining or
inspecting the same, showing the same to prospective purchasers, mortgagees or
tenants, and for making such repairs, alterations or improvements to the
Building as Landlord may deem necessary or desirable. Landlord shall incur no
liability to Tenant for such entry, except with respect to the negligence or
intentional, wrongful acts or omissions of Landlord, its agents, employees and
invitees, nor shall such entry constitute an eviction of Tenant or a
termination of this Lease, or entitle Tenant to any abatement of Rent therefor.
5.04 -- Compliance with Laws. Tenant shall comply with all laws,
statutes, ordinances, rules, regulations and orders of any federal, state,
municipal, or other government or agency thereof having jurisdiction over and
relating to the use and occupancy of the Building, including any such laws,
statutes or regulations requiring modifications or alterations to the Building.
5.05 -- Rules and Regulations. The Building shall at all times be
subject to the control of the Landlord, and Landlord shall have the right, from
time to time, to establish, modify and enforce reasonable rules and regulations
with respect to the Building, and the use of the Building by Tenant, its
subtenants and their respective employees, agents, customers and invitees shall
be subject to such rules and regulations. Such rules and regulations may
include, but shall not be limited to, restrictions upon Tenant's hours of
operation, noise levels within the Building, load placement and utility usage.
5.06 -- Special Amenities. Tenant intends to operate within the Building
certain "special amenities" for the benefit of Tenant, its subtenants and their
respective employees, agents, customers and invitees. Such special amenities
include the Building reception area, mail room and cafeteria. Tenant agrees and
acknowledges that the continued operation of such facilities is important to
Landlord and the effective operation of the Building and the Campus.
Accordingly, Tenant agrees that should Tenant either cease operation of any or
all of such special amenities or fail to continue to operate such special
amenities at the current level of service, then Landlord shall have the right,
but not the obligation, to recapture that portion of the Building in which such
special amenities are located (with an appropriate adjustment to Tenant's Base
Rent hereunder). Should Landlord so recapture that portion of the Building in
which the special amenities were located and thereafter commence to operate
such special amenities, then the costs incurred by Landlord in the operation of
such special amenities shall be Operating Expenses pursuant to Section 4.03
hereof.
5.07 -- Landlord's Use of the Building. Landlord may, from time to time
during the Term of the Lease, have the need or desire to utilize certain common
areas and facilities located within the Building. In such cases, after
reasonable notice and subject to availability, Landlord shall have the right,
on a temporary basis, to use and occupy such areas and facilities. Landlord
shall pay to Tenant a reasonable rent for the use of such common areas and
facilities and, in addition, shall pay all costs arising out of its use
thereof, including but not limited to the costs of any special janitorial
services or refuse collection required as a result of such use.
VI --UTILITIES AND OTHER BUILDING SERVICES
6.01 -- Electric, Gas, Water and Telephone Service. Landlord shall
contract with the appropriate public utilities companies or other providers
supplying electric, gas, water, sanitary sewer, telephone services and all
other utilities and services to the Building or to Tenant and shall pay
directly all charges for such services from and after the Commencement Date.
Thereafter, Landlord shall reasonably allocate those utility or service charges
attributable to the Building or to the Tenant and, on a periodic basis, provide
to Tenant a written statement detailing Tenant's allocation thereof. Tenant
shall pay to Landlord, within fifteen (15) days of Tenant's receipt of the
written statement therefor, all such utility and service charges. Provided,
however, that Tenant may, if such utilities or services are separately metered
for the Building or if Tenant, at its sole cost and expense, undertakes to have
such utilities or services separately metered for the Building, elect to
contract directly for all such services and to pay directly all charges
therefor.
6.02 -- Janitorial and Refuse Collection Service. Tenant shall contract
for janitorial and refuse collection services for the Building and shall pay
for all charges for such services.
6.03 -- Discontinuances and Interruptions of Utility Services. Landlord
shall not be liable to Tenant in damages or otherwise (i) if any utilities
shall become unavailable from any public utility company, public authority, or
any other person supplying or distributing such utility, or (ii) for any
interruption in any utility service (including, without limitation, any
heating, ventilation or air conditioning) caused by the making of any necessary
repairs or improvements or by any cause beyond Landlord's reasonable control,
and the same shall not constitute a termination of this Lease or an eviction of
Tenant.
6.04 -- Management. Tenant agrees and acknowledges that certain property
management services will be provided with respect to the Building pursuant to
the terms of the Services Agreement. Tenant shall pay, immediately upon receipt
of the bill therefor, all charges for property management services provided
relative to the Building in accordance with the terms and conditions of the
Services Agreement.
VII -- SIGNS
Tenant shall not inscribe, paint, affix or display any signs,
advertisements or notices on the Building or the Campus without Landlord's
prior written consent, which consent Landlord shall have no obligation to give
and which may be given or withheld in Landlord's sole discretion.
VIII -- REPAIRS, MAINTENANCE, ALTERATIONS, IMPROVEMENTS AND FIXTURES
8.01 -- Repair and Maintenance of Building. Tenant shall keep and
maintain the Building (including all doors, whether interior or exterior, any
plate glass in the exterior walls and doors, the roof, exterior and interior
structural walls, and the foundation) and the electrical, plumbing, heating,
ventilation and air conditioning systems serving the Building in good order,
condition and repair, and, except for damage which is covered by Landlord's
casualty insurance as provided in Article IX of this Lease, shall make all
necessary repairs to the Building and the electrical, plumbing, heating,
ventilation and air conditioning systems serving the Building, and will make
all replacements from time to time required thereto at its expense.
8.02 -- Alterations or Improvements. Tenant shall neither make, nor
permit to be made (by its subtenants or otherwise), any alterations or
improvements to the Building without obtaining the prior written consent of
Landlord, which consent shall not be unreasonably withheld. If Landlord allows
Tenant to make any such alterations or improvements, Tenant shall make the same
in accordance with all applicable laws and building codes, in a good and
workmanlike manner and in quality equal to or better than the original
construction of the Building, and shall comply with such requirements as
Landlord considers necessary or desirable, including, without limitation,
requirements as to the manner in which and the times at which such work shall
be done and the contractor or subcontractors to be selected to perform such
work. Tenant shall promptly pay all costs attributable to such alterations and
improvements and shall indemnify Landlord against any mechanics' liens or other
liens or claims filed or asserted as a result thereof and against any costs or
expenses which may be incurred as a result of building code violations
attributable to such work. Tenant shall promptly repair any damage to the
Building caused by any such alterations or improvements. Any alterations or
improvements to the Building, except movable equipment and trade fixtures,
shall become a part of the realty and the property of Landlord, and shall not
be removed by Tenant.
8.03 -- Trade Fixtures. Any trade fixtures installed in the Building by
Tenant at its own expense, such as movable partitions, counters, shelving, and
the like, may be removed on the Expiration Date or earlier termination of this
Lease, provided that Tenant is not then in default, that Tenant bears the cost
of such removal, and further that Tenant repairs, at its own expense, any and
all damage to the Building resulting from such removal. If Tenant fails to
remove any and all such trade fixtures from the Building on the Expiration Date
or earlier termination of this Lease, all such trade fixtures shall become the
property of Landlord, unless Landlord elects to require their removal, in which
case Tenant shall, at its cost, promptly remove the same and restore the
Building to its prior condition.
IX -- FIRE OR OTHER CASUALTY; CASUALTY INSURANCE
9.01 -- Substantial Destruction of the Building. If the Building should
be substantially destroyed or damaged (which, as used herein, means destruction
or material damages to at least fifty percent (50%) of the Building) by fire or
other casualty, then either party hereto may, at its option, terminate this
Lease by giving written notice thereof to the other party within thirty (30)
calendar days after the date of such casualty. In such event, all Base Rent and
Additional Rent due under this Lease shall be apportioned to and shall cease as
of the date of such casualty, and Tenant shall be given a reasonable period of
time, not to exceed 45 calendar days after receipt of written notice of
termination (or fourteen (14) days after giving notice of termination to
Landlord, as appropriate) under this Section 9.01, in which to remove its trade
fixtures and personal property, whereupon both parties shall be released from
all further obligations and liability hereunder (except for any obligations
previously incurred hereunder). If neither party exercises this option, then
the Building shall be reconstructed and restored, at Landlord's expense, to
substantially the same condition as it was prior to the casualty; provided,
however, that, if Tenant has made any additional improvements pursuant to
Section 8.02, Tenant shall reimburse Landlord for the cost of reconstructing
the same. In the event of such reconstruction, all Base Rent and Additional
Rent due under this Lease shall be abated from the date of the casualty until
substantial completion of the reconstruction repairs; and this Lease shall
continue in full force and effect for the balance of the Term. Landlord shall
use reasonable diligence in completing such reconstruction repairs.
9.02 -- Partial Destruction of the Building. If, prior to the
commencement of the last two (2) years of the lease Term, the Building should
be damaged by fire or other casualty, but not substantially destroyed or
damaged to the extent provided in Section 9.01, then such damaged part of the
Building shall be reconstructed and restored, at Landlord's expense, to
substantially the same condition as it was prior to the casualty; provided,
however, that, if Tenant has made any additional improvements pursuant to
Section 8.02, Tenant shall reimburse Landlord for the cost of reconstructing
the same. In such event, all Base Rent and Additional Rent due under this Lease
shall be abated in the proportion which the approximate area of the damaged
part bears to the total area in the Building from the date of the casualty
until substantial completion of the reconstruction repairs; and this Lease
shall continue in full force and effect for the balance of the Term. Landlord
shall use reasonable diligence in completing such reconstruction repairs.
