<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
----------------
THE LIMITED, INC.
(NAME OF ISSUER AND PERSON FILING STATEMENT)
COMMON STOCK, $.50 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
53271610
(CUSIP NUMBER OF CLASS OF SECURITIES)
SAMUEL P. FRIED
VICE PRESIDENT AND GENERAL COUNSEL
THE LIMITED, INC.
THREE LIMITED PARKWAY
P.O. BOX 16000
COLUMBUS, OHIO 43230
TELEPHONE: (614) 415-7000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
COPIES TO:
DAVID L. CAPLAN
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
APRIL 15, 1996
(DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS)
CALCULATION OF FILING FEE
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<TABLE>
<S> <C>
TRANSACTION VALUATION* AMOUNT OF FILING FEE
- --------------------------------------------------------------------------------
$1,651,925,476.00 $487,318.00
</TABLE>
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* Estimated solely for purposes of calculating the filing fee and computed
pursuant to Rule 0-11(a)(4) of the Securities Exchange Act of 1934, as
amended. This amount assumes the acquisition by The Limited, Inc. of
54,161,491 shares of its common stock (based on an assumed exchange ratio of
.805, approximately the mid-point of the exchange ratio range) for $30.50
per share, the average of the high and low trading prices of a share of such
common stock as reported on the New York Stock Exchange Composite Tape on
April 13, 1998.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
<TABLE>
<C> <S>
Amount Previously Paid: $374,545.41
Registration
Statement on
Form or Registration No.: Form S-4
of Abercrombie &
Fitch Co.
(No. 333-46423),
as amended on
April 2, 7, 9
and 14, 1998
</TABLE>
<TABLE>
<C> <S>
Filing Party: Abercrombie & Fitch Co.
February 17, 1998, as
Date Filed: amended
on April 2, 7, 9 and 14,
1998
</TABLE>
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<PAGE>
This Schedule 13E-4 Issuer Tender Offer Statement (the "Statement") relates
to an offer by The Limited, Inc., a Delaware corporation ("The Limited"), to
exchange up to 43,600,000 shares of Class A common stock, par value $.01 per
share (the "A&F Common Stock"), of Abercrombie & Fitch Co., which The Limited
owns, for shares of common stock, par value $.50 per share (the "Limited
Common Stock"), of The Limited upon the terms and subject to the conditions
stated in the Offering Circular--Prospectus dated April 15, 1998 (the
"Offering Circular--Prospectus") and the related Letter of Transmittal (the
"Letter of Transmittal" which, together with the Offering Circular--
Prospectus, constitute the "Exchange Offer").
The Offering Circular--Prospectus and the Letter of Transmittal, copies of
which are attached hereto as Exhibits (a) (1) and (a) (2), are incorporated
herein by reference.
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is The Limited, Inc., a Delaware corporation,
which has its principal executive offices at Three Limited Parkway, Columbus,
Ohio 43230 (telephone number (614) 415-7000).
(b) The information set forth on the front cover page of the Offering
Circular--Prospectus and in the section thereof entitled "The Exchange Offer--
Terms of the Exchange Offer" is incorporated herein by reference. With respect
to whether any shares of Limited Common Stock will be purchased from any
officer, director or affiliate of The Limited, the information set forth in
paragraph five of the section of the Offering Circular--Prospectus entitled
"The Transactions--Background and Purpose" is incorporated herein by
reference.
(c) The information set forth in the section of the Offering Circular--
Prospectus entitled "Market Prices, Trading and Dividend Information" is
incorporated herein by reference.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The consideration being offered by The Limited in exchange for the
shares of Limited Common Stock is up to 43,600,000 shares of A&F Common Stock
owned by The Limited. Holders of shares of Limited Common Stock who will be
entitled to receive a fractional share of A&F Common Stock will be paid cash
in lieu of such fractional share. The information set forth in the sections of
the Offering Circular--Prospectus entitled "The Exchange Offer--Terms of the
Exchange Offer" and "The Exchange Offer--Exchange of Shares of Limited Common
Stock" is incorporated herein by reference.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
(a)-(c) The information set forth in the section of the Offering Circular--
Prospectus entitled "The Transactions--Background and Purpose", "The
Transactions--Effects" and "The Exchange Offer--Terms of the Exchange Offer"
is incorporated herein by reference.
(d) Not applicable.
(e) The information set forth in the section of the Offering Circular--
Prospectus entitled "Capitalization" and "Unaudited Pro Forma Consolidated
Financial Statements--The Limited" is incorporated herein by reference.
(f) The information set forth in the section of the Offering Circular--
Prospectus entitled "Relationship Between The Limited And A&F" is incorporated
herein by reference.
(g)-(j) Not applicable.
2
<PAGE>
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
Except as set forth in Schedule A to the Offering Circular--Prospectus which
is incorporated herein by reference, no transaction with respect to the shares
of Limited Common Stock was effected during the period of 40 business days
prior to the date hereof by The Limited, or to The Limited's knowledge, its
directors or executive officers, or any of the directors or executive officers
of any of its subsidiaries, or any associate or subsidiary of any such person
(including any director or executive officer of any such subsidiary).
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
The information set forth in section of the Offering Circular--Prospectus
entitled "The Transactions--Background and Purpose", "The Transactions--
Effects", "The Exchange Offer--Terms of the Exchange Offer" and "Executive
Compensation for the Limited" is incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in section of the Offering Circular--Prospectus
entitled "The Exchange Offer--Fees and Expenses" is incorporated herein by
reference.
ITEM 7. FINANCIAL INFORMATION.
(a) The financial information set forth in the section of the Offering
Circular--Prospectus entitled "Consolidated Financial Statements of The
Limited" is incorporated herein by reference.
(b) The pro forma data set forth in the section of the Offering Circular--
Prospectus entitled "Capitalization" and "Unaudited Pro Forma Consolidated
Financial Statements-The Limited" is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) The information set forth in the section of the Offering Circular--
Prospectus entitled "Relationship Between The Limited And A&F" is incorporated
herein by reference.
(b) The information set forth in the section of the Offering Circular--
Prospectus entitled "The Transactions--Regulatory Approvals" is incorporated
herein by reference.
(c) Not applicable.
(d) Not applicable.
(e) Additional information with respect to the Exchange Offer and related
matters is included throughout the Offering Circular--Prospectus and the
Letter of Transmittal, copies of which are attached hereto as Exhibits (a) (1)
and (a) (2), respectively, and which are incorporated herein by reference in
their entirety. The Limited is not aware of any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the applicable law. However, The Limited reserves the right to
exclude holders in any jurisdiction in which it is asserted that the Exchange
Offer cannot lawfully be made. So long as The Limited makes a good faith
effort to comply with any state law deemed applicable to the Exchange Offer,
if it cannot do so, The Limited believes that the exclusion of holders
residing in such state(s) is permitted under Rule 13e-4 (f) (9) promulgated
under the Securities Exchange Act of 1934, as amended.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offering Circular--Prospectus dated April 15 , 1998.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
3
<PAGE>
(a)(4) Letter from Dealer Managers to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks and
Trust Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (included in the Letter of Transmittal to be filed
as Exhibit (a) (2) hereto).
(a)(7) Form of Letter from the Savings and Retirement Plan Administrative
Committee of The Limited, Inc.
(a)(8) Notice To Participants in the Savings and Retirement Plan of The
Limited, Inc.
(a)(9) Questions and Answers on Savings and Retirement Plan Tender Rights and
Procedures.
(a)(10) Form of Notice To Participants in the Stock Purchase Plan of The
Limited, Inc.
(a)(11) Form of Summary Advertisement.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) See Exhibit (a) (1) above.
(f) Not applicable.
4
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
The Limited, Inc.
By: /s/ Kenneth B. Gilman
_________________________________
Kenneth B. Gilman
Vice Chairman and
Chief Administrative Officer
Dated: April 15, 1998
5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
(a) (1) Offering Circular-Prospectus dated April 15, 1998.
(a) (2) Letter of Transmittal.
(a) (3) Notice of Guaranteed Delivery.
(a) (4) Letter from Dealer Managers to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a) (5) Letter To Clients from Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a) (6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (included in the Letter of Transmittal to be
filed as Exhibit (a) (2) hereto).
(a) (7) Form of Letter from the Savings and Retirement Plan Administrative
Committee of The Limited, Inc.
(a) (8) Notice To Participants in the Savings and Retirement Plan of The
Limited, Inc.
(a) (9) Questions and Answers on Savings and Retirement Plan Tender Rights
and Procedures.
(a) (10) Form of Notice To Participants in the Stock Purchase Plan of The
Limited, Inc.
(a) (11) Form of Summary Advertisement.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) See Exhibit (a) (1) above.
(f) Not applicable.
</TABLE>
6
<PAGE>
EXHIBIT (A)(1)
THE__________________LIMITED__________________INC.
THREE LIMITED PARKWAY
COLUMBUS, OHIO 43216
(614) 415-7000
EXCHANGE OFFER - IMPORTANT
Dear Limited Stockholders:
The Limited has announced a plan to establish its Abercrombie & Fitch
subsidiary as a fully independent public company. In order to implement this
plan and distribute its A&F shares, The Limited is offering you, as a
stockholder, the opportunity to exchange (on a tax free basis) shares of The
Limited which you own for shares of A&F. The Limited currently owns 43,600,000
A&F shares.
This Exchange Offer will be conducted as a modified "Dutch auction". What
that means is that you will be able to select, from within a range, the
exchange ratio at which you are willing to exchange some or all of your
Limited shares for shares of A&F. This exchange ratio range is not more than
.86 nor less than .73 of a share of A&F for each share of The Limited.
Based on the exchange ratios selected by fellow tendering stockholders, The
Limited will select as the final exchange ratio the lowest exchange ratio that
will permit the maximum number of shares of A&F owned by The Limited to be
exchanged. This final exchange ratio will apply to all Limited shares accepted
for exchange.
In order to facilitate a successful distribution of A&F shares, The Limited
anticipates that the final exchange ratio will provide tendering stockholders
with shares of A&F having a market value greater than the market value of the
Limited shares tendered. We will refer to this greater value in this document
as the "Anticipated Premium." Based on the trading prices for A&F and Limited
shares on April 14, 1998, the Anticipated Premium would be approximately 9%
using the minimum exchange ratio and approximately 28% using the maximum
exchange ratio. We cannot, however, predict what the amount of any Anticipated
Premium will be.
If the collective response of stockholders is such that more than 43,600,000
shares of A&F would be exchanged at the final exchange ratio, then the number
of Limited shares to be accepted from each stockholder who tendered shares at
or below the final exchange ratio will be reduced on a pro rata basis. If
fewer than 43,600,000 but more than 39,240,000 shares of A&F would be
exchanged, The Limited will accept all shares tendered at or below the final
exchange ratio, and will distribute its remaining A&F shares to its
stockholders at the time on a pro rata basis through a "spin-off" transaction.
Whether you should participate in the Exchange Offer depends on many
factors. You should consider, among other things, (i) your view of the
relative values of a single Limited share and a single A&F share, (ii) the
opportunity to receive the Anticipated Premium and (iii) your investment
strategy with regard to the two stocks. NEITHER THE LIMITED NOR A&F NOR
ANY OF THEIR RESPECTIVE DIRECTORS MAKES ANY RECOMMENDATION AS TO WHETHER YOU
SHOULD TENDER SHARES. You must make your own decision after reading this
document and consulting with your advisors based on your own financial
position and requirements. We urge you to read this Offering Circular-
Prospectus very carefully.
The Exchange Offer is subject to certain conditions, including that enough
Limited shares are tendered so that at least 90% of the A&F shares owned by
The Limited (39,240,000 out of a total of 43,600,000 shares) can be exchanged
for Limited shares. THE EXCHANGE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS
WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MAY 13, 1998,
UNLESS EXTENDED.
The Limited has retained the services of D.F. King & Co., as Information
Agent, and Goldman, Sachs & Co., as Dealer Managers, to assist you in
connection with the Exchange Offer. You may call either the Information Agent
(1-800-549-6864, toll-free) or the Dealer Managers (1-800-323-5678, toll-free)
directly to request additional documents and to ask any questions.
/s/ Leslie H. Wexner
LESLIE H. WEXNER
Chairman
The Limited, Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE ABERCROMBIE & FITCH COMMON STOCK TO BE ISSUED
IN THE EXCHANGE OFFER OR DETERMINED IF THIS OFFERING CIRCULAR-PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Dealer Managers for this Exchange Offer are:
GOLDMAN, SACHS & CO.
Offering Circular-Prospectus dated April 15, 1998
<PAGE>
[PICTURES]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER............................ 1
SUMMARY................................................................... 6
The Companies............................................................. 6
Background and The Limited's Reasons for the Exchange Offer............... 6
The Exchange Offer Generally.............................................. 7
The Exchange Offer........................................................ 7
The Exchange Agent........................................................ 9
The Information Agent..................................................... 9
The Dealer Managers....................................................... 9
The Spin-Off.............................................................. 9
Comparative Per Share Market Price Information............................ 9
Comparative Per Share Data................................................ 10
Summary Historical Consolidated Financial Data of The Limited............. 11
Summary Unaudited Pro Forma Condensed Consolidated Financial Data of The
Limited.................................................................. 13
Summary Historical Consolidated Financial Data of A&F..................... 15
Summary Unaudited Pro Forma Condensed Consolidated Financial Data of A&F.. 16
RECENT DEVELOPMENTS....................................................... 17
RISK FACTORS.............................................................. 18
Risk Factors Regarding A&F................................................ 18
Risk Factor Regarding the Anticipated Premium............................. 20
Risk Factor Regarding The Limited......................................... 20
THE TRANSACTIONS.......................................................... 21
Background and Purpose.................................................... 21
Effects................................................................... 23
No Appraisal Rights....................................................... 23
Regulatory Approvals...................................................... 23
Accounting Treatment...................................................... 23
Forward-Looking Statements May Prove Inaccurate........................... 24
THE EXCHANGE OFFER........................................................ 25
Terms of the Exchange Offer............................................... 25
Exchange of Shares of Limited Common Stock................................ 27
Determining to Participate in the Exchange Offer.......................... 28
Procedures for Tendering Shares of Limited Common Stock................... 30
Guaranteed Delivery Procedure............................................. 32
Special Procedures for Participants in the Savings and Retirement Plan and
the Stock Purchase Plan.................................................. 33
Withdrawal Rights......................................................... 34
Extension of Tender Period; Termination; Amendment........................ 35
Conditions to Consummation of the Exchange Offer.......................... 36
Fees and Expenses......................................................... 37
THE SPIN-OFF.............................................................. 39
MARKET PRICES, TRADING AND DIVIDEND INFORMATION........................... 40
Limited Common Stock...................................................... 40
A&F Common Stock.......................................................... 40
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CAPITALIZATION............................................................ 42
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS..................... 43
The Limited, Inc. ........................................................ 44
Abercrombie & Fitch Co. .................................................. 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE LIMITED................................................ 51
Financial Summary......................................................... 53
Net Sales................................................................. 54
Gross Income.............................................................. 55
General, Administrative and Store Operating Expenses...................... 56
Special and Nonrecurring Items............................................ 56
Operating Income.......................................................... 57
Interest Expense.......................................................... 57
Other Income.............................................................. 57
Gains in Connection with IPO.............................................. 58
Other Data................................................................ 58
Acquisition............................................................... 58
Financial Condition....................................................... 58
Information Systems and "Year 2000" Compliance............................ 61
Impact of Inflation....................................................... 61
Adoption of New Accounting Standards...................................... 62
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF A&F........................................................ 63
Financial Summary......................................................... 64
Net Sales................................................................. 64
Gross Income.............................................................. 65
General, Administrative and Store Operating Expenses...................... 65
Operating Income.......................................................... 65
Interest Expense.......................................................... 65
Financial Condition....................................................... 66
Information Systems and "Year 2000"
Compliance............................................................... 67
Impact of Inflation....................................................... 67
Adoption of New Accounting Standards...................................... 67
BUSINESS OF A&F........................................................... 68
Business Strengths........................................................ 68
Growth Strategy........................................................... 69
A&F Stores................................................................ 70
Merchandising............................................................. 71
Marketing and Promotion................................................... 72
Associates................................................................ 73
Sourcing.................................................................. 73
Central Store Planning.................................................... 73
Central Real Estate Management............................................ 74
Merchandise Distribution.................................................. 74
Management Information Systems............................................ 75
Trademarks and Servicemarks............................................... 75
Competition............................................................... 76
Properties................................................................ 76
BUSINESS OF THE LIMITED................................................... 78
MANAGEMENT OF A&F......................................................... 80
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Board of Directors........................................................ 80
Executive Officers........................................................ 80
EXECUTIVE COMPENSATION FOR A&F............................................ 81
MANAGEMENT OF THE LIMITED................................................. 86
Board of Directors........................................................ 86
Executive Officers........................................................ 88
EXECUTIVE COMPENSATION FOR THE LIMITED.................................... 90
SHARES ELIGIBLE FOR FUTURE SALE........................................... 94
COMPARISON OF RIGHTS OF HOLDERS OF LIMITED COMMON STOCK AND A&F COMMON
STOCK.................................................................... 95
Number of Directors....................................................... 95
Business Combinations..................................................... 95
Authorized Shares of Stock................................................ 96
Transactions with Interested Parties...................................... 96
RELATIONSHIP BETWEEN THE LIMITED AND A&F.................................. 97
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services Agreements........................................................ 97
Sublease Agreements........................................................ 97
Shared Facilities Agreements............................................... 98
Tax-Separation Agreement................................................... 98
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 100
LEGAL MATTERS.............................................................. 101
EXPERTS.................................................................... 101
WHERE YOU CAN FIND MORE INFORMATION........................................ 102
LIST OF DEFINED TERMS...................................................... 104
</TABLE>
<TABLE>
<S> <C>
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE LIMITED..................... F(L)-1
THE CONSOLIDATED FINANCIAL STATEMENTS OF A&F............................. F(A)-1
SCHEDULE A--TRANSACTIONS CONCERNING LIMITED COMMON STOCK
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER
Q1: WHY HAS THE LIMITED DECIDED TO SEPARATE A&F FROM THE REST OF THE COMPANY?
A1: For the past several years, we have been reviewing The Limited's
organizational structure to better address the management requirements of a
large, multi-division, specialty retail company. We have taken a number of
significant steps to address these organizational and management issues and to
better position The Limited's retail businesses to realize their full
potential. At the same time, we have also taken actions intended to maximize
stockholder value because we believe that the price of Limited shares has not
reflected the inherent value of The Limited's various businesses. To further
these objectives, we determined after much consideration that the complete
separation of A&F from The Limited would be in the best interests of A&F, The
Limited and their respective stockholders. This transaction is intended to
allow A&F, which has demonstrated that it has an established brand and a
proven and profitable growth strategy, to grow as an independent company. At
the same time, the separation of A&F allows The Limited to focus its resources
on brands where we can add more value.
Q2: WHY DID THE LIMITED CHOOSE THE EXCHANGE OFFER AS THE WAY TO SEPARATE A&F?
A2: We chose the Exchange Offer because we believe it is a tax efficient way
to distribute value to you, gives you a choice to adjust your investment
between The Limited and A&F on a tax-free basis, provides you with the
opportunity to receive the Anticipated Premium and is expected to have the
effect of increasing The Limited's earnings per share. Furthermore, the
Board's decision to invest in The Limited by using A&F shares to repurchase
Limited shares demonstrates our confidence in The Limited's future prospects.
In deciding to pursue the Exchange Offer, we considered, among other things,
the advice of our financial advisors, Goldman, Sachs & Co. and NationsBanc
Montgomery Securities.
Q3: WHAT OTHER ALTERNATIVES DID THE LIMITED CONSIDER BEFORE CHOOSING THE
EXCHANGE OFFER?
A3: We considered two principal alternatives for the separation of A&F from
The Limited: the Exchange Offer and a pro rata spin-off. We decided, however,
that the spin-off was not the preferred alternative because it would not
achieve the objectives described in Answer 2 above other than permitting the
separation of A&F from The Limited on a tax-free basis.
Q4: WHAT IS A MODIFIED "DUTCH AUCTION"?
A4: A modified "Dutch auction" means that you pick the exchange ratio at which
you are willing to exchange some or all of your Limited shares for shares of
A&F from within the specified range of not more than .86 nor less than .73 of
a share of A&F for each share of The Limited.
Q5: WHAT IS THE "EXCHANGE RATIO"?
A5: The exchange ratio represents the number of A&F shares which Limited
stockholders will receive for each Limited share tendered in the Exchange
Offer.
Q6: HOW WILL THE LIMITED DECIDE ON THE FINAL EXCHANGE RATIO?
A6: The Limited will select as the final exchange ratio the lowest exchange
ratio within the exchange ratio range that would permit the maximum number of
shares of A&F owned by The Limited to be exchanged in the Exchange Offer. The
final exchange ratio will apply to all tendering stockholders whose Limited
shares are accepted for exchange.
Q7: HOW DO I DECIDE WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER?
A7: Whether you should participate in the Exchange Offer depends on many
factors. You should consider, among other things, (i) your view of the
relative values of a single Limited share and a single A&F share, (ii) the
opportunity to receive the Anticipated Premium and (iii) your investment
strategy with regard to the two stocks. In addition, you should consider all
of the factors described under "Risk Factors" starting at page 18. Neither The
Limited nor A&F nor any of their respective directors makes any recommendation
as to whether you should tender your Limited shares. You must make your own
decision after reading this document and consulting with your advisors based
on your own financial position and requirements.
1
<PAGE>
Q8: WHAT IS THE ANTICIPATED PREMIUM?
A8: Based on the closing trading prices for Limited (NYSE/LSE: LTD) and A&F
shares (NYSE: ANF) on April 14, 1998, any of the designated exchange ratios
would result in a Limited stockholder receiving A&F shares with a market value
greater than the market value of the Limited shares tendered for exchange. We
cannot, however, predict what the amount of the Anticipated Premium, if any,
will be or the prices at which A&F or Limited shares will trade over time.
You can calculate the Anticipated Premium using the following formula:
<TABLE>
<CAPTION>
Exchange Ratio x Price of
one A&F share
-------------------------- - 1
<S> <C> <C>
Price of one Limited share
</TABLE>
For example: Assume a price of $29 3/8 for a Limited share and a price of $43
13/16 for an A&F share (the closing trading prices of Limited and A&F shares on
April 14, 1998). At an exchange ratio of .795 of a share of A&F for each
Limited share (the midpoint of the range of exchange ratios), the Anticipated
Premium would be approximately 19%. At the minimum exchange ratio of .73, the
Anticipated Premium would be approximately 9%. At the maximum exchange ratio of
.86, the Anticipated Premium would be approximately 28%.
Q9: CAN I PARTICIPATE WITH ONLY A PORTION OF MY LIMITED SHARES IN THE EXCHANGE
OFFER?
A9: Yes, you may tender some or all of your Limited shares.
Q10: DO I DO ANYTHING IF I WANT TO RETAIN MY LIMITED SHARES?
A10: No. If you want to retain your Limited shares, you do not need to take any
action.
Q11: IF I DECIDE TO PARTICIPATE IN THE EXCHANGE OFFER, HOW DO I SELECT AN
APPROPRIATE EXCHANGE RATIO?
A11: In selecting an exchange ratio, you should consider your view of the value
of one share of Limited compared to that of one share of A&F, as well as the
level of certainty that you desire that your tender will be accepted in the
Exchange Offer. The higher your exchange ratio, the lower the likelihood that
your shares will be accepted for exchange. In other words, a tender at an
exchange ratio greater than the final exchange ratio will not be accepted.
Conversely, the lower your exchange ratio, the higher the likelihood that your
shares will be accepted for exchange. See "The Exchange Offer--Determining to
Participate in the Exchange Offer--Selecting an Exchange Ratio", page 28.
Q12: WHAT HAPPENS IF I SELECT AN EXCHANGE RATIO HIGHER THAN THE FINAL EXCHANGE
RATIO?
A12: You will not participate in the Exchange Offer and the Limited shares you
tendered will be returned to you.
Q13: WHAT HAPPENS IF I SELECT EITHER THE EXCHANGE RATIO SELECTED BY THE DUTCH
AUCTION PROCEDURE OR A SPECIFIC EXCHANGE RATIO WHICH IS EQUAL TO OR LOWER THAN
THE FINAL EXCHANGE RATIO?
A13: You will participate in the Exchange Offer at the final exchange ratio,
but the actual number of your Limited shares accepted for exchange will depend
on whether the Exchange Offer is oversubscribed.
Q14: HOW CAN I MAKE SURE THAT I WILL PARTICIPATE IN THE EXCHANGE OFFER?
A14: To ensure participation in the Exchange Offer, you should check the box
captioned "Shares Tendered at Exchange Ratio Determined by Dutch Auction" in
Box #2 on the Letter of Transmittal indicating that you will accept whatever
the final exchange ratio is determined to be. In this case you will participate
in the Exchange Offer, but the actual number of your Limited shares accepted
for exchange will depend on whether the Exchange Offer is oversubscribed. If
the Exchange Offer is oversubscribed, you will participate on a pro rata basis.
Q15: CAN I SELECT MORE THAN ONE EXCHANGE RATIO?
A15: The same shares may not be tendered at more than one exchange ratio. You
may, however, tender different portions of your Limited shares at different
exchange ratios, but you must complete separate Letters of Transmittal for each
exchange ratio selected.
Q16: WHAT IS PRORATION?
A16: Proration will occur if the Exchange Offer is oversubscribed; that is, if
the number of Limited shares tendered multiplied by the final exchange ratio
exceeds the number of A&F shares available
2
<PAGE>
for exchange at the final exchange ratio. In this case, all Limited shares that
are tendered at or below the final exchange ratio will be accepted for exchange
on a pro rata basis at the final exchange ratio.
Q17: WILL LESLIE WEXNER BE TENDERING HIS LIMITED SHARES IN THE EXCHANGE OFFER?
A17: No. Consistent with the goal of completely separating A&F from The
Limited, Mr. Wexner has decided not to tender his Limited shares (including
shares held by trusts created by Mr. Wexner). Trusts created by Mr. Wexner have
disposed of approximately 8.0 million Limited shares since the announcement of
the Exchange Offer on February 17, 1998. The decision to dispose of these
shares was made by the trustees of the trusts in order to diversify their
investments.
Q18: HOW DO I PARTICIPATE IN THE EXCHANGE OFFER?
A18: Complete and sign the Letter of Transmittal designating the number of
Limited shares you wish to tender and either your willingness to accept the
final exchange ratio determined by Dutch auction or the specific exchange ratio
at which you are tendering. Send it, together with your share certificates and
any other documents required by the Letter of Transmittal, by registered mail,
return receipt requested, so that it is received by the Exchange Agent at one
of the addresses set forth on the back cover of this Offering Circular-
Prospectus before the expiration of the Exchange Offer. Do not send your
certificates to The Limited, A&F, the Dealer Managers (Goldman, Sachs & Co.),
any soliciting dealer or the Information Agent (D.F. King).
Q19: WILL PARTICIPANTS IN THE LIMITED'S DIVIDEND REINVESTMENT PLAN BE ABLE TO
PARTICIPATE IN THE EXCHANGE OFFER?
A19: Yes. Each participant in the Dividend Reinvestment Plan may tender some or
all of the Limited shares attributable to his or her plan account.
Q20: WILL PARTICIPANTS IN THE LIMITED'S SAVINGS AND RETIREMENT PLAN BE ABLE TO
PARTICIPATE IN THE EXCHANGE OFFER?
A20: Yes. Each participant in the Savings and Retirement Plan may instruct the
trustee of the plan to tender some or all of the Limited shares attributable to
his or her plan account. Separate forms will be sent to each plan participant
for use in directing the trustee.
Q21: WILL PARTICIPANTS IN THE LIMITED'S STOCK PURCHASE PLAN BE ABLE TO
PARTICIPATE IN THE EXCHANGE OFFER?
A21: Yes. Each participant in the Stock Purchase Plan may instruct the agent
for such plan to tender some or all of the Limited shares attributable to his
or her plan account. Separate forms will be sent to each plan participant for
use in directing the agent.
Q22: MY SHARES ARE HELD BY MY BROKER. WHAT SHOULD I DO IF I WANT TO PARTICIPATE
IN THE EXCHANGE OFFER?
A22: If your shares are held by your broker and are not certificated in your
name (i.e., your shares are in "street name"), you should receive instructions
from your broker on how to participate. In this situation, you do not need to
complete the Letter of Transmittal. If you have not yet received instructions
from your broker, please contact your broker directly.
Q23: CAN I CHANGE MY MIND AFTER I TENDER MY LIMITED SHARES?
A23: Yes. You may withdraw tenders of your shares any time before the
expiration of the Exchange Offer. If you change your mind again, you can
retender your Limited shares by following the tender procedures again prior to
the expiration of the Exchange Offer.
Q24: ARE THERE ANY CONDITIONS TO THE LIMITED'S OBLIGATION TO COMPLETE THE
EXCHANGE OFFER?
A24: Yes, The Limited's obligation to complete the Exchange Offer is subject to
the conditions outlined on page 36. In particular, we will not close the
Exchange Offer unless enough Limited shares are tendered so that at least
39,240,000 shares of A&F stock can be distributed to Limited stockholders. We
refer to the number of Limited shares that must be tendered to produce this
result as the "Trigger Amount". The Limited may waive any or all of the
conditions to the Exchange Offer in its reasonable discretion.
Q25: WHAT HAPPENS IF THE NUMBER OF LIMITED SHARES TENDERED IS SUCH THAT MORE
THAN 39,240,000 A&F SHARES, BUT FEWER THAN 43,600,000 A&F SHARES, WOULD BE
EXCHANGED?
A25: A&F shares held by The Limited after completion of the Exchange Offer will
be distributed to its stockholders on a pro rata basis. We refer to this
distribution as the "Spin-Off". For more details, see "The Spin-Off" on page
39.
3
<PAGE>
Q26: WHAT HAPPENS IF THE NUMBER OF LIMITED SHARES TENDERED IS SUCH THAT MORE
THAN 43,600,000 SHARES OF A&F WOULD BE EXCHANGED, I.E., THE EXCHANGE OFFER IS
OVERSUBSCRIBED?
A26: All Limited shares which are tendered at or below the final exchange
ratio will be accepted for exchange on a pro rata basis at the final exchange
ratio. Any shares not accepted for exchange will be returned to tendering
stockholders.
Q27: WHEN DOES THE EXCHANGE OFFER EXPIRE?
A27: The Exchange Offer, proration period and withdrawal rights will expire at
12:00 midnight, New York City time, on Wednesday, May 13, 1998, unless
extended. Your instructions and other required documents must be received
before then in order to participate in the Exchange Offer.
Q28: WHEN WILL TENDERING STOCKHOLDERS KNOW THE OUTCOME OF THE EXCHANGE OFFER?
A28: Preliminary results of the Exchange Offer, including any preliminary
proration factor, will be announced by press release promptly after the
expiration of the Exchange Offer. Announcement of any final proration factor
should occur approximately seven business days after the expiration of the
Exchange Offer.
Q29: WILL I BE TAXED ON THE SHARES OF A&F THAT I RECEIVE IN THE EXCHANGE
OFFER?
A29: The Limited has received a private letter ruling from the Internal
Revenue Service to the effect that the Exchange Offer (and the subsequent
Spin-Off, if any) will generally be tax-free to The Limited and its
stockholders. The receipt of cash for a fractional A&F share will be taxable
as a capital gain or loss if your Limited shares were held as a capital asset.
Each stockholder should consult his or her tax advisor as to the particular
consequences of the Exchange Offer and Spin-Off to such stockholder.
Q30: WHAT WILL BE THE TAX BASIS AND HOLDING PERIOD OF A&F SHARES I RECEIVE IN
EXCHANGE FOR MY LIMITED SHARES?
A30: If you tender all of your Limited shares and they are all accepted for
exchange, the tax basis in the A&F shares you receive will equal your tax
basis in your Limited shares before the exchange.
If you tender fewer than all of your Limited shares or fewer than all of your
Limited shares are accepted for exchange, the total tax basis in the Limited
and A&F shares that you hold immediately after the exchange will equal your
tax basis in your Limited shares before the exchange; however, the basis of
the A&F shares you receive will not necessarily equal the basis of the Limited
shares that are accepted for exchange. The portion of your total tax basis
allocated to the A&F shares you receive in the Exchange Offer will equal your
old tax basis in the Limited shares multiplied by a fraction. The fraction is
equal to (i) the aggregate market value of the A&F shares you receive in the
Exchange Offer divided by (ii) the market value of the A&F shares received in
the Exchange Offer plus the market value of the Limited shares held
immediately after the Exchange Offer.
Stated as a formula, the basis in your A&F shares received in the Exchange
Offer may be determined as follows:
<TABLE>
<CAPTION>
Market value of A&F
received in the Exchange
Offer
-------------------------------
<S> <C> <C> <C>
Basis in A&F Basis in Market value Market value of
received in The Limited of A&F The Limited held
the Exchange = prior to the x received in the immediately
Offer Exchange Exchange after the
Offer Offer Exchange Offer.
</TABLE>
If additional shares of A&F are received in the Spin-Off, the same calculation
must be repeated using the basis in the Limited shares, as determined
following the Exchange Offer, as the starting point in the calculation.
Your holding period in the A&F shares you receive in the Transactions
generally will include your holding period for Limited shares.
Q31: WHAT WILL BE THE TAX BASIS IN LIMITED SHARES THAT ARE NOT EXCHANGED
PURSUANT TO THE EXCHANGE OFFER?
A31: If you tender fewer than all of your Limited shares, or fewer than all of
your Limited shares are accepted for exchange, the total tax basis in your
remaining Limited shares will equal your total tax basis in Limited shares
before the exchange, less the basis allocated to A&F shares as determined
under the calculation described in the answer to the preceding question.
4
<PAGE>
Q32: DOESN'T A&F HAVE TWO CLASSES OF STOCK? HOW WILL THEY BE AFFECTED BY THE
TRANSACTIONS?
A32: A&F currently has two classes of common stock, Class A, which is publicly
held, and Class B, which is all held by The Limited. All Class B shares will be
converted into Class A shares prior to the completion of the Exchange Offer. As
a result, there will be no Class B shares after the consummation of the
Exchange Offer. Accordingly, we have referred to the Class A shares as the A&F
shares or the A&F Common Stock in this document.
Q33: WHAT HAPPENS TO MY LIMITED DIVIDEND IN LIGHT OF THE EXCHANGE OFFER?
A33: If you tender your Limited shares, after the Exchange Offer, you will not
receive a Limited dividend for any Limited shares exchanged in the Exchange
Offer because you will no longer own such shares. You will continue to receive
the regular Limited dividend for your Limited shares that are not exchanged in
the Exchange Offer. A&F does not currently pay a dividend on its shares.
Q34: HAVE OTHER COMPANIES PURSUED SUCH AN EXCHANGE OFFER?
A34: Yes. Examples of similar exchange offers include recent transactions
involving Lockheed Martin Corporation, Eli Lilly and Company and Viacom
International Inc.
Q35: WHO SHOULD I CALL IF I HAVE QUESTIONS OR WANT COPIES OF ADDITIONAL
DOCUMENTS?
A35: You may call either the Information Agent (1-800-549-6864, toll-free) or
the Dealer Managers (1-800-323-5678, toll-free) directly to request additional
documents and to ask any questions.
5
<PAGE>
SUMMARY
This summary highlights selected information from this Offering Circular-
Prospectus and may not contain all the information that is important to you. To
understand the Exchange Offer fully and for a more complete description of the
legal terms of the Exchange Offer, you should read carefully this entire
document and the documents to which we have referred you. See "Where You Can
Find More Information" on page 102. We have included page references in
parentheses to direct you to a more complete description of the topics
presented in this summary.
THE COMPANIES
THE LIMITED, INC.
Three Limited Parkway
P.O. Box 16000
Columbus, Ohio 43230
(614) 415-7000
The Limited is engaged in the purchase, distribution and sale of women's
apparel, lingerie, men's apparel, personal care products, children's apparel
and a wide variety of sporting goods. The Limited operates an integrated
distribution system which supports its retail activities. These activities are
conducted under various trade names through the retail stores and catalogue
businesses of The Limited. Merchandise is targeted to appeal to customers in
various market segments that have distinctive consumer characteristics. The
Limited's women's apparel businesses offer regular and special-sized fashion
apparel at various price levels, including shirts, blouses, sweaters, pants,
skirts, coats and dresses. In addition, The Limited offers lingerie and
accessories, men's apparel, fragrances, bath and personal care products,
specialty gift items, children's apparel and a wide variety of sporting goods.
The Limited conducts its principal operations through wholly-owned
subsidiaries, its 83%-owned subsidiary, Intimate Brands, Inc., and A&F. For
more detail on the business of The Limited, see page 78.
ABERCROMBIE & FITCH CO.
Four Limited Parkway East
P.O. Box 182168
Reynoldsburg, Ohio 43068
(614) 577-6500
Abercrombie & Fitch is engaged in the purchase, distribution and sale of
men's and women's casual apparel. A&F's retail activities are conducted through
retail stores bearing the Abercrombie & Fitch name. Merchandise is targeted to
appeal to customers in various market segments that have distinctive consumer
characteristics. An initial public offering of 8,050,000 shares of A&F's Class
A common stock was completed on October 1, 1996 and, as a result, approximately
84% of the outstanding common stock of A&F is owned by The Limited. For more
detail on the business of A&F, see page 68.
BACKGROUND AND THE LIMITED'S REASONS FOR THE EXCHANGE OFFER
For the past several years, we have been reviewing The Limited's
organizational structure to better address the management requirements of a
large, multi-division, specialty retail company. We have taken a number of
significant steps to address these organizational and management issues and to
better position The Limited's retail businesses to realize their full
potential. At the same time, we have also attempted to take actions intended to
maximize stockholder value because we believe that the price of Limited shares
has not reflected the inherent value of The Limited's various businesses. To
further these objectives, we determined after much consideration that the
complete separation of A&F from The Limited would be in the best interests of
A&F, The Limited and their respective stockholders. The Exchange Offer is
intended to allow A&F, which has demonstrated that it has an established brand
and a proven and profitable growth strategy, to grow as an independent company.
At the same time, the separation of A&F allows The Limited to focus its
resources on brands where it can add more value. We chose the
6
<PAGE>
Exchange Offer because we believe it is a tax efficient way to distribute value
to you, gives you a choice to adjust your investment between The Limited and
A&F on a tax-free basis, provides you with the opportunity to receive the
Anticipated Premium and is expected to have the effect of increasing The
Limited's earnings per share. Furthermore, the Board's decision to invest in
The Limited by using A&F shares to repurchase Limited shares demonstrates our
confidence in The Limited's future prospects. In deciding to pursue the
Exchange Offer, we considered, among other things, the advice of our financial
advisors, Goldman, Sachs & Co. and NationsBanc Montgomery Securities.
To review the reasons for the Exchange Offer in greater detail, see page 25.
THE EXCHANGE OFFER GENERALLY
EFFECTS OF THE EXCHANGE OFFER
Limited stockholders will be affected by the Exchange Offer regardless of
whether they tender their Limited shares in the Exchange Offer. Stockholders
who tender all their Limited shares will, if all such shares are accepted for
exchange, no longer have an ownership interest in The Limited and will no
longer participate in any change in the value of The Limited. Stockholders who
exchange some, but not all, of their Limited shares in the Exchange Offer will
have a diminished ownership interest in The Limited and an increased ownership
interest in A&F. Stockholders who do not tender any of their Limited shares
will receive shares of A&F only as a result of the Spin-Off, and will continue
to have an ownership interest in The Limited, which ownership interest will
have increased on a percentage basis as a result of the Exchange Offer.
THE POSITION OF THE LIMITED AND A&F ON THE EXCHANGE OFFER
Neither The Limited nor A&F nor any of their respective directors makes any
recommendation as to whether you should tender your Limited shares. Among the
factors which you should consider when deciding whether to tender your Limited
shares are (i) your view of the relative value of a single share of The Limited
and A&F, (ii) the opportunity to receive the Anticipated Premium and (iii) your
investment strategy with regard to the two stocks. Based on the New York Stock
Exchange closing trading prices of A&F and Limited shares on April 14, 1998,
the Anticipated Premium would be approximately 9% using the minimum exchange
ratio and approximately 28% using the maximum exchange ratio. We cannot,
however, predict what the amount of the Anticipated Premium will be or whether
in fact there will be a premium at the expiration of the Exchange Offer or the
prices at which A&F or Limited shares will trade over time. You must make your
own decision as to whether to tender, and, if so, how many shares and at what
exchange ratio to tender after reading this Offering Circular-Prospectus and
consulting with your advisors based on your own financial position and
requirements. We urge you to read this document very carefully.
NO APPRAISAL RIGHTS
No appraisal rights are available to stockholders of The Limited in
connection with the Exchange Offer or the Spin-Off.
CERTAIN FEDERAL INCOME TAXES (SEE PAGE 100)
The Limited has received a private letter ruling from the Internal Revenue
Service to the effect that the Exchange Offer (and the subsequent Spin-Off, if
any) generally will be tax-free to The Limited and its stockholders. The
receipt of cash for a fractional A&F share will be taxable as a capital gain or
loss if the Limited shares tendered were held as a capital asset. Each
stockholder should consult his or her tax advisor as to the particular
consequences of the Exchange Offer and Spin-Off to such stockholder.
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER (SEE PAGE 25)
The Limited is offering to exchange up to 43,600,000 A&F shares for Limited
shares at an exchange ratio not greater than .86 nor less
7
<PAGE>
than .73 of a share of A&F for each share of The Limited. The Exchange Offer
will be conducted as a modified "Dutch auction" which means that you pick the
exchange ratio at which you are willing to exchange some or all of your Limited
shares for shares of A&F from within the specified range. Whether, and to what
extent, your Limited shares will be accepted for exchange will depend on how
your exchange ratio compares to the exchange ratios selected by other tendering
stockholders. So, a "Dutch auction" is basically a competitive bid between you
and other Limited stockholders. Your exchange ratio must be within the range
set by The Limited. If you wish to maximize the chance that your Limited shares
will be exchanged for A&F shares, you may check the box captioned "Shares
Tendered at Exchange Ratio Determined by Dutch Auction" in Box #2 on the Letter
of Transmittal indicating that you will accept whatever the final exchange
ratio is determined to be. Limited shares tendered at exchange ratios above the
final exchange ratio will not be accepted for exchange.
After the expiration of the Exchange Offer, The Limited will select as the
final exchange ratio the lowest exchange ratio within the exchange ratio range
which would permit the maximum number of the shares of A&F owned by The Limited
to be exchanged in the Exchange Offer.
All Limited shares properly tendered and not withdrawn, at exchange ratios at
or below the final exchange ratio will be exchanged at the final exchange
ratio, on the terms and subject to the conditions of the Exchange Offer,
including the proration provisions. Any Limited shares not accepted for
exchange will be returned to stockholders promptly following the expiration of
the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION (SEE PAGE 35)
The Exchange Offer, proration period and withdrawal rights will expire at
12:00 midnight, New York City time, on Wednesday, May 13, 1998, unless
extended. You must tender your Limited shares prior to such expiration date if
you wish to participate in the offer. The Exchange Offer may also terminate or
be terminable in certain circumstances.
WITHDRAWAL RIGHTS (SEE PAGE 34)
You may withdraw tenders of Limited shares any time before the expiration of
the Exchange Offer. If you change your mind again, you may retender your
Limited shares by following the tender procedures again prior to the expiration
of the Exchange Offer.
CONDITIONS OF THE EXCHANGE OFFER (SEE PAGE 36)
The Exchange Offer is subject to certain conditions, including that enough
Limited shares are tendered so that at least 90% of the shares (or 39,240,000
shares) of A&F owned by The Limited can be exchanged.
PROCEDURES FOR TENDERING (SEE PAGES 30 AND 33)
Complete and sign the Letter of Transmittal designating the number of Limited
shares you wish to tender and either your willingness to accept the exchange
ratio selected by the Dutch auction or the specific exchange ratio at which you
are tendering. Send it, together with your share certificates and any other
documents required by the Letter of Transmittal, by registered mail, return
receipt requested, so that it is received by the Exchange Agent at one of the
addresses set forth on the back cover of this Offering Circular-Prospectus
before the expiration of the Exchange Offer. You may also comply with the
procedures for guaranteed delivery. Do not send your certificates to The
Limited, A&F, the Dealer Managers (Goldman, Sachs & Co.), any Soliciting Dealer
or the Information Agent (D.F. King). If your shares are held by your broker
and are not certificated in your name (i.e., your shares are in "street name"),
you should receive instructions from your broker on how to participate. In this
situation, you do not need to complete the Letter of Transmittal. If you have
not yet received instructions from your broker, please contact your broker
directly. Certain financial institutions may also effect tenders by
8
<PAGE>
book-entry transfer through the book-entry transfer facility.
If you are a participant in The Limited's Savings and Retirement Plan or
Stock Purchase Plan you will receive separate forms to be used to tender
Limited shares held in your accounts under the relevant plan. You may not use
the Letter of Transmittal to tender shares held under either plan.
PRORATION
If the number of Limited shares tendered is such that more than 43,600,000
shares of A&F would be exchanged for those Limited shares, The Limited will
accept all Limited shares that are validly tendered at or below the final
exchange ratio on a pro rata basis. The preliminary proration factor will be
announced by press release promptly after the expiration of the Exchange Offer.
Announcement of any final proration factor should occur approximately seven
business days after the expiration date.
NO FRACTIONAL SHARES
No fractional shares of A&F will be distributed. The Exchange Agent, acting
as your agent, will aggregate any fractional shares and sell them for your
accounts. Any proceeds realized by the Exchange Agent on the sale of fractional
shares will be distributed on a pro rata basis, net of commissions.
THE EXCHANGE AGENT
First Chicago Trust Company of New York is serving as the Exchange Agent in
connection with the Exchange Offer.
THE INFORMATION AGENT
D.F. King & Co., Inc. is serving as the Information Agent in connection with
the Exchange Offer. D.F. King's telephone number is (800) 549-6864.
THE DEALER MANAGERS
Goldman, Sachs & Co. is serving as the Dealer Managers for the Exchange
Offer. Goldman Sachs' telephone number is (800) 323-5678.
THE SPIN-OFF (SEE PAGE 39)
If the number of Limited shares tendered is such that fewer than 43,600,000
A&F shares would be exchanged for Limited shares, The Limited will accept all
shares tendered at or below the final exchange ratio, and promptly after the
completion of the Exchange Offer, will distribute its remaining A&F shares to
its then remaining stockholders on a pro rata basis.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE 40)
Limited shares and A&F shares are listed and traded on the New York Stock
Exchange. On February 17, 1998, the last trading day before announcement of the
Exchange Offer, the closing sale price per Limited share on the NYSE was $31
1/2, and the closing sale price per A&F share on the NYSE was $37 1/8. On April
14, 1998, the last trading day before the start of the Exchange Offer, the
closing sale price per Limited share and the closing sale price per A&F share
on the NYSE was $29 3/8 and $43 13/16, respectively.
9
<PAGE>
COMPARATIVE PER SHARE DATA
The following table summarizes certain per share information for The Limited
and A&F on an historical, pro forma and dividends-paid basis. The pro forma
income per share information assumes that the transactions and events described
below and in the notes to the Unaudited Pro Forma Consolidated Financial
Statements occurred at the beginning of fiscal year 1997 (February 2, 1997).
The pro forma book value per share information assumes that these transactions
and events occurred as of January 31, 1998.
The Limited unaudited pro forma per share information gives effect to the
following transactions and events: (1) the split-off of A&F from The Limited's
consolidated financial statements--the consolidated financial statements of A&F
will no longer be included in The Limited's consolidated financial statements
and The Limited's outstanding common stock will be reduced by the number of
shares of Limited Common Stock exchanged in the Exchange Offer; (2) the
elimination of the A&F minority interest in The Limited's consolidated
financial statements and (3) the repayment of a $50 million obligation due to
The Limited by A&F through issuance of 600,000 shares of A&F Common Stock to
The Limited with the remainder being paid in cash.
The A&F unaudited pro forma per share information gives effect to the
following transactions and events: (1) the repayment of a $50 million
obligation due to The Limited by A&F through issuance of 600,000 shares of A&F
Common Stock to The Limited with the remainder being paid in cash and (2) the
reduction of interest expense from the A&F statement of income due to the
repayment of its $50 million obligation to The Limited.
This data has been derived from and should be read in conjunction with the
audited consolidated financial statements (and the related notes) of each of
The Limited and A&F for the three years ended January 31, 1998 included herein
and other information that The Limited and A&F have filed with the Securities
and Exchange Commission (the "SEC"). See the "Unaudited Pro Forma Consolidated
Financial Statements" on page 43, "Where You Can Find More Information" on page
102 and the consolidated financial statements beginning on pages F(L)-1 and
F(A)-1.
The pro forma information provided below is presented to show you what The
Limited and A&F might have looked like if the transactions and events described
above had occurred at the times outlined above. You should not rely on the pro
forma information as being indicative of the historical results that would have
been achieved or the future results that The Limited and A&F will experience
after the transactions.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1994 1995 1996(1) 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE INFORMATION--
THE LIMITED:
Net income per basic
share................. $ 1.09 $ 1.25 $ 2.69 $1.55 $0.80
Net income per diluted
share................. $ 1.08 $ 1.25 $ 2.68 $1.54 $0.79
Pro forma net income
per basic share (2)... -- -- -- -- $0.80
Pro forma net income
per diluted share (3). -- -- -- -- $0.79
Dividends per share.... $ 0.36 $ 0.36 $ 0.40 $0.40 $0.48
Book value per share
outstanding at end of
period................ $ 6.82 $ 7.72 $ 9.01 $7.09 $7.50
Pro forma book value
per share outstanding
at end of period...... -- -- -- -- $9.03
PER SHARE INFORMATION--
A&F:
Net income per basic
share................. $(0.06) $ 0.19 $ 0.33 $0.54 $0.95
Net income per diluted
share................. $(0.06) $ 0.19 $ 0.33 $0.54 $0.94
Pro forma net income
per basic share(4).... -- -- -- -- $0.97
Pro forma net income
per diluted share (4). -- -- -- -- $0.96
Dividends per share
(5)................... -- -- -- -- --
Book value per share
outstanding at end of
period................ $(1.05) $(0.86) $(0.53) $0.22 $1.15
Pro forma book value
per share outstanding
at end of period...... -- -- -- -- $1.64
</TABLE>
- --------
(1)Fifty-three week year.
(2) The pro forma net income per basic share is based upon the pro forma
weighted average number of shares of Limited Common Stock outstanding after
the Exchange Offer.
(3) The pro forma net income per diluted share is based upon the pro forma
weighted average number of outstanding common and potentially issuable
common shares of The Limited after the Exchange Offer.
(4) The pro forma net income per share information is based upon historical
weighted average shares plus 600,000 shares of A&F Common Stock issued as
partial payment on the $50 million obligation.
(5) No dividends have been paid to shareholders of A&F Common Stock.
10
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF THE LIMITED
The following table contains certain summary historical consolidated
financial data of The Limited. This data has been derived from and should be
read in conjunction with the audited consolidated financial statements (and the
related notes) of The Limited for the three years ended January 31, 1998
included herein and other information that The Limited has filed with the SEC.
See "Where You Can Find More Information" on page 102 and the consolidated
financial statements of The Limited beginning on page F(L)-1.
THE LIMITED, INC.
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1994(1) 1995 1996(1)(2)(3) 1997 1998
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales............... $7,245,088 $7,320,792 $7,881,437 $8,644,791 $9,188,804
Operating income........ $ 701,556(4) $ 798,989 $ 613,349(5) $ 636,067(6) $ 480,099(8)
Gain in connection with
initial public offer-
ings................... -- -- $ 649,467 $ 118,178 $ 8,606
Net income.............. $ 390,999 $ 448,343 $ 961,511 $ 434,208 $ 217,390
Net income, excluding
gains in connection
with
initial public offer-
ings(7)................ $ 390,999 $ 448,343 $ 312,044 $ 316,030 $ 211,784
Net income per basic
share.................. $ 1.09 $ 1.25 $ 2.69 $ 1.55 $ 0.80
Net income per diluted
share.................. $ 1.08 $ 1.25 $ 2.68 $ 1.54 $ 0.79
Net income per diluted
share, excluding gains
in connection with ini-
tial public offerings.. $ 1.08 $ 1.25 $ 0.87 $ 1.12 $ 0.77
Dividends per share..... $ 0.36 $ 0.36 $ 0.40 $ 0.40 $ 0.48
Basic weighted average
shares outstanding..... 360,225 357,703 357,592 280,699 271,898
Diluted weighted average
shares outstanding..... 363,234 358,601 358,371 282,053 274,483
Ratio of earnings to
fixed charges.......... 3.53x 3.76x 5.01x 3.30x 2.44x
CONDENSED CONSOLIDATED
BALANCE SHEETS:
Assets:
Total current assets... $2,220,625 $2,547,666 $2,834,311 $1,545,097 $2,031,151
Total assets........... $4,135,105 $4,570,077 $5,266,563 $4,120,002 $4,300,761
Total assets less in-
tangible assets....... $4,005,171 $4,445,720 $5,116,865 $3,991,836 $4,172,381
Liabilities and share-
holders' equity:
Total current liabili-
ties.................. $ 707,444 $ 797,555 $ 815,351 $ 906,893 $1,093,412
Long-term debt......... $ 650,000 $ 650,000 $ 650,000 $ 650,000 $ 650,000
Total liabilities...... $1,693,812 $1,809,121 $2,065,522 $2,197,420 $2,255,804
Shareholders' equity... $2,441,293 $2,760,956 $3,201,041 $1,922,582 $2,044,957
Book value per share
outstanding at end of
period................ $ 6.82 $ 7.72 $ 9.01 $ 7.09 $ 7.50
Shares outstanding at
end of period......... 357,801 357,604 355,366 271,071 272,800
</TABLE>
- --------
(1) Includes the results of companies disposed of up to the disposition date.
Effective August 31, 1993 The Limited sold 60% of its interest in its
Brylane mail order business and effective January 31, 1996 The Limited sold
60% of its interest in World Financial Network National Bank.
(2) Includes the results of Galyan's subsequent to the July 2, 1995 acquisition
date.
(3) Fifty-three week year.
(4) Includes a pretax gain of $203 million for the sale of a 60% interest in
The Limited's Brylane mail order business offset by a $200 million charge
for the remodeling, downsizing and closing of retail stores, as well as a
write-down in the carrying value of certain fixed and intangible assets.
11
<PAGE>
(5) Includes a pretax gain of $73 million for the sale of a 60% interest in
World Financial Network National Bank, a credit card bank formerly wholly-
owned by The Limited, partially offset by $72 million of special and
nonrecurring charges representing write-downs to net realizable value of
certain assets and accelerated closing and downsizing of retail stores.
(6) Includes a $12 million special and nonrecurring charge in connection with
the sale of The Limited's Penhaligon's business.
(7) In 1995, The Limited recognized a $649.5 million gain resulting from the
initial public offering of 16.9% of the stock of Intimate Brands, Inc. In
1996, The Limited recognized a $118.2 million gain from the initial public
offering of a 15.8% interest in Abercrombie & Fitch. In 1997, The Limited
recognized a $8.6 million gain on the initial public offering of Brylane,
Inc.
(8) Includes $213 million in special and nonrecurring charges comprised of the
following:
. $68 million in charges for the closing of the 118-store Cacique
business effective January 31, 1998.
. $82 million in charges related to streamlining the Henri Bendel
business.
. $86 million of impaired asset charges, related principally to the
women's apparel businesses.
. A $28 million provision for closing and downsizing approximately 80
oversized stores and a $12 million write-down to net realizable value
of a real estate investment previously acquired in connection with
closing and downsizing certain stores.
. These charges were partially offset by a third quarter net gain of
$62.8 million related principally to The Limited's sale of
approximately one-half of its investment in Brylane, Inc.
In addition, The Limited recognized a $13 million cost of sales charge in
the fourth quarter for inventory liquidation at Henri Bendel.
12
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA OF THE
LIMITED
The following unaudited pro forma information is provided to you to aid in
your analysis of the financial aspects of the Transactions. This information
was derived from the audited consolidated financial statements of The Limited
for the fiscal year ended January 31, 1998 included herein. This information is
only a summary and you should read it in conjunction with the historical
consolidated financial statements of The Limited that are included herein,
other information that The Limited has filed with the SEC and the more detailed
pro forma financial information included elsewhere in this document. See the
"Unaudited Pro Forma Consolidated Financial Statements" on page 43, "Where You
Can Find More Information" on page 102 and the consolidated financial
statements of The Limited beginning on page F(L)-1.
The Limited Unaudited Pro Forma Consolidated Financial Statements give effect
to the following transactions and events: (1) the split-off of A&F from The
Limited's consolidated financial statements-- the consolidated financial
statements of A&F will no longer be included in The Limited's consolidated
financial statements and The Limited's outstanding common stock will be reduced
by the number of shares of Limited Common Stock exchanged in the Exchange
Offer, (2) the elimination of the A&F minority interest in The Limited's
consolidated financial statements and (3) the repayment of a $50 million
obligation due to The Limited by A&F through issuance of 600,000 shares of A&F
Common Stock to The Limited with the remainder being paid in cash. The Pro
Forma Consolidated Statement of Income Data assumes that these transactions
occurred on February 2, 1997 and the Pro Forma Consolidated Balance Sheet Data
assumes that these transactions and certain events occurred on January 31,
1998.
This information is presented to show you what The Limited might have looked
like if the transactions and events described above had occurred at the times
outlined above. You should not rely on the pro forma information as being
indicative of the historical results that would have been achieved or the
future results that The Limited will experience after the transactions.
THE LIMITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31,
1998
-----------------
<S> <C>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales.................................................... $8,667,187
Gross income................................................. 2,616,897
Operating income(1).......................................... 395,974
Income before income taxes................................... 323,908
Net income................................................... 174,558
Net income per basic share(2).............................. 0.80
Net income per diluted share(3)............................ 0.79
Net income per diluted share, excluding gains in connection
with initial public offerings(3).......................... 0.77
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Current assets............................................... $1,946,314
Total assets................................................. 4,141,648
Current liabilities.......................................... 1,026,450
Long-term debt............................................... 650,000
Shareholders' equity......................................... 1,969,001
</TABLE>
13
<PAGE>
- --------
(1) Includes $213 million in special and nonrecurring charges related to: (i)
the closure of the Cacique business, (ii) the streamlining of Henri Bendel,
(iii) closing and downsizing of certain store locations and write-down to net
realizable value of a real estate investment previously acquired in
connection with closing and downsizing certain stores and (iv) impairment of
assets, principally related to stores, all of which were offset in part by a
$62.8 million pretax gain from special and nonrecurring items in the third
quarter of 1997, principally due to the net gain from the sale of Brylane,
Inc. stock (an equity investment).
In addition, The Limited recognized a $13 million cost of sales charge in
the fourth quarter for inventory liquidation at Henri Bendel.
(2) The pro forma net income per basic share is based upon the pro forma
weighted average number of shares of Limited Common Stock outstanding after
the Exchange Offer.
(3) The pro forma net income per diluted share information is based upon the
pro forma weighted average number of outstanding common shares and
potentially issuable common shares of The Limited after the Exchange Offer.
14
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF A&F
The following table contains certain summary historical consolidated
financial data of A&F. This data has been derived from and should be read in
conjunction with the audited consolidated financial statements (and the related
notes) of A&F for the three years ended January 31, 1998 included herein and
other information that A&F has filed with the SEC. See "Where You Can Find More
Information" on page 102 and the consolidated financial statements of A&F
beginning on page F(A)-1.