If, subsequent to the commencement of the last two (2) years of the
Lease Term, the Building should be damaged by fire or other casualty, but not
substantially destroyed or damaged to the extent provided in Section 9.01, then
Landlord, at its option, may terminate this Lease by giving written notice
thereof to Tenant within thirty (30) calendar days after the date of such
casualty. In such event, all Base Rent and Additional Rent due under this Lease
shall be apportioned to and shall cease as of the date of such casualty, and
Tenant shall be given a reasonable period of time, not to exceed forty-five
(45) calendar days after receipt of termination notice as set forth above, in
which to remove its trade fixtures and personal property, whereupon both
parties shall be released from all further obligations and liability hereunder
(except for any obligations previously incurred hereunder). If Landlord does
not exercise its option to terminate, then such damaged part shall be
reconstructed and restored in accordance with the provisions of the first
paragraph of this Section 9.02.
9.03 -- Casualty Insurance. Tenant acknowledges and agrees that certain
policies of insurance will be acquired, in such amounts, with such coverages
and with such insurers as provided for in the Services Agreement. Tenant shall
pay, immediately upon receipt of the bill therefor, the costs of insurance so
acquired pursuant to the Services Agreement which relate to the Building in
accordance with the terms and conditions of the Services Agreement.
9.04 -- Waiver of Subrogation. Landlord and Tenant each hereby waive any
and all right that they may have to recover from the other damages for any loss
occurring to them by reason of any act or omission of the other, but only to
the extent that the waiving party is actually compensated therefor by
insurance; provided that, this waiver shall be effective only with respect to
loss or damage occurring during such time as the waiving party's coverage under
the appropriate policy of insurance is not adversely affected by this waiver.
If, in order to avoid such adverse effect, an endorsement must be added to any
insurance policy required hereunder, Landlord and Tenant shall cause such
endorsement immediately to be added and thereafter maintained throughout the
term of this Lease.
X -- GENERAL PUBLIC LIABILITY INDEMNIFICATION AND INSURANCE
10.01 -- Indemnification. Tenant shall assume the risk of, be
responsible for, and have the obligation to insure against, and indemnify
Landlord and hold it harmless from any and all liability for any loss, damage
or injury to person or property occurring in, on or about the Campus and the
Building, regardless of cause, except for that caused by the negligence or
intentional wrongful acts of Landlord and its employees, agents, customers and
invitees; and Tenant hereby releases Landlord from any and all liability for
the same. Landlord shall assume the risk of, be responsible for, and have the
obligation to insure against, and indemnify Tenant and hold it harmless from
any and all liability for any loss, damage or injury to person or property
resulting from the gross negligence or intentional wrongful acts of Landlord
and its employees, agents, customers and invitees; and Landlord hereby releases
Tenant from any and all liability for the same. The obligation to indemnify
hereunder shall include the duty to defend against any claims asserted by
reason of such loss, damage or injury and to pay any judgments, settlements,
costs, fees and expenses, including attorneys' fees, incurred in connection
therewith.
10.02 -- Tenant's Insurance. Tenant acknowledges and agrees that certain
policies of general liability and property damage insurance will be acquired,
in such amounts, with such coverages and with such insurers as provided for in
the Services Agreement. Tenant shall pay, immediately upon receipt of the bill
therefor, the costs of all insurance policies so acquired pursuant to the
Services Agreement which relate to the Building in accordance with the terms
and conditions of the Services Agreement.
XI -- TAXES
Tenant acknowledges and agrees that real and personal property taxes
relating to the Building will be paid as provided in the Services Agreement.
Tenant shall pay all such taxes attributable to the Building in accordance with
the terms and conditions of the Services Agreement immediately upon request, by
Tenant, of a written statement from Landlord detailing the cost thereof.
XII -- EMINENT DOMAIN
If the whole or any part of the Building shall be taken for public or
quasipublic use by a governmental or other authority having the power of
eminent domain, or shall be conveyed to such authority in lieu of such taking,
and if such taking or conveyance shall cause the remaining part of the Building
to be untenantable and inadequate for use by Tenant for the purpose for which
it was leased, then Tenant may, at its option, terminate this Lease as of the
date Tenant is required to surrender possession of the Building. In such event,
all Base Rent and Additional Rent due under this Lease shall be apportioned to
and shall cease as of the date Tenant is required to surrender possession of
the Building, and both parties shall be released from all further obligations
and liability hereunder (except for any obligations previously incurred
hereunder). If a part of the Building shall be taken or conveyed, but the
remaining part is tenantable and adequate for Tenant's use, then this Lease
shall be terminated as to the part taken or conveyed as of the date Tenant
surrenders possession; Landlord shall, to the extent that condemnation proceeds
are available, make such repairs, alterations and improvements (exclusive of
repairs, alterations or improvements to tenant improvements, if any, installed
by Tenant pursuant to Section 8.02) as may be necessary to render the part not
taken or conveyed tenantable; and all Base Rent and Additional Rent due under
this Lease shall be reduced in proportion to the part of the Building so taken
or conveyed. All compensation awarded for such taking or conveyance shall be
the property of Landlord, without any deduction therefrom for any present or
future estate of Tenant, and Tenant hereby assigns to Landlord all of its
right, title and interest in and to any such award. However, Tenant shall have
the right to recover from such authority, but not from Landlord, such
compensation as may be awarded to Tenant on account of moving and relocation
expenses and depreciation to and removal of Tenant's trade fixtures and
personal property and alterations or tenant improvements, if any, installed by
Tenant pursuant to Section 8.02.
XIII -- LIENS
If, because of any act or omission of Tenant or anyone claiming by,
through, or under Tenant, any mechanic's lien or other lien shall be filed
against the Building or against other property of Landlord (whether or not such
lien is valid or enforceable as such), Tenant shall, at its own expense, cause
the same to be discharged or bonded of record within a reasonable time, not to
exceed thirty (30) calendar days after the date Tenant becomes aware of the
filing thereof, and shall also indemnify Landlord and hold it harmless from any
and all claims, losses, damages, judgments, settlements, costs and expenses,
including attorneys' fees, resulting therefrom or by reason thereof.
XIV -- ASSIGNMENT AND SUBLETTING
Tenant will not assign, transfer, mortgage, or otherwise encumber this
Lease or sublet or rent (or permit occupancy or use of) the Building, or any
part thereof, without obtaining the prior written consent of Landlord, which
consent Landlord shall have no obligation to give and which may be given or
withheld in Landlord's sole discretion. Provided, however, that, in the case of
a sublease to any subtenant affiliated with the Tenant, Landlord's consent will
not be required so long as (i) Tenant utilizes the form of sublease which has
been prescribed by Landlord, and (ii) such subtenant executes and delivers to
Landlord an appropriate attornment agreement. For the purposes of this
provision, an "affiliated' subtenant shall mean any subtenant which controls,
is controlled by or is under common control with Landlord. The consent of
Landlord to any assignment or subletting, or, in the case of a subtenant
affiliated with the Tenant, a subletting without the Landlord's consent, shall
not be construed as a waiver or release of Tenant from the Terms of any
covenant or obligation under this Lease, nor shall the collection or acceptance
of rent from any such assignee, subtenant or occupant constitute a waiver or
release of Tenant of any covenant or obligation contained in this Lease, nor
shall any assignment or subletting be construed to relieve Tenant from
obtaining the consent in writing of Landlord to any further assignment or
subletting. In the event that Tenant defaults hereunder, Tenant hereby assigns
to Landlord the rent due from any subtenant of Tenant and hereby authorizes
each such subtenant to pay said rent directly to Landlord. All assignments or
sublettings by Tenant hereunder, whether with or without Landlord's consent,
shall be accomplished with and evidenced by assignment or subletting documents
which have been expressly approved by Landlord.
XV -- TRANSFER BY LANDLORD
15.01 -- Sale and Conveyance of the Building. Landlord shall have the
right to sell and convey the Building and the Campus at any time during the
Term of this Lease, subject only to the rights of Tenant hereunder; and such
sale and conveyance shall operate to release Landlord from liability hereunder
for all acts or omissions occurring after the date of such conveyance.
15.02 -- Subordination. Unless a mortgagee shall otherwise elect, as
provided in Section 15.03, this Lease is and shall be subject and subordinate
to the lien of any and all mortgages (which term "mortgages" shall include both
construction and permanent financing and shall include deeds of trust and
similar security instruments) which may now or hereafter encumber or otherwise
affect the Building, the Campus, or both, and to all and any renewals,
extensions, modifications, recastings or refinancings thereof. In confirmation
of such subordination, Tenant shall, at Landlord's request, promptly execute
any requisite or appropriate certificate or other document. Tenant agrees that
in the event that any proceedings are brought for the foreclosure of any such
mortgage, Tenant shall attorn to the purchaser at such foreclosure sale, if
requested to do so by such purchaser, and to recognize such purchaser as the
landlord under this Lease, provided that such purchaser agrees not to disturb
Tenant's possession and other rights under this Lease so long as Tenant is not
in default hereunder, and Tenant waives the provisions of any statute or rule
of law, now or hereafter in effect, which may give or purport to give Tenant
any right to terminate or otherwise adversely affect this Lease and the
obligations of Tenant hereunder, in the event that any such foreclosure
proceeding is prosecuted or completed.
15.03 -- Mortgagee's Unilateral Subordination. If a mortgagee shall so
elect by notice to Tenant or by the recording of a unilateral declaration of
subordination, this Lease and Tenants rights hereunder shall be superior and
prior in right to the mortgage of which such mortgagee has the benefit, with
the same force and effect as if this Lease had been executed, delivered and
recorded prior to the execution, delivery and recording of such mortgage,
subject, nevertheless, to such conditions as may be set forth in any such
notice of declaration which do not result in Tenant's occupancy under this
Lease being disturbed while Tenant is not in default hereunder.
15.04 -- Subordination to Covenants, Conditions and Restrictions. Tenant
agrees that this Lease shall be subordinate and subject to any covenants,
conditions, easements and restrictions ("CCR's") which Landlord, in its sole
discretion, hereafter grants or adopts with respect to or imposes upon the
Campus, or any portion thereof, as long as such CCR's do not substantially
impair Tenant's use of the Building for the permitted uses hereunder. In
confirmation of such subordination, Tenant shall, at Landlord's request,
promptly execute any requisite or appropriate certificate or other document.