ABERCROMBIE & FITCH CO.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1994 1995 1996(1) 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales............... $110,952 $165,463 $235,659 $335,372 $521,617
Operating income (loss). $ (4,064) $ 13,751 $ 23,798 $ 45,993 $ 84,125
Net income (loss)....... $ (2,464) $ 8,251 $ 14,298 $ 24,674 $ 48,322
Basic net income (loss)
per share.............. $ (0.06) $ 0.19 $ 0.33 $ 0.54 $ 0.95
Diluted net income
(loss) per share....... $ (0.06) $ 0.19 $ 0.33 $ 0.54 $ 0.94
Dividends per share(2).. -- -- -- -- --
Basic weighted average
shares outstanding..... 43,000 43,000 43,000 45,749 51,011
Diluted weighted average
shares outstanding..... 43,000 43,000 43,000 45,760 51,478
CONDENSED CONSOLIDATED
BALANCE SHEETS:
Assets:
Total current assets.. $ 15,602 $ 23,106 $ 38,856 $ 44,878 $108,962
Total assets.......... $ 48,882 $ 58,018 $ 87,693 $105,761 $183,238
Total assets less
intangible assets.... $ 48,794 $ 57,950 $ 87,645 $105,733 $183,230
Liabilities and
shareholders' equity:
Total current
liabilities.......... $ 10,673 $ 18,224 $109,796 $ 43,590 $ 66,962
Long-term debt -- -- -- $ 50,000 $ 50,000
Total liabilities..... $ 94,223 $ 95,088 $110,315 $ 94,523 $124,463
Shareholders' equity
(deficit)............ $(45,341) $(37,070) $(22,622) $ 11,238 $ 58,775
Book value per share
outstanding at end of
period............... $ (1.05) $ (0.86) $ (0.53) $ 0.22 $ 1.15
Shares outstanding at
end of period........ 43,000 43,000 43,000 51,050 51,009
</TABLE>
- --------
(1) Fifty-three week year.
(2) No dividends have been paid to shareholders of A&F Common Stock.
15
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA OF A&F
The following unaudited pro forma information is provided to you to aid in
your analysis of the financial aspects of the Transactions. This information
was derived from the audited consolidated financial statements of A&F for the
fiscal year ended January 31, 1998 included herein. This information is only a
summary and you should read it in conjunction with the historical consolidated
financial statements of A&F contained herein and the more detailed pro forma
financial information included elsewhere in this document. See the "Unaudited
Pro Forma Consolidated Financial Statements" on page 43, "Where You Can Find
More Information" on page 102 and the consolidated financial statements of A&F
beginning on page F(A)-1.
The A&F Unaudited Pro Forma Consolidated Financial Statements give effect to
the following transactions and events: (1) the repayment of a $50 million
obligation due to The Limited by A&F through issuance of 600,000 shares of A&F
Common Stock to The Limited with the remainder paid in cash and (2) the
reduction of interest expense from the A&F statement of income due to the
repayment of its debt obligation to The Limited. The Pro Forma Consolidated
Statement of Income Data assumes that these transactions occurred on February
2, 1997, and the Pro Forma Consolidated Balance Sheet Data assumes that these
transactions occurred on January 31, 1998.
This information is presented to show you what A&F might have looked like if
the transactions described above had occurred at the times outlined above. You
should not rely on the pro forma information as being indicative of the
historical results that would have been achieved or the future results that A&F
will experience after the transactions.
ABERCROMBIE & FITCH CO.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31, 1998
-----------------
<S> <C>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales..................................................... $521,617
Gross income.................................................. 201,080
Operating income.............................................. 84,125
Income before income taxes.................................... 83,067
Net income.................................................... 49,837
Net income per basic share(1)............................... 0.97
Net income per diluted share(1)............................. 0.96
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Current assets................................................ $ 84,837
Total assets.................................................. 159,113
Current liabilities........................................... 66,962
Long-term debt................................................ --
Shareholders' equity.......................................... 84,650
</TABLE>
- --------
(1) The pro forma net income per share information is based upon historical
weighted average shares plus 600,000 shares of A&F Common Stock issued to
The Limited as partial payment on its $50 million obligation to The
Limited.
16
<PAGE>
RECENT DEVELOPMENTS
On April 9, 1998, The Limited reported net sales of $765.5 million for the
five-week period ended April 4, 1998, an increase of 6%, compared to sales of
$719.1 million for the comparable five-week period ended April 5, 1997. Sales
of $1.371 billion for the nine weeks ended April 4, 1998 increased 6% from
sales of $1.289 billion for the same period last year. The Limited also
reported that comparable store sales increased 4% for the five weeks and the
nine weeks ended April 4, 1998.
On April 9, 1998, A&F reported net sales of $93.1 million for the nine-week
period ended April 4, 1998, an increase of 70%, compared to sales of $54.7
million for the comparable nine-week period ended April 5, 1997. A&F's
comparable store sales increased 39% for the nine weeks ended April 4, 1998.
Due to these better than expected nine-week results, A&F now expects to report
earnings per share in the range of $.09 to $.10 in the first quarter of 1998.
17
<PAGE>
RISK FACTORS
In considering whether or not to tender shares of Limited Common Stock
pursuant to the Exchange Offer, you should consider carefully all of the
information set forth or incorporated in this Offering Circular-Prospectus
and, in particular, the following risk factors. In addition, for a discussion
of certain additional uncertainties associated with (i) the businesses of The
Limited and A&F, as well as (ii) forward-looking statements in this Offering
Circular-Prospectus, please see "Forward-Looking Statements May Prove
Inaccurate" on page 24.
RISK FACTORS REGARDING A&F
TERMINATION OF SUBSIDIARY RELATIONSHIP WITH THE LIMITED
As a subsidiary of The Limited, A&F has been able to benefit from The
Limited's financial strength, extensive network of business relationships with
companies and government contacts around the world. A&F has drawn on this
resource in developing its own contacts and relationships. After completion of
the Exchange Offer and the Spin-Off, if any (collectively, the
"Transactions"), A&F will be a stand-alone company and thus will no longer be
able to benefit from The Limited's relationships to the same extent that it
could as a majority-owned subsidiary of The Limited. Although The Limited and
A&F will enter into certain intercompany agreements in connection with the
Transactions pursuant to which The Limited will continue to provide certain
services to A&F, such agreements will be of short duration (generally one
year) and will require A&F to begin promptly to replace services currently
being provided by The Limited. There can be no assurance that A&F will be able
to replace such services on terms at least as favorable as those negotiated
with The Limited or that the termination of The Limited's relationship with
A&F will not adversely affect A&F.
COMPETITION WITH THE LIMITED
The Limited is one of the largest specialty retailers in the United States.
The Limited is not restricted in any manner from competing with A&F and
currently markets merchandise similar to that sold by A&F through certain of
its other subsidiaries. Although The Limited was permitted to--and did--
compete with A&F prior to the consummation of the Transactions, this
competition may increase once The Limited no longer holds an equity interest
in A&F. There can be no assurance that The Limited will not expand, through
development of new lines of products or businesses, acquisition or otherwise,
its operations that compete with A&F.
DEPENDENCE ON KEY PERSONNEL
A&F believes that it has benefitted substantially from the leadership of
Leslie H. Wexner, Chairman, President and Chief Executive Officer of The
Limited and Chairman of the Board of A&F, and Michael S. Jeffries, President
and Chief Executive Officer of A&F. Mr. Wexner's service with A&F will
terminate after the consummation of the Exchange Offer. In addition, the loss
of any of the services of Mr. Jeffries could have a material adverse effect on
A&F's business and prospects.
MARKET UNCERTAINTIES WITH RESPECT TO A&F COMMON STOCK
The Transactions will increase the number of publicly held shares of A&F
Common Stock and the number of A&F stockholders. If significant numbers of
holders of Limited Common Stock who receive shares of A&F Common Stock
pursuant to the Transactions sell A&F Common Stock shortly after the
Transactions, the market price for A&F Common Stock could be adversely
affected.
NO ASSURANCE THAT GROWTH WILL BE SUSTAINED
A&F has grown rapidly over the past several years. A&F's future growth
prospects are dependent upon a number of factors, including, among other
things, the availability of suitable store locations, the ability to develop
new merchandise and the ability to hire and train qualified associates. There
is no assurance that A&F will be able to continue to grow profitably or at
rates consistent with the recent past.
18
<PAGE>
SEASONALITY
A&F experiences seasonal fluctuations in its net sales and net income, with
a disproportional amount of A&F's net sales and a majority of its net income
typically realized during the fourth quarter. Net sales and net income are
generally weakest during the first quarter. A&F's quarterly results of
operations may also fluctuate significantly as a result of a variety of other
factors, including the timing of new store openings and the net sales
contributed by new stores, merchandise mix and the timing and level of
markdowns. The Limited also experiences similar seasonal fluctuations and is
therefore subject to similar risks.
RESULTS OF OPERATIONS SUBJECT TO VARIABLE INFLUENCES; INTENSE COMPETITION
A&F's business is sensitive to changes in consumer spending patterns,
consumer preferences and overall economic conditions. A&F is also subject to
fashion trends affecting the desirability of its merchandise. In addition, A&F
competes with a broad range of other retailers, including The Limited and its
other subsidiaries, some of which have greater financial resources than A&F.
A&F's future performance will be subject to such factors, which are beyond its
control. There can be no assurance that such factors would not have a material
adverse effect on A&F's results of operations. The Limited's business is also
subject to these influences.
RELIANCE ON FOREIGN SOURCES OF PRODUCTION
In 1997, approximately 39% of A&F's merchandise was sourced from independent
foreign factories located primarily in the Far East. A&F has no long-term
merchandise supply contracts and many of its imports are subject to existing
or potential duties, tariffs or quotas that may limit the quantity of certain
types of goods which may be imported into the United States from countries in
that region. A&F competes with other companies, including The Limited and its
other subsidiaries, for production facilities and import quota capacity. A&F's
business is also subject to a variety of other risks generally associated with
doing business abroad, such as political instability, currency and exchange
risks and local political issues. A&F's future performance will be subject to
such factors, which are beyond its control, and although a diverse domestic
and international market exists for the kinds of merchandise sourced by A&F,
there can be no assurance that such factors would not have a material adverse
effect on A&F's results of operations. The Limited faces similar risks with
respect to its foreign sources of production. The Limited and A&F believe that
alternative sources of supply should be available in the event of a supply
disruption in one or more regions of the world. However, neither The Limited
nor A&F believes that, under current circumstances, entering into committed
alternative supply arrangements is warranted, and there can be no assurance
that alternative sources would in fact be available at any particular time.
ANTI-TAKEOVER PROVISIONS
A&F's Certificate of Incorporation and Bylaws contain a number of provisions
that could impede a merger, consolidation, takeover or other business
combination involving A&F or discourage a potential acquiror from making a
tender offer or otherwise attempting to obtain control of A&F. Those
provisions include (i) a requirement that a vote of the holders of at least
75% of the common stock of A&F held by stockholders, other than any person or
entity owning 5% or more of the common stock of A&F, is required to effect a
merger or consolidation with such person or entity, a sale of all or
substantially all of the assets of A&F to such person or entity and certain
other control transactions (unless such transaction shall have been approved
by a majority of Continuing Directors (as defined in A&F's Certificate of
Incorporation)); (ii) a classified board; and (iii) a requirement that certain
provisions of A&F's Certificate of Incorporation and Bylaws may be amended,
and directors may be removed, only with the approval of the holders of at
least 75% of the outstanding common stock of A&F. See "Comparison of the
Rights of Holders of Limited Common Stock and A&F Common Stock" on page 95.
19
<PAGE>
RISK FACTOR REGARDING THE ANTICIPATED PREMIUM
The amount of the Anticipated Premium to be received by Limited stockholders
participating in the Exchange Offer will depend on the prices for shares of
Limited Common Stock and A&F Common Stock and the Final Exchange Ratio. While
The Limited anticipates that its stockholders will receive A&F Common Stock
having a market value greater than the recent market value of the Limited
Common Stock being tendered, The Limited cannot predict what the amount of the
Anticipated Premium will be or whether in fact there will be a premium at the
end of the Exchange Offer or the prices at which shares of A&F Common Stock or
Limited Common Stock will trade over time. Accordingly, there can be no
assurance as to the amount, if any, of the Anticipated Premium.
RISK FACTOR REGARDING THE LIMITED
A&F is one of The Limited's fastest growing retail businesses, and the
separation of A&F from The Limited may adversely affect The Limited's overall
future growth rate. However, for the reasons set forth in "The Transactions--
Background and Purpose" on page 21, the Board of Directors of The Limited
believes that the Transactions are in the best interests of The Limited, A&F
and their respective stockholders.
20
<PAGE>
THE TRANSACTIONS
BACKGROUND AND PURPOSE
For the past several years, The Limited's Board of Directors and senior
management have been engaged in a comprehensive review of The Limited's
organizational structure in order to better address the management
requirements of a large, multi-division, specialty retail company. In their
review, the Board and management sought to address various issues which have
arisen as a result of the substantial growth experienced by The Limited. In
particular, the Board and management concluded that (i) certain of The
Limited's businesses would benefit from separate management and ownership
structures, thereby providing greater incentives to divisional management and
greater accountability to public investors, and (ii) divesting or closing
certain operations would create a more focused and stronger specialty retail
enterprise. In addition, the Board and management believe that the price of
Limited Common Stock has not reflected the inherent value of The Limited's
various businesses because of the differing characteristics of the businesses
in which The Limited is engaged and, at the same time, has evaluated numerous
alternatives intended to maximize stockholder value.
To further these objectives, The Limited has taken a number of significant
actions during the last three years:
(i) The 1995 initial public offering of common stock of Intimate Brands,
Inc. ("Intimate Brands"), which consisted of The Limited's Victoria's
Secret Stores, Victoria's Secret Catalogue, Bath & Body Works, Cacique,
Penhaligon's and Gryphon businesses (the "Intimate Brands IPO"). The
Intimate Brands IPO resulted in proceeds of approximately $649 million (net
of underwriting fees, commissions and discounts and all other expenses
related to the offering). Pursuant to the Intimate Brands IPO, The Limited
retained approximately 83% of the economic interests in, and approximately
94% of the total voting power of, Intimate Brands.
(ii) The 1995 sale of a 60% interest in World Financial Network National
Bank ("WFN"), The Limited's credit card bank, to an affiliate of Welsh,
Carson, Anderson and Stowe VII, L.P. ("WCAS") for approximately $165
million in cash (the "WFN Sale").
(iii) The securitization (the "Receivables Securitization") of
approximately $1.3 billion of credit card accounts receivable owned by WFN.
The Receivables Securitization was consummated in January 1996 and resulted
in net proceeds of approximately $1.2 billion.
(iv) A distribution of cash made available as a result of the foregoing
transactions in The Limited's March 1996 $1.6 billion issuer tender offer
(the "Limited Self Tender").
(v) The 1996 initial public offering (the "A&F IPO") of 8,050,000 shares
of the Class A common stock, par value $.01 per share, of A&F (the "A&F
Common Stock"). The A&F IPO resulted in proceeds of approximately $118
million (net of underwriting fees, commissions and discounts and all other
expenses related to the offering). Pursuant to the A&F IPO, The Limited
retained approximately 84% of the economic interests in, and approximately
94% of the total voting power of, A&F.
(vi) The 1997 public offering of a significant portion of The Limited's
interest in Brylane, Inc. ("Brylane"), the catalogue operations of The
Limited's Lerner and Lane Bryant retail businesses, and the 1998 sale of
The Limited's remaining interest in Brylane for approximately $131 million.
These actions follow the 1993 sale by The Limited of 60% of its interest in
Brylane to an affiliate of Freeman, Spogli, L.P.
(vii) The 1997 sales of The Limited's interests in (x) the Newport Office
Tower in Jersey City, New Jersey to TrizecHahn Office Properties for
approximately $159 million and (y) The Mall at Tuttle Crossing in Columbus,
Ohio to a unit of Taubman Centers Inc. for approximately $76 million.
21
<PAGE>
(viii) The 1997 sale of Intimate Brands' Penhaligon's business and the
January 1998 closure of Intimate Brands' Cacique business.
(ix) The January 1998 decision that The Limited's Henri Bendel business
would become a single store concept, with the closure of all Henri Bendel
locations other than its New York City store.
Beginning in the second half of 1997, the Board of Directors, with the
assistance of its financial advisors, Goldman, Sachs & Co. ("Goldman Sachs")
and NationsBanc Montgomery Securities ("NMSI"), and its legal advisors, began
an analysis of various alternatives with respect to The Limited's remaining
interest in A&F. This analysis resulted from both The Limited's ongoing
consideration of strategic alternatives as well as a desire on the part of A&F
to adopt compensation practices different from those of The Limited. In
January 1998, The Limited's Board approved the separation of A&F from The
Limited. That decision was based on several factors. First, the Board of
Directors concluded that A&F's continued success required that A&F adopt
compensation practices different from those of The Limited and that, absent a
separation, A&F's practices would materially interfere with The Limited's
management of its other businesses. Second, The Limited determined that its
continued ownership of A&F, including The Limited's need to evaluate strategic
decisions on an overall basis, might inhibit A&F's ability to maximize its
potential. Finally, The Limited determined that the distribution of A&F would
further the various objectives outlined above and that the complete separation
of A&F from The Limited would be in the best interests of A&F, The Limited and
their respective stockholders. The Transactions are intended to allow A&F,
which has demonstrated that it has an established brand and a proven and
profitable growth strategy, to grow as an independent company. At the same
time, the separation of A&F allows The Limited to focus its resources on
brands where it can add more value.
As part of its analysis of a separation of A&F, the Board, in consultation
with its financial advisors, Goldman Sachs and NMSI, and its legal advisors,
considered two alternative methods of disposing of The Limited's holdings in
A&F: a spin-off and the Transactions. The Board determined to pursue the
Transactions because, in its view, the Transactions were superior to the other
alternative. In reaching this determination, the Board (i) believed that the
Transactions address the business goals discussed above, (ii) considered the
Transactions to be a tax efficient way to distribute value to The Limited's
stockholders, (iii) recognized that the Exchange Offer (as opposed to a spin-
off of A&F Common Stock) would give Limited stockholders a choice to adjust
their investment between The Limited and A&F based on individual financial
considerations on a tax-free basis, (iv) believed that the Transactions would
provide the stockholders of The Limited with the opportunity to receive the
Anticipated Premium, (v) believed that the Exchange Offer, which is
effectively a repurchase of Limited Common Stock using A&F Common Stock as the
currency for the repurchase and an investment in The Limited's future
prospects, demonstrates the confidence of the Board of Directors in The
Limited and (vi) recognized that the Exchange Offer is expected to have the
effect of increasing earnings per share of Limited Common Stock outstanding
after consummation of the Exchange Offer. These were the material factors
considered by the Board of Directors of The Limited. A sale of A&F through a
negotiated transaction and through a public offering were also proposed as
alternative transactions. However, the Board of Directors of The Limited
elected not to pursue either alternative, principally because the tax
consequences of either transaction would have been adverse to The Limited's
stockholders. In view of the range of factors considered in connection with
its evaluation of the Transactions and the complexity of these matters, the
Board of Directors of The Limited did not attempt to quantify, rank or
otherwise assign relative weights to these factors. In considering the factors
described above, individual members of the Board may have given different
weight to different factors.
Mr. Leslie H. Wexner, Chairman, Chief Executive Officer and President of The
Limited, has informed the Board that he will not tender shares of Limited
Common Stock (including shares held by trusts created by Mr. Wexner) in the
Exchange Offer. Mr. Wexner has informed the Board that he made this decision
to ensure that A&F is fully independent of The Limited after the consummation
of
22
<PAGE>
the Transactions. Although Mr. Wexner will not participate in the Exchange
Offer, he would receive shares of A&F Common Stock in the Spin-Off, if any.
Trusts created by Mr. Wexner have disposed of approximately 8.0 million shares
of Limited Common Stock since the announcement of the Exchange Offer on
February 17, 1998. The decision to dispose of these shares was made by the
trustees of the trusts in order to diversify their investments.
EFFECTS
Holders of shares of Limited Common Stock will be affected by the
Transactions regardless of whether such holders tender their shares of Limited
Common Stock for exchange pursuant to the Exchange Offer. Holders of shares of
Limited Common Stock who tender all of their shares for exchange pursuant to
the Exchange Offer will, if all such shares are accepted for exchange, no
longer have an ownership interest in The Limited and will no longer
participate in any change in the value of The Limited. Holders of shares of
Limited Common Stock who exchange some, but not all, of their Limited Common
Stock in the Exchange Offer will have a diminished ownership interest in The
Limited and an increased ownership interest in A&F. Holders of shares of
Limited Common Stock who do not tender any of their shares for exchange
pursuant to the Exchange Offer will receive shares of A&F Common Stock only as
a result of the Spin-Off, if any, and will continue to have an ownership
interest in The Limited, which ownership interest will have increased on a
percentage basis as a result of the Exchange Offer.
NO APPRAISAL RIGHTS
Because neither an exchange offer nor a spin-off is a merger or
consolidation giving rise to appraisal rights under Section 262 of the
Delaware General Corporation Law (the "DGCL"), no appraisal rights are
available to stockholders of The Limited in connection with the Transactions.
REGULATORY APPROVALS
No filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act") are required in connection with the Exchange Offer generally.
To the extent that certain stockholders of The Limited decide to participate
in the Exchange Offer and thereby acquire a number of shares of A&F Common
Stock that exceeds any threshold stated in the regulations under the HSR Act,
and if an exemption under those regulations does not apply, such stockholders
and The Limited would be required to make filings under the HSR Act, and the
waiting period under the HSR Act would have to expire or be terminated before
any exchanges of shares with those particular stockholders could be effected.
The Limited and A&F do not believe that any other material federal or state
regulatory approvals will be necessary to consummate the Transactions.
ACCOUNTING TREATMENT
The shares of Limited Common Stock received by The Limited pursuant to the
Exchange Offer will be recorded as a decrease in stockholders' equity,
reflecting the decrease in common stock outstanding at the market value of the
shares of A&F Common Stock distributed on the Expiration Date. The Exchange
Offer will result in a net gain to The Limited, after direct expenses of the
disposition, and will be reported as a gain on the disposal of the business.
The gain from the Exchange Offer will result from the difference between the
market value and the carrying value of the shares of A&F Common Stock
distributed.
Neither the exchange of shares of Limited Common Stock for A&F Common Stock
pursuant to the Exchange Offer nor the distribution of shares of A&F Common
Stock in the Spin-Off in and of themselves will affect the financial position
or results of operations of A&F.
23
<PAGE>
Any remaining shares of A&F Common Stock that are distributed through the
Spin-Off will be accounted for as a dividend through a direct charge to
retained earnings. The amount of the dividend will be equal to The Limited's
carrying value of the shares of A&F Common Stock distributed.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document (including documents that are incorporated herein by
reference) contains forward-looking statements about The Limited, A&F and the
effects of the Transactions which are subject to certain risks and
uncertainties. Forward-looking statements are those statements preceded by,
followed by, or that otherwise include the words "believes", "expects",
"anticipates", "intends", "estimates" or similar expressions, including,
without limitation, such statements in "Questions and Answers About the
Exchange Offer", "Summary", "Recent Developments", "--Background and Purpose",
"Business of A&F" and "Business of The Limited". A&F and The Limited caution
that any forward-looking statements contained in this Offering Circular-
Prospectus or made by management of The Limited or A&F involve risks and
uncertainties, and are subject to change based on various important factors.
The following factors, among others, in some cases have affected, and in the
future could affect, The Limited's or A&F's financial performance and actual
results and could cause actual results for 1998 and beyond to differ
materially from those expressed or implied in any such forward-looking
statements: changes in consumer spending patterns, consumer preferences and
overall economic conditions, the impact of competition and pricing, changes in
weather patterns, political stability, currency and exchange risks and changes
in existing or potential duties, tariffs or quotas, availability of suitable
store locations on appropriate terms, ability to develop new merchandise and
ability to hire and train management and associates. Additional factors that
may affect The Limited's or A&F's performance or the Transactions are set
forth in "Risk Factors".
24
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Exchange
Offer, The Limited is offering hereby to exchange up to 43,600,000 shares of
A&F Common Stock for shares of the common stock, par value $.50 per share, of
The Limited (the "Limited Common Stock") that are validly tendered by the
Expiration Date and not withdrawn or deemed withdrawn, as set forth below
under "--Withdrawal Rights" on page 34, at an Exchange Ratio (determined in
the manner set forth below) not greater than .86 (the "Maximum Exchange
Ratio") nor less than .73 (the "Minimum Exchange Ratio") of a share of A&F
Common Stock for each share of Limited Common Stock tendered. That portion of
a share of A&F Common Stock which a Limited stockholder is willing to accept
in exchange for each share of Limited Common Stock tendered is referred to
throughout this Offering Circular-Prospectus as the "Exchange Ratio". The
range of Exchange Ratios between the Minimum Exchange Ratio and the Maximum
Exchange Ratio is referred to throughout this Offering Circular-Prospectus as
the "Exchange Ratio Range". The term "Expiration Date" shall mean 12:00
Midnight, New York City time, on Wednesday, May 13, 1998, unless extended in
accordance with applicable law and the terms of the Exchange Offer itself, in
which event the term "Expiration Date" shall mean the latest time and date at
which the Exchange Offer, as so extended, shall expire. See "--Extension of
Tender Period; Termination; Amendment" on page 35. The maximum number of
shares of Limited Common Stock which will be accepted for exchange will be
that number of shares which, when multiplied by the final Exchange Ratio
(determined in the manner set forth below), equals 43,600,000 shares of A&F
Common Stock. If more than such maximum number of shares of Limited Common
Stock are tendered at an Exchange Ratio at or below the final Exchange Ratio,
the Exchange Offer will be oversubscribed, and shares of Limited Common Stock
tendered at or below the final Exchange Ratio will be subject to proration.
The proration period will also expire on the Expiration Date.
The Exchange Offer will be conducted as a modified "Dutch auction" in which
each holder of Limited Common Stock will be able to specify the portion of a
share of A&F Common Stock (in increments of .005) that such holder is willing
to receive in exchange for a share of Limited Common Stock. Whether and to
what extent a tendering stockholder of The Limited will have his or her
tendered shares accepted for exchange in the Exchange Offer will depend on how
the Exchange Ratio specified by such stockholder compares to Exchange Ratios
specified by other tendering stockholders of The Limited. In other words, a
"Dutch auction" is a competitive bid among stockholders of The Limited. The
Exchange Ratio specified by each tendering stockholder of The Limited must be
within the Exchange Ratio Range. The Minimum Exchange Ratio and Maximum
Exchange Ratio were established by The Limited based on discussions with the
Dealer Managers. The Limited will, upon the terms and subject to the
conditions of the Exchange Offer, determine the final Exchange Ratio, taking
into account the number of shares of Limited Common Stock tendered and the
portion of a share of A&F Common Stock specified by tendering stockholders.
The Limited will select as the final Exchange Ratio the lowest Exchange Ratio
from within the Exchange Ratio Range which would permit the maximum number of
shares of A&F Common Stock owned by The Limited to be exchanged in the
Exchange Offer (the "Final Exchange Ratio"). The Final Exchange Ratio will be
announced by press release by The Limited promptly after the Expiration Date.
At the expiration of the Exchange Offer, The Limited will calculate the
number of shares of Limited Common Stock validly tendered at Exchange Ratios
within the Exchange Ratio Range, beginning with shares tendered at the Minimum
Exchange Ratio and ending, if necessary, at the Maximum Exchange Ratio. When
the aggregate number of shares of A&F Common Stock to be exchanged for shares
of Limited Common Stock tendered in ascending order of Exchange Ratios is
equal to or greater than 39,240,000 shares, The Limited will become obligated
to accept, on a pro rata basis, the shares of Limited Common Stock of all
stockholders who tendered at or below the lowest Exchange Ratio; provided that
the highest of such Exchange Ratios is less than the Maximum Exchange Ratio
and that the other conditions set forth in "--Conditions to Consummation of
the Exchange Offer" on page 36
25
<PAGE>
are satisfied. The number of shares of Limited Common Stock that must be
tendered to result in at least 39,240,000 shares of A&F Common Stock being
exchanged pursuant to the Exchange Offer is referred to herein as the "Trigger
Amount".
All shares of Limited Common Stock properly tendered and not withdrawn or
deemed withdrawn at Exchange Ratios at or below the Final Exchange Ratio will
be exchanged at the Final Exchange Ratio, on the terms and subject to the
conditions of the Exchange Offer, including the proration provisions described
herein. If the result of the Exchange Offer is such that more than 43,600,000
shares of A&F Common Stock would need to be exchanged for shares of Limited
Common Stock which have been validly tendered for exchange at or below the
Final Exchange Ratio and are not properly withdrawn prior to the Expiration
Date (if all such validly tendered shares were accepted), The Limited will
exchange shares of A&F Common Stock for such tendered shares of Limited Common
Stock on a pro rata basis (with appropriate adjustments to avoid acceptance
for exchange of fractional shares of Limited Common Stock). All shares of
Limited Common Stock which are tendered but not exchanged pursuant to the
Exchange Offer, including shares tendered at Exchange Ratios greater than the
Final Exchange Ratio and shares not exchanged because of proration, will be
returned to tendering stockholders promptly following the Expiration Date.
Shares accepted for exchange will be held by The Limited as treasury shares.
If the result of the Exchange Offer is such that fewer than 43,600,000 shares
but more than 39,240,000 shares of A&F Common Stock are exchanged pursuant to
the Exchange Offer, promptly after the consummation of the Exchange Offer, The
Limited will distribute its remaining shares of A&F Common Stock to the
remaining holders of Limited Common Stock pro rata based on their then
respective holdings of Limited Common Stock. See "The Spin-Off" on page 39.
The Exchange Offer, proration period and withdrawal rights will expire on
the Expiration Date, as may be extended.