15.05 -- Exculpation. If Landlord shall fail to perform any covenant,
term or condition of this Lease, upon Landlord's part to be performed, and if,
as a consequence of such default, Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment and levied thereon against the right,
title and interest of Landlord in the Building and out of rents or other income
from the Building receivable by Landlord, or out of the consideration received
by Landlord from the sale or other disposition of all or any part of Landlord's
right, title and interest in the Building, subject, nevertheless, to the rights
of any mortgagee, and neither Landlord nor any of the shareholders, directors
or officers of Landlord, shall be liable for any deficiency.
XIV - DEFAULTS AND REMEDIES
16.01 -- Defaults by Tenant. The occurrence of any one or more of the
following events shall be a default and breach of this Lease by Tenant:
A. Tenant shall fail to pay any monthly installment of Base Rent or
Additional Rent within five (5) calendar days after the same shall be due and
payable, or any other sum(s) within ten (10) calendar days after the same shall
be due and payable, such nonpayment continuing for a period of ten (10) days
after Landlord gives to Tenant written notice of such nonpayment.
B. Tenant shall fail to perform or observe any term, condition, covenant
or obligation required to be performed or observed by it under this Lease for a
period of thirty (30) calendar days or more after notice thereof from Landlord;
provided, however, that if the term, condition, covenant or obligation to be
performed by Tenant is of such nature that the same cannot reasonably be
performed within such thirty (30) day period, such default shall be deemed to
have been cured if Tenant commences such performance within said thirty (30)
day period and thereafter diligently undertakes to complete the same.
C. A trustee or receiver shall be appointed to take possession of
substantially all of Tenant's assets in or about the Building or of Tenant's
interest in this Lease (and Tenant does not regain possession within sixty (60)
calendar days after such appointment); Tenant makes an assignment for the
benefit of creditors; or substantially all of Tenant's assets in or about the
Building or Tenant's interest in this Lease are attached or levied upon under
execution (and Tenant does not discharge the same within sixty (60) calendar
days thereafter).
D. A petition in bankruptcy, insolvency, or for reorganization or
arrangement is filed by or against Tenant pursuant to any federal or state
statute (and, with respect to any such petition filed against it, Tenant fails
to secure a stay or discharge thereof within sixty (60) calendar days after the
filing of the same).
16.02 -- Remedies of Landlord. Upon the occurrence of any event of
default set forth in Section 16.01, Landlord shall have the following rights
and remedies, in addition to those allowed by law, any one or more of which may
be exercised without further notice to or demand upon Tenant:
E. Landlord may re-enter the Building and cure any default of Tenant, in
which event Tenant shall reimburse Landlord as additional rent for any costs
and expenses which Landlord may incur to cure such default; and Landlord shall
not be liable to Tenant for any loss or damage which Tenant may sustain by
reason of Landlord's action, regardless of whether caused by Landlord's
negligence or otherwise.
F. Landlord may terminate this Lease as of the date of such default, in
which event: (1) neither Tenant nor any person claiming under or through Tenant
shall thereafter be entitled to possession of the Building, and Tenant shall
immediately thereafter surrender the Building to Landlord; (2) Landlord may
re-enter the Building and dispossess Tenant or any other occupants of the
Building by force, summary proceedings, ejectment or otherwise, and may remove
their effects, without prejudice to any other remedy which Landlord may have
for possession or arrearages in rent; and (3) notwithstanding the termination
of this Lease (a) Landlord may recover from Tenant, as general damages, the
maximum amount allowed by law, which, at a minimum, shall be the present value
of the balance of the Base Rent and Additional Rent which would have been due
and payable for the balance of the Term of this Lease, less the present value
of the fair rental value of the Building for such period (with said present
values being determined using an eight percent (8%) discount rate), whereupon
Tenant shall be obligated to pay the same to Landlord, together with all loss
or damage which Landlord may sustain by reason of such termination and
re-entry, or (b) Landlord may relet all or any part of the Building for a term
different from that which would otherwise have constituted the balance of the
Term of this Lease, and for rent and on terms and conditions different from
those contained herein, whereupon Tenant shall immediately be obligated to pay
to Landlord, as liquidated damages, the difference between the rent provided
for herein and that provided for in any lease covering a subsequent reletting
of the Building, for the period which would otherwise have constituted the
balance of the Term of this Lease, together with all of Landlord's costs and
expenses for preparing the Building for reletting, including all repairs,
broker's and attorney's fees, and all loss or damage which Landlord may sustain
by reason of such termination, re-entry and reletting, it being expressly
understood and agreed that the liabilities and remedies specified in clauses
(a) and (b) hereof shall survive the termination of this Lease. Notwithstanding
the foregoing, Landlord shall use all reasonable efforts to mitigate its
damages.
G. Landlord may sue for injunctive relief or to recover damages for any
loss resulting from the breach.
16.03 -- Non-Waiver of Defaults. The failure or delay by Landlord or
Tenant to enforce or exercise, at any time, any of the rights or remedies or
other provisions of this Lease shall not be construed to be a waiver thereof,
nor affect the validity of any part of this Lease or the right of Landlord or
Tenant thereafter to enforce each and every such right or remedy or other
provision. No waiver of any default and breach of the lease shall be held to be
a waiver of any other default and breach. The receipt by Landlord of less than
the full rent due shall not be construed to be other than a payment on account
of rent then due, nor shall any statement on Tenants check or any letter
accompanying Tenant's check be deemed an accord and satisfaction, and Landlord
may accept such payment without prejudice to Landlord's right to recover the
balance of the rent due or to pursue any other remedies provided in this Lease.
No act or omission by Landlord or its employees or agents during the Term of
this Lease shall be deemed an acceptance of a surrender of the Building, and no
agreement to accept such a surrender shall be valid unless in writing and
signed by Landlord.
XVII -- NOTICE AND PLACE OF PAYMENT
17.01 -- Notice. Any notice or other communication required or permitted
to be given to a party under this Lease shall be in writing, unless otherwise
specified in this Lease, and shall be given by one of the following methods to
such party at the address set forth in item H of the Basic Lease Provisions:
(1) it may be sent by registered or certified United States mail, return
receipt requested and postage prepaid, or (2) it may be sent by ordinary United
States mail or delivered in person or by courier, telecopier, telex, telegram,
interconnected computers, or any other means for transmitting a written
communication. Any such notice shall be deemed to have been given as follows:
(i) when sent by registered or certified United States mail, as of the date of
delivery shown on the receipt, or if not determinable, as of the second
calendar day after it was mailed, and (ii) when delivered by any other means,
upon receipt. Either party may change its address for notice by giving written
notice thereof to the other party.
17.02 -- Place of Payment. All rent and other payments required to be
made by Tenant to Landlord shall be delivered or mailed to Landlord at the
address specified in Item H of the Basic Lease Provisions, or any other address
Landlord may specify from time to time by written notice given to Tenant.
XVIII -- HAZARDOUS SUBSTANCES
Tenant shall not cause or permit any Hazardous Substance (as hereinafter
defined) to be used, stored, generated or disposed of on or in the Building by
Tenant, Tenant's agents, employees, contractors, invitees or sublessees,
without first obtaining Landlord's written consent. If Hazardous Substances are
used, stored, generated or disposed of on or in the Building, or if the
Building becomes contaminated in any manner for which Tenant is legally liable,
Tenant shall indemnify and hold harmless Landlord from any and all claims,
damages, fines, judgments, penalties, costs, liabilities or losses (including,
without limitation, a decrease in value of the Building, damages caused by loss
or restriction of rentable or usable space, or any damages caused by adverse
impact on marketing of the space, and any and all sums paid for settlement of
claims, attorneys' fees, consultant and expert fees) arising during or after
the Term of the Lease, and arising as a result of that contamination by Tenant.
This indemnification includes, without limitation, any and all costs incurred
because of any investigation of the site or any cleanup, removal or restoration
mandated by a federal, state or local agency or political subdivision. Without
limitation of the foregoing, if Tenant causes or permits the presence of any
Hazardous Substance on or in the Building and that results in contamination,
Tenant shall promptly, at its sole expense, take any and all necessary actions
to return the Building to the condition existing prior to the presence of any
such Hazardous Substance on or in the Building. Tenant shall first obtain
Landlord's approval for any such remedial action. As used herein, "Hazardous
Substance" means any substance that is toxic, ignitable, reactive or corrosive
and that is regulated by any local government, the State of Ohio, or the United
States Government. "Hazardous Substance" includes any and all materials or
substances that are defined as "hazardous waste", "extremely hazardous waste",
or a "hazardous substance" pursuant to state, federal or local government law.
"Hazardous Substance" includes, but is not restricted to, asbestos,
polychlorinated biphenyls, petroleum, petroleum products, and petroleum wastes.
XIX -- MISCELLANEOUS GENERAL PROVISIONS
19.01 -- Relocation of Tenant. Landlord shall have the right, at its
option upon giving to Tenant one hundred twenty (120) days prior written
notice, to relocate Tenant by substituting for the Building described herein
another building located within the Campus and containing at least as much area
as that contained in the Building. Such substituted space shall be improved by
Landlord, at its expense, with Tenant finish improvements comparable in
quantity and quality to those made in the Building. In the event, Landlord
exercises this relocation option, then Landlord shall pay all reasonable
expenses incurred by Tenant in connection with such relocation, including the
moving, door lettering, telephone relocation and other reasonable expenses. In
connection with such relocation, Landlord and Tenant shall amend this Lease as
necessary, including to change the description of the demised premises.
19.02 -- Termination of the Services Agreement. Pursuant to the terms of
this Lease, Tenant will pay real and personal property taxes, insurance costs
and property management costs relating to the Building in accordance with the
terms of the Services Agreement. In the event that either the Services
Agreement is terminated, regardless of the reason for such termination, or if
Tenant for any reason ceases to be a party to the Services Agreement, Landlord
and Tenant shall endeavor in good faith to negotiate a definitive amendment to
this Lease setting forth the manner in which those services relating to the
Building and previously covered under the Services Agreement will be provided
and the method of payment therefor. If Landlord and Tenant are unable to reach
an agreement hereunder within 90 days of the date upon which the Services
Agreement was either terminated or upon which Tenant ceased to be a party, then
Landlord shall have the right and option to terminate this Lease upon thirty
(30) days prior written notice to Tenant.
19.03 -- Definition of Rent. Any amounts of money to be paid by Tenant
to Landlord pursuant to the provisions of this Lease, whether or not such
payments are denominated "Base Rent" or "Additional Rent" and whether or not
they are to be periodic or recurring, shall be deemed "Base Rent" or
"Additional Rent" for purposes of this Lease; and any failure to pay any of the
same, as provided in Section 16.01 hereof, shall entitle Landlord to exercise
all of the rights and remedies afforded hereby or by law for the collection and
enforcement of Tenant's obligation to pay rent. Tenant's obligation to pay any
such Base Rent or Additional Rent, pursuant to the provisions of this Lease,
shall survive the expiration or other termination of this Lease and the
surrender of possession of the Building after any holdover period.
19.04 -- Estoppel Certificate. Tenant agrees, at any time and from time
to time, upon not less than ten (10) calendar days prior written notice by
Landlord, to execute, acknowledge and deliver to Landlord a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if there have been modifications, stating such modifications); (ii)
stating the dates to which the rent and any other charges hereunder have been
paid by Tenant; (iii) stating whether or not, to the best knowledge of Tenant,
Landlord is in default in the performance of any covenant, agreement or
condition contained in this Lease, and, if so, specifying each such default of
which Tenant may have knowledge; and (iv) stating the address to which notices
to Tenant should be sent. Any such statement delivered pursuant hereto may be
relied upon by any owner of the Building or the Campus, any prospective
purchaser of the Building, any mortgagee or prospective mortgagee of the
Building, or any prospective assignee of any such mortgagee.
19.05 -- Governing Law. This Lease shall be construed and enforced in
accordance with the laws of the State of Ohio.
19.06 -- Successors and Assigns. This Lease 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; provided, however, that Landlord, its successors and
assigns, shall be obligated to perform Landlord's covenants under this Lease
only during and in respect to their successive periods of ownership during the
Term of this Lease.
19.07 -- Severability of Invalid Provisions. If any provision of this
Lease shall be held to be invalid, void or unenforceable, the remaining
provisions hereof shall not be affected or impaired, and such remaining
provisions shall remain in full force and effect.
19.08 -- Certain Words, Gender and Headings. As used in this Lease, the
word "person" shall mean and include, where appropriate, an individual,
corporation, partnership or other entity; the plural shall be substituted for
the singular and the singular for the plural, where appropriate; and words of
any gender shall include any other gender. The topical headings of the several
paragraphs of this Lease are inserted only as a matter of convenience and
reference, and do not affect, define, limit or describe the scope or intent of
this Lease.
19.09 -- Quiet Enjoyment. So long as Tenant pays the prescribed rent and
performs or observes all of the terms, conditions, covenants and obligations of
this Lease required to be performed or observed by it hereunder, Tenant shall,
at all times during the Term hereof, have the peaceable and quiet enjoyment,
possession, occupancy and use of the Building, without any interference from
Landlord or any person or persons claiming the Building, by, through or under
Landlord.
19.10 -- Net Lease. It is the purpose and intent of Landlord and Tenant
that the rent shall be absolutely net to Landlord, so that this Lease shall
yield, net, to Landlord, the rent specified in Item E of the Basic Lease
Provision and the Additional Rent specified in Section 4.03, in each month
during the Term of this Lease, and that all costs, expenses and obligations of
every kind and nature whatsoever relating to the Building and the Common Areas,
which may arise or become due during or out of the Term of this Lease, shall be
paid by Tenant, except for such obligations and charges as have otherwise
expressly been assumed by Landlord in accordance with the terms and conditions
of this Lease.
19.11 -- Complete Agreement; Amendments. This Lease, including all
Exhibits, Riders and Addenda, constitutes the entire agreement between the
parties hereto; it supersedes all previous understandings and agreements
between the parties, if any, and no oral or implied representation or
understandings shall vary its terms; and it may not be amended, except by a
written instrument executed by both parties hereto.
19.12 -- Reasonable Modifications. Tenant will consent to such
reasonable modifications of this Lease as Landlord may hereafter find it
necessary to make in order to obtain mortgage financing, provided that such
modifications (a) do not change the rental to be paid hereunder or the length
of the Term of the Lease; and (b) do not impose obligations upon Tenant which
are substantially or practically more burdensome to it than the obligations
contained herein.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first above written.
Witnesses as to Landlord: LANDLORD:
Distribution Land Corp.,
a Delaware corporation
/s/ John P. Wellner By: /s/ George R. Sappenfield
- ---------------------------- -------------------------------
Print Name: JOHN P. WELLNER George R. Sappenfield,
Vice President - Real Estate
/s/ Joan C. Makley
- ----------------------------
Print Name: JOAN C. MAKLEY
ATTESTED BY:
/s/ John P. Wellner By: /s/ C. David Zoba
- ---------------------------- -------------------------------
Print Name: JOHN P. WELLNER C. David Zoba
Assistant Secretary
/s/ Joan C. Makley
- ----------------------------
Print Name: JOAN C. MAKLEY
Witnesses, as to Tenant: TENANT:
Limited Too, Inc., a
Delaware corporation
/s/ John P. Wellner By: /s/ George R. Sappenfield
- ---------------------------- -------------------------------
Print Name: JOHN P. WELLNER George R. Sappenfield,
Vice President - Real Estate
/s/ Joan C. Makley
- ----------------------------
Print Name: JOAN C. MAKLEY
ATTESTED BY:
/s/ John P. Wellner By: /s/ C. David Zoba
- ---------------------------- -------------------------------
Print Name: JOHN P. WELLNER C. David Zoba
Assistant Secretary
/s/ Joan C. Makley
- ----------------------------
Print Name: JOAN C. MAKLEY
STATE OF OHIO,
COUNTY OF FRANKLIN, SS:
The foregoing instrument was acknowledged before me this 12th day of
September, 1995, by George R. Sappenfield and C. David Zoba, Vice President -
Real Estate and Assistant Secretary, respectively, of Distribution Land Corp.,
a Delaware corporation, on behalf of the corporation.
/s/ Joan C. Makley
------------------------
Notary Public
[Notary Seal and Stamp]
STATE OF OHIO,
COUNTY OF FRANKLIN, SS:
The foregoing instrument was acknowledged before me this 12th day of
September, 1995, by George R. Sappenfield and C. David Zoba, Vice President-
Real Estate and Assistant Secretary, respectively, of Limited Too, Inc., a
Delaware corporation, on behalf of the corporation.
/s/ Joan C. Makley
------------------------
Notary Public
[Notary Seal and Stamp]
This Instrument Prepared By:
Vorys, Sater, Seymour and Pease
52 East Gay Street
P.O. Box 1008
Columbus, OH 43216-1008
Exhibit 10.8
FORM OF
TOO, INC.
1999 INCENTIVE COMPENSATION PERFORMANCE PLAN
The Too, Inc. 1999 Incentive Compensation Performance Plan (the
"Incentive Plan") is intended to satisfy the applicable provision of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Incentive Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of Too, Inc. (the "Company"). The
Committee shall select those key executives of the Company with significant
operating and financial responsibility and who are likely to be "covered
employees" (within the meaning of Section 162(m) of the Code) for the relevant
fiscal year, to be eligible to earn seasonal or annual cash incentive
compensation payments to be paid under the Incentive Plan.
In respect of each Spring and/or Fall selling season, the Committee
may establish performance goals for the Company. The performance goals
selected by the Committee shall be based on any one or more of the following:
price of the Company's common stock, par value $.01 per share, or the stock of
any affiliate, shareholder return, return on equity, return on investment,
sales productivity, comparable store sales growth, economic profit, net income
or market share. These factors shall have a minimum performance standard below
which, and a maximum performance standard above which, no payments will be
made. These performance goals may be based on an analysis of historical
performance and growth expectations for the business, financial results of
other comparable businesses and progress towards achieving the long-range
strategic plan for the business. These performance goals and determination of
results shall be based entirely on financial measures. The Committee may not
use any discretion to modify award results except as permitted under Section
162(m) of the Code.
Annual incentive compensation targets may be established for eligible
executives ranging from 10 percent to 150 percent of base salary. Executives
may earn their target incentive compensation if the business achieves the
pre-established performance goals. The target incentive compensation
percentage for each executive will be based on the level and functional
responsibility of his or her position, and competitive practices. The amount
of incentive compensation paid to participating executives may range from zero
to double their targets, based upon the extent to which performance goals are
achieved. Except as otherwise permitted by Section 162(m) of the Code, the
minimum level at which a participating executive will earn any incentive
payment, and the level at which an executive will bear the maximum incentive
payment of double the target, must be established by the Committee prior to
the commencement of each bonus period. Actual payouts must be based on a
pre-established interpolation based on these minimum and maximum levels and
the performance goals.
The maximum dollar amount to be paid for any year under the Incentive
Plan to any participant may not exceed $3,000,000.
A-1
Exhibit 10.9
FORM OF
TOO, INC.
1999 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
ARTICLE 1
ESTABLISHMENT AND PURPOSE
SECTION 1.01. Establishment and Effective Date. Too, Inc., a Delaware
corporation (the "Company"), hereby establishes a stock incentive plan to be
known as the "Too, Inc. 1999 Stock Option and Performance Incentive Plan" (the
"Plan"). The Plan shall become effective on the date The Limited, Inc.
distributes (the "Distribution") to its shareholders the Company's common stock,
par value $.01 per share (the "Common Stock").
SECTION 1.02. Purpose. The Company desires to attract and retain the
best available executive and key management associates for itself and its
subsidiaries and to encourage the highest level of performance by such
associates in order to serve the best interests of the Company and its
stockholders. The Plan is expected to contribute to the attainment of these
objectives by offering eligible associates the opportunity to acquire stock
ownership interests in the Company, and other rights with respect to stock of
the Company, and to thereby provide them with incentives to put forth maximum
efforts for the success of the Company and its subsidiaries.