If proration of tendered shares of Limited Common Stock is required, The
Limited does not expect that it would be able to announce the final proration
factor or to commence delivery of any shares of A&F Common Stock pursuant to
the Exchange Offer until approximately seven business days after the
Expiration Date. This delay results from the difficulty in determining the
number of shares of Limited Common Stock validly tendered for exchange
(including shares of Limited Common Stock tendered for exchange pursuant to
the guaranteed delivery procedure described in "--Guaranteed Delivery
Procedure" on page 32) and not properly withdrawn prior to the Expiration
Date. Preliminary results of proration will be announced by press release as
promptly as practicable after the Expiration Date. Holders of shares of
Limited Common Stock may obtain such preliminary information from the
Information Agent and Dealer Managers and may also be able to obtain such
information from their brokers.
No fractional shares of A&F Common Stock will be distributed pursuant to the
Exchange Offer. The Exchange Agent, acting as agent for stockholders of The
Limited otherwise entitled to receive fractional shares of A&F Common Stock,
will aggregate all fractional shares and sell them for the accounts of such
stockholders. Such proceeds as may be realized by the Exchange Agent upon the
sale of such fractional shares will be distributed, net of commissions, to
such stockholders on a pro rata basis. Any such cash payments will be made
through the Exchange Agent if the related shares of Limited Common Stock are
tendered to the Exchange Agent or, if such shares of Limited Common Stock are
tendered through the Book-Entry Transfer Facility, through such Book-Entry
Transfer Facility. NONE OF THE EXCHANGE AGENT, THE LIMITED, A&F, THE
SOLICITING DEALERS OR THE DEALER MANAGERS WILL GUARANTEE ANY MINIMUM PROCEEDS
FROM THE SALE OF SHARES OF A&F COMMON STOCK, AND NO INTEREST WILL BE PAID ON
ANY SUCH PROCEEDS.
If the Trigger Amount is reached and the conditions set forth in "--
Conditions to Consummation of the Exchange Offer" on page 36 are met, The
Limited will become obligated to consummate the Exchange Offer. If any such
conditions are not satisfied, The Limited may (a) terminate the Exchange
26
<PAGE>
Offer and as promptly as practicable return all tendered shares of Limited
Common Stock to tendering stockholders, (b) extend the Exchange Offer and,
subject to the withdrawal rights described in "--Withdrawal Rights" on page
34, retain all such shares of Limited Common Stock until the expiration of the
Exchange Offer as so extended, (c) waive any such condition and, subject to
any requirement to extend the period of time during which the Exchange Offer
is open, exchange all shares of Limited Common Stock validly tendered for
exchange by the Expiration Date and not properly withdrawn or (d) delay the
Expiration Date until satisfaction or waiver of all such conditions to the
Exchange Offer. The Limited's right to delay acceptance for exchange or to
delay exchange of shares of Limited Common Stock tendered pursuant to the
Exchange Offer is subject to the provisions of applicable law, including, to
the extent applicable, Rule 13e-4(f)(5) promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which requires that The
Limited pay the consideration offered or return the shares of Limited Common
Stock deposited by or on behalf of stockholders of The Limited promptly after
the termination or withdrawal of the Exchange Offer. For a description of The
Limited's right to extend the period of time during which the Exchange Offer
is open and to amend, delay or terminate the Exchange Offer, see "--Extension
of Tender Period; Termination; Amendment" on page 35.
This Offering Circular-Prospectus and the Letter of Transmittal are being
sent to persons who were holders of record of Limited Common Stock at the
close of business on April 9, 1998. As of such date, there were 379,454,364
shares of Limited Common Stock outstanding. This Offering Circular-Prospectus
and related Letter of Transmittal will also be furnished to brokers, banks and
similar persons whose names or the names of whose nominees appear on the
stockholder list of The Limited or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of shares of Limited Common Stock.
EXCHANGE OF SHARES OF LIMITED COMMON STOCK
Upon the terms and subject to the satisfaction or waiver of the conditions
of the Exchange Offer, The Limited will accept for exchange, and shares of A&F
Common Stock will be exchanged for, shares of Limited Common Stock that have
been validly tendered and not properly withdrawn or deemed withdrawn prior to
the Expiration Date. In addition, The Limited reserves the right, in its sole
discretion (subject to Rule 13e-4(f)(5) under the Exchange Act), to delay the
acceptance for exchange or to delay exchange of any shares of Limited Common
Stock in order to comply in whole or in part with any applicable law. For a
description of The Limited's right to terminate the Exchange Offer and not
accept for exchange or exchange any shares of Limited Common Stock or to delay
acceptance for exchange or to delay exchange of any shares of Limited Common
Stock, see "--Extension of Tender Period; Termination; Amendment" on page 35.
For purposes of the Exchange Offer, The Limited shall be deemed, subject to
the proration provisions of the Exchange Offer, to have accepted for exchange
and exchanged shares of Limited Common Stock validly tendered for exchange
when, as and if The Limited gives oral or written notice to the Exchange Agent
of its acceptance of the tenders of such shares of Limited Common Stock for
exchange. Exchange of shares of Limited Common Stock accepted for exchange
pursuant to the Exchange Offer will be made on the first business day
following announcement by The Limited of the final proration factor (which
first business day in no event shall be more than ten business days after the
Expiration Date and which first business day shall be hereinafter referred to
as the "Exchange Time") by deposit of tendered shares of Limited Common Stock
with the Exchange Agent, which will act as agent for the tendering
stockholders for the purpose of receiving shares of A&F Common Stock and
transmitting such shares to tendering stockholders. The date on which the
Exchange Time occurs is referred to as the "Exchange Date". In all cases,
tendered shares of Limited Common Stock accepted for exchange pursuant to the
Exchange Offer will be exchanged only after timely receipt by the Exchange
Agent of (i) certificates for such shares of Limited Common Stock (or of a
confirmation of a book-entry transfer of such shares of Limited Common Stock
into the Exchange Agent's account
27
<PAGE>
at the Book-Entry Transfer Facility) and (ii) a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) or an
Agent's Message in connection with a book-entry transfer of shares, together
with any other documents required by the Letter of Transmittal. For a
description of the procedures for tendering shares of Limited Common Stock
pursuant to the Exchange Offer, see "--Procedures for Tendering Shares of
Limited Common Stock" on page 30 and "--Special Procedures for Participants in
the Savings and Retirement Plan and the Stock Purchase Plan" on page 33. Under
no circumstances will interest be paid by The Limited pursuant to the Exchange
Offer, regardless of any delay in making such exchange.
If any tendered shares of Limited Common Stock are not exchanged pursuant to
the Exchange Offer for any reason, or if certificates are submitted for more
shares of Limited Common Stock than are (i) tendered for exchange or (ii)
accepted for exchange due to the proration provisions, certificates for such
unexchanged or untendered shares of Limited Common Stock will be returned (or,
in the case of shares of Limited Common Stock tendered by book-entry transfer,
such shares of Limited Common Stock will be credited to an account maintained
at the Book-Entry Transfer Facility), without expense to the tendering
stockholder, as promptly as practicable following the expiration or
termination of the Exchange Offer.
The Limited will pay all stock transfer taxes, if any, payable on the
transfer to it of shares of Limited Common Stock and the transfer to tendering
stockholders of shares of A&F Common Stock pursuant to the Exchange Offer. If,
however, the exchange of shares is to be made to, or (in the circumstances
permitted by the Exchange Offer) if shares of Limited Common Stock that are
not tendered or not accepted for exchange are to be registered in the name of
or delivered to any person other than the registered owner, or if tendered
certificates are registered in the name of any person other than the person
signing the Letter of Transmittal, the amount of all stock transfer taxes, if
any (whether imposed on the registered owner or such other person), payable on
account of the transfer to such person must be paid by the tendering
stockholder unless evidence satisfactory to The Limited of the payment of such
taxes or exemption therefrom is submitted.
DETERMINING TO PARTICIPATE IN THE EXCHANGE OFFER
WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER
Whether you should participate in the Exchange Offer depends on many
factors. Stockholders of The Limited should consider, among other things, (i)
their view of the relative values of a single share of Limited Common Stock
and a single share of A&F Common Stock, (ii) the opportunity to receive the
Anticipated Premium and (iii) their individual investment strategy with regard
to the two stocks. In addition, a stockholder of The Limited should consider
all of the factors described under "Risk Factors" on page 18.
The Limited anticipates that the Final Exchange Ratio will provide
stockholders with the opportunity to receive A&F Common Stock having a market
value greater than the recent market value of Limited Common Stock being
tendered. Based on the closing trading prices for Limited Common Stock and A&F
Common Stock on the New York Stock Exchange ("NYSE") on April 14, 1998, any of
the Exchange Ratios in the Exchange Ratio Range would result in a Limited
stockholder receiving A&F Common Stock with a market value greater than
Limited Common Stock tendered for exchange. This greater market value is
referred to in this Offering Circular-Prospectus as the "Anticipated Premium".
Based on such closing trading prices, the Anticipated Premium would be
approximately 9%, assuming the Minimum Exchange Ratio, and 28%, assuming the
Maximum Exchange Ratio. The Limited cannot, however, predict what the amount
of the Anticipated Premium will be or whether in fact there will be a premium
at the end of the Exchange Offer or the prices at which shares of A&F Common
Stock or Limited Common Stock will trade over time.
28
<PAGE>
Stockholders can calculate the Anticipated Premium using the following
formula:
<TABLE>
<CAPTION>
Exchange Ratio x Price of one share of A&F Common Stock
The Anticipated Premium = ------------------------------------------------------- -- 1
<S> <C> <C> <C> <C>
Price of one share of Limited Common Stock
</TABLE>
For example: Assume that the price of one share of Limited Common Stock is
$29 3/8 and the price for one share of A&F Common Stock is $43 13/16 (the
closing trading prices of Limited Common Stock and A&F Common Stock on the
NYSE on April 14, 1998). At an exchange ratio of .795 of a share of A&F Common
Stock for each share of Limited Common Stock, the midpoint of the Exchange
Ratio Range, the Anticipated Premium would be approximately 19%. At the
Minimum Exchange Ratio (.73 of a share of A&F Common Stock for each share of
Limited Common Stock tendered), the Anticipated Premium would be approximately
9%. At the Maximum Exchange Ratio (.86 of a share of A&F Common Stock for each
share of Limited Common Stock tendered), the Anticipated Premium would be
approximately 28%.
The Anticipated Premium depends on the prevailing stock prices for Limited
Common Stock and A&F Common Stock. The tables below show the Anticipated
Premium at exchange ratios of .795 (the midpoint of the Exchange Ratio Range),
.73 (the Minimum Exchange Ratio) and .86 (the Maximum Exchange Ratio).
ANTICIPATED PREMIUM AT THE EXCHANGE RATIO OF .795 (THE MIDPOINT OF THE
EXCHANGE RATIO RANGE)
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
LIMITED COMMON STOCK PRICE
---------------------------------
$26 $28 $30 $32 $34
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
A&F COMMON $48 47% 36% 27% 19% 12%
STOCK PRICE $46 41% 31% 22% 14% 8%
$44 35% 25% 17% 9% 3%
$42 28% 19% 11% 4% -2%
$40 22% 14% 6% -1% -6%
ANTICIPATED PREMIUM AT THE MINIMUM EXCHANGE RATIO OF .73
-----------------------------------------------------------------
<CAPTION>
LIMITED COMMON STOCK PRICE
---------------------------------
$26 $28 $30 $32 $34
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
A&F COMMON $48 35% 25% 17% 10% 3%
STOCK PRICE $46 29% 20% 12% 5% -1%
$44 24% 15% 7% 0% -6%
$42 18% 10% 2% -4% -10%
$40 12% 4% -3% -9% -14%
ANTICIPATED PREMIUM AT THE MAXIMUM EXCHANGE RATIO OF .86
-----------------------------------------------------------------
<CAPTION>
LIMITED COMMON STOCK PRICE
---------------------------------
$26 $28 $30 $32 $34
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
A&F COMMON $48 59% 47% 38% 29% 21%
STOCK PRICE $46 52% 41% 32% 24% 16%
$44 46% 35% 26% 18% 11%
$42 39% 29% 20% 13% 6%
$40 32% 23% 15% 8% 1%
</TABLE>
NONE OF THE LIMITED, A&F, THE DEALER MANAGERS, THE SOLICITING DEALERS, THE
BOARD OF DIRECTORS OF THE LIMITED OR THE BOARD OF DIRECTORS OF A&F MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER OF THE LIMITED AS TO WHETHER TO TENDER OR
REFRAIN FROM TENDERING SHARES OF LIMITED COMMON STOCK PURSUANT TO THE EXCHANGE
OFFER. STOCKHOLDERS OF THE LIMITED MUST MAKE THEIR OWN DECISIONS WHETHER TO
TENDER SHARES OF LIMITED COMMON STOCK PURSUANT TO THE EXCHANGE OFFER AND, IF
SO, HOW MANY SHARES TO TENDER AND AT WHAT EXCHANGE RATIO TO TENDER SUCH SHARES
AFTER READING THIS OFFERING CIRCULAR-PROSPECTUS AND CONSULTING WITH THEIR
ADVISORS BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
29
<PAGE>
SELECTING AN EXCHANGE RATIO
In the event a stockholder of The Limited determines to participate in the
Exchange Offer, in deciding at which Exchange Ratio to tender, such
stockholder should consider not only his or her view of the value of a single
share of Limited Common Stock and a single share of A&F Common Stock but also
the level of certainty that he or she desires that his or her tender will be
accepted in the Exchange Offer. STOCKHOLDERS WISHING TO MAXIMIZE THE CHANCE
THAT THEIR SHARES WILL BE ACCEPTED FOR EXCHANGE IN THE EXCHANGE OFFER MAY
CHECK THE BOX MARKED "SHARES TENDERED AT EXCHANGE RATIO DETERMINED BY DUTCH
AUCTION" IN BOX #2 ON THE LETTER OF TRANSMITTAL INDICATING THAT SUCH
STOCKHOLDER WILL ACCEPT WHATEVER THE FINAL EXCHANGE RATIO IS DETERMINED TO BE
BY THE DUTCH AUCTION. SOLELY FOR PURPOSES OF DETERMINING THE FINAL EXCHANGE
RATIO, THE LIMITED WILL DEEM SHARES OF LIMITED COMMON STOCK TENDERED USING
THIS OPTION TO HAVE BEEN TENDERED AT THE MINIMUM EXCHANGE RATIO.
In selecting an Exchange Ratio at which to tender a share of Limited Common
Stock, a stockholder of The Limited should also remember that the market value
of a share of A&F Common Stock may be different from his or her view of the
value of such a share. If the market value of a share of A&F Common Stock is
lower than the value assumed by a stockholder of The Limited in selecting the
Exchange Ratio at which to tender (and assuming all other things remain the
same), each share of A&F Common Stock received will have less value than such
stockholder of The Limited thought it would have at the Exchange Ratio
selected. For example, if a Limited stockholder selected an Exchange Ratio of
.80 based on a market price of $44 per share of the A&F Common Stock and the
market price becomes $40, such stockholder would have only received A&F Common
Stock having a market price of $32 rather than $35.20 for each share of
Limited Common Stock which was accepted for exchange.
PROCEDURES FOR TENDERING SHARES OF LIMITED COMMON STOCK
To tender shares of Limited Common Stock pursuant to the Exchange Offer,
either (i) a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) with any required signature guarantees, or
an Agent's Message in the case of a book-entry transfer of shares, and any
other documents required by the Letter of Transmittal must be received by the
Exchange Agent at one of its addresses set forth on the back cover of this
Offering Circular-Prospectus prior to the Expiration Date, and either (a)
certificates for the shares of Limited Common Stock to be tendered must be
transmitted to and received by the Exchange Agent at one of such addresses
prior to such time or (b) such shares of Limited Common Stock must be
delivered pursuant to the procedures for book-entry transfer described below
(and a confirmation of such delivery received by the Exchange Agent), in each
case by the Expiration Date, or (ii) the guaranteed delivery procedure
described below must be complied with. Participants in the Savings and
Retirement Plan and the Stock Purchase Plan of The Limited may also
participate in this Exchange Offer and should follow the procedures set forth
in "--Special Procedures for Participants in the Savings and Retirement Plan
and the Stock Purchase Plan" on page 33 to tender their Limited Common Stock.
Stockholders who are participants in the Dividend Reinvestment Plan of The
Limited (the "DRP") who wish to tender some or all of the shares of Limited
Common Stock attributable to their plan accounts may do so by so indicating on
the Letter of Transmittal and by following the procedures outlined in this
section, "--Procedures for Tendering Shares of Limited Common Stock". Such
participants in the DRP should also see Instruction 6 of the Letter of
Transmittal. Stockholders who are participants in employee benefit plans not
affiliated with The Limited but who hold shares of Limited Common Stock and
would like to participate in the Exchange Offer may follow the general
instructions described in this section, subject to the requirements of such
other employee benefit plans.
As specified in Instruction 3 of the Letter of Transmittal, each stockholder
desiring to tender shares of Limited Common Stock pursuant to the Exchange
Offer must either (a) check the box in the section of Box #2 on the Letter of
Transmittal captioned "Shares Tendered at Exchange Ratio Determined by
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Dutch Auction" or (b) check one of the boxes in the section of Box #2 on the
Letter of Transmittal captioned "Shares Tendered at Exchange Ratio Determined
by Stockholder". A STOCKHOLDER WHO WISHES TO MAXIMIZE THE CHANCE THAT HIS OR
HER SHARES WILL BE EXCHANGED SHOULD CHECK THE BOX IN THE SECTION OF BOX #2 ON
THE LETTER OF TRANSMITTAL MARKED, "SHARES TENDERED AT EXCHANGE RATIO
DETERMINED BY DUTCH AUCTION". NOTE THAT THIS ELECTION COULD RESULT IN SUCH
STOCKHOLDER'S SHARES BEING EXCHANGED AT THE MINIMUM EXCHANGE RATIO OF .73 OF A
SHARE OF A&F COMMON STOCK PER SHARE OF LIMITED COMMON STOCK. A STOCKHOLDER WHO
WISHES TO INDICATE A SPECIFIC EXCHANGE RATIO AT WHICH SUCH STOCKHOLDER'S
SHARES ARE BEING TENDERED MUST CHECK A BOX UNDER THE SECTION CAPTIONED "SHARES
TENDERED AT EXCHANGE RATIO DETERMINED BY STOCKHOLDER" IN BOX #2 ON THE LETTER
OF TRANSMITTAL.
A TENDER OF SHARES WILL BE PROPER IF, AND ONLY IF, ON THE APPROPRIATE LETTER
OF TRANSMITTAL EITHER THE BOX IN THE SECTION CAPTIONED "SHARES TENDERED AT
EXCHANGE RATIO DETERMINED BY DUTCH AUCTION" OR ONE OF THE BOXES IN THE SECTION
CAPTIONED "SHARES TENDERED AT EXCHANGE RATIO DETERMINED BY STOCKHOLDER" IS
CHECKED.
STOCKHOLDERS DESIRING TO TENDER SHARES AT MORE THAN ONE EXCHANGE RATIO MUST
COMPLETE SEPARATE LETTERS OF TRANSMITTAL FOR EACH EXCHANGE RATIO AT WHICH SUCH
STOCKHOLDER IS TENDERING SHARES, EXCEPT THAT THE SAME SHARES CANNOT BE
TENDERED (UNLESS PROPERLY WITHDRAWN PREVIOUSLY IN ACCORDANCE WITH THE TERMS OF
THE EXCHANGE OFFER) AT MORE THAN ONE EXCHANGE RATIO. IN ORDER TO TENDER SHARES
PROPERLY, ONE AND ONLY ONE EXCHANGE RATIO MUST BE INDICATED IN BOX #2 OF EACH
LETTER OF TRANSMITTAL.
LETTERS OF TRANSMITTAL AND CERTIFICATES FOR SHARES OF LIMITED COMMON STOCK
SHOULD NOT BE SENT TO THE LIMITED, A&F, THE DEALER MANAGERS, ANY SOLICITING
DEALER OR THE INFORMATION AGENT. DELIVERY OF ANY OF THE AFOREMENTIONED
REQUIRED DOCUMENTS TO ANY ADDRESS OTHER THAN AS SET FORTH HEREIN WILL NOT
CONSTITUTE VALID DELIVERY THEREOF.
It is a violation of Rule 14e-4 promulgated under the Exchange Act for a
person to tender shares of Limited Common Stock for such person's own account
unless the person so tendering (i) owns such shares of Limited Common Stock or
(ii) owns other securities convertible into or exchangeable for such shares of
Limited Common Stock or owns an option, warrant or right to purchase such
shares of Limited Common Stock and intends to acquire shares of Limited Common
Stock for tender by conversion or exchange of such securities or by exercise
of such option, warrant or right. Rule 14e-4 provides a similar restriction
applicable to the tender or guarantee of a tender on behalf of another person.
A tender of shares of Limited Common Stock made pursuant to any method of
delivery set forth herein and the acceptance by The Limited for exchange of
such shares pursuant to the procedures described herein and in the Letter of
Transmittal will constitute a binding agreement between the tendering
stockholder and The Limited upon the terms and subject to the conditions of
the Exchange Offer, including the tendering stockholder's representation that
(i) such stockholder owns the shares of Limited Common Stock being tendered
within the meaning of Rule 14e-4 promulgated under the Exchange Act and (ii)
the tender of such shares of Limited Common Stock complies with Rule 14e-4.
The Exchange Agent will establish an account with respect to shares of
Limited Common Stock at The Depository Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Exchange Offer within two business days after
the date of this Offering Circular-Prospectus, and any financial
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institution that is a participant in the system of the Book-Entry Transfer
Facility may make delivery of shares of Limited Common Stock by causing such
Book-Entry Transfer Facility to transfer such shares of Limited Common Stock
into the Exchange Agent's account in accordance with the procedures of such
Book-Entry Transfer Facility. Although delivery of shares of Limited Common
Stock may be effected through book-entry transfer to the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) and any
other required documents, or an Agent's Message, must, in any case, be
transmitted to and received or confirmed by the Exchange Agent at one of its
addresses set forth on the back cover of this Offering Circular-Prospectus
prior to the Expiration Date, or the guaranteed delivery procedure described
below must be complied with. "Agent's Message" means a message transmitted
through electronic means by the Book-Entry Transfer Facility to and received
by the Exchange Agent and forming a part of a book-entry confirmation, which
states that such Book-Entry Transfer Facility has received an express
acknowledgment from the participant in such Book-Entry Transfer Facility
tendering the shares that such participant has received and agrees to be bound
by the Letter of Transmittal. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER
FACILITY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT AS REQUIRED HEREBY.
Signatures on a Letter of Transmittal must be guaranteed by an Eligible
Institution unless the shares of Limited Common Stock tendered pursuant to the
Letter of Transmittal are tendered (i) by the registered holder of the shares
of Limited Common Stock tendered therewith and such holder has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. An "Eligible Institution" means a participant in the
Security Transfer Agents Medallion Program or the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program.
A verification by a notary public alone is not acceptable. If a certificate
representing shares of Limited Common Stock is registered in the name of a
person other than the signer of a Letter of Transmittal, or if delivery of
shares of A&F Common Stock is to be made or shares of Limited Common Stock not
tendered or not accepted for exchange are to be returned to a person other
than the registered owner, the certificate must be endorsed or accompanied by
an appropriate stock power, and the signature on such certificate or stock
power must appear exactly as the name of the registered owner appears on the
certificate with the signature on the certificate or stock power guaranteed by
an Eligible Institution.
If the Letter of Transmittal or Notice of Guaranteed Delivery or any
certificates or stock powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and, unless waived by The Limited, proper evidence
satisfactory to The Limited of their authority so to act must be submitted.
If any certificate representing shares of Limited Common Stock has been
mutilated, destroyed, lost or stolen, the stockholder must (i) furnish to the
Exchange Agent evidence, satisfactory to it in its discretion, of the
ownership of and the destruction, loss or theft of such certificate, (ii)
furnish to the Exchange Agent indemnity, satisfactory to it in its discretion,
and (iii) comply with such other reasonable regulations as the Exchange Agent
may prescribe.
GUARANTEED DELIVERY PROCEDURE
If a stockholder desires to tender shares of Limited Common Stock pursuant
to the Exchange Offer and if the certificates for such shares of Limited
Common Stock are not immediately available, the procedure for delivery by
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date, such shares of Limited Common Stock may nevertheless be
tendered if all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
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(ii) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by The Limited setting forth the name
and address of the holder and the number of shares of Limited Common Stock
tendered, stating that the tender is being made thereby and guaranteeing
that, within three business days after the date of the Notice of Guaranteed
Delivery, the certificate(s) representing the shares of Limited Common
Stock accompanied by all other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent, is received by the Exchange Agent (as provided below) prior to the
Expiration Date; and
(iii) the certificate(s) for such shares of Limited Common Stock (or a
confirmation of a book-entry transfer of such shares of Limited Common
Stock into the Exchange Agent's account at the Book-Entry Transfer
Facilities), together with a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) and any required
signature guarantees, or an Agent's Message in connection with a book-entry
transfer, and any other documents required by the Letter of Transmittal,
are received by the Exchange Agent within three business days after the
date of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, telegram,
facsimile transmission or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such Notice.
THE METHOD OF DELIVERY OF SHARES OF LIMITED COMMON STOCK AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF
CERTIFICATES REPRESENTING SHARES OF LIMITED COMMON STOCK ARE SENT BY MAIL, IT
IS RECOMMENDED THAT TENDERING STOCKHOLDERS USE REGISTERED MAIL, WITH RETURN
RECEIPT REQUESTED, AND ALLOW SUFFICIENT TIME TO ENSURE TIMELY RECEIPT.
All questions as to the form of documents (including notices of withdrawal)
and the validity, form, eligibility (including time of receipt) and acceptance
for exchange of any tender of shares of Limited Common Stock will be
determined by The Limited in its sole discretion, which determination will be
final and binding on all tendering stockholders. The Limited reserves the
absolute right to reject any or all tenders of shares of Limited Common Stock
determined by it not to be in proper form or the acceptance for exchange of
shares of Limited Common Stock which may, in the opinion of the counsel of The
Limited, be unlawful. The Limited also reserves the absolute right to waive
any defect or irregularity in any tender of shares of Limited Common Stock.
None of The Limited, A&F, the Exchange Agent, the Dealer Managers, the
Soliciting Dealers, the Information Agent and any other person will be under
any duty to give notification of any defect or irregularity in tenders or
notices of withdrawal or incur any liability for failure to give any such
notification.
SPECIAL PROCEDURES FOR PARTICIPANTS IN THE SAVINGS AND RETIREMENT PLAN AND THE
STOCK PURCHASE PLAN
Participants in the Savings and Retirement Plan who wish to participate in
the Exchange Offer may instruct the trustee of such plan to tender shares of
Limited Common Stock attributable to their plan accounts by completing,
executing and returning to such trustee the election form included in the
Letter from the Savings and Retirement Plan Administrative Committee sent to
such participants. Participants in the Stock Purchase Plan who wish to
participate in the Exchange Offer may instruct the agent for such plan
(Merrill, Lynch, Pierce, Fenner & Smith) to tender shares of Limited Common
Stock attributable to their plan accounts by notifying such agent of the
election as provided in the Notice to Participants in the Stock Purchase Plan
sent to such participants. Holders of vested but unexercised options to
purchase Limited Common Stock may exercise such options for cash in accordance
with the terms of the stock option plans of The Limited and tender the shares
of Limited Common Stock received upon such exercise pursuant to the general
instructions for tendering shares discussed in "--Procedures for Tendering
Shares of Limited Common Stock" on page 30. PARTICIPANTS IN THE
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STOCK PURCHASE PLAN OR THE SAVINGS AND RETIREMENT PLAN MAY NOT USE THE LETTER
OF TRANSMITTAL TO DIRECT THE TENDER OF SHARES OF LIMITED COMMON STOCK, BUT
MUST USE THE SEPARATE ELECTION FORM SENT TO THEM. STOCK PURCHASE PLAN AND
SAVINGS AND RETIREMENT PLAN PARTICIPANTS ARE URGED TO READ THE SEPARATE
ELECTION FORM AND RELATED MATERIALS CAREFULLY.
Stockholders who are participants in employee benefit plans not affiliated
with The Limited which hold shares of The Limited may tender some or all of
such shares pursuant to the instructions described above under "--Procedures
for Tendering Shares of Limited Common Stock" on page 30, subject to the
requirements of such other plans. To the extent required under any such plan,
participants will receive separate instructions from the administrators of
such other plans to be followed in connection with any tender.
WITHDRAWAL RIGHTS
Tenders of shares of Limited Common Stock may be withdrawn at any time prior
to the Expiration Date and, unless theretofore accepted for exchange as
provided in this Offering Circular-Prospectus, may also be withdrawn after the
expiration of 40 business days from the commencement of the Exchange Offer. If
The Limited (i) extends the period of time during which the Exchange Offer is
open, (ii) is delayed in its acceptance of shares of Limited Common Stock for
exchange or (iii) is unable to accept shares of Limited Common Stock for
exchange pursuant to the Exchange Offer for any reason, then, without
prejudice to The Limited's rights under the Exchange Offer, the Exchange Agent
may, on behalf of The Limited, retain all shares of Limited Common Stock
tendered, and such shares of Limited Common Stock may not be withdrawn except
as otherwise provided herein, subject to Rule 13e-4(f)(5) under the Exchange
Act, which provides that the person making an issuer exchange offer shall
either pay the consideration offered or return tendered securities promptly
after the termination or withdrawal of the Exchange Offer.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Exchange Agent at one of its
addresses set forth on the back cover of this Offering Circular-Prospectus and
must specify the name of the person who tendered the shares of Limited Common
Stock to be withdrawn and the number of shares of Limited Common Stock to be
withdrawn precisely as they appear in the Letter of Transmittal. If the shares
of Limited Common Stock to be withdrawn have been delivered to the Exchange
Agent, a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution must be submitted prior to the release of such shares of Limited
Common Stock (except that such signature guarantee requirement is not
applicable in the case of shares of Limited Common Stock tendered by an
Eligible Institution). In addition, such notice must specify, in the case of
shares of Limited Common Stock tendered by delivery of certificates, the name
of the registered holder (if different from that of the tendering stockholder)
and the serial numbers shown on the particular certificates evidencing the
shares of Limited Common Stock to be withdrawn or, in the case of shares of
Limited Common Stock tendered by book-entry transfer, the name and number of
the account at the Book-Entry Transfer Facility. Withdrawals may not be
rescinded, and shares of Limited Common Stock withdrawn will thereafter be
deemed not validly tendered for purposes of the Exchange Offer. However,
withdrawn shares of Limited Common Stock may be retendered by again following
one of the procedures described in "--Procedures for Tendering Shares of
Limited Common Stock" on page 30 or "--Special Procedures for Participants in
the Savings and Retirement Plan and the Stock Purchase Plan" on page 33, at
any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by The Limited, in its sole
discretion, which determination shall be final and binding. None of The
Limited, A&F, the Exchange Agent, the Dealer Managers, the Soliciting Dealers,
the Information Agent or any other person will be under any duty to give
notification of any defect or irregularity in any notice of withdrawal or
incur any liability for failure to give any such notification.