ARTICLE 2
AWARDS
SECTION 2.01. Form of Awards. Awards under the Plan may be granted in
any one or all of the following forms: (i) incentive stock options ("Incentive
Stock Options") meeting the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"); (ii) nonstatutory stock options
("Nonstatutory Stock Options") (unless otherwise indicated, references in the
Plan to "Options" shall include both Incentive Stock Options and Nonstatutory
Stock Options); (iii) stock appreciation rights ("Stock Appreciation Rights"),
as described in Article 7, which may be awarded either in tandem with Options
("Tandem Stock Appreciation Rights") or on a stand-alone basis ("Nontandem Stock
Appreciation Rights"); (iv) shares of Common Stock which are restricted as
provided in Article II ("Restricted Shares"); (v) units representing shares of
Common Stock, as described in Article 12 ("Performance Shares"); (vi) units
which do not represent shares of Common Stock but which may be paid in the form
of Common Stock, as described in Article 13 ("Performance Units"); (vii) shares
of unrestricted Common Stock ("Unrestricted Shares"); and (viii) tax offset
payments ("Tax Offset Payments"), as described in Article 15.
SECTION 2.02. Maximum Shares Available. The maximum aggregate number of
shares of Common Stock available for award under the Plan is [TO COME] subject
to adjustment pursuant to Article 16. In addition, Tax Offset Payments which may
be awarded under the Plan will not exceed the number of shares available for
issuance under the Plan. Shares of Common Stock issued pursuant to the Plan may
be either authorized but unissued shares or issued shares reacquired by the
Company. In the event that prior to the end of the period during which Options
may be granted under the Plan, any Option or any Nontandem Stock Appreciation
Right under the Plan expires unexercised or is terminated, surrendered or
canceled (other than in connection with the exercise of a Stock Appreciation
Right) without being exercised in whole or in part for any reason, or any
Restricted Shares, Performance Shares or Performance Units are forfeited, or if
such awards are settled in cash in lieu of shares of Common Stock, then such
shares or units may, at the discretion of the Committee (as defined below) to
the extent permissible under Rule 16b-3 under the Securities Exchange Act of
1934 (the "Act"), be made available for subsequent awards under the Plan, upon
such terms as the Committee may determine.
<PAGE>
SECTION 2.03. Return of Prior Awards. As a condition to any subsequent
award, the Committee shall have the right, at its discretion, to require
associates to return to the Company awards previously granted under this Plan.
Subject to the provisions of this Plan, such new award shall be upon such terms
and conditions as are specified by the Committee at the time the new award is
granted to the extent permitted by Rule 16b-3 under the Act.
ARTICLE 3
ADMINISTRATION
SECTION 3.01. Committee. The Plan shall be administered by a Committee
(the "Committee") appointed by the Board and consisting of not less than two (2)
members of the Board. Each member of the Committee shall be an "outside
director" (within the meaning of Section 162(m) of the Code) and a "non-employee
director" (within the meaning of Rule l6b-3(b)(3)(i) under the Act).
SECTION 3.02. Powers of Committee. Subject to the express provisions of
the Plan, the Committee shall have the power and authority (i) to grant Options
and to determine the purchase price of the Common Stock covered by each Option,
the term of each Option, the number of shares of Common Stock to be covered by
each Option and any performance objectives or vesting standards applicable to
each Option; (ii) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options and to determine which Options, if any, shall be
accompanied by Tandem Stock Appreciation Rights; (iii) to grant Tandem Stock
Appreciation Rights and Nontandem Stock Appreciation Rights and to determine the
terms and conditions of such rights; (iv) to grant Restricted Shares and to
determine the term of the restricted period and other conditions and
restrictions applicable to such shares; (v) to grant Performance Shares and
Performance Units and to determine the performance objectives, performance
periods and other conditions applicable to such shares or units; (vi) to grant
Unrestricted Shares; (vii) to determine the amount of, and to make, Tax Offset
Payments; and (viii) to determine the associates to whom, and the time or times
at which, Options, Stock Appreciation Rights, Restricted Shares, Performance
Shares, Performance Units and Unrestricted Shares shall be granted.
SECTION 3.03. Delegation. The Committee may delegate to one or more of
its members or to any other person or persons such ministerial duties as it may
deem advisable; provided, however, that the Committee may not delegate any of
its responsibilities hereunder if such delegation will cause (i) transactions
under the Plan to fail to comply with Section 16 of the Act or (ii) the
Committee to fail to qualify as "outside directors" under Section 162(m) of the
Code. The Committee may also employ attorneys, consultants, accountants or other
professional advisors and shall be entitled to rely upon the advice, opinions or
valuations of any such advisors.
SECTION 3.04. Interpretations. The Committee shall have sole
discretionary authority to interpret the terms of the Plan, to adopt and revise
rules, regulations and policies to administer the Plan and to make any other
factual determinations which it believes to be necessary or advisable for the
administration of the Plan. All actions taken and interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Company, all associates who have received awards under the Plan and all
other interested persons.
SECTION 3.05. Liability; Indemnification. No member of the Committee,
nor any person to whom duties have been delegated, shall be personally liable
for any action, interpretation or determination made with respect to the Plan or
awards made thereunder, and each member of the Committee shall be fully
indemnified and protected by the Company with respect to any liability he or she
may incur with respect to any such action, interpretation or determination, to
the extent permitted by applicable law and to the extent provided in the
Company's Certificate of Incorporation and Bylaws, as amended from time to time.
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ARTICLE 4
ELIGIBILITY
Awards shall be limited to executive and key management associates who
are regular, full-time associates of the Company and its present and future
subsidiaries. In determining the associates to whom awards shall be granted and
the number of shares to be covered by each award, the Committee shall take into
account the nature of the services rendered by such associates, their present
and potential contributions to the success of the Company and its subsidiaries
and such other factors as the Committee in its sole discretion shall deem
relevant. As used in this Plan, the term "subsidiary" shall mean any corporation
which at the time qualifies as a subsidiary of the Company under the definition
of "subsidiary corporation" set forth in Section 424(f) of the Code, or any
successor provision hereafter enacted. No associate may be granted in any
calendar year awards covering more than 1,100,000 shares of Common Stock.
ARTICLE 5
STOCK OPTIONS
SECTION 5.01. Grant of Options. Options may be granted under this Plan
for the purchase of shares of Common Stock. Options shall be granted in such
form and upon such terms and conditions, including the satisfaction of corporate
or individual performance objectives and other vesting standards, as the
Committee shall from time to time determine.
SECTION 5.02. Option Price. The option price of each Option to purchase
Common Stock shall be determined by the Committee at the time of the grant, but
shall not be less than 100 percent of the fair market value of the Common Stock
subject to such Option on the date of grant. The option price so determined
shall also be applicable in connection with the exercise of any Tandem Stock
Appreciation Right granted with respect to such Option. The exercise price of an
option previously granted under the Plan shall not thereafter be reduced other
than pursuant to the provisions of Article 16 or Article 17.
SECTION 5.03. Term of Options. The term of each Option granted under
the Plan shall not exceed ten (10) years from the date of grant, subject to
earlier termination as provided in Articles 9 and 10, except as otherwise
provided in Section 6.01 with respect to ten (10) percent stockholders of the
Company.
SECTION 5.04. Exercise of Options. An Option may be exercised, in whole
or in part, at such time or times as the Committee shall determine. The
Committee may, in its discretion, accelerate the exercisability of any Option at
any time. Options may be exercised by an associate by giving written notice to
the Committee stating the number of shares of Common Stock with respect to which
the Option is being exercised and tendering payment therefor. Payment for the
Common Stock issuable upon exercise of the Option shall be made in full in cash
or by certified check or, if the Committee, in its sole discretion, permits, in
shares of Common Stock (valued at fair market value on the date of exercise). As
soon as reasonably practicable following such exercise, a certificate
representing the shares of Common Stock purchased, registered in the name of the
associate, shall be delivered to the associate.
SECTION 5.05. Cancellation of Stock Appreciation Rights. Upon exercise
of all or a portion of an Option, the related Tandem Stock Appreciation Rights
shall be canceled with respect to an equal number of shares of Common Stock.
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ARTICLE 6
SPECIAL RULES APPLICABLE TO INCENTIVE STOCK OPTIONS
SECTION 6.01. Ten Percent Stockholder. Notwithstanding any other
provision of this Plan to the contrary, no associate may receive an Incentive
Stock Option under the Plan if such associate, at the time the award is granted,
owns (after application of the rules contained in Section 424(d) of the Code)
stock possessing more than ten (10) percent of the total combined voting power
of all classes of stock of the Company or its subsidiaries, unless (i) the
option price for such Incentive Stock Option is at least 110 percent of the fair
market value of the Common Stock subject to such Incentive Stock Option on the
date of grant and (ii) such Option is not exercisable after the date five (5)
years from the date such Incentive Stock Option is granted.
SECTION 6.02. Limitation on Grants. The aggregate fair market value
(determined with respect to each Incentive Stock Option at the time such
Incentive Stock Option is granted) of the shares of Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by an associate
during any calendar year (under this Plan or any other plan of the Company or a
subsidiary) shall not exceed $100,000.
SECTION 6.03. Limitations on Time of Grant. No grant of an Incentive
Stock Option shall be made under this Plan more than ten (10) years after the
earlier of the date of adoption of the Plan by the Board or the date the Plan is
approved by stockholders.