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Except as otherwise provided above, any tender of shares of Limited Common
Stock made pursuant to the Exchange Offer is irrevocable.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The Limited expressly reserves the right, at any time or from time to time,
in its sole discretion and regardless of whether any of the conditions
specified in "--Conditions to Consummation of the Exchange Offer" beginning on
page 36 shall have been satisfied, (i) to extend the period of time during
which the Exchange Offer is open by giving oral or written notice of such
extension to the Exchange Agent and by making a public announcement of such
extension or (ii) to amend the Exchange Offer in any respect by making a
public announcement of such amendment.
If The Limited materially changes the terms of the Exchange Offer or the
information concerning the Exchange Offer, The Limited will extend the
Exchange Offer to the extent required by the Exchange Act. Certain rules
promulgated under the Exchange Act provide that the minimum period during
which an offer must remain open following material changes in the terms of the
offer or information concerning the offer (other than a change in price,
change in the soliciting dealer's fee or a change in percentage of securities
sought) will depend on the facts and circumstances, including the relative
materiality of such terms or information. The SEC has stated that, as a
general rule, it is of the view that an offer should remain open for a minimum
of five business days from the date that notice of such material change is
first published, sent or given, and that if material changes are made with
respect to information that approaches the significance of price and share
levels, a minimum of ten business days may be required to allow adequate
dissemination and investor response. Subject to the foregoing paragraph, if
(i) The Limited increases or decreases (a) the number of shares of A&F Common
Stock offered in exchange for shares of Limited Common Stock pursuant to the
Exchange Offer, (b) the number of shares of Limited Common Stock eligible for
exchange or (c) the Trigger Amount, and (ii) the Exchange Offer is scheduled
to expire at any time earlier than the expiration of a period ending on the
tenth business day from and including the date that notice of such increase or
decrease is first published, sent or given, the Exchange Offer will be
extended until the expiration of such period of ten business days. The term
"business day" shall mean any day other than Saturday, Sunday or a federal
holiday and shall consist of the time period from 12:01 a.m. through 12:00
Midnight, New York City time.
The Limited also reserves the right, in its reasonable discretion, in the
event any of the conditions specified in "--Conditions to Consummation of the
Exchange Offer" on page 36 below shall not have been satisfied and so long as
shares of Limited Common Stock have not theretofore been accepted for
exchange, to delay the Expiration Date or to terminate the Exchange Offer and
not accept for exchange or exchange for any shares of Limited Common Stock.
If The Limited (i) extends the period of time during which the Exchange
Offer is open, (ii) is delayed in accepting for exchange or exchanging any
shares of Limited Common Stock or (iii) is unable to accept for exchange or to
exchange any shares of Limited Common Stock pursuant to the Exchange Offer for
any reason, then, without prejudice to rights of The Limited under the
Exchange Offer, the Exchange Agent may, on behalf of The Limited, retain all
shares of Limited Common Stock tendered and such shares of Limited Common
Stock may not be withdrawn except as otherwise provided in "--Withdrawal
Rights" on page 34. The reservation by The Limited of the right to delay
acceptance for exchange or to delay exchange of any shares of Limited Common
Stock is subject to applicable law, which requires that The Limited pay the
consideration offered or return the shares of Limited Common Stock deposited
by or on behalf of stockholders promptly after the termination or withdrawal
of the Exchange Offer.
Any extension, termination or amendment of the Exchange Offer will be
followed as promptly as practicable by a public announcement thereof. Without
limiting the manner in which The Limited may
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choose to make any public announcement, The Limited will have no obligation
(except as otherwise required by applicable law) to publish, advertise or
otherwise communicate any such public announcement other than by making a
release to the Dow Jones News Service. In the case of an extension of the
Exchange Offer, SEC regulations require a public announcement of such
extension no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
CONDITIONS TO CONSUMMATION OF THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer and without
prejudice to The Limited's other rights under the Exchange Offer, The Limited
shall not be required to accept for exchange or, subject to any applicable
rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange
Act relating to The Limited's obligation to exchange or return tendered shares
of Limited Common Stock promptly after termination or withdrawal of the
Exchange Offer, exchange, any shares of Limited Common Stock, and may
terminate the Exchange Offer as provided in "--Extension of Tender Period;
Termination; Amendment" on page 35, if prior to the Expiration Date, any of
the following conditions exist:
(i) the Trigger Amount shall not have been reached;
(ii) (a) any action, proceeding or litigation seeking to enjoin, make
illegal or materially delay consummation of the Exchange Offer or otherwise
relating in any manner to the Exchange Offer shall have been instituted
before any court or other regulatory or administrative authority; or (b)
any order, stay, judgment or decree shall have been issued by any court,
government, governmental authority or other regulatory or administrative
authority and be in effect, or any statute, rule, regulation, governmental
order or injunction shall have been proposed, enacted, enforced or deemed
applicable to the Exchange Offer, any of which would or might restrain,
prohibit or delay consummation of the Exchange Offer or materially impair
the contemplated benefits of the Exchange Offer to The Limited or A&F;
(iii) there shall have occurred (and the adverse effect of such
occurrence shall, in the reasonable judgment of The Limited, be continuing)
(a) any general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the over-the-counter
market in the United States, (b) any extraordinary or material adverse
change in U.S. financial markets generally, including, without limitation,
a decline of at least 20% in either the Dow Jones average of industrial
stocks or the Standard & Poor's 500 Index from April 14, 1998, (c) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (d) any limitation (whether or not
mandatory) by any governmental entity, on, or any other event that would
reasonably be expected to materially adversely affect, the extension of
credit by banks or other lending institutions, (e) a commencement of a war
or armed hostilities or other national or international calamity directly
or indirectly involving the United States, which would reasonably be
expected to affect materially and adversely (or to delay materially) the
consummation of the Exchange Offer or (f) in the case of any of the
foregoing existing at the time of commencement of the Exchange Offer, a
material acceleration or worsening thereof;
(iv) any tender or exchange offer with respect to some or all of the
outstanding Limited Common Stock (other than the Exchange Offer) or the A&F
Common Stock, or a merger, acquisition or other business combination
proposal for The Limited or A&F, shall have been proposed, announced or
made by any person or entity;
(v) there shall have occurred any event or events that have resulted, or
may, in the sole judgment of The Limited, result, in an actual or
threatened change in the business, condition (financial or other), income,
operations, stock ownership or prospects of The Limited and its
subsidiaries, taken as a whole, or of A&F and its subsidiaries, taken as a
whole; or
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(vi) (A) any person, entity or "group" (as that term is used in Section
13(d)(3) of the Exchange Act) shall have acquired, or proposed to acquire,
beneficial ownership of more than 5% of the outstanding shares of Limited
Common Stock or A&F Common Stock (other than a person, entity or group
which had publicly disclosed such ownership in a Schedule 13D or 13G (or an
amendment thereto) on file with the SEC prior to February 15, 1998), (B)
any such person, entity or group which had publicly disclosed such
ownership prior to such date shall have acquired, or proposed to acquire,
beneficial ownership of additional shares of Limited Common Stock or A&F
Common Stock constituting more than 2% of the outstanding shares of Limited
Common Stock or A&F Common Stock (options for and other rights to acquire
Limited Common Stock or A&F Common Stock which are so acquired, or proposed
to be acquired, being deemed for this purpose to be immediately
exercisable) or (C) any new group shall have been formed which beneficially
owns more than 5% of the outstanding shares of Limited Common Stock or A&F
Common Stock;
which in the reasonable judgment of The Limited in any such case, and
regardless of the circumstances, makes it inadvisable to proceed with the
Exchange Offer or with such acceptance for exchange of shares.
The foregoing conditions are for the sole benefit of The Limited and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances giving rise to such conditions or may be
waived by The Limited in whole or in part at any time and from time to time in
its reasonable discretion. Any determination by The Limited concerning the
conditions described above will be final and binding upon all parties.
The failure by The Limited at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right
shall be deemed an ongoing right which may be asserted at any time and from
time to time.
In addition, The Limited will not accept any shares of Limited Common Stock
tendered, and no shares of A&F Common Stock will be exchanged for any shares
of Limited Common Stock, at any time at which there shall be a stop order
issued by the SEC which shall remain in effect with respect to the
Registration Statement.
FEES AND EXPENSES
Goldman Sachs is acting as the Dealer Managers in connection with the
Exchange Offer. Goldman Sachs and NMSI are acting as co-financial advisors to
The Limited for the Transactions. As Dealer Managers, Goldman Sachs will
receive a fee of $1,000,000 for its services. Goldman Sachs and NMSI will
receive additional advisory fees in addition to being reimbursed by The
Limited for their out-of-pocket expenses, including attorneys' fees, in
connection with the Exchange Offer. Goldman Sachs has from time to time
provided investment banking services to The Limited, including acting as co-
lead manager of the Intimate Brands IPO and the lead manager of the A&F IPO,
for which Goldman Sachs has received customary compensation. NMSI acted as co-
manager of the A&F IPO for which NMSI has received customary compensation. The
Limited has agreed to indemnify Goldman Sachs and NMSI against certain
liabilities, including civil liabilities under the federal securities laws,
and to contribute to payments which Goldman Sachs and NMSI may be required to
make in respect thereof. Goldman Sachs and NMSI may from time to time hold
shares of Limited Common Stock in their respective proprietary accounts, and
to the extent they own such shares in such accounts at the time of the
Exchange Offer, Goldman Sachs and NMSI may tender such shares into the
Exchange Offer by checking the box marked "Shares Tendered at Exchange Ratio
Determined by Dutch Auction" on the Letter of Transmittal.
The Limited will pay to a Soliciting Dealer a solicitation fee of $1.00 per
share, up to a maximum of 1,000 shares per tendering stockholder, for each
share of Limited Common Stock tendered and accepted for exchange pursuant to
the Exchange Offer if such Soliciting Dealer has affirmatively solicited and
obtained such tender, except that no solicitation fee shall be payable (i) in
connection with
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a tender of Limited Common Stock by a stockholder (A) tendering more than
10,000 shares of Limited Common Stock or (B) tendering from a country outside
of the United States; or (ii) to the Dealer Managers. "Soliciting Dealer"
includes (i) any broker or dealer in securities which is a member of any
national securities exchange in the United States or of the National
Association of Securities Dealers, Inc. or (ii) any bank or trust company
located in the United States. In order for a Soliciting Dealer to receive a
solicitation fee with respect to the tender of shares of Limited Common Stock,
the Exchange Agent must have received a properly completed and duly executed
Letter of Transmittal (including a completed box entitled "Notice of Solicited
Tenders" (Box #9)).
No solicitation fee shall be payable to a Soliciting Dealer if such
Soliciting Dealer is required for any reason to transfer the amount of such
fee to a tendering holder (other than itself). Soliciting Dealers are not
entitled to a solicitation fee with respect to shares of Limited Common Stock
beneficially owned by such Soliciting Dealer or with respect to any shares
that are registered in the name of a Soliciting Dealer unless the shares are
held by such Soliciting Dealer as nominee and are tendered for the benefit of
beneficial holders identified in the Letter of Transmittal. No broker, dealer,
bank, trust company or fiduciary shall be deemed to be the agent of The
Limited, A&F, the Exchange Agent, the Dealer Managers or the Information Agent
for purposes of the Exchange Offer.
The Limited has retained D.F. King & Co., Inc. (the "Information Agent") to
act as the Information Agent and First Chicago Trust Company of New York (the
"Exchange Agent") to act as the Exchange Agent in connection with the Exchange
Offer. The Information Agent may contact holders of shares of Limited Common
Stock by mail, telephone, facsimile transmission and personal interviews and
may request brokers, dealers and other nominee stockholders to forward
materials relating to the Exchange Offer to beneficial owners. The Information
Agent and the Exchange Agent each will receive reasonable and customary
compensation for their respective services, will be reimbursed for certain
reasonable out-of-pocket expenses and will be indemnified against certain
liabilities in connection with their services, including certain liabilities
under the federal securities laws. Neither the Information Agent nor the
Exchange Agent has been retained to make solicitations or recommendations in
their respective roles as Information Agent and Exchange Agent, and the fees
to be paid to them will not be based on the number of shares of Limited Common
Stock tendered pursuant to the Exchange Offer; however, the Exchange Agent
will be compensated in part on the basis of the number of Letters of
Transmittal received and the number of stock certificates distributed pursuant
to the Exchange Offer.
The Limited will not pay any fees or commissions to any broker or dealer or
any other person (other than the Dealer Managers, the Soliciting Dealers, the
Information Agent and the Exchange Agent) for soliciting tenders of shares of
Limited Common Stock pursuant to the Exchange Offer. Brokers, dealers,
commercial banks and trust companies will, upon request, be reimbursed by The
Limited for reasonable and necessary costs and expenses incurred by them in
forwarding materials to their customers.
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THE SPIN-OFF
If the result of the Exchange Offer is such that fewer than 43,600,000
shares of A&F Common Stock are exchanged pursuant to the Exchange Offer, and
the Exchange Offer is consummated, The Limited will distribute all remaining
shares of A&F Common Stock owned by it pro rata to remaining holders of record
of shares of Limited Common Stock at the close of business on a record date
promptly after consummation of the Exchange Offer (the "Spin-Off"). Such
record date and the date of such distribution (which will be as soon as
practicable after such record date) will be publicly announced by The Limited
when they have been determined. If the Trigger Amount is not reached, The
Limited may, in its sole discretion, (i) decide not to consummate the Exchange
Offer, (ii) waive the Trigger Amount and consummate the Transactions, (iii)
spin-off all shares of A&F Common Stock owned by it or (iv) review and
implement other alternatives. See "The Exchange Offer--Conditions to
Consummation of the Exchange Offer" on page 36. If 43,600,000 shares of A&F
Common Stock are exchanged pursuant to the Exchange Offer, the Spin-Off will
not be effected.
No fractional shares of A&F Common Stock will be distributed pursuant to the
Spin-Off. The Exchange Agent, acting as agent for stockholders of The Limited
otherwise entitled to receive fractional shares, will aggregate all fractional
shares and sell them for the accounts of such stockholders. Such proceeds as
may be realized by the Exchange Agent upon the sale of such fractional shares
will be distributed, net of commissions, to such stockholders on a pro rata
basis. Any such cash payments will be paid by the Exchange Agent. NONE OF THE
EXCHANGE AGENT, THE LIMITED, A&F, THE SOLICITING DEALERS OR THE DEALER
MANAGERS WILL GUARANTEE ANY MINIMUM PROCEEDS FROM THE SALE OF SHARES OF A&F
COMMON STOCK, AND NO INTEREST WILL BE PAID ON ANY SUCH PROCEEDS.
39
<PAGE>
MARKET PRICES, TRADING AND DIVIDEND INFORMATION
LIMITED COMMON STOCK
PRICE RANGE AND DIVIDENDS
The following table sets forth, for the calendar periods indicated, the per
share range of high and low sales prices for Limited Common Stock, as reported
on the NYSE Composite Tape. Limited Common Stock is listed and traded on the
NYSE and the London Stock Exchange under the symbol "LTD".
<TABLE>
<CAPTION>
NYSE
MARKET
PRICE
------------- CASH DIVIDEND
HIGH LOW PER SHARE
---- ---- -------------
<S> <C> <C> <C>
FISCAL YEAR 1995
1st Quarter.............................. $23 1/4 $16 5/8 $.10
2nd Quarter.............................. 22 7/8 20 .10
3rd Quarter.............................. 21 1/2 17 7/8 .10
4th Quarter.............................. 19 1/2 15 1/4 .10
FISCAL YEAR 1996
1st Quarter.............................. $20 3/4 $16 5/8 $.10
2nd Quarter.............................. 22 18 1/4 .10
3rd Quarter.............................. 20 1/4 17 3/4 .10
4th Quarter.............................. 20 1/8 16 5/8 .10
FISCAL YEAR 1997
1st Quarter.............................. $20 1/8 $17 $.12
2nd Quarter.............................. 22 5/16 18 5/8 .12
3rd Quarter.............................. 25 1/2 21 3/8 .12
4th Quarter.............................. 27 1/4 23 9/16 .12
FISCAL YEAR 1998
1st Quarter (through April 14, 1998)..... $31 3/16 $26 9/16 $.13
</TABLE>
The number of holders of record of Limited Common Stock as of April 9, 1998
was 80,936.
On February 17, 1998 (the last trading day prior to announcement of the
Exchange Offer), the closing sales price per share of Limited Common Stock as
reported on the NYSE Composite Tape was $31 1/2. On April 14, 1998, the last
reported sale price per share of Limited Common Stock as reported on the NYSE
Composite Tape was $29 3/8. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR SHARES OF LIMITED COMMON STOCK. NO ASSURANCE CAN BE GIVEN
CONCERNING THE MARKET PRICE OF LIMITED COMMON STOCK BEFORE OR AFTER THE DATE
ON WHICH THE EXCHANGE OFFER IS CONSUMMATED.
A&F COMMON STOCK
PRICE RANGE AND DIVIDENDS
The following table sets forth, for the calendar periods indicated, the per
share range of high and low sales prices for A&F Common Stock, as reported on
the NYSE Composite Tape. A&F Common Stock is listed and traded on the NYSE
under the symbol "ANF".
40
<PAGE>
<TABLE>
<CAPTION>
NYSE
MARKET
PRICE
--------------
HIGH LOW
---- ----
<S> <C> <C>
FISCAL YEAR 1996
3rd Quarter......................................... $26 1/4 $21 3/4
4th Quarter......................................... 23 3/4 12 5/8
FISCAL YEAR 1997
1st Quarter......................................... $17 5/8 $12 7/8
2nd Quarter......................................... 20 1/2 15 3/4
3rd Quarter......................................... 27 1/4 19 1/4
4th Quarter......................................... 34 11/16 25 11/16
FISCAL YEAR 1998
1st Quarter (through April 14, 1998)................ $47 1/2 $30 5/16
</TABLE>
On February 17, 1998 (the last trading day prior to announcement of the
Exchange Offer), the closing sales price per share of A&F Common Stock as
reported on the NYSE Composite Tape was $37 1/8. On April 14, 1998, the last
reported sale price per share of A&F Common Stock as reported on the NYSE
Composite Tape was $43 13/16. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR SHARES OF A&F COMMON STOCK. NO ASSURANCE CAN BE GIVEN
CONCERNING THE MARKET PRICE OF A&F COMMON STOCK BEFORE OR AFTER THE DATE ON
WHICH THE EXCHANGE OFFER IS CONSUMMATED.
DIVIDEND POLICIES
The Limited currently pays a dividend of $.13 per share of Limited Common
Stock on a quarterly basis. After the consummation of the Exchange Offer,
stockholders whose shares of Limited Common Stock are exchanged pursuant to
this Exchange Offer will not be entitled to any dividend on such shares.
Limited stockholders will continue to receive the regular quarterly dividend
with respect to shares of Limited Common Stock which are not exchanged
pursuant to the Exchange Offer. A&F does not currently pay a dividend on
shares of A&F Common Stock.
The payment of dividends by The Limited and A&F in the future will depend
upon business conditions, their respective financial conditions and earnings
and other factors. There can be no assurance as to the payment of dividends in
the future, and the actual amount of dividends paid, if any, may be more or
less than the amount discussed above.
41
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma (post-Transactions)
capitalization of The Limited as of January 31, 1998 based on (i) the tender
of approximately 54,843,000 shares of Limited Common Stock in exchange for
approximately 43,600,000 shares of A&F Common Stock (which were previously
owned by The Limited) and (ii) an Exchange Ratio of .795 (the midpoint of the
Exchange Ratio Ranges) of a share of A&F Common Stock for each share of
Limited Common Stock. The Transactions are accounted for as a $1,809,269,000
tax-free gain by The Limited with a corresponding $1,809,269,000 increase in
treasury shares owned by The Limited.
<TABLE>
<CAPTION>
AT JANUARY 31, 1998
--------------------------
PRO FORMA
AFTER
HISTORICAL(1) TRANSACTIONS
------------- ------------
<S> <C> <C>
Long-term debt...................................... $ 650,000 $ 650,000
Shareholders' equity(1):
Preferred stock, par value $1.00 per share,
10,000,000 shares
authorized, no shares issued and outstanding..... -- --
Common stock, par value $.50 per share,
500,000,000 shares
authorized, 272,800,000 issued and outstanding
prior to the Transactions and 217,957,000 post
Transactions, net of treasury shares............. 180,352 180,352
Paid-in capital................................... 148,018 148,018
Retained earnings(2).............................. 3,613,174 5,346,487
------------ -----------
3,941,544 5,674,857
Less treasury stock, at average cost(3)........... (1,896,587) (3,705,856)
------------ -----------
Total shareholders' equity...................... $ 2,044,957 $ 1,969,001
============ ===========
</TABLE>
- --------
(1) Represents amounts derived from the historical consolidated financial
statements (and the related notes) of The Limited included in this
Offering Circular-Prospectus.
(2) Represents the before and after Transactions balances in retained earnings
which on a post Transactions basis reflects an increase of $1,733,313,000
as a result of a gain on the Transactions offset by the elimination of A&F
earnings, net of minority interest, for the 1997 fiscal year-to-date
period.
(3) Represents the basis in treasury shares acquired as a result of 54,843,000
shares of Limited Common Stock tendered in exchange for the value of A&F
Common Stock previously owned by The Limited.
42
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Financial Statements of The
Limited and A&F give effect to the transactions and events described below and
in the notes to the Unaudited Pro Forma Consolidated Financial Statements as
if the transactions and events were consummated at the beginning of fiscal
year 1997 (February 2, 1997) in the case of the Unaudited Pro Forma
Consolidated Statements of Income and as of January 31, 1998 in the case of
the Unaudited Pro Forma Consolidated Balance Sheets.
The Limited Unaudited Pro Forma Consolidated Financial Statements give
effect to the following transactions and events: (1) the split-off of A&F from
The Limited's consolidated financial statements--the consolidated financial
statements of A&F will no longer be included in The Limited's consolidated
financial statements and The Limited's outstanding common stock will be
reduced by the number of shares of Limited Common Stock exchanged in the
Exchange Offer; (2) the elimination of the A&F minority interest in The
Limited's consolidated financial statements and (3) the repayment of a $50
million obligation due to The Limited by A&F through issuance of 600,000
shares of A&F Common Stock to The Limited with the remainder being paid in
cash.
The A&F Unaudited Pro Forma Consolidated Financial Statements give effect to
the following transactions and events: (1) the repayment of a $50 million
obligation due to The Limited by A&F through issuance of 600,000 shares of A&F
Common Stock to The Limited with the remainder being paid in cash and (2) the
reduction of interest expense from the A&F statement of income due to the
repayment of its $50 million obligation to The Limited.
The Limited and A&F believe the assumptions used provide a reasonable basis
on which to present the Unaudited Pro Forma Consolidated Financial Statements.
The Unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the historical consolidated financial statements (and the
related notes) of each of The Limited and A&F included herein and other
information filed by the companies with the SEC. See "Where You Can Find More
Information" on page 102 and the consolidated financial statements beginning
on pages F(L)-1 and F(A)-1. The Unaudited Pro Forma Consolidated Financial
Statements are presented for illustrative purposes only and should not be
construed to be indicative of the financial position or results of operations
of future periods or the results that actually would have been realized had
the transactions and events occurred on the dates assumed.
43
<PAGE>
THE LIMITED, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, 1998
-----------------------------------------
HISTORICAL ADJUSTMENTS(1) PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
NET SALES............................ $ 9,188,804 $ 521,617 $ 8,667,187
Cost of goods sold, occupancy &
buying costs...................... (6,370,827) (320,537) (6,050,290)
----------- --------- -----------
GROSS INCOME......................... 2,817,977 201,080 2,616,897
General, administrative & store op-
erating expenses.................. (2,124,663) (116,955) (2,007,708)
Special & nonrecurring items, net.. (213,215) -- (213,215)
----------- --------- -----------
OPERATING INCOME(4).................. 480,099 84,125 395,974
Interest expense................... (68,728) -- (68,728)
Other income, net.................. 36,886 -- 36,886
Minority interest.................. (56,473) (7,643)(2) (48,830)
Gain in connection with an initial
public offering................... 8,606 -- 8,606
----------- --------- -----------
INCOME BEFORE INCOME TAXES........... 400,390 76,482 323,908
Provision for income taxes......... (183,000) (33,650)(5) (149,350)
----------- --------- -----------
NET INCOME(4)........................ $ 217,390 $ 42,832 $ 174,558
=========== ========= ===========
Net income per share:
Basic(3)........................... $ 0.80 $ 0.80
=========== ===========
Diluted(3)......................... $ 0.79 $ 0.79
=========== ===========
Basic weighted average shares out-
standing............................ 271,898 217,055
----------- -----------
Diluted weighted average shares out-
standing............................ 274,483 219,640
----------- -----------
</TABLE>
The accompanying notes are an integral part of these Unaudited Pro Forma
Consolidated Financial Statements.
44
<PAGE>
THE LIMITED, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT JANUARY 31, 1998
--------------------------------------------------------------------------------------------
ADJUSTMENTS PRO FORMA PRO FORMA
---------- --------------------------------- BEFORE AFTER
HISTORICAL A&F(1) ELIMINATION OTHER TRANSACTIONS ADJUSTMENTS(3) TRANSACTIONS
---------- --------- ----------- -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.... $ 746,395 $ (42,667) $ 24,125 (4) $ 704,068 $ 704,068
(23,785)(5)
Accounts receivable..... 83,370 (1,695) 81,675 81,675
Inventories............. 1,002,710 (33,927) 968,783 968,783
Store supplies.......... 99,167 (5,592) 93,575 93,575
Intercompany receivable. (23,785) 23,785 (5) -- --
Other................... 99,509 (1,296) 98,213 98,213
---------- --------- ---------- ----------
Total current assets... 2,031,151 (108,962) 1,946,314 1,946,314
Property & equipment,
net.................... 1,519,908 (70,517) 1,449,391 1,449,391
Restricted cash......... 351,600 -- 351,600 351,600
Deferred income taxes... 56,586 (3,759) 52,827 52,827
Investment in A&F....... 25,875 (4) 25,875 $ (25,875)(6) --
Other assets............ 341,516 -- $50,000 (2) (50,000)(4) 341,516 341,516
---------- --------- ---------- ----------
Total assets........... $4,300,761 $(183,238) $4,167,523 $4,141,648
========== ========= ========== ==========
LIABILITIES & SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable........ $ 300,703 $ (15,968) $ 284,735 $ 284,735
Accrued expense......... 676,715 (35,143) 641,572 641,572
Income taxes............ 115,994 (15,851) 100,143 100,143
---------- --------- ---------- ----------
Total current
liabilities........... 1,093,412 (66,962) 1,026,450 1,026,450
Long-term debt.......... 650,000 (50,000) $50,000 (2) 650,000 650,000
Other long-term
liabilities............ 58,720 (7,501) 51,219 51,219
Minority interest....... 102,072 (8,694)(3) 93,378 93,378
Contingent stock
redemption agreement... 351,600 351,600 351,600
Shareholders' equity:
Common stock............ 180,352 180,352 180,352
Paid-in capital......... 148,018 148,018 148,018
$1,809,269 (6)
Retained earnings....... 3,613,174 (58,775) 8,694 (3) 3,563,093 (25,875)(6) 5,346,487
---------- --------- ---------- ----------
5,674,857
3,941,544 (58,775) 3,891,463
Less treasury stock, at
cost................... (1,896,587) (1,896,587) (1,809,269)(6) (3,705,856)
---------- ---------- ----------
Total shareholders'
equity................. 2,044,957 (58,775) 1,994,876 1,969,001
---------- --------- ---------- ----------
Total liabilities &
shareholders' equity... $4,300,761 $(183,238) $4,167,523 $4,141,648
========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these
Unaudited Pro Forma Consolidated Financial Statements.
45
<PAGE>
THE LIMITED, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The following summary of pro forma adjustments is based on available
information and certain estimates and assumptions. Therefore, it is likely
that the actual adjustments will differ from the pro forma adjustments. A&F
and The Limited believe that such assumptions provide a reasonable basis for
presenting all of the significant effects of the following transactions and
events and that the pro forma adjustments give appropriate effect to those
assumptions and are properly applied in the unaudited pro forma consolidated
financial statements.
Historical amounts for The Limited were derived from the historical
consolidated financial statements of The Limited included in this Offering
Circular-Prospectus which are adjusted for the following:
2. PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(1) Represents A&F's amounts which will not be consolidated in The Limited's
financial statements subsequent to the Transactions. The split-off of A&F from
The Limited will be treated as a disposal of part of a line of business.
(2) Represents minority interest in earnings of A&F for the periods
presented.
(3) The pro forma net income per basic share is based upon the pro forma
weighted average number of shares of Limited Common Stock at the Exchange
Ratio of .795 (the midpoint of the Exchange Ratio Range) of a share of A&F
Common Stock for each share of Limited Common Stock. The pro forma net income
per diluted share is based upon the pro forma weighted average number of
outstanding common shares and potentially issuable common shares of The
Limited after the Exchange Offer at the Exchange Ratio noted above. At that
Exchange Ratio, approximately 54,843,000 shares of Limited Common stock are
assumed to be acquired as treasury shares for the purpose of calculating pro
forma basic and diluted earnings per share.