ARTICLE 7
STOCK APPRECIATION RIGHTS
SECTION 7.01. Grants of Stock Appreciation Rights. Tandem Stock
Appreciation Rights may be awarded by the Committee in connection with any
Option granted under the Plan, either at the time the Option is granted or
thereafter at any time prior to the exercise, termination or expiration of the
Option. Nontandem Stock Appreciation Rights may also be granted by the Committee
at any time. At the time of grant of a Nontandem Stock Appreciation Right, the
Committee shall specify the number of shares of Common Stock covered by such
right and the base price of shares of Common Stock to be used in connection with
the calculation described in Section 7.04 below. The base price of a Nontandem
Stock Appreciation Right shall be not less than 100 percent of the fair market
value of a share of Common Stock on the date of grant. Stock Appreciation Rights
shall be subject to such terms and conditions not inconsistent with the other
provisions of this Plan as the Committee shall determine.
SECTION 7.02. Limitations on Exercise. A Tandem Stock Appreciation
Right shall be exercisable only to the extent that the related Option is
exercisable and shall be exercisable only for such period as the Committee may
determine (which period may expire prior to the expiration date of the related
Option). Upon the exercise of all or a portion of Tandem Stock Appreciation
Rights, the related Option shall be canceled with respect to an equal number of
shares of Common Stock. Shares of Common Stock subject to Options, or portions
thereof, surrendered upon exercise of a Tandem Stock Appreciation Right, shall
not be available for subsequent awards under the Plan. A Nontandem Stock
Appreciation Right shall be exercisable during such period as the Committee
shall determine.
SECTION 7.03. Surrender or Exchange of Tandem Stock Appreciation
Rights. A Tandem Stock Appreciation Right shall entitle the associate to
surrender to the Company unexercised the related option, or any portion thereof,
and to receive from the Company in exchange therefor that number of shares of
Common Stock having an aggregate fair market value equal to (A) the excess of
(i) the fair market value of one (1) share of Common Stock as of the date the
Tandem Stock Appreciation Right is exercised over (ii) the option price per
share specified in such Option, multiplied by (B) the number of shares of Common
Stock subject to the Option, or portion thereof, which is surrendered. Cash
shall be delivered in lieu of any fractional shares.
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SECTION 7.04. Exercise of Nontandem Stock Appreciation Rights. The
exercise of a Nontandem Stock Appreciation Right shall entitle the associate to
receive from the Company that number of shares of Common Stock having an
aggregate fair market value equal to (A) the excess of (i) the fair market value
of one (1) share of Common Stock as of the date on which the Nontandem Stock
Appreciation Right is exercised over (ii) the base price of the shares covered
by the Nontandem Stock Appreciation Right, multiplied by (B) the number of
shares of Common Stock covered by the Nontandem Stock Appreciation Right, or the
portion thereof being exercised. Cash shall be delivered in lieu of any
fractional shares.
SECTION 7.05. Settlement of Stock Appreciation Rights. As soon as is
reasonably practicable after the exercise of a Stock Appreciation Right, the
Company shall (i) issue, in the name of the associate, stock certificates
representing the total number of full shares of Common Stock to which the
associate is entitled pursuant to Section 7.03 or 7.04 hereof, and cash in an
amount equal to the fair market value, as of the date of exercise, of any
resulting fractional shares, and (ii) if the Committee causes the Company to
elect to settle all or part of its obligations arising out of the exercise of
the Stock Appreciation Right in cash pursuant to Section 7.06, deliver to the
associate an amount in cash equal to the fair market value, as of the date of
exercise, of the shares of Common Stock it would otherwise be obligated to
deliver.
SECTION 7.06. Cash Settlement. The Committee, in its discretion, may
cause the Company to settle all or any part of its obligation arising out of the
exercise of a Stock Appreciation Right by the payment of cash in lieu of all or
part of the shares of Common Stock it would otherwise be obligated to deliver in
an amount equal to the fair market value of such shares on the date of exercise.
ARTICLE 8
NONTRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS
No Option or Stock Appreciation Right may be transferred, assigned,
pledged or hypothecated (whether by operation of law or otherwise), except as
provided by will or the applicable laws of descent and distribution, and no
Option or Stock Appreciation Right shall be subject to execution, attachment or
similar process. Any attempted assignment transfer, pledge, hypothecation or
other disposition of an Option or a Stock Appreciation Right not specifically
permitted herein shall be null and void and without effect. An Option or Stock
Appreciation Right may be exercised by an associate only during his or her
lifetime, or following his or her death pursuant to Article 10.
ARTICLE 9
TERMINATION OF EMPLOYMENT
SECTION 9.01. Exercise after Termination of Employment. Except as the
Committee may at any time provide, in the event that the employment of an
associate to whom an Option or Stock Appreciation Right has been granted under
the Plan shall be terminated (for reasons other than death or total disability),
such Option or Stock Appreciation Right may be exercised (to the extent that the
associate was entitled to do so at the termination of his employment) at any
time within three (3) months after such termination of employment.
SECTION 9.02. Total Disability. In the event that an associate to whom
an Option or Stock Appreciation Right has been granted under the Plan shall
become totally disabled, except as the Committee may at anytime provide, such
Option or Stock Appreciation Right may be exercised at any time during the first
nine (9) months that the associate receives benefits under [the Company's
Long-Term Disability Plan (the "Disability Plan")]. For purposes hereof, "total
disability" shall have the definition set forth in the Disability Plan, which
definition is hereby incorporated by reference.
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ARTICLE 10
DEATH OF ASSOCIATE
If an associate to whom an Option or Stock Appreciation Right has been
granted under the Plan shall die while employed by the Company or one of its
subsidiaries or within three (3) months after the termination of such
employment, except as the Committee may at anytime provide, such Option or Stock
Appreciation Right may be exercised to the extent that the associate was
entitled to do so at the time of his or her death, by the associate's estate or
by the person who acquires the right to exercise such Option or Stock
Appreciation Right upon his or her death by bequest or inheritance. Such
exercise may occur at any time within one (1) year after the date of the
associate's death or such other period as the Committee may at anytime provide,
but in no case later than the date on which the Option or Stock Appreciation
Right terminates.
ARTICLE 11
RESTRICTED SHARES
SECTION 11.01. Grant of Restricted Shares. The Committee may from time
to time cause the Company to grant Restricted Shares under the Plan to
associates, subject to such restrictions, conditions and other terms as the
Committee may determine.
SECTION 11.02. Restrictions. At the time a grant of Restricted Shares
is made, the Committee shall establish a period of time (the "Restricted
Period") applicable to such Restricted Shares. Each grant of Restricted Shares
may be subject to a different Restricted Period. The Committee may, in its sole
discretion, at the time a grant is made, prescribe restrictions in addition to
or other than the expiration of the Restricted Period, including the
satisfaction of corporate or individual performance objectives, which shall be
applicable to all or any portion of the Restricted Shares. Except with respect
to grants of Restricted Shares intended to qualify as performance based
compensation for purposes of Section 162(m) of the Code, the Committee may also,
in its sole discretion, shorten or terminate the Restricted Period or waive any
other restrictions applicable to all or a portion of such Restricted Shares.
None of the Restricted Shares may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of during the Restricted Period or prior to the
satisfaction of any other restrictions prescribed by the Committee with respect
to such Restricted Shares.
SECTION 11.03. Restricted Stock Certificates. If the Committee deems it
necessary or appropriate, the Company may issue, in the name of each associate
to whom Restricted Shares have been granted, stock certificates representing the
total number of Restricted Shares granted to the associate, provided that such
certificates bear an appropriate legend or other restriction on transfer. The
Secretary of the Company shall hold such certificates, properly endorsed for
transfer, for the associate's benefit until such time as the Restricted Shares
are forfeited to the Company, or the restrictions lapse.
SECTION 11.04. Rights of Holders of Restricted Shares. Except as
determined by the Committee either at the time Restricted Shares are awarded or
any time thereafter prior to the lapse of the restrictions, holders of
Restricted Shares shall not have the right to vote such shares or the right to
receive any dividends with respect to such shares. All distributions, if any,
received by an associate with respect to Restricted Shares as a result of any
stock split-up, stock distribution, a combination of shares, or other similar
transaction shall be subject to the restrictions of this Article 11.
SECTION 11.05. Forfeiture. Except as the Committee may at any time
provide, any Restricted Shares granted to an associate pursuant to the Plan
shall be forfeited if the associate terminates employment with the Company or
its subsidiaries prior to the expiration or termination of the Restricted Period
and the satisfaction of any other conditions applicable to such Restricted
Shares. Upon such forfeiture, the Secretary of the Company shall either cancel
or retain in its treasury the Restricted Shares that are forfeited to the
Company.
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SECTION 11.06. Delivery of Restricted Shares. Upon the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee, the restrictions applicable to the
Restricted Shares shall lapse and a stock certificate for the number of
Restricted Shares with respect to which the restrictions have lapsed shall be
delivered, free of all such restrictions, to the associate or the associate's
beneficiary or estate, as the case may be.
SECTION 11.07. Performance-based Objectives. At the time of the grant
of Restricted Shares to an associate, and prior to the beginning of the
performance period to which performance objectives relate, the Committee may
establish performance objectives based on any one or more of the following:
price of Company Common Stock or the stock of any affiliate, shareholder return,
return on equity, return on investment, return on capital, sales productivity,
comparable store sales growth, economic profit, economic value added, net
income, operating income, gross margin, sales, free cash flow, earnings per
share, operating company contribution or market share. These factors shall have
a minimum performance standard below which, and a maximum performance standard
above which, no payments will be made. These performance goals may be based on
an analysis of historical performance and growth expectations for the business,
financial results of other comparable businesses, and progress towards achieving
the long-range strategic plan for the business. These performance goals and
determination of results shall be based entirely on financial measures. The
Committee may not use any discretion to modify award results except as permitted
under Section 162(m) of the Code.
ARTICLE 12
PERFORMANCE SHARES
SECTION 12.01. Award of Performance Shares. For each Performance Period
(as defined in Section 12.02), Performance Shares may be granted under the Plan
to such associates of the Company and its subsidiaries as the Committee shall
determine. Each Performance Share shall be deemed to be equivalent to one (1)
share of Common Stock. Performance Shares granted to an associate shall be
credited to an account (a "Performance Share Account") established and
maintained for such associate.
SECTION 12.02. Performance Period. "Performance Period" shall mean such
period of time as shall be determined by the Committee in its sole discretion.
Different Performance Periods may be established for different associates
receiving Performance Shares. Performance Periods may run consecutively or
concurrently.
SECTION 12.03. Right to Payment of Performance Shares. With respect to
each award of Performance Shares under this Plan, the Committee shall specify
performance objectives (the "Performance Objectives") which must be satisfied in
order for the associate to vest in the Performance Shares which have been
awarded to him or her for the Performance Period. If the Performance Objectives
established for an associate for the Performance Period are partially but not
fully met, the Committee may, nonetheless, in its sole discretion, determine
that all or a portion of the Performance Shares have vested. If the Performance
Objectives for a Performance Period are exceeded, the Committee may, in its sole
discretion, grant additional, full vested Performance Shares to the associate.
The Committee may also determine, in its sole discretion, that Performance
Shares awarded to an associate shall become partially or fully vested upon the
associate's death, total disability (as defined in Article 9) or retirement, or
upon the termination of the associate's employment prior to the end of the
Performance Period.
SECTION 12.04. Payment for Performance Shares. As soon as practicable
following the end of a Performance Period, the Committee shall determine whether
the Performance Objectives for the Performance Period have been achieved (or
partially achieved to the extent necessary to permit partial vesting at the
discretion of the Committee pursuant to Section 12.03). If the Performance
Objectives for the Performance Period have been exceeded, the Committee shall
determine whether additional Performance Shares shall be granted to the
associate pursuant to Section 12.03. As soon as reasonably practicable after
such determinations, or at such later date as the Committee shall determine at
the time of grant, the Company shall pay to the associate an amount with respect
to
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each vested Performance Share equal to the fair market value of a share of
Common Stock on such payment date or, if the Committee shall so specify at the
time of grant, an amount equal to (i) the fair market value of a share of Common
Stock on the payment date less (ii) the fair market value of a share of Common
Stock on the date of grant of the Performance Share. Payment shall be made
entirely in cash, entirely in Common Stock (including Restricted Shares) or in
such combination of cash and Common Stock as the Committee shall determine.
SECTION 12.05. Voting and Dividend Rights. Except as the Committee may
otherwise provide, no associate shall be entitled to any voting rights, to
receive any dividends, or to have his or her Performance Share Account credited
or increased as a result of any dividends or other distribution with respect to
Common Stock. Notwithstanding the foregoing, within sixty (60) days from the
date of payment of a dividend by the Company on its shares of Common Stock, the
Committee, in its discretion, may credit an associate's Performance Share
Account with additional Performance Shares having an aggregate fair market value
equal to the dividend per share paid on the Common Stock multiplied by the
number of Performance Shares credited to his or her account at the time the
dividend was declared.
ARTICLE 13
PERFORMANCE UNITS
SECTION 13.01. Award of Performance Units. For each Performance Period
(as defined in Section 12.02), Performance Units may be granted under the Plan
to such associates of the Company and its subsidiaries as the Committee shall
determine. The award agreement covering such Performance Units shall specify a
value for each Performance Unit or shall set forth a formula for determining the
value of each Performance Unit at the time of payment (the "Ending Value"). If
necessary to make the calculation of the amount to be paid to the associate
pursuant to Section 13.03, the Committee shall also state in the award agreement
the initial value of each Performance Unit (the "Initial Value"). Performance
Units granted to an associate shall be credited to an account (a "Performance
Unit Account") established and maintained for such associate.
SECTION 13.02. Right to Payment of Performance Units. With respect to
each award of Performance Units under this Plan, the Committee shall specify
Performance Objectives which must be satisfied in order for the associate to
vest in the Performance Units which have been awarded to him or her for the
Performance Period. If the Performance Objectives established for an associate
for the Performance Period are partially but not fully met, the Committee may,
nonetheless, in its sole discretion, determine that all or a portion of the
Performance Units have vested. If the Performance Objectives for a Performance
Period are exceeded, the Committee may, in its sole discretion, grant
additional, fully vested Performance Units to the associate. The Committee may
also determine, in its sole discretion, that Performance Units awarded to an
associate shall become partially or fully vested upon the associate's death,
total disability (as defined in Article 9) or retirement, or upon the
termination of employment of the associate by the Company.
SECTION 13.03. Payment for Performance Units. As soon as practicable
following the end of a Performance Period, the Committee shall determine whether
the Performance Objectives for the Performance Period have been achieved (or
partially achieved to the extent necessary to permit partial vesting at the
discretion of the Committee pursuant to Section 13.02). If the Performance
Objectives for the Performance Period have been exceeded, the Committee shall
determine whether additional Performance Units shall be granted to the associate
pursuant to Section 13.02. As soon as reasonably practicable after such
determinations, or at such later date as the Committee shall determine, the
Company shall pay to the associate an amount with respect to each vested
Performance Unit equal to the Ending Value of the Performance Unit or, if the
Committee shall so specify at the time of grant, an amount equal to (i) the
Ending Value of the Performance Unit less (ii) the Initial Value of the
Performance Unit. Payment shall be made entirely in cash, entirely in Common
Stock (including Restricted Shares) or in such combination of cash and Common
Stock as the Committee shall determine.
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ARTICLE 14
UNRESTRICTED SHARES
SECTION 14.01. Award of Unrestricted Shares. The Committee may cause
the Company to grant Unrestricted Shares to associates at such time or times, in
such amounts and for such reasons as the Committee, in its sole discretion,
shall determine. No payment shall be required for Unrestricted Shares.
SECTION 14.02. Delivery of Unrestricted Shares. The Company shall
issue, in the name of each associate to whom Unrestricted Shares have been
granted, stock certificates representing the total number of Unrestricted Shares
granted to the associate, and shall deliver such certificates to the associate
as soon as reasonably practicable after the date of grant or on such later date
as the Committee shall determine at the time of grant.
ARTICLE 15
TAX OFFSET PAYMENTS
The Committee shall have the authority at the time of any award under
this Plan or anytime thereafter to make Tax Offset Payments to assist associates
in paying income taxes incurred as a result of their participation in this Plan.
The Tax Offset Payments shall be determined by multiplying a percentage
established by the Committee by all or a portion (as the Committee shall
determine) of the taxable income recognized by an associate upon (i) the
exercise of a Nonstatutory Stock Option or a Stock Appreciation Right, (ii) the
disposition of shares received upon exercise of an Incentive Stock Option, (iii)
the lapse of restrictions on Restricted Shares, (iv) the award of Unrestricted
Shares, or (v) payments for Performance Shares or Performance Units. The
percentage shall be established, from time to time, by the Committee at that
rate which the Committee, in its sole discretion, determines to be appropriate
and in the best interests of the Company to assist associates in paying income
taxes incurred as a result of the events described in the preceding sentence.
Tax Offset Payments shall be subject to the restrictions on transferability
applicable to Options and Stock Appreciation Rights under Article 8.
ARTICLE 16
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Notwithstanding any other provision of the Plan, the Committee may at
any time make or provide for such adjustments to the Plan, to the number and
class of shares available thereunder or to any outstanding Options, Stock
Appreciation Rights, Restricted Shares or Performance Shares as it shall deem
appropriate to prevent dilution or enlargement of fights, including adjustments
in the event of changes in the number of shares of outstanding Common Stock by
reason of stock dividends, extraordinary cash dividends, split-ups,
recapitalizations, mergers, consolidations, combinations or exchanges of shares,
separations, reorganizations, liquidations and the like.
ARTICLE 17
AMENDMENT AND TERMINATION
The Board may suspend, terminate, modify or amend the Plan, provided
that any amendment that would (i) materially increase the aggregate number of
shares which may be issued under the Plan or (ii) reduce the exercise price of
options previously granted under the Plan shall be subject to the approval of
the Company's stockholders, except that any such increase or modification that
may result from adjustments authorized by Article 16 does not require such
approval. If the Plan is terminated, the terms of the Plan shall,
notwithstanding such termination, continue to apply to awards granted prior to
such termination. No suspension, termination, modification or
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amendment of the Plan may, without the consent of the associate to whom an award
shall theretofore have been granted, adversely affect the fights of such
associate under such award.
ARTICLE 18
WRITTEN AGREEMENT
Each award of Options, Stock Appreciation Rights, Restricted Shares,
Performance Shares, Performance Units, Unrestricted Shares and Tax Offset
Payments shall be evidenced by a written agreement, executed by the associate
and the Company, and containing such restrictions, terms and conditions, if any,
as the Committee may require. In the event of any conflict between a written
agreement and the Plan, the terms of the Plan shall govern.
ARTICLE 19
MISCELLANEOUS PROVISIONS
SECTION 19.01. Fair Market Value. For purposes of this Plan, "fair
market value" shall be the closing price of the Common Stock as reported on the
principal exchange on which the shares are listed for the date on which the
grant, exercise or other transaction occurs, or if there were no sales on such
date, the most recent prior date on which there were sales.
SECTION 19.02. Tax Withholding. The Company shall have the right to
require associates or their beneficiaries or legal representatives to remit to
the Company an amount sufficient to satisfy federal, state and local withholding
tax requirements, or to deduct from all payments under this Plan, including Tax
Offset Payments, amounts sufficient to satisfy all withholding tax requirements.
Whenever payments under the Plan are to be made to an associate in cash, such
payments shall be net of any amounts sufficient to satisfy all federal, state
and local withholding tax requirements. The Committee may, in its discretion,
permit an associate to satisfy his or her tax withholding obligation either by
(i) surrendering shares owned by the associate or (ii) having the Company
withhold from shares otherwise deliverable to the associate. Shares surrendered
or withheld shall be valued at their fair market value as of the date on which
income is required to be recognized for income tax purposes. In the case of an
award of Incentive Stock Options, the foregoing fight shall be deemed to be
provided to the associate at the time of such award.