At the Minimum Exchange Ratio of .73, approximately 59,726,000 shares of
Limited Common stock would be in treasury; pro forma basic and diluted
earnings per share would be $.82 and $.81. At the Maximum Exchange Ratio of
.86, approximately 50,698,000 shares of Limited Common Stock would be in
treasury; pro forma basic and diluted earnings per share would be $.79 and
$.78.
(4) The Limited will recognize a gain of approximately $1,809,269,000, net
of expenses as a special and nonrecurring gain which will be included as a
component of operating income. The gain will be calculated based on the
difference between carrying value of A&F by The Limited and fair market value
of A&F Common Stock. Fair market value will be determined based on the trading
price of A&F Common Stock on the Expiration Date of the Exchange Offer.
(5) The assumed effective tax rate of the adjustments, excluding the
minority interest adjustment, is 40%. The minority interest adjustment is net
of tax, consistent with the presentation of minority interest in the
historical consolidated financial statements.
3. PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Amounts represent A&F's balance sheet which will not be included in The
Limited's consolidated financial statements subsequent to the Transactions.
(2) The $50 million obligation due to The Limited by A&F is reflected in
other assets on The Limited's consolidated balance sheet after the
deconsolidation of A&F. The $50 million adjustment to long-term debt restores
The Limited's long-term debt to $650 million.
46
<PAGE>
(3) Represents minority interest in the accumulated earnings of A&F.
(4) The $50 million obligation is assumed to be repaid by A&F to The
Limited. The obligation is paid through issuance of 600,000 shares of A&F
Common Stock to The Limited at an assumed fair market value of $43 1/8 per
share. The remainder of the obligation is assumed to be paid in cash.
(5) Represents settlement of the intercompany account between A&F and The
Limited.
(6) Represents the effect of approximately 54,843,000 shares of Limited
Common Stock tendered (at an assumed Exchange Ratio of .795) in exchange for
the market value of 43,600,000 shares of A&F Common Stock previously owned by
The Limited which is anticipated to result in a net gain of approximately
$1,809,269,000 to The Limited.
47
<PAGE>
ABERCROMBIE & FITCH CO.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31, 1998
-----------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales.................................. $ 521,617 $ 521,617
Cost of goods sold, occupancy & buying
costs................................... (320,537) (320,537)
--------- ---------
Gross income............................... 201,080 201,080
General, administrative & store operating
expenses................................ (116,955) (116,955)
--------- ---------
Operating income........................... 84,125 84,125
Interest expense, net.................... (3,583) $ 2,525 (1) (1,058)
--------- ------- ---------
Income before income taxes................. 80,542 2,525 83,067
Provision for income taxes............... (32,220) (1,010)(2) (33,230)
--------- ------- ---------
Net income................................. $48,322 $ 1,515 $ 49,837
========= ======= =========
Net income per share:
Basic.................................... $ 0.95 $ 0.97
========= =========
Diluted.................................. $ 0.94 $ 0.96
========= =========
Basic weighted average shares outstanding.. 51,011 51,611
========= =========
Diluted weighted average shares
outstanding............................... 51,478 52,078
========= =========
</TABLE>
The accompanying notes are an integral part of these Unaudited Pro Forma
Consolidated Financial Statements.
48
<PAGE>
ABERCROMBIE & FITCH CO.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT JANUARY 31, 1998
----------------------------------
PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents......................... $ 42,667 $(24,125)(1) $ 42,327
23,785 (2)
Accounts receivable.......................... 1,695 1,695
Inventories.................................. 33,927 33,927
Store supplies............................... 5,592 5,592
Intercompany receivable (payable)............ 23,785 (23,785)(2) --
Other........................................ 1,296 1,296
-------- --------
Total current assets....................... 108,962 84,837
Property & equipment, net.................... 70,517 70,517
Deferred income taxes........................ 3,759 3,759
-------- --------
Total assets............................... $183,238 $159,113
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 15,968 $ 15,968
Accrued expenses............................. 35,143 35,143
Income taxes................................. 15,851 15,851
-------- --------
Total current liabilities.................. 66,962 66,962
Long-term debt............................... 50,000 (50,000)(1) --
Other long-term liabilities.................. 7,501 7,501
Shareholders' equity:
Common stock................................. 511 6 517
Paid-in capital.............................. 117,972 25,869 143,841
Retained earnings (deficit).................. (58,931) (58,931)
-------- -------- --------
59,552 25,875 (1) 85,427
Less treasury stock, at cost................. (777) (777)
-------- --------
Total shareholders' equity................. 58,775 84,650
-------- --------
Total liabilities & shareholders' equity..... $183,238 $159,113
======== ========
</TABLE>
The accompanying notes are an integral part of these Unaudited Pro Forma
Consolidated Financial Statements.
49
<PAGE>
ABERCROMBIE & FITCH CO.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The following summary of pro forma adjustments is based on available
information and certain estimates and assumptions. Therefore, it is likely
that the actual adjustments will differ from the pro forma adjustments. A&F
and The Limited believe that such assumptions provide a reasonable basis for
presenting all of the significant effects of the following transactions and
events and that the pro forma adjustments give appropriate effect to those
assumptions and are properly applied in the unaudited pro forma consolidated
financial statements.
Historical amounts for A&F were derived from the historical consolidated
financial statements of A&F included in this Offering Circular-Prospectus
which are adjusted for the following:
2. PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(1) Reflects elimination of interest expense on $50 million obligation
bearing interest at 7.8%, netted against interest expense incurred on $24
million of borrowings at an assumed commercial paper rate of 5.5%.
(2) The effective tax rate of adjustment (1) above is assumed to be 40%.
(3) The pro forma net income per share information is based upon historical
weighted average shares plus 600,000 shares of A&F Common Stock issued as
partial payment on the $50 million obligation.
3. PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Repayment of $50 million obligation to The Limited. The obligation is
assumed to be paid through issuance of 600,000 shares of A&F Common Stock to
The Limited at an assumed fair market value of $43 1/8 per share. The
remainder of the obligation of $24.125 million is assumed to be paid in cash.
(2) Settlement of the intercompany account between A&F and The Limited.
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE LIMITED
Net sales for the fourth quarter of 1997 grew 10% to $3.268 billion from
$2.966 billion for the same period a year ago. Net income was $85.3 million
versus $213.4 million in the fourth quarter of 1996, and earnings per diluted
share were $.31 versus $.78 in the fourth quarter of 1996. Excluding special
and nonrecurring items and inventory liquidation charges associated with the
closing of five Henri Bendel stores net income was $252.5 million versus
$220.2 million in the fourth quarter of 1996 and earnings per diluted share
were $.91 versus $.81 in the fourth quarter of 1996.
As a result of an ongoing review of The Limited's retail businesses and
investments as well as implementation of initiatives intended to promote and
strengthen The Limited's various retail brands (including closing businesses,
identification and disposal of non-core assets and identification of store
locations not consistent with a particular brand) during the fourth quarter of
1997, The Limited recognized total charges of $289 million (approximately $30
million after-tax cash impact) or $.60 per diluted share, consisting of $276
million in special and nonrecurring charges and a $13 million cost of sales
charge for inventory liquidation at Henri Bendel. These charges included:
. A $68 million charge for closing the 118 store Cacique lingerie
business effective January 31, 1998. The amount includes $38 million
in cash charges relating to cancellations of merchandise on order and
other exit costs such as severance, service contract termination fees
and lease termination costs;
. $95 million in charges related to Henri Bendel, which include an $82
million special and nonrecurring charge related to streamlining Henri
Bendel from six stores to a one-store operation by September 1, 1998.
The amount includes $56 million in cash charges that are recorded in
other current liabilities. In addition, The Limited incurred a $13
million cost of sales charge for inventory liquidation. The charge to
cost of sales is in accordance with Emerging Issues Task Force
("EITF") Issue No. 96-9, "Classification of Inventory Markdowns and
Other Costs Associated with a Restructuring;"
. $86 million of impaired asset charges related principally to the
women's apparel businesses, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This charge has no cash impact but is an SFAS No. 121 required
accounting adjustment to measure the fair value of store assets, and
will provide a noncash benefit in future periods from reduced
depreciation and amortization;
. A $28 million provision for closing or downsizing approximately 80
oversized stores, primarily within the Limited, Lane Bryant, Lerner
New York and Express women's businesses, and for a $12 million write-
down to net realizable value of a real estate investment previously
acquired in connection with closing and downsizing certain stores.
Net sales for the fiscal year ended January 31, 1998 increased 6% to $9.189
billion from sales of $8.645 billion for the same period ended February 1,
1997. Net income was $217.4 million, or $.79 per diluted share, compared to
$434.2 million or $1.54 per diluted share last year.
Excluding the impact of special and nonrecurring items, gains in connection
with initial public offerings ("IPO") and the Henri Bendel inventory
liquidation charges, The Limited would have earned $1.24 per diluted share
compared to last year's $1.14. These excluded items consisted of: 1) $213.2
million related to the previously described fourth quarter charges that was
net of a third quarter net gain of $62.8 million related principally to the
sale of approximately one-half of The Limited's investment in Brylane, a 26%
owned (post-IPO) catalogue retailer; 2) in 1997, a pretax gain of $8.6 million
in connection with the IPO of Brylane; 3) $12 million of special and
nonrecurring charges in 1996 related to the April 1997 sale of Penhaligon's;
and 4) in 1996, a gain of $118.2 million resulting from the A&F IPO.
51
<PAGE>
Business highlights for 1997 include the following:
. Intimate Brands, led by strong performances at Bath & Body Works and
Victoria's Secret Stores, recorded earnings per diluted share of
$1.14, compared to $1.02 in 1996, including special and nonrecurring
charges of $.16 in 1997 and $.03 in 1996.
. A&F delivered 1997 earnings per diluted share of $.94, a 74% increase
over 1996 as comparable store sales increased 21% on top of 13% for
1996.
However, much of the gains from Intimate Brands and A&F were offset by a
decline in operating income for each of the women's businesses, which finished
the year with a pretax operating loss aggregating $268 million, including
special and nonrecurring charges of $187 million and the $13 million inventory
liquidation charge related to the closing of five Henri Bendel stores.
Limited Too led the emerging businesses with a significant improvement in
operating income and 20% comparable store sales gains.
During the year, The Limited also completed the sales of its interests in
the Newport Office Tower in Jersey City, New Jersey and The Mall at Tuttle
Crossing in Columbus, Ohio and approximately one-half of its interest in
Brylane for cash proceeds of $343.2 million.
On April 3, 1998, The Limited sold its remaining 2.6 million shares in
Brylane to Pinault Printemps-Radoute for $51 per share, generating cash
proceeds of approximately $131 million.
The Limited does not believe that the consummation of the Transactions and
the taking of the other actions outlined above will have a material effect on
The Limited's liquidity (i.e., its ability to provide the resources to support
operations, projected growth, seasonal requirements and capital expenditures).
Furthermore, although The Limited believes that such transactions and other
actions should have a favorable impact on The Limited's results of operations,
there can be no assurance with respect to the effect of these actions.
52
<PAGE>
FINANCIAL SUMMARY
The following summarized financial data compares 1997 to the comparable
periods for 1996 and 1995:
<TABLE>
<CAPTION>
% CHANGE
---------------
1997 1996 1995 1997-96 1996-95
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
NET SALES (MILLIONS):
Express........................ $1,189 $1,386 $1,445 (14%) (4%)
Lerner New York................ 946 1,045 1,005 (9%) 4%
Lane Bryant.................... 907 905 903 -- --
The Limited.................... 776 855 850 (9%) 1%
Henri Bendel................... 83 91 91 (9%) --
------ ------ ------ --- ---
Total Women's Brands.......... $3,901 $4,282 $4,294 (9%) --
------ ------ ------ --- ---
Structure...................... 660 660 576 -- 15%
Limited Too.................... 322 259 214 24% 21%
Galyan's Trading Co. (since
7/2/95)....................... 160 108 45 48% n/m
Other.......................... 6 4 -- n/m n/m
------ ------ ------ --- ---
Total Emerging Brands......... $1,148 $1,031 $ 835 11% 23%
------ ------ ------ --- ---
Victoria's Secret Stores....... 1,702 1,450 1,286 17% 13%
Victoria's Secret Catalogue.... 734 684 661 7% 3%
Bath & Body Works.............. 1,057 753 475 40% 59%
Cacique........................ 95 88 80 8% 10%
Other.......................... 30 22 15 n/m n/m
------ ------ ------ --- ---
Total Intimate Brands......... $3,618 $2,997 $2,517 21% 19%
------ ------ ------ --- ---
A&F............................ $ 522 $ 335 $ 235 56% 43%
------ ------ ------ --- ---
Total net sales............... $9,189 $8,645 $7,881 6% 10%
------ ------ ------ --- ---
OPERATING INCOME (MILLIONS):
Women's Brands................. $ (268)(a) $ 64 $ 54(e) n/m 19%
Emerging Brands and Other...... 159 (b) 68 149(f) 134% (54%)
Intimate Brands................ 505 (c) 458(d) 386 10% 19%
A&F............................ 84 46 24 83% 92%
------ ------ ------ --- ---
Total operating income........ $ 480 $ 636 $ 613 (25%) 4%
====== ====== ====== === ===
</TABLE>
- --------
(a) 1997 includes special and nonrecurring charges of approximately $187
million relating to the closure of five out of six Henri Bendel stores and
charges associated with asset valuation impairment and the closure and
downsizing of certain stores, plus $13 million in inventory liquidation
charges associated with the Henri Bendel closings.
(b) 1997 includes $42 million of special and nonrecurring income relating to
the gain from the sale of approximately one-half of The Limited's interest
in Brylane, offset by a valuation adjustment on an investment.
(c) 1997 includes a $68 million charge related to the closing of the Cacique
business effective January 31, 1998.
(d) 1996 includes a special and nonrecurring charge of $12 million for
revaluation of certain assets in connection with the sale of Penhaligon's
in April 1997.
(e) 1995 includes a special and nonrecurring charge of approximately $48
million, primarily for store closings and downsizings.
(f) 1995 includes 100% of WFN's operating income of $114 million before
interest expense versus $4 million, representing 40% of net income of $11
million in 1996; 1995 also includes an approximate $73 million gain from
the sale of a 60% interest in WFN, partially offset by $23 million of
special and nonrecurring charges representing write-downs to net
realizable value of certain assets.
n/m not meaningful
53
<PAGE>
The following summarized financial data compares 1997 to the comparable
periods for 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C> <C> <C>
COMPARABLE STORE SALES:
Express.......................... (15%) (6%) (2%)
Lerner New York.................. (5%) 8% (1%)
Lane Bryant...................... 1% 0% (8%)
The Limited...................... (7%) 3% (4%)
Henri Bendel..................... (13%) (5%) 6%
------- ------- -------
Total Women's Brands........... (8%) 0% (3%)
------- ------- -------
Structure........................ (3%) 7% (9%)
Limited Too...................... 20% 8% (4%)
Galyan's Trading Co. (since
7/2/96)......................... 0% 12% --
------- ------- -------
Total Emerging Brands.......... 3% 7% (8%)
------- ------- -------
Victoria's Secret Stores......... 11% 5% (1%)
Bath & Body Works................ 11% 11% 21%
Cacique.......................... 10% 8% (20%)
------- ------- -------
Total Intimate Brands.......... 11% 7% 1%
------- ------- -------
A&F.............................. 21% 13% 5%
------- ------- -------
Total comparable store sales
increase (decrease)........... 0% 3% (2%)
======= ======= =======
<CAPTION>
% CHANGE
---------------
1997-96 1996-95
------- -------
<S> <C> <C> <C> <C> <C>
STORE DATA:
Retail sales increase
attributable to new and
remodeled stores................ 6% 8% 9%
Retail sales per average selling
square foot..................... $ 295 $ 285 $ 272 4% 5%
Retail sales per average store
(thousands)..................... $ 1,478 $ 1,453 $ 1,419 2% 2%
Average store size at end of year
(selling square feet)........... 5,035 5,043 5,172 -- (2%)
Retail selling square feet at end
of year (thousands)............. 28,400 28,405 27,403 -- 4%
Number of Stores:
Beginning of year................ 5,633 5,298 4,867
Opened......................... 315 470 504
Acquired (sold)................ (4) -- 6
Closed......................... (304) (135) (79)
------- ------- -------
End of year...................... 5,640 5,633 5,298
======= ======= =======
</TABLE>
NET SALES
Fourth quarter 1997 sales as compared to sales for the fourth quarter 1996
increased 10% to $3.268 billion due to 5% comparable store sales gains with
the balance of the increase attributable to new and remodeled stores and
increased catalogue sales. Thirteen-week fourth quarter 1996 sales as compared
to sales for the fourteen-week fourth quarter 1995 increased 7% to $2.966
billion due to a 9% increase in sales attributable to new and remodeled stores
and a 3% increase in comparable store sales, offset by a 5% decrease due to
the fifty-third week in 1995.
54
<PAGE>
The 1997 retail sales increase of 6% was attributable to The Limited adding
315 new stores, remodeling 206 stores and closing 186 stores (excluding
closing 118 Cacique stores in January 1998 and the sale of four Penhaligon's
stores in the first quarter of 1997). This net addition of 129 stores
represents over 365,000 square feet of new retail selling space. For the year,
average sales productivity increased 4% to $295 per square foot.
In 1997, Intimate Brands accounted for 114% of The Limited's total net sales
increase and 39% of total Limited sales. Intimate Brands posted a $620 million
sales gain over the prior year due to the net addition of 223 stores (before
the impact of the Cacique store closings and the Penhaligon's sale)
representing over 650,000 new retail selling square feet, an 11% increase in
comparable store sales and an 18% increase in catalogues mailed by Victoria's
Secret Catalogue. Additionally, A&F reported a $186 million sales increase
over the prior year, bolstered by a 21% increase in comparable store sales,
while Limited Too experienced a $63 million sales increase over the prior year
on a 20% increase in comparable store sales. However, sales at the women's
businesses in 1997 declined $382 million from 1996, primarily due to an 8%
decrease in comparable store sales, as well as a net decrease of 131 stores
representing over 705,000 retail selling square feet, due principally to
closures of underperforming locations.
The 1996 retail sales increase of 10% was attributable to an 8% increase in
sales due to The Limited adding 470 new stores, remodeling 252 stores and
closing 135 stores and a 3% increase in comparable store sales, offset by a 1%
decrease due to the fifty-third week in 1995. This net addition of 335 stores
represents approximately 1 million square feet of new retail selling space.
For the year, average sales productivity increased 5% to $285 per square foot.
In 1996, Intimate Brands accounted for 63% of the annual sales increase, and
nearly 35% of total Limited sales, posting a $480 million sales increase over
the prior year due to the net addition of 316 stores representing over 817,000
selling square feet, a 7% increase in comparable store sales and an 11%
increase in catalogues mailed by Victoria's Secret Catalogue. Sales at the
women's businesses in 1996 were flat to 1995, primarily due to flat comparable
store sales. Disappointing results at Express, which experienced a 6% decline
in comparable store sales, were offset by improved results at the Lerner New
York and Limited businesses, which had 8% and 3% increases in comparable store
sales. In addition, the overall sales increase for The Limited included sales
increases at Structure, A&F and Limited Too, which experienced 7%, 13% and 8%
increases in comparable store sales.
GROSS INCOME
Gross income increased to 35.4% as a percentage of sales for the fourth
quarter 1997 from 33.0% for the fourth quarter 1996. The merchandise margin
rate (representing gross income before deduction of buying and occupancy
costs), increased 2.3%, expressed as a percentage of sales, due principally to
improved initial markup ("IMU"), which was partially offset by a slightly
higher markdown rate and the $13 million Henri Bendel inventory liquidation
charge (.4% of sales). Buying and occupancy costs, expressed as a percentage
of sales, were flat for the fourth quarter as compared to last year.
Gross income, expressed as a percentage of sales, was 33.0% for the fourth
quarter 1996 compared to 29.2% for the fourth quarter 1995. The merchandise
margin rate increased 3.4%, expressed as a percentage of sales, due
principally to improved IMU and lower markdown rates, as The Limited was less
price-promotional than the year before. Buying and occupancy costs decreased
.4%, expressed as a percentage of sales, primarily due to sales productivity
associated with the 3% increase in comparable store sales.
The Limited's 1997 gross income rate increased 1.8% to 30.7% as compared to
1996. The merchandise margin rate increased 1.7% due principally to improved
IMU while buying and occupancy costs, expressed as a percentage of sales, were
flat to last year.
55
<PAGE>
The 1996 gross income rate of 28.9% increased 2.4% as compared to 1995.
Merchandise margins, expressed as a percentage of sales, increased 1.7%, due
principally to improved IMU. Buying and occupancy costs decreased .7%,
expressed as a percentage of sales, primarily due to sales productivity
associated with the 3% increase in comparable store sales.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES
General, administrative and store operating expenses increased to 20.8%,
expressed as a percentage of sales, in the fourth quarter of 1997 compared to
18.7% in the fourth quarter of 1996. This increase was attributable to: 1) a
2.5% rate increase at Intimate Brands businesses (discussed below) combined
with an increase of Intimate Brands' sales in the total Limited mix to 42.7%
from 39.1%; 2) the inability to leverage these expenses at the women's
businesses due to disappointing sales performance; and 3) additional
compensation charges for restricted stock plans.
Intimate Brands' increase is primarily the result of advertising costs at
Victoria's Secret Stores, the growth of Bath & Body Works in the overall mix
of Intimate Brands net sales from 25.1% in fiscal year 1996 to 29.2% in fiscal
year 1997 and an increase in restricted stock plan compensation expense. Due
to an emphasis on point-of-sale marketing and sales floor coverage for
personal care products, Bath & Body Works has higher store operating expenses
as a percentage of net sales, which has been more than offset by higher gross
margins.
The Limited anticipates that these expenses, expressed as a percentage of
sales, will increase slightly in 1998, since Intimate Brands businesses, in
particular Bath & Body Works, will represent a greater portion of total
Limited sales.
General, administrative and store operating expenses, expressed as a
percentage of sales, increased to 18.7% in the fourth quarter of 1996 compared
to 17.7% in the fourth quarter of 1995. This increase as a percentage of sales
was attributable to a 2.2% rate increase at Intimate Brands businesses and the
inability to leverage expenses due to disappointing sales performance at the
women's businesses, particularly Express.
General, administrative and store operating expenses increased, expressed as
a percentage of sales, to 23.1% in 1997, compared to 21.4% in 1996. This
increase was primarily attributable to the reasons discussed above for the
1997 fourth quarter. These costs increased, expressed as a percentage of
sales, to 21.4% in 1996 compared to 20.0% in 1995, also primarily due to
reasons discussed above for fourth quarter 1996.
SPECIAL AND NONRECURRING ITEMS
As described in Note 2 to the Consolidated Financial Statements, The Limited
recognized special and nonrecurring charges of $276 million during the fourth
quarter of 1997 comprised of: 1) a $68 million charge for the closing of the
Cacique lingerie business effective January 31, 1998; 2) an $82 million charge
related to streamlining the Henri Bendel business from six stores to one
store; 3) an $86 million impaired-asset charge in accordance with SFAS No.
121, related principally to the women's apparel businesses, covering certain
store locations where the asset carrying values are permanently impaired; and
4) a $28 million provision for closing and downsizing approximately 80
oversized stores primarily within the Limited, Lerner New York, Lane Bryant
and Express women's businesses and for a $12 million write-down to net
realizable value of a real estate investment previously acquired in connection
with closing and downsizing certain stores. Additionally, The Limited
recognized a $13 million charge to cost of sales in the fourth quarter of 1997
for inventory liquidation in accordance with EITF Issue No. 96-9. The Limited,
in accordance with EITF Issue No. 94-3, anticipates charges for severance and
other associate termination costs for Henri Bendel in the first quarter of
1998 (the period the associates are notified). Additionally, The Limited
recognized a net $62.8 million pretax gain
56
<PAGE>
during the third quarter of 1997 relating to the sale of approximately one-
half of its investment in Brylane, partially offset by valuation adjustments
on certain assets where the carrying values were permanently impaired.
In 1996 The Limited recorded a $12 million pretax, special and nonrecurring
charge in connection with the 1997 sale of Penhaligon's, a U.K.-based
subsidiary of Intimate Brands. In the fourth quarter of 1995, The Limited
recognized a $73.2 million pretax gain in connection with the sale of a 60%
interest in The Limited's wholly-owned credit card bank, WFN. In addition, The
Limited recognized a special and nonrecurring charge during the fourth quarter
of 1995 of approximately $71.9 million. Of this amount, $25.8 million was
provided for the closing of 26 stores and $19.8 million was provided for the
downsizing of 33 stores, primarily at Limited and Lerner New York. The
remaining charge of approximately $26.3 million represented the write-down to
market or net realizable value of certain assets arising from nonoperating
activities. The net pretax gain from these special and nonrecurring items was
$1.3 million.
OPERATING INCOME
Fourth quarter operating income, expressed as a percentage of sales, was
6.1% in 1997, compared to 13.9% in 1996, and for the year was 5.2% in 1997,
compared to 7.4% in 1996. Excluding charges for special and nonrecurring items
in both years and the Henri Bendel inventory liquidation charge in 1997,
fourth quarter operating income, expressed as a percentage of sales, would
have been 15.0% in 1997, compared to 14.3% in 1996, and for the year would
have been 7.7% in 1997, compared to 7.5% in 1996. These increases were due to
increases in the gross income rate, which more than offset the general,
administrative and store operating expense rate increase.
The fourth quarter operating income rate increased 2.4% in 1996, from 11.5%
on an adjusted basis in 1995, and for the year increased .9% in 1996 from 6.5%
on an adjusted basis in 1995. The 1995 rates were adjusted to reflect the 1995
sale of a 60% interest in WFN as if the sale was consummated at the beginning
of the year. These increases were also due to increases in gross income, which
more than offset the general, administrative and store operating expense rate
increase.
INTEREST EXPENSE
<TABLE>
<CAPTION>
FOURTH QUARTER YEAR
---------------- ----------------------
1997 1996 1997 1996 1995
------ -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Average Daily Borrowings (millions)... $891.4 $1,039.5 $835.9 $964.3 $887.7
Average Effective Interest Rate....... 8.07% 7.49% 8.22% 7.82% 8.73%
</TABLE>
Interest expense decreased by $1.5 million in the fourth quarter of 1997 and
decreased by $6.6 million for the year. For the quarter, lower average
borrowing levels reduced interest expense by $2.8 million, offset by a $1.3
million increase resulting from higher rates. For the year, lower average
borrowing levels reduced interest expense by $10.0 million, offset by $3.4
million of increased expense due to higher interest rates.
OTHER INCOME
The $5.1 million decrease in other income for 1997 compared to 1996 was
primarily attributable to approximately $10.5 million of interest income
earned in the first quarter of 1996 which arose from $1.615 billion of
temporarily invested funds that were used to consummate the Limited Self
Tender in March 1996. Excluding this $10.5 million in 1996, interest earnings
increased $5.4 million from higher temporary investments in 1997, $3.5 million
of which was realized in the fourth quarter.
57
<PAGE>
GAINS IN CONNECTION WITH IPO
As discussed in Note 1 to the Consolidated Financial Statements, The Limited
recognized a pretax gain of $8.6 million during the first quarter of 1997, in
connection with the IPO of Brylane, a 26% owned (post-IPO) catalogue retailer.
In 1996, The Limited recognized a $118.2 million gain in connection with the
A&F IPO. In 1995, The Limited recognized a $649.5 million gain in connection
with the IPO of 16.9% (42.7 million shares) of the stock of Intimate Brands.
The gains recorded by The Limited in 1996 and 1995 were not subject to tax.
OTHER DATA
There were a number of significant events in fiscal years 1997 and 1996 that
impacted the comparability of The Limited's net income per diluted share data.
Although the following information is not intended to be presented in
accordance with SEC guidelines for pro forma financial information, it is
provided to assist in investors' understanding of The Limited's results of
operations.
. In 1997 and 1996, The Limited recognized $213.2 million and $12
million in special and nonrecurring charges along with the $13 million
Henri Bendel inventory liquidation charge in 1997 as more fully
described in Note 2 to the Consolidated Financial Statements of The
Limited. The impact of these charges also reduced earnings
attributable to minority interest by $6.8 million and $1.0 million in
1997 and 1996.
. The Limited recognized pretax gains in connection with IPOs of $8.6
million and $118.2 million in 1997 and 1996. See Note 1 to the
Consolidated Financial Statements of The Limited.
. The Limited repurchased 85 million shares of Limited Common Stock via
the Limited Self Tender and, as a result of investing funds used to
facilitate the Limited Self Tender, recognized approximately $10.5
million of interest income in 1996 up to the effective date.
Adjusted for the income tax effect (an $87 million expense in 1997 and a
$1.0 million expense in 1996), earnings per diluted share would have increased
$.45 per share in 1997 to $1.24 and would have decreased $.38 per share to
$1.16 in 1996.
ACQUISITION
Effective July 2, 1995, The Limited acquired all of the outstanding common
stock of Galyan's for $18 million in cash and stock. The Limited's
Consolidated Financial Statements include the results of operations of
Galyan's since the acquisition date.
FINANCIAL CONDITION
The Limited's balance sheet at January 31, 1998, provides continuing
evidence of financial strength and flexibility. The Limited's long-term debt-
to-equity ratio declined to 32% at the end of 1997 from 34% in 1996, and
working capital increased 47% over 1996 to $938 million. A more detailed
discussion of liquidity, capital resources and capital requirements follows.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities, commercial paper backed by funds
available under committed long-term credit agreements, and The Limited's
capital structure continue to provide the resources to support current
operations, projected growth, seasonal requirements and capital expenditures.
58
<PAGE>
A summary of The Limited's working capital position and capitalization
follows (thousands):
<TABLE>
<CAPTION>
ADJUSTED
1997 1996 1995 * 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash provided by operating activi-
ties.............................. $ 589,981 $ 712,069 $ 340,732 $ 340,732
Working capital.................... $ 937,739 $ 638,204 $ 403,960 $2,018,960
Capitalization:
Long-term debt................... $ 650,000 $ 650,000 $ 650,000 $ 650,000
Shareholders' equity............. 2,044,957 1,922,582 1,586,041 3,201,041
---------- ---------- ---------- ----------
Total capitalization............... $2,694,957 $2,572,582 $2,236,041 $3,851,041
========== ========== ========== ==========
Additional amounts available under
long-term credit agreements....... $1,000,000 $1,000,000 $1,000,000 $1,000,000
========== ========== ========== ==========
</TABLE>
- --------
* Adjusted 1995 reflects the impact of the $1.615 billion repurchase of 85
million shares of common stock.
Net cash provided by operating activities totaled $590.0 million, $712.1
million and $340.7 million for 1997, 1996 and 1995 and continued to serve as
The Limited's primary source of liquidity.
The Limited considers the following to be several measures of liquidity and
capital resources:
<TABLE>
<CAPTION>
ADJUSTED
1997 1996 1995* 1995
---- ---- -------- ----
<S> <C> <C> <C> <C>
DEBT-TO-EQUITY RATIO
(Long-term debt divided by shareholders' equity).... 32% 34% 41% 20%
DEBT-TO-CAPITALIZATION RATIO
(Long-term debt divided by total capitalization).... 24% 25% 29% 17%
INTEREST COVERAGE RATIO
(Income, excluding gain in connection with IPOs,
before interest expense, depreciation, amortization
and income taxes divided by interest expense)...... 11x 12x 12x 12x
CASH FLOW TO CAPITAL INVESTMENT
(Net cash provided by operating activities divided
by capital expenditures)........................... 146% 174% 91% 91%
</TABLE>
- --------
* Adjusted 1995 reflects the impact of the $1.615 billion repurchase of 85
million shares of common stock.
Net cash provided from operating activities in 1997 decreased $122.1 million
from the prior year principally due to an increase in income tax payments that
was partially offset by slightly higher income from operations adjusted for
special and nonrecurring items and gains from IPOs.
Investing activities included capital expenditures of $405 million, about
half of which was for new and remodeled stores. Investing activities also
included $235 million in net proceeds from the sales of the Newport Tower, an
office building in Jersey City, New Jersey and The Limited's interest in The
Mall at Tuttle Crossing in Columbus, Ohio and $108.3 million of net proceeds
from the third quarter sale of slightly less than one-half of The Limited's
investment in Brylane. In 1996, $41.3 million was invested in the Alliance
Data Systems (formerly WFN) credit card venture. 1995 reflects the acquisition
of Galyan's, the proceeds from the securitization of WFN's credit card
receivables of $1.2 billion (see Note 3 of The Limited Consolidated Financial
Statements) and the transfer of $351.6 million to a restricted cash account
(see Note 6 of The Limited's Consolidated Financial Statements).
Cash used for financing activities for 1997 reflects an increase in the
quarterly dividend to $.12 per share from $.10 per share in 1996. Financing
activities in 1996 include proceeds from and repayment of $150 million in
short-term debt borrowed by A&F and net proceeds of $118.2 million from the
A&F IPO. Financing activities also included $1.615 billion used to repurchase
85 million shares of The Limited's common stock via the Limited Self Tender
consummated in March 1996. Cash dividends paid in 1996 and 1995 were $.40 per
share.
At January 31, 1998, The Limited had available $1 billion under its long-
term credit agreement. The Limited also has the ability to offer up to $250
million of additional debt securities under its shelf registration statement.
59
<PAGE>
STORES AND SELLING SQUARE FEET
A summary of actual stores and selling square feet by business for 1997 and
1996 and the 1998 goals by business (including the impact of the estimated 280
stores that will be closed/downsized during the year) follows:
<TABLE>
<CAPTION>
END OF YEAR CHANGE FROM
------------------------------- ------------------
GOAL-1998 1997 1996 1998-97 1997-96
--------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
EXPRESS
Stores................... 712 753 753 (41) --
Selling Square Ft........ 4,481,000 4,739,000 4,726,000 (258,000) 13,000
LERNER NEW YORK
Stores................... 668 746 784 (78) (38)
Selling Square Ft........ 5,041,000 5,698,000 5,984,000 (657,000) (286,000)
LANE BRYANT
Stores................... 760 773 832 (13) (59)
Selling Square Ft........ 3,666,000 3,735,000 3,980,000 (69,000) (245,000)
THE LIMITED
Stores................... 570 629 663 (59) (34)
Selling Square Ft........ 3,398,000 3,790,000 3,977,000 (392,000) (187,000)
HENRI BENDEL
Stores................... 1 6 6 (5) --
Selling Square Ft........ 35,000 113,000 113,000 (78,000) --
STRUCTURE
Stores................... 545 544 542 1 2
Selling Square Ft........ 2,161,000 2,143,000 2,117,000 18,000 26,000
LIMITED TOO
Stores................... 317 312 308 5 4
Selling Square Ft........ 1,002,000 979,000 967,000 23,000 12,000
GALYAN'S TRADING CO.
Stores................... 15 11 9 4 2
Selling Square Ft........ 1,026,000 641,000 488,000 385,000 153,000
VICTORIA'S SECRET STORES
Stores................... 874 789 736 85 53
Selling Square Ft........ 3,795,000 3,555,000 3,326,000 240,000 229,000
BATH & BODY WORKS
Stores................... 1,101 921 750 180 171
Selling Square Ft........ 2,183,000 1,773,000 1,354,000 410,000 419,000
CACIQUE
Stores................... -- -- 119 -- (119)
Selling Square Ft........ -- -- 365,000 -- (365,000)
PENHALIGON'S
Stores................... -- -- 4 -- (4)
Selling Square Ft........ -- -- 2,000 -- (2,000)
A&F
Stores................... 186 156 127 30 29
Selling Square Ft. ...... 1,453,000 1,234,000 1,006,000 219,000 228,000
ABERCROMBIE & FITCH (KIDS)
Stores................... 13 -- -- 13 --
Selling Square Ft. ...... 42,000 -- -- 42,000 --
TOTAL RETAIL BUSINESSES
Stores................... 5,762 5,640 5,633 122 7
Selling Square Ft. ...... 8,283,000 28,400,000 28,405,000 (117,000) (5,000)
</TABLE>
60
<PAGE>
CAPITAL EXPENDITURES
Capital expenditures amounted to $404.6 million, $409.3 million and $374.4
million for 1997, 1996 and 1995, of which $194.4 million, $235.7 million and
$274.5 million was for new stores and remodeling and expanding existing
stores. In 1997 and 1996 The Limited expended $55.3 million and $53.1 million
on land acquisition and development costs. Also, in 1997 and 1996 The Limited
expended $30.2 million and $42.1 million in connection with the Bath & Body
Works distribution center.
The Limited anticipates spending $480 to $500 million for capital
expenditures in 1998, of which $270 to $295 million will be for new stores,
the remodeling of existing stores and related improvements for the retail
businesses, $50 to $60 million will be for information technology related to
year 2000 expenditures and $30 to $40 million will be for land acquisition and
development costs, principally the Easton development project in Columbus,
Ohio. The Limited expects that substantially all 1998 capital expenditures
will be funded by net cash provided by operating activities.
The Limited intends to reduce selling square footage by approximately
117,000 selling square feet in 1998, which represents a .4% decrease from
year-end 1997. It is anticipated that the decrease will result from the
closing of 250 stores offset by the addition of approximately 370 stores (over
half of which are Bath & Body Works stores averaging 2,300 square feet) and
the remodeling of approximately 125 stores.
INFORMATION SYSTEMS AND "YEAR 2000" COMPLIANCE
The Limited recently completed a comprehensive review of its information
systems and is involved in an enterprise-wide program to update computer
systems and applications in preparation for the year 2000. The Limited will
incur internal staff costs as well as outside consulting and other
expenditures related to this initiative. Total expenditures related to
remediation, testing, conversion, replacement and upgrading system
applications are expected to range from $85 to $100 million from 1997 through
2000. Of the total, approximately $50 to $60 million will be capital
expenditures related to acquisition and implementation of new package systems.
The balance, approximately $35 to $40 million, will be expenses associated
with remediation and testing of existing systems. Total incremental expenses,
including depreciation and amortization of new package systems, remediation to
bring current systems into compliance and writing off legacy systems are not
expected to have a material impact on The Limited's financial condition during
any year during the conversion process from 1997 through 2000. However,
incremental expenses could total approximately $30 to $35 million in 1998, of
which the majority will impact the first three fiscal quarters of 1998, at a
rate of $9 to $10 million per quarter.
The Limited is attempting to contact vendors and others on whom it relies to
assure that their systems will be timely converted. However, there can be no
assurance that the systems of other companies on which The Limited's systems
rely also will be timely converted or that any such failure to convert by
another company would not have an adverse effect on The Limited's systems.
Furthermore, no assurance can be given that any or all of The Limited's
systems are or will be Year 2000 compliant, or that the ultimate costs
required to address the Year 2000 issue or the impact of any failure to
achieve substantial Year 2000 compliance will not have a material adverse
effect on The Limited's financial condition.
IMPACT OF INFLATION
The Limited's results of operations and financial condition are presented
based upon historical cost. While it is difficult to accurately measure the
impact of inflation due to the imprecise nature of the estimates required, The
Limited believes that the effects of inflation, if any, on the results of
operations and financial condition have been minor.
61
<PAGE>
ADOPTION OF NEW ACCOUNTING STANDARDS
During the fourth quarter of 1997, The Limited adopted SFAS No. 128,
"Earnings Per Share," which requires The Limited to disclose basic and diluted
earnings per share for all periods presented.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." While
the standard has no impact in determining earnings and earnings per share, The
Limited will adopt the disclosure standards in 1998.
62
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF A&F
Net sales for the fourth quarter of 1997 were $212.1 million, an increase of
52% from $139.2 million for the fourth quarter a year ago. Operating income
was $59.1 million, up 67% compared to $35.3 million last year. Diluted
earnings per share were $.68, up 70%, from $.40 last year.
Net sales for the fiscal year ended January 31, 1998, increased 56% to
$521.6 million from $335.4 million last year. Operating income for the year
increased 83% to $84.1 million from $46.0 million in 1996. Diluted earnings
per share were $.94 compared to $.48 on an adjusted basis a year ago, an
increase of 96%.
The results of operations shown below are adjusted for both the historical
number of shares outstanding to reflect post-A&F IPO shares outstanding and
interest expense to reflect A&F's ongoing capital structure and seasonal
borrowings. The following assumptions were used to derive the adjusted
amounts: 1) 51.05 million post-A&F IPO shares outstanding for the periods
presented; prior to the A&F IPO, there were 43 million shares outstanding; 2)
interest expense on A&F's seasonal borrowings which were funded from The
Limited's intercompany cash management system; prior to July 11, 1996, the
intercompany cash management account was noninterest bearing; and 3) interest
expense on A&F's ongoing capital structure which included interest expense on
a $50 million mirror note distributed to The Limited prior to the A&F IPO but
excluded interest expense on A&F's $150 million credit agreement, entered into
on July 2, 1996, and repaid in the fourth quarter of 1996.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
ACTUAL ADJUSTED ACTUAL
JANUARY 31, FEBRUARY 1, FEBRUARY 1,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating income............................ $84,125 $45,993 $45,993
Interest expense, net....................... 3,583 5,016 4,919
------- ------- -------
Income before income taxes.................. 80,542 40,977 41,074
Provision for income taxes.................. 32,220 16,400 16,400
------- ------- -------
Net income.................................. $48,322 $24,577 $24,674
======= ======= =======
Net income per share
Basic..................................... $ .95 $ .48 $ .54
======= ======= =======
Diluted................................... $ .94 $ .48 $ .54
======= ======= =======
Weighted average shares outstanding:
Basic..................................... 51,011 51,050 45,749
======= ======= =======
Diluted................................... 51,478 51,050 45,760
======= ======= =======
</TABLE>
63
<PAGE>
FINANCIAL SUMMARY
The following summarized financial data compares 1997 to the comparable
periods for 1996 and 1995:
<TABLE>
<CAPTION>
% CHANGE
-------------------
1997 1996 1995 1997-1996 1996-1995
------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales (millions)............... $521.6 $335.4 $235.7 56% 42%
Increase in comparable store sales. 21% 13% 5%
Retail sales increase attributable
to new and remodeled stores....... 34% 29% 37%
Retail sales per average selling
square foot....................... 462 373 354 24% 5%
Retail sales per average store
(thousands)....................... $3,653 $2,955 $2,823 24% 5%
Average store size at year-end
(selling
square feet)...................... 7,910 7,921 7,920 0% 0%
Selling square feet at year-end
(thousands)....................... 1,234 1,006 792 23% 27%
Number of Stores:
Beginning of year................. 127 100 67
Opened........................... 30 29 33
Closed........................... (1) (2) --
------ ------ ------
End of year....................... 156 127 100
====== ====== ======
</TABLE>
NET SALES
Fourth quarter 1997 net sales as compared to net sales for the fourth
quarter 1996 increased 52% to $212.1 million, due to a 23% increase in
comparable store sales and sales attributable to new and remodeled stores.
Comparable store sales increases were strong in both the men's and women's
businesses as both were driven by a very strong knit business. Additionally,
fourth quarter 1997 net sales included results from the first Holiday issue of
the A&F Quarterly, a catalog/magazine, which accounted for 1.7% of total net
sales.
Thirteen-week fourth quarter 1996 net sales as compared to net sales for the
fourteen-week fourth quarter 1995 increased 31% to $139.2 million, due to an
8% increase in comparable store sales and sales attributable to new and
remodeled stores. Comparable store sales increases were strong in both the
men's and women's businesses. Sweaters were the best performing category in
each business.
Net sales for 1997 increased 56% to $521.6 million over the same period in
1996. The sales increase was attributable to the net addition of 29 stores and
a 21% comparable store sales increase. Comparable store sales increases were
equally strong in both men's and women's businesses and their performance
strength was broadly based across all major merchandise categories. Net sales
per selling square foot for A&F increased 24%, driven principally by an
increase in the number of transactions per store.
Net sales for 1996 increased 42% to $335.4 million over the fifty-three week
1995 fiscal year. The sales increase was attributable to the net addition of
27 stores and a 13% comparable store sales increase. Consistent with A&F's
strategy, the women's business continued to increase as a proportion of the
total business, with sweaters and pants the strongest performing categories.
The men's business also achieved significant growth with its strongest
categories being sweaters, pants and denim. Net sales per selling square foot
for A&F increased 5%.
64
<PAGE>
GROSS INCOME
Gross income increased, expressed as a percentage of net sales, to 45.4% for
the fourth quarter of 1997 from 43.0% for the same period in 1996. The
increase was attributable to improved merchandise margins (representing gross
income before the deduction of buying and occupancy costs) resulting from
higher IMUs and a lower markdown rate. As a result of improved inventory
turnover, fewer markdowns, expressed as a percentage of net sales, were needed
in the fourth quarter of 1997 to clear season-end merchandise as compared to
the same period in 1996.
Gross income increased, expressed as a percentage of net sales, to 43.0% for
the fourth quarter of 1996 from 37.4% for the same period in 1995. The
increase was due to a significant increase in merchandise margins and a
reduction in buying and occupancy costs, expressed as a percentage of net
sales. The increase in merchandise margins was the result of higher IMU. The
decrease in buying and occupancy costs was primarily attributable to higher
sales productivity associated with the 8% increase in comparable store sales.
For the year, the gross income rate increased to 38.5% in 1997 from 36.9% in
1996. The improvement was the result of higher merchandise margins, expressed
as a percentage of net sales. Improved IMU in both the men's and women's
businesses drove the increase in merchandise margins. Buying and occupancy
costs, expressed as a percentage of net sales, declined slightly due to
leverage achieved from comparable store sales increases.
In 1996, the gross income rate increased to 36.9% from 33.9% in 1995.
Merchandise margins, expressed as a percentage of net sales, improved due to a
higher IMU in both the men's and women's businesses. Buying and occupancy
costs, expressed as a percentage of net sales, declined due to a 13% increase
in comparable store sales, including a 5% increase in net sales per selling
square foot.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES
General, administrative and store operating expenses, expressed as a
percentage of net sales, were 17.5% in the fourth quarter of 1997 and 17.6% in
the comparable period in 1996. The improvement resulted primarily from
favorable leveraging of expenses due to higher sales volume. Included in these
expenses for the fourth quarter of 1997 was approximately $2.6 million of
compensation expense associated with restricted stock grants awarded to key
executives of A&F.
For the year, general, administrative and store operating expenses,
expressed as a percentage of net sales, were 22.4%, 23.2% and 23.8% for 1997,
1996 and 1995, respectively. The improvement during the three-year period
resulted from management's continued emphasis on expense control and favorable
leveraging of expenses, primarily stores expenses, due to higher sales volume.
OPERATING INCOME
Operating income, expressed as a percentage of net sales, was 27.9%, 25.4%
and 19.8% for the fourth quarter of 1997, 1996 and 1995 and 16.1%, 13.7% and
10.1% for fiscal years 1997, 1996 and 1995. The improvement was the result of
higher merchandise margins coupled with lower general, administrative and
store operating expenses, expressed as a percentage of net sales. Sales volume
and gross income have increased at a faster rate than general, administrative
and store operating expenses as A&F continues to emphasize cost controls.
INTEREST EXPENSE
Fourth quarter 1997 net interest expense of $305,000 improved $820,000 from
1996 fourth quarter net interest expense of $1.1 million. Interest expense in
the fourth quarter of 1997 and 1996 included $975,000 associated with $50
million of long-term debt. The balance represented net interest income
65
<PAGE>
from temporary investments in the fourth quarter of 1997, while net interest
expense in the fourth quarter of 1996 was primarily due to higher borrowing
levels.
A&F's year-to-date interest expense was $3.6 million, down $1.3 million from
$4.9 million in 1996 due primarily to lower average borrowing levels.
FINANCIAL CONDITION
A&F's continuing growth in operating income provides evidence of 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 provided the resources to support
operations, including seasonal requirements and capital expenditures. A
summary of A&F's working capital position and capitalization follows
(thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Cash provided by operating activities.......... $100,195 $46,836 $ 12,714
Working capital................................ 42,000 1,288 (70,940)
Capitalization
Long-term debt............................... 50,000 50,000 --
Shareholders' equity (deficit)............... 58,775 11,238 (22,622)
-------- ------- --------
Total capitalization....................... $108,775 $61,238 $(22,622)
======== ======= ========
</TABLE>
A&F considers the following to be measures of liquidity and capital
resources:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Debt-to-capitalization ratio (long-term debt divided
by total capitalization).................................. 46% 82% n/m
Cash flow to capital investment (net cash provided by
operating activities divided by capital expenditures)..... 340% 193% 52%
</TABLE>
- --------
n/m = not meaningful
Net cash provided by operating activities totaled $100.2 million, $46.8
million and $12.7 million for 1997, 1996 and 1995.
In 1997, the $100.2 million net cash provided by operating activities
increased from the comparable period last year due primarily to the increase
in net income before depreciation and amortization. Accounts payable and
accrued expenses increased in 1997 as a result of the increases of $7.8
million in merchandise payables due to the timing of receipts for Spring goods
and $2.3 million of accrued rent. Cash requirements for inventory decreased in
1997 consistent with A&F's strategy to improve inventory turnover.
Investing activities were for capital expenditures, which were primarily for
new stores.
Financing activities in 1997 consisted primarily of activity through The
Limited's centralized cash management system. Financing activities in 1996
include $150 million in proceeds from borrowings under a bank credit
agreement, which, along with the $8.6 million working capital note, were later
repaid with funds made available from the A&F IPO and cash flow from
operations. Proceeds of the $150 million bank credit agreement were used to
repay $91 million of intercompany debt and $32 million of trademark
obligations and fund a $27 million dividend to The Limited. Other financing
activities were due to intercompany and cash management account activity (see
Note 8 to the A&F Consolidated Financial Statements included elsewhere in this
Offering Circular--Prospectus).
66
<PAGE>
In connection with the plan to establish A&F as a fully independent company
via the Transactions (see Note 1 to the A&F Consolidated Financial Statements
included elsewhere in this Offering Circular--Prospectus), A&F is in the
process of negotiating credit facilities that will be separate and independent
of The Limited.
CAPITAL EXPENDITURES
Capital expenditures, primarily for new and remodeled stores, amounted to
$29.5 million, $24.3 million and $24.5 million for 1997, 1996 and 1995.
A&F anticipates spending $40 to $50 million in 1998 for capital
expenditures, of which $35 to $42 million will be for new stores, remodeling
and/or expansion of existing stores and related improvements. A&F intends to
add approximately 235,000 selling square feet in 1998, which will represent a
19% increase over year end 1997. It is anticipated the increase will result
from the addition of 30 new stores and the remodeling and/or expansion of four
stores. A&F estimates that the average cost for leasehold improvements,
furniture and fixtures for stores opened in 1998 will approximate $750,000 per
store, after giving effect to landlord allowances. In addition, inventory
purchases are expected to average approximately $275,000 per store.
Additionally, A&F plans to open 10 to 15 children's stores in 1998. The
planned store size is approximately 3,200 selling square feet and the average
cost for leasehold improvements, furniture and fixtures will be approximately
$470,000.
A&F expects that substantially all future capital expenditures will be
funded by net cash provided by operating activities.
INFORMATION SYSTEMS AND "YEAR 2000" COMPLIANCE
A&F recently completed a comprehensive review of its information systems and
is involved in a program to update computer systems and applications in
preparation for the year 2000. A&F will incur internal staff costs as well as
outside consulting and other expenditures related to this initiative. Total
expenditures related to remediation, testing, conversion, replacement and
upgrading system applications are expected to range from $3.0 to $4.0 million
from 1997 through 2000. Total incremental expenses, including depreciation and
amortization of new package systems, remediation to bring current systems into
compliance and writing off legacy systems are not expected to have a material
impact on A&F's financial condition in any year during the conversion process
from 1997 through 2000.
A&F is attempting to contact vendors and others on whom it relies to ensure
that their systems will be converted in a timely fashion. However, there can
be no assurance that the systems of other companies on which A&F's systems
rely will also be converted in a timely fashion or that any such failure to
convert by another company would not have an adverse effect on A&F's systems.
Furthermore, no assurance can be given that any or all of A&F's systems are or
will be Year 2000 compliant, or that the ultimate costs required to address
the Year 2000 issue or the impact of any failure to achieve substantial Year
2000 compliance will not have a material adverse effect on A&F's financial
condition.
IMPACT OF INFLATION
A&F's results of operations and financial condition are presented based upon
historical cost. While it is difficult to accurately measure the impact of
inflation due to the imprecise nature of the estimates required, A&F believes
that the effects of inflation, if any, on its results of operations and
financial condition have been minor.
ADOPTION OF NEW ACCOUNTING STANDARDS
During the fourth quarter of 1997, A&F adopted SFAS No. 128, "Earnings Per
Share" which requires A&F to disclose basic and diluted earnings per share for
all periods presented.
67
<PAGE>
BUSINESS OF A&F
Abercrombie & Fitch is a rapidly growing specialty retailer of high-quality,
casual apparel for men and women approximately 15 to 50 years of age. A&F's
net sales have increased from $85.3 million in 1992 to $521.6 million in 1997,
representing a compound annual growth rate of 44%. During this time, operating
income has improved from an operating loss of $10.2 million in 1992 to
operating income of $84.1 million in 1997, while the number of A&F stores in
operation more than tripled, increasing from 40 at the end of 1992 to 156 at
the end of 1997. A&F plans to continue this new store expansion program by
opening 30 new stores in 1998 and by increasing the number of stores in
operation by approximately 20% annually for the next several years thereafter.
The A&F brand was established in 1892 and became well known as a supplier of
rugged, high-quality outdoor gear. Famous for outfitting the safaris of Teddy
Roosevelt and Ernest Hemingway and the expeditions of Admiral Byrd to the
North and South Poles, A&F goods were renowned for their durability and
dependability--and A&F placed a premium on complete customer satisfaction with
each item sold. In 1992, a new management team began repositioning A&F as a
more fashion-oriented casual apparel business directed at men and women with a
youthful lifestyle. In reestablishing the A&F brand, A&F combined its
historical image for quality with a new emphasis on casual American style and
youthfulness. A&F believes that this strategic decision has contributed to the
strong growth and improved profitability it has experienced since 1992.
A&F estimates that the men=s and women's apparel market generated
approximately $140 billion in retail purchases in 1997 and that men's and
women's apparel total sales volume grew at a compound annual rate of
approximately 4.4% between 1992 and 1997. A&F's compound annual growth of 44%
during this period has outpaced that of the industry. A&F believes that the
size of A&F's market, coupled with its business strengths and growth
strategies, should provide significant opportunities for growth and increased
market share in the future.
BUSINESS STRENGTHS
A&F believes that certain business strengths have contributed to its success
in the past and will enable it to continue growing profitably.
. Established and Differentiated Lifestyle Brand. A&F has created a focused
and differentiated brand image based on quality, youthfulness and classic
American style. This image is consistently communicated through all
aspects of A&F's business, including merchandise assortments, in-store
marketing, print advertising and the recently introduced A&F Quarterly, a
catalog/magazine. A&F believes that the strength of the A&F brand
provides opportunities for increased penetration of current merchandise
categories and entry into new product categories.
. Broad and Growing Appeal. A&F's merchandise assortment appeals to a broad
range of customers with varying ages and income levels. A&F believes that
both men and women interested in casual, classic American fashion are
attracted to the A&F lifestyle image. A&F also believes that the brand=s
broad appeal has been augmented by, and should continue to benefit from,
the current trend in fashion toward casual apparel.
. Proven Management Team. Since the current management team assumed
responsibility in 1992, A&F has increased the level of brand awareness
and consistently reported improved financial results. In addition, A&F's
senior management has significant experience, with an aggregate of over
one hundred years in the retail business. A&F believes that management's
substantial experience and demonstrated track record of highly profitable
growth strongly positions A&F for the future.
68
<PAGE>
. Consistent Store Level Execution. A&F believes that a major element of
its success is the consistent store level execution of its brand
strategy. Store presentation is tightly controlled by A&F and is based on
a detailed and comprehensive store plan regarding visual merchandising,
marketing and fixtures to assure that all stores provide a consistent
portrayal of the brand. Store associates are trained as "brand
representatives" who convey and reinforce the brand image through their
attitude and enthusiasm.
. Quality. Since its founding over 100 years ago, A&F has maintained a
strong reputation for quality. This reputation has been enhanced in
recent years as management has made quality a defining element of the
brand. A&F sources high quality natural fabrics from around the world and
uses distinctive trim details and specialized washes to achieve a unique
style and comfort in its products. As part of this focus on quality, A&F
establishes on-going relationships with key factories to ensure
reliability and consistency of production.
. Internal Design and Merchandising Capabilities. The cornerstone of A&F's
business is its ability to design products which embody the A&F image.
A&F develops substantially all of its merchandise line through its own
design group, which allows it to develop exclusive merchandise and offer
a consistent assortment within a season and from year to year. In
addition, because A&F's merchandise is sold exclusively in its own
stores, A&F is able to control the presentation and pricing of its
merchandise, provide a higher level of customer service and closely
monitor retail sell-through, which provides competitive advantages over
other brand manufacturers that market their goods through department
stores.
GROWTH STRATEGY
A&F has implemented a growth strategy designed to permit A&F to capitalize
on its business strengths. The principal elements of A&F's growth strategy are
summarized below:
. New Store Growth. Beginning in 1993, A&F began its store expansion
program. Since then, A&F has opened 121 stores and plans to continue this
store expansion program by opening 30 new stores in 1998 and increasing
the number of stores in operation by approximately 20% annually for the
next several years thereafter. While most stores to be opened in 1998
will be in regional shopping malls, A&F believes that selected street
locations in university and high-traffic urban settings also provide
attractive expansion opportunities. Given the strength of the A&F brand
and its customer demographics, management believes that, in the current
format, there will be approximately 250 additional mall and street
location sites available for new stores.
. Further Penetration of Existing Merchandise Categories. Management
believes that A&F's ability to design and market new merchandise quickly
and effectively has been a key element of its success. In recent years
A&F has significantly broadened its assortment in existing categories in
order to increase volume and productivity. Key classifications such as
sweaters, knits, pants and outerwear have been expanded, and new
categories such as men's and women's underwear/loungewear have been
added. As a result of A&F broadening its product mix, it has been able to
flow fresh merchandise to the stores on a more frequent basis. In 1998
and beyond, A&F will continue to focus on building its core
classifications to drive the volume growth of the business.
. Introduction of New Business Concepts. A&F believes that it can
successfully extend the A&F brand into new merchandise categories to
further increase sales and profit growth. In 1997 A&F introduced A&F
Quarterly, a catalog/magazine, to enhance and reinforce the A&F brand
image. In 1998 A&F will also begin testing a kids' business. The initial
test will include 10-15 stores in major regional malls. Future openings
will be determined based on the results of the initial test.
69
<PAGE>
A&F STORES
STORE ENVIRONMENT
A&F stores and point-of-sale marketing are designed to convey the principal
elements and personality of the brand--quality, casual American fashion and a
youthful lifestyle. The store design, furniture, fixtures and music are all
carefully planned and coordinated to create a shopping experience that is
consistent with the A&F lifestyle. A&F's in-store photographs are also
principal components in creating and enhancing the casual, energized
environment of the stores. These photographs, which are enlarged and displayed
prominently throughout the stores, contain distinctive black and white images
of men and women engaged in activities identified with an active, fun
lifestyle. A&F believes that its customers experience the A&F stores as
entertaining destinations, in which they feel welcomed and comfortable.