SECTION 19.03. Compliance with Section 16(b) and Section 162(m). In the
case of associates who are or may be subject to Section 16 of the Act, it is the
intent of the corporation that the Plan and any award granted hereunder satisfy
and be interpreted in a manner that satisfies the applicable requirements of
Rule 16b-3, so that such persons will be entitled to the benefits of Rule 16b-3
or other exemptive rules under Section 16 of the Act and will not be subjected
to liability thereunder. If any provision of the Plan or any award would
otherwise conflict with the intent expressed herein, that provision, to the
extent possible, shall be interpreted and deemed amended so as to avoid such
conflict. To the extent of any remaining irreconcilable conflict with such
intent, such provision shall be deemed void as applicable to associates who are
or may be subject to Section 16 of the Act. If any award hereunder is intended
to qualify as performance-based for purposes of Section 162(m) of the Code, the
Committee shall not exercise any discretion to increase the payment under such
award except to the extent permitted by Section 162(m) and the regulations
thereunder.
SECTION 19.04. Successors. The obligations of the Company under the
Plan shall be binding upon any successor corporation or organization resulting
from the merger, consolidation or other reorganization of the Company, or upon
any successor corporation or organization succeeding to substantially all of the
assets and businesses of the Company. In the event of any of the foregoing, the
Committee may, at its discretion prior to the
10
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consummation of the transaction, cancel, offer to purchase, exchange, adjust or
modify any outstanding awards, at such time and in such manner as the Committee
deems appropriate and in accordance with applicable law.
SECTION 19.05. General Creditor Status. Associates shall have no right,
title, or interest whatsoever in or to any investments which the Company may
make to aid it in meeting its obligations under the Plan. Nothing contained in
the Plan, and no action taken pursuant to its provisions, shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the
Company and any associate or beneficiary or legal representative of such
associate. To the extent that any person acquires a right to receive payments
from the Company under the Plan, such right shall be no greater than the fight
of an unsecured general creditor of the Company. All payments to be made
hereunder shall be paid from the general funds of the Company and no special or
separate fund shall be established and no segregation of assets shall be made to
assure payment of such amounts except as expressly set forth in the Plan.
SECTION 19.06. No Right to Employment. Nothing in the Plan or in any
written agreement entered into pursuant to Article 18, nor the grant of any
award, shall confer upon any associate any right to continue in the employ of
the Company or a subsidiary or to be entitled to any remuneration or benefits
not set forth in the Plan or such written agreement or interfere with or limit
the right of the Company or a subsidiary to modify the terms of or terminate
such associate's employment at any time.
SECTION 19.07. Notices. Notices required or permitted to be made under
the Plan shall be sufficiently made if sent by registered or certified mail
addressed (a) to the associate at the associate's address set forth in the books
and records of the Company or its subsidiaries, or (b) to the Company or the
Committee at the principal office of the Company.
SECTION 19.08. Severability. In the event that any provision of the
Plan shall be held illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining parts of the Plan, and the Plan shall
be construed and enforced as if the illegal or invalid provision had not been
included.
SECTION 19.09. Governing Law. To the extent not preempted by federal
law, the Plan, and all agreements hereunder, shall be construed in accordance
with and governed by the laws of the State of Delaware.
SECTION 19.10. Term of Plan. Unless earlier terminated pursuant to
Article 17 hereof, the Plan shall terminate on the tenth anniversary of the
Distribution.
11
Exhibit 10.10
FORM OF
TOO, INC.
1999 STOCK PLAN FOR NON-ASSOCIATE DIRECTORS
1. PURPOSE
The purpose of the Too, Inc. 1999 Stock Plan for Non Associate Directors
(the "Plan") is to promote the interests of Too, Inc. (the "Company") and its
stockholders by increasing the proprietary interest of non-associate directors
in the growth and performance of the Company by granting such directors
options to purchase shares of common stock, par value $.01 per share, (the
"Shares") of the Company and by awarding Shares to such directors in respect
of a portion of the Retainer (as defined in Section 6(b)) payable to such
directors.
2. ADMINISTRATION
The Plan shall be administered by the Company's Board of Directors (the
"Board"). Subject to the provisions of the Plan, the Board shall be authorized
to interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan and to make all other determinations
necessary or advisable for the administration of the Plan; provided, however,
that the Board shall have no discretion with respect to the selection of
directors to receive options, the number of Shares subject to any such
options, the purchase price thereunder or the timing or term of grants of
options under the Plan. The determinations of the Board in the administration
of the Plan, as described herein, shall be final and conclusive. The Secretary
of the Company shall be authorized to implement the Plan in accordance with
its terms and to take such actions of a ministerial nature as shall be
necessary to effectuate the intent and purposes thereof. The validity,
construction and effect of the Plan and any rules and regulations relating to
the Plan shall be determined in accordance with the laws of the State of
Delaware.
3. ELIGIBILITY
The class of individuals eligible to receive grants of options and awards
of Shares in respect of the Retainer under the Plan shall be directors of the
Company who are not associates of the Company or its affiliates ("Eligible
Directors"). Any holder of an option or Shares granted hereunder shall
hereinafter be referred to as a "Participant."
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 7, an aggregate of 50,000
Shares shall be available for issuance under the Plan. The Shares deliverable
upon the exercise of options or in respect of the Retainer may be made
available from authorized but unissued Shares or treasury Shares. If any
option granted under the Plan shall terminate for any reason without having
been exercised, the Shares subject to, but not delivered under, such option
shall be available for issuance under the Plan.
5. GRANT, TERMS AND CONDITIONS OF OPTIONS
(a) On the date of an Eligible Director's initial election to the
Board, such Eligible Director will be granted an option to purchase 5,000
Shares.
(b) Subsequently, on the date of each annual meeting of the Company's
shareholders, each Eligible Director will be granted an option to
purchase 1,000 Shares.
(c) The options granted will be nonstatutory stock options not
intended to qualify under Section 422 of the Internal Revenue Code of 1986,
as amended and shall have the following terms and conditions:
(i) PRICE. The purchase price per Share deliverable upon the
exercise of each option shall be one hundred (100) percent of the
Fair Market Value per Share on the date the option is granted. For
purposes
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of the Plan. "Fair Market Value" shall be the closing price of the
Shares as reported on the principal exchange on which the shares are
listed for the date in question, or if there were no sales on such
date, the most recent prior date on which there were sales.
(ii) PAYMENT. Options may be exercised only upon payment of the
purchase price thereof in full. Such payment shall be made in cash.
(iii) EXERCISABILITY AND TERMS OF OPTIONS. Options shall become
exercisable in annual 25% annual installments commencing on the
first anniversary of the date of grant, provided the holder of such
Option is an Eligible Director on such anniversary, and shall be
exercisable until the earlier of ten (10) years from the date of
grant and the expiration of the one (1) year period provided in
paragraph (iv) below.
(iv) TERMINATION OF SERVICE AS ELIGIBLE DIRECTOR. Upon
termination of a Participant's service as a director of the Company
for any reason, all outstanding options held by such Eligible
Director, to the extent then exercisable, shall be exercisable in
whole or in part for a period of one (1) year from the date on which
the Participant ceases to be a Director, provided that in no event
shall the options be exercisable beyond the period provided for in
paragraph (iii) above.
(v) NONTRANSFERABILITY OF OPTIONS. No option may be assigned
alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant otherwise than by will or the laws of
descent and distribution, and during the lifetime of the Participant
to whom an option is granted it may be exercised only by the
Participant or by the Participant's guardian or legal
representative. Notwithstanding the foregoing, options may be
transferred pursuant to a qualified domestic relations order.
(vi) OPTION AGREEMENT. Each option granted hereunder shall be
evidenced by an agreement with the Company which shall contain the
terms and provisions set forth herein and shall otherwise be
consistent with the provisions of the Plan.
6. GRANT OF SHARES
(a) Fifty (50) percent of the Retainer of each Eligible Director
shall be paid in quarterly installments in a number of Shares equal to
the quotient of (i) fifty (50) percent of the Retainer divided by (ii)
the Fair Market Value on the Retainer Payment Date. Cash shall be paid to
an Eligible Director in lieu of a fractional Share.
(b) For purposes of this Plan "Retainer" shall mean the portion of
the annual retainer payable to an Eligible Director (as defined in
Section 3) for any fiscal quarter of the Company and "Retainer Payment
Date" shall mean the last business day of the Company's relevant fiscal
quarter.
7. ADJUSTMENT OF AND CHANGES IN SHARES
In the event of a stock split, stock dividend, extraordinary cash
dividend, subdivision or combination of the Shares or other change in
corporate structure affecting the Shares, the number of Shares authorized by
the Plan shall be increased or decreased proportionately, as the case may be,
and the number of Shares subject to any outstanding option shall be increased
or decreased proportionately, as the case may be, with appropriate
corresponding adjustment in the purchase price per Share thereunder.
2
<PAGE>
8. NO RIGHTS OF SHAREHOLDERS
Neither a Participant nor a Participant's legal representative shall be,
or have any of the rights and privileges of, a shareholder of the Company in
respect of any Shares purchasable upon the exercise of any option, in whole or
in part, unless and until certificates for such Shares shall have been issued.
9. PLAN AMENDMENTS
The Plan may be amended by the Board as it shall deem advisable or to
conform to any change in any law or regulation applicable thereto subject, to
the extent deemed necessary or desirable to comply with applicable law, to the
approval of the Company's shareholders.
10. LISTING AND REGISTRATION
Each Share shall be subject to the requirement that if at any time the
Board shall determine, in its discretion, that the listing, registration or
qualification of the Shares upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the
granting of such Shares, no such Share may be disposed of unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any condition not acceptable to the Board.
11. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on the date the Company's Shares are
distributed by The Limited, Inc. to its shareholders. The Plan shall terminate
the day following the tenth (10th) Annual Shareholders Meeting of the Company
at which Directors are elected succeeding such distribution, unless the Plan
is extended or terminated at an earlier date by the Company's shareholders or
is terminated by exhaustion of the Shares available for issuance hereunder.
3
Exhibit 21.1
Subsidiaries of Too, Inc.
American Factoring, Inc.
LimToo, Inc.