A&F's sales associates, or brand representatives, are a central element in
creating the entertaining, yet comfortable, atmosphere of the stores. In
addition to providing a high level of customer service, the brand
representatives reflect the casual, energetic attitude of the A&F brand and
culture. In conjunction with other components of the store environment, A&F
believes its brand representatives significantly contribute to a store
atmosphere that is consistent with a gathering among friends.
A&F maintains a uniform appearance throughout its store base, in terms of
merchandise display and location on the selling floor. Store managers receive
detailed store plans that dictate fixture and merchandise placement to ensure
uniform execution of the merchandising strategy at the store level.
Standardization of store design and merchandise presentation also creates cost
savings in store furnishings, maximizes usage and productivity of selling
space and allows A&F to efficiently open new stores. In Fall 1996, A&F
introduced a new, more sophisticated store prototype that seeks to further
stress the casual, youthful nature of the A&F brand accomplished in part
through the use of lighter colors throughout the store and wood floors.
STORE EXPANSION PROGRAM
A&F stores are located principally in regional shopping malls. At February
10, 1998, A&F operated 156 stores nationwide, averaging 7,910 selling square
feet. See "--Properties" on page 76 for a listing of store locations by state.
The table below highlights the store expansion strategy pursued by A&F:
<TABLE>
<CAPTION>
AVERAGE STORE
STORES OPEN STORES OPENED STORES CLOSED STORES OPEN SELLING SPACE
AT BEGINNING OF DURING DURING AT END OF TOTAL AT END OF
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR SELLING SPACE FISCAL YEAR
- ----------- --------------- ------------- ------------- ----------- ------------- -------------
(000'S
SQ. FT.) (SQ. FT.)
<S> <C> <C> <C> <C> <C> <C>
1993.................... 40 9 -- 49 405 8,265
1994.................... 49 20 2 67 541 8,075
1995.................... 67 33 -- 100 792 7,920
1996.................... 100 29 2 127 1,006 7,921
1997.................... 127 30 1 156 1,234 7,910
</TABLE>
A&F plans to open 30 stores in 1998 (none of which have been opened to date)
and increase the number of stores in operation by approximately 20% annually
for the next several years thereafter. While most of the stores to be opened
in 1998 will be in regional shopping malls, A&F believes that selected street
locations in university and high-traffic urban settings also provide
attractive expansion opportunities. In evaluating real estate locations A&F
considers a variety of criteria. Regional malls are measured based on strength
of anchor stores, the fashion and quality mix of other specialty tenants and
population and income characteristics of the surrounding area. Non-mall
locations are assessed in terms of strength of other nearby specialty stores,
and whether the shopping area attracts a
70
<PAGE>
customer mix consistent with the lifestyle characteristics targeted by the
brand. Additionally, A&F will be testing a kids' business in 10-15 stores in
1998.
A key element of A&F's new store strategy is to open new stores with trained
managers in place. A&F targets that all managers of new stores have prior
experience in other A&F stores in either the manager or assistant manager
position.
NEW STORE ECONOMICS
The new A&F stores that were opened in 1996 averaged $3.6 million in net
sales in 1997 and produced net sales per selling square foot of approximately
$445. The average cost for leasehold improvements, furniture and fixtures for
these stores was approximately $750,000 per store, after giving effect to
landlord allowances. Inventory purchases for such stores averaged $265,000 per
store. These stores generated an average after-tax return on investment
(after-tax four wall contribution divided by capital investment and average
inventory) of approximately 65% in 1997.
A&F estimates that the average cost for leasehold improvements, furniture
and fixtures for stores to be opened in 1998 will be approximately $750,000
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 $30,000. In addition, inventory purchases are expected to average
approximately $275,000 per store.
A&F's stores have typically exceeded management's store operating
profitability and return on asset targets during the first year of operation.
MERCHANDISING
PRODUCT MIX
A&F designs and sells all of its merchandise under its proprietary A&F
brand. The merchandise assortment covers a broad range of classifications in
men's and women's casual apparel. In addition, A&F offers a broad range of
accessories that includes belts, socks, caps, boxers, underwear and personal
care products.
The following table sets forth A&F's merchandise mix by major category as a
percentage of net sales for the years 1995-1997.
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Men's................................................ 60.2% 56.0% 54.4%
Women's.............................................. 39.8 44.0 45.6
Total Company........................................ 100.0% 100.0% 100.0%
</TABLE>
Over the past several years, A&F has increased the square footage and the
size of the merchandise offering devoted to women's sportswear, which has
resulted in an increase in the women's business as a percentage of total net
sales.
A&F believes that there are major opportunities to increase volume through
both increased penetration of the existing classifications and adding new
merchandise classifications. Management believes that A&F's ability to design
and market new merchandise quickly and effectively has been a key element of
its success. In recent years A&F has significantly broadened its assortment in
existing categories in order to increase volume and productivity.
A&F believes it can extend the A&F brand into new merchandise categories and
further increase sales productivity and growth. A&F believes that its internal
design capability will continue to develop new merchandise categories to
reflect the A&F image.
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A&F's point-of-sale information system allows management to track the
performance of merchandise items on a stock-keeping unit or "SKU" basis.
Reorder "triggers" are used to replenish inventory of strong selling items. In
addition, performance by store at a SKU level is tracked to allow inventory to
be replenished based on differences in selling trends by store.
PRODUCT DESIGN
The cornerstone of A&F's business is its ability to design products which
embody the A&F image of a casual, youthful lifestyle. Since the new management
team joined A&F in 1992, a major strategy has been to build an internal design
group. The product development process begins with senior management in the
merchandising and design areas, who develop seasonal merchandise themes and
concepts. These concepts are used to create line lists of items that are then
developed by the designers. Designs cover not only fabric content,
specifications and colors, but also labels, hangtags and other descriptive
marketing. In developing concepts and designs, A&F's executives identify
trends through domestic and foreign travel, retail shopping and awareness of
activities favored by the young, active segment of the population.
PRODUCT QUALITY
Throughout its over 100 year history, quality has been a major element of
the A&F brand. A&F strives to offer distinct, high quality merchandise in
order to enhance customer satisfaction and increase brand loyalty. A&F
emphasizes natural fibers and uses a number of different washes to achieve the
desired comfort and hand-feel in its products. A&F's designers also place
significant importance on developing distinctive trim details. Many of the
products have unique buttons, pocket detailing, labels, graphic designs and
hangtags. As part of this focus on quality, A&F establishes on-going
relationships with key factories to ensure reliability and consistency of
production. All factories used for A&F's production are approved for quality
and dependability by senior management before orders are placed.
MARKETING AND PROMOTION
A&F's marketing and promotional strategies are consistent with its
established and differentiated lifestyle brand. The significant brand equity
in the A&F name enables A&F to maintain a non-promotional price strategy in
most of its merchandise classifications throughout the year. A&F conducts four
promotional events each year. These events are intended to clear seasonal
goods in advance of introducing new full-priced assortments and returning the
stores to their generally non-promotional status. A&F's pricing strategy is
designed to deliver the quality consistent with designer brands at price
points below those typically associated with such designers.
A&F focuses its advertising efforts on in-store displays and print media.
In-store advertising includes a series of distinctive black and white
photographs that are enlarged and prominently displayed throughout the stores.
These photographs portray men and women engaged in activities identified with
an active and spirited lifestyle and connote the timeless quality associated
with the A&F brand. Print media advertising is focused on selected national
publications and, as with the in-store photographs, communicates and
reinforces the A&F brand image.
In addition, A&F introduced the A&F Quarterly, a catalog/magazine, to
further enhance and build the brand image. The A&F Quarterly features numerous
lifestyle photographs (consistent with the in-store photographs) in addition
to editorial features on seasonal topics. Merchandise presented in the A&F
Quarterly is also found in the stores.
The A&F website was introduced in 1996 and has evolved into a lifestyle
piece targeted at the A&F customer. The site uses images from the A&F stores
and the A&F Quarterly and is interactive.
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<PAGE>
ASSOCIATES
Customer service is a defining feature of the A&F corporate culture. A&F
believes that knowledgeable and enthusiastic sales associates have a direct
impact on a customer's perception of the brand. Accordingly, A&F focuses
significant resources on the selection and training of sales associates. A&F
stresses the role of these sales associates as "brand representatives", and
they are expected to reflect the lifestyle image of the brand. Brand
representatives are required to be familiar with the full range of A&F
merchandise and to have the ability to assist customers with merchandise
selection. A&F minimizes brand representatives' time spent on administrative
functions by centrally determining merchandise display and replenishment,
markdowns and labor scheduling. By emphasizing friendliness, product knowledge
and personal attention, management believes that A&F has established a
reputation for excellent customer service.
The typical management of an A&F store consists of one store manager and
three to five assistant managers. A&F compensates its district and store
managers with a base salary plus a performance bonus based primarily on store
sales. A&F's store, district and regional managers spend a majority of their
work week on A&F selling floors, providing leadership through coaching the
staff and assisting customers.
At January 31, 1998, A&F had approximately 6,700 associates, of whom
approximately 500 were full-time salaried associates and approximately 700
were full-time hourly associates. A significant number of associates are hired
on a seasonal basis to meet demand during holiday gift-buying seasons. The
balance were part-time hourly associates. None of A&F's associates is
represented by a labor union. A&F believes that its relationship with its
associates is good.
SOURCING
A&F utilizes a variety of sourcing arrangements. Mast Industries, Inc.
("Mast"), a wholly owned subsidiary of The Limited, supplied approximately 41%
of the apparel purchased by A&F in 1997. A&F believes all transactions entered
into with Mast are on an arm's-length basis, and A&F is not obligated to
source product through Mast. As Mast generally has operated as if it were an
unrelated party, A&F does not expect that its sourcing arrangements with Mast
will be affected in any material respect by the Transactions.
In 1997, approximately 39% of A&F's merchandise was sourced from independent
foreign factories located primarily in the Far East. A&F has no long-term
merchandise supply contracts and many of its imports are subject to existing
or potential duties, tariffs or quotas that may limit the quantity of certain
types of goods which may be imported into the United States from countries in
that region. A&F competes with other companies for production facilities and
import quota capacity. In addition, although the General Agreement on Tariffs
and Trade ("GATT") adopted on December 8, 1994 requires the elimination of
duties, tariffs and quotas on apparel and textile products by January 1, 2005,
the GATT treaty is not expected to have any meaningful effect on the import of
merchandise used in A&F's business for several years. A&F attempts to monitor
manufacturing to ensure that no one company or country is responsible for a
disproportional amount of A&F's merchandise. A&F typically transacts business
on an order-by-order basis and does not maintain any long-term or exclusive
commitments or arrangements to purchase from any vendor. A&F believes that it
has good relationships with its vendors and that, as the number of its stores
increases, there will be adequate sources to produce a sufficient supply of
quality goods in a timely manner and on satisfactory economic terms. See "Risk
Factors--Risk Factors Regarding A&F" on page 18.
CENTRAL STORE PLANNING
A&F's store design and construction operations are handled centrally by the
Store Planning division of The Limited ("Limited Store Planning"). Limited
Store Planning is organized into teams
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<PAGE>
comprised of designers, construction managers, architects, purchasing agents
and financial personnel who are responsible for all phases of store design and
construction. Teams are assigned to work with the senior management of a
specific retail business (including A&F) to develop and implement store
designs that are consistent with and promote the image of a given retail
business. A&F and The Limited are parties to an agreement pursuant to which
The Limited provides such services to A&F. The Limited's obligation to provide
these services will terminate one year after the consummation of the Exchange
Offer. For additional information with respect to the arrangements between A&F
and The Limited, see "Relationship between The Limited and A&F--Services
Agreement" on page 97.
CENTRAL REAL ESTATE MANAGEMENT
A&F's real estate operations, including all aspects of lease negotiations,
are handled by the real estate division of The Limited. A&F and The Limited
are parties to an agreement pursuant to which The Limited provides such
services to A&F. The Limited's obligation to provide these services will
terminate one year after the consummation of the Exchange Offer. For
additional information with respect to the arrangements between A&F and The
Limited, see "Relationship between The Limited and A&F--Services Agreement" on
page 97.
Potential new stores, locations, expansions and relocations are identified
by A&F and by The Limited's real estate division. In choosing new sites for
retail stores, The Limited's real estate division provides financial details
regarding the proposed lease arrangement to A&F, which then evaluates the net
required investment and potential rates of return relative to A&F's
established hurdle rates before the store is approved for construction. The
actual construction of the store is managed by Limited Store Planning.
Although the real estate division retains control over the allocation of space
within a given mall among the various retail businesses of The Limited,
including A&F, 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 consistency with a given business
image, sales and profit potential, the overall economic condition and
demographic characteristics of the market, the identity of the other tenants
in close proximity and the availability of acceptable lease terms.
MERCHANDISE DISTRIBUTION
A&F's distribution operations are managed in a distribution center owned by
The Limited and subleased to A&F. See "Relationship between The Limited and
A&F--Sublease Agreement" on page 97. The distribution center is located in
Reynoldsburg, Ohio. Once received at the distribution center, merchandise is
inspected, packed for delivery to the stores and forwarded to a central
shipping facility operated by Limited Distribution Services ("LDS"), a
subsidiary of The Limited, which also provides certain engineering services to
the distribution center.
LDS also maintains a worldwide logistics network of agents and space
availability arrangements to support the in-bound movement of merchandise into
the distribution center. The out-bound shipping system consists of common
carrier line haul routes connecting the distribution center to a network of
delivery agents. This system allows each store operated by A&F to receive
several deliveries each week and daily during the peak holiday shopping
season, which A&F believes is more frequent than A&F's smaller competitors.
LDS does not own or operate trucks or trucking facilities. A&F and The Limited
are parties to an agreement pursuant to which LDS provides such services to
A&F on a basis consistent with past practices. The Limited's obligation to
provide these services will terminate three years after the consummation of
the Exchange Offer. For additional information with respect to the
arrangements between A&F and The Limited, see "Relationship between The
Limited and A&F--Services Agreement" on page 97.
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<PAGE>
MANAGEMENT INFORMATION SYSTEMS
A&F's management information systems and electronic data processing systems
consist of a full range of retail, financial and merchandising systems,
including credit, inventory distribution and control, sales reporting,
accounts payable, merchandise reporting and distribution. A&F has an
information system that is uniquely structured to the needs of its particular
business. Certain of the equipment used in the management information systems
is owned by The Limited. A&F and The Limited are parties to an agreement
pursuant to which A&F uses such equipment. The Limited's obligation to provide
these services will terminate one year after the consummation of the Exchange
Offer. For additional information with respect to the arrangements between A&F
and The Limited, see "Relationship between The Limited and A&F--Services
Agreement" on page 97.
Sales are updated daily in the merchandise reporting systems by polling
sales information from each store's point-of-sale ("POS") terminals. A&F's POS
system consists of registers providing price look-up, scanning of bar-coded
tickets and credit authorization. Through automated nightly two-way electronic
communication with each store, sales information, payroll hours and store
initiated transfers are uploaded to the host system, and price changes are
downloaded through the POS devices. The nightly communication with the stores
also enables A&F to receive store transfer and physical inventory details and
send electronic mail. A&F evaluates information obtained through daily
reporting to implement merchandising decisions regarding markdowns and
allocation of merchandise.
TRADEMARKS AND SERVICEMARKS
A subsidiary of A&F is the owner in the United States of the Abercrombie &
Fitch trademark (the "Name Mark"). The Name Mark of A&F is registered in the
United States Patent and Trademark Office. The term of this registration is
ten years, and it is renewable for additional ten-year periods indefinitely,
so long as the mark is still in use at the time of renewal. A&F's rights in
its Name Mark are a significant part of A&F's business. A&F, therefore,
intends to maintain its Name Mark and its registration. A&F is not aware of
any claims of infringement or other challenges to A&F's right to register or
use its Name Mark in the United States.
Another subsidiary is the owner in the United States of trademarks and
service marks used to identify A&F's merchandise and services, other than its
Name Mark (the "Merchandise Marks"). Many of the Merchandise Marks of A&F are
registered in the United States Patent and Trademark Office. The Merchandise
Marks are important to A&F, and, therefore, A&F intends to, directly or
indirectly, maintain these marks and their registrations. However, A&F may
choose not to renew a registration of one or more of its Merchandise Marks if
it determines that the mark is no longer important to its business. A&F does
not believe any material claims of infringement or other challenges to A&F's
right to register or use its Merchandise Marks in the United States in a
manner consistent with its current practices are pending.
A&F also conducts business in foreign countries principally as a result of
the fact that a substantial portion of its merchandise is manufactured outside
the United States. A&F believes its subsidiaries own registrations of its Name
Mark and Merchandise Marks in numerous foreign countries to the degree
necessary to protect such marks, although there may be restrictions on the use
of certain of A&F's marks in a limited number of foreign jurisdictions.
A&F has not licensed any of its trademarks or service marks to any other
entity, although, for so long as A&F remains a subsidiary of The Limited and
for approximately one year after the consummation of the Transaction, The
Limited will be entitled to use A&F's trademarks and service marks at no cost
to The Limited in The Limited's annual report to stockholders and publicity
materials and for other similar purposes.
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COMPETITION
All aspects of A&F's businesses are highly competitive. A&F competes
primarily with department stores, mass merchandisers and other specialty
retailers, including The Limited. See "Risk Factors--Risk Factors Regarding
A&F--Competition with The Limited" on page 18. A&F believes that the principal
bases upon which it competes are quality, fashion, service, selection and
price.
A&F believes that it has significant competitive advantages because of high
consumer recognition and acceptance of its brand name and its strong presence
in the major shopping malls in the United States, and the experience of its
management team. Certain of A&F's competitors in selected product lines are
larger and have greater financial, marketing and other resources than A&F,
however, and there can be no assurance that A&F will be able to compete
successfully with them in the future.
PROPERTIES
The main offices of A&F are located in Reynoldsburg, Ohio. These
headquarters are owned by The Limited and subleased to A&F. A&F also has a
distribution center located in Reynoldsburg, Ohio which is owned by The
Limited and subleased to A&F. A&F believes that its facilities are well
maintained, in good operating condition and adequate for its current needs.
See "Relationship between The Limited and A&F--Sublease Agreement" on page 97.
As of February 10, 1998, A&F operated 156 stores, which are located
primarily in shopping malls throughout the United States. Of these stores, 154
were leased directly from third parties (principally shopping mall developers)
and two were leased from retail stores operated by other businesses of The
Limited. See "Relationship between The Limited and A&F--Shared Facilities
Agreements" on page 97. A&F believes that, as of February 10, 1998,
approximately 97.0% of its stores are located in shopping malls, and that
there are growth opportunities for expansion to free-standing locations.
Leases with third parties are typically between 10 and 15 years in duration.
In most cases, the business unit pays an annual base rent plus a contingent
rent based on the store's annual sales in excess of a specified threshold.
Leases with other businesses of The Limited are on terms that represent the
proportionate share of the base rent payable in accordance with the underlying
lease plus the portion of any contingent rent payable in accordance with the
underlying lease attributable to the performance of A&F. Many of the leases
entered into by A&F are guaranteed by The Limited. A&F management believes
that its size and financial strength should allow it to enter into leases on
attractive terms without guarantees from The Limited, and, following the
consummation of the Exchange Offer, The Limited will not guarantee new A&F
leases.
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The list below sets forth the number of stores by state operated by A&F in
the United States and the cities in which A&F stores are located as of February
10, 1998:
ALABAMA--2 Oakbrook MISSISSIPPI--1 Strongsville
Birmingham Orland Park Ridgeland Toledo
Hoover Schaumburg
MISSOURI--3 OKLAHOMA--2
Skokie
ARIZONA--2 Vernon Hills Chesterfield Oklahoma City
Mesa Kansas City Tulsa
Scottsdale INDIANA--3 St. Louis
OREGON--1
Evansville
ARKANSAS--1 Indianapolis (2) NEBRASKA--1 Tigard
Little Rock Omaha
PENNSYLVANIA--7
KANSAS--3
CALIFORNIA--10 Lawrence NEVADA--2 King of
Costa Mesa Leawood Las Vegas Prussia
Glendale Overland Park Langhorn
Los Angeles NEW HAMPSHIRE--2 Monroeville
Redondo Beach KENTUCKY--2 Nashua Pittsburgh (2)
Sacramento Lexington Salem Whitehall
San Diego (2) Louisville Willow Grove
San Francisco (2) NEW JERSEY--6
San Mateo LOUISIANA--2 Cherry Hill SOUTH
Edison CAROLINA--2
Baton Rouge
COLORADO--6 New Orleans Freehold Charleston
Boulder Paramus Greenville
Colorado Springs MARYLAND--3 Short Hills
Denver (4) Bethesda Wayne TENNESSEE--4
Owings Mills Chattanooga
CONNECTICUT--4 Towson NEW MEXICO--1 Knoxville
Danbury Albuquerque Memphis
Farmington MASSACHUSETTS--9 Nashville
Milford Boston NEW YORK--10
Stamford Braintree Albany (2) TEXAS--9
Burlington Buffalo Austin
Cambridge Garden City Cedar Park
DISTRICT OF COLUMBIA--1
Manhasset Dallas (2)
Chestnut Hill
FLORIDA--6 Holyoke New York City Fort Worth
Altamonte Springs Marlborough Rochester Houston
Brandon Natick Staten Island San Antonio
Miami (2) Peabody Victor Sugar Land
Orlando White Plains The Woodlands
W. Palm Beach MICHIGAN--7
NORTH CAROLINA--5 VIRGINIA--5
Ann Arbor
GEORGIA--7 Grand Rapids Charlotte Arlington
Alpharetta Novi Durham Fairfax
Atlanta (3) Okemos Greensboro McLean
Duluth Portage Raleigh Richmond
Kennesaw Sterling Heights Winston Salem Virginia Beach
Savannah Troy
OHIO--9 WASHINGTON--4
ILLINOIS--8 MINNESOTA--3 Beachwood Bellevue
Aurora Bloomington Beaver Creek Lynnwood
Chicago Minnetonka Cincinnati (2) Redmond
Northbrook Roseville Cleveland Seattle
Columbus (2)
WISCONSIN--3
Appleton
Madison
Wauwatosa
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BUSINESS OF THE LIMITED
The Limited is one of the nation's leading mall-based specialty retailers.
As of January 31, 1998, The Limited, through Express, Lerner New York, Lane
Bryant, Limited Stores, Structure, Limited Too, Galyan's and Henri Bendel
operates 3,774 specialty stores. The Limited also owns approximately 83% of
Intimate Brands which, through Victoria's Secret and Bath & Body Works stores,
operates 1,710 specialty stores as of February 10, 1998, and distributes
apparel internationally through the Victoria's Secret Catalogue. The Limited
currently owns approximately 84% of A&F, which operates 156 stores as of
February 10, 1998, but will no longer own any of A&F upon the consummation of
the Transactions.
Intimate Brands is a leading specialty retailer of intimate apparel and
personal care products, operating primarily under its Victoria's Secret and
Bath & Body Works brand names. Under the Victoria's Secret name, The Limited
is the leading mall-based specialty retailer of women's intimate apparel and
related products, and a leading catalogue retailer of intimate and other
women's apparel. Victoria's Secret operates over 780 stores nationwide and in
1997 mailed approximately 425 million catalogues. Under the Bath & Body Works
name, The Limited is the leading mall-based specialty retailer of personal
care products. Launched in 1990, Bath & Body Works operates over 920 stores
nationwide. Intimate Brands had net sales of approximately $3.6 billion in
1997.
Express is a leading specialty retailer of women's sportswear and
accessories. Express' strategy is to offer, under the Express brand, an
exciting collection of quality sportswear designed to appeal to a broad range
of young-minded, spirited women looking for the latest in current fashion.
Launched in 1980, Express had net sales of approximately $1.2 billion in 1997
and operated 753 stores in 48 states.
Lerner New York is a leading mall-based specialty store retailer of value
priced women's apparel. The division's repositioned merchandising strategy is
to be the leading fashion-at-a-value women's specialty retailer offering its
customer a fashion-coordinated flexible wardrobe at opening price points.
Originally founded in 1918, Lerner New York was purchased by The Limited in
1985. Lerner New York had net sales of approximately $946 million in 1997 and
operated 746 stores in 45 states.
Lane Bryant is a leading specialty store retailer of large-size women's
apparel. The division targets fashion-conscious women who are seeking
moderately-priced clothing in sizes 14-28. Originally founded in 1900, Lane
Bryant was acquired by the Limited in 1982. The division had net sales of
approximately $907 million in 1997 and operated 773 stores in 46 states.
Limited Stores is one of the oldest and largest mall-based specialty store
retailers. In early 1995, the division repositioned its merchandising strategy
to focus its historically strong brand name on an "American Lifestyle" point
of view, targeting fashion-oriented women who prefer a classic and comfortable
wardrobe and seek consistency in style, taste, quality and fit. Founded in
1963, Limited Stores had net sales of approximately $776 million in 1997 and
operated 629 stores in 46 states.
Structure is a leading mall-based specialty retailer of men's clothing.
Structure targets men with an active, outdoor-oriented lifestyle. In 1996,
Structure repositioned its strategy by returning to classic American casual
fashion. Structure operates 544 stores in 43 states and had net sales of $660
million in 1997.
Limited Too, established in 1987, sells casual clothes for girls up to
fourteen years of age through 312 stores. Limited Too had net sales of $322
million in 1997.
Galyan's is a leading rapidly-growing operator of full-line sporting goods
and apparel superstores in the midwestern United States. At November 1, 1997,
Galyan's operated eleven stores in four
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markets. Galyan's targets upscale sports enthusiasts and the high-end of the
consumer market. Galyan's, which was acquired by The Limited in July 1995, was
founded by Albert W. Galyan in 1946 and had net sales of $160 million in 1997.
Henri Bendel operates specialty stores which feature better, bridge and
designer women's fashions in an exclusive, eclectic shopping environment. The
business was purchased by The Limited in 1988 and had net sales of
approximately $83 million in 1997. The Limited has announced that it will
close all Henri Bendel locations other than its New York City store.
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MANAGEMENT OF A&F
BOARD OF DIRECTORS
A&F's Board of Directors currently consists of Messrs. Leslie H. Wexner,
Chairman of A&F and Chairman, President and Chief Executive Officer of The
Limited; Kenneth B. Gilman, Vice Chairman of A&F and Chief Administrative
Officer of The Limited; Michael S. Jeffries, President and Chief Executive
Officer of A&F; Roger D. Blackwell, Professor of Marketing at The Ohio State
University and President and Chief Executive Officer of Roger D. Blackwell
Associates, Inc.; E. Gordon Gee, President of Brown University; and Donald B.
Shackelford, Chairman and Chief Executive Officer of State Savings Bank.
Effective upon the consummation of the Exchange Offer, all directors other
than Mr. Jeffries will resign and be replaced by the following new directors
not affiliated with The Limited.
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE
---- --- -------------------
<C> <C> <S>
GEORGE FOOS......... 77 Mr. Foos has been a management consultant focusing on
retail chains and apparel manufacturers since 1989.
Prior thereto, he has served as Chairman of the Board
of Emporium Capwell Department Stores and President
and Chief Executive Officer of May Department Stores,
Southern California.
JOHN A. GOLDEN...... 53 Mr. Golden has been a limited partner of Goldman
Sachs Group L.P. since 1994 and a general partner
prior thereto. Mr. Golden is also a member of the
Board of Trustees of Colgate University.
SETH R. JOHNSON..... 44 Mr. Johnson has been Vice President and Chief
Financial Officer of A&F since 1992. Mr. Johnson was
Director of Financial Analysis of The Limited from
1989 until 1992 and was Director of Financial
Reporting of the Limited Stores, Inc., from 1986
until 1989.
JOHN W. KESSLER..... 62 Mr. Kessler has been the Chairman of New Albany Co.
since 1988, Chairman of Marsh & McLennan Real Estate
Advisors, Inc. (a real estate consulting firm) since
1980 and Chairman of the John W. Kessler Company (a
real estate development company) since 1975. Mr.
Kessler has also been a director of Banc One since
1995.
SAM N. SHAHID, JR... 57 Mr. Shahid has been President and Creative Director
of Shahid & Company, Inc., an advertising and design
agency, since 1993. Prior thereto, he has served as
Vice President and Creative Director of Banana
Republic Advertising (an in-house agency for Banana
Republic) and Vice President and Creative Director of
CRK Advertising (an in-house agency for Calvin
Klein).
DOUGLAS L. WILLIAMS. 44 Mr. Williams has been a partner in the Columbus
office of Vorys, Sater, Seymour and Pease LLP since
1993. Mr. Williams is also a member of the Board of
the United Way and the Children's Defense Fund for
the State of Ohio. Prior to joining Vorys, Sater, Mr.
Williams was a partner at the firm of Schwartz, Kelm,
Warren & Rubenstein.
</TABLE>
EXECUTIVE OFFICERS
In addition to Mr. Johnson, Mr. Jeffries and Michele Donnan-Martin also
serve as executive officers of A&F. Michael S. Jeffries, age 53, a director of
A&F, has been President and Chief Executive Officer of A&F since February,
1992. Ms. Donnan-Martin, age 34, has been Vice President--General
Merchandising Manager--Women's of A&F since February, 1996 and for three and
one-half years prior thereto held the position of Vice-President Women's
Merchandising of A&F.
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EXECUTIVE COMPENSATION FOR A&F
SUMMARY COMPENSATION TABLE
The following table provides information concerning compensation paid by A&F
(except, as noted below, for executive officers Wexner and Gilman, whose
compensation was paid by The Limited in the years noted) to each of the named
executive officers of A&F for its last two fiscal years and by The Limited for
fiscal year 1995 and that portion of the 1996 fiscal year prior to the
consummation of the A&F IPO.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
--------------------- ------------------------------------
SECURITIES ALL
RESTRICTED UNDERLYING OTHER
STOCK OPTIONS COMPEN-
FISCAL SALARY BONUS (2) AWARDS (3) AWARDED SATION
NAME AND PRINCIPAL POSITION (1) YEAR ($) ($) ($) (#) (4) ($)
- ------------------------------- ------ ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Leslie H. Wexner 1997 $1,000,000 $1,861,560 -- 1,600,000(5) $135,296
Chairman of the Board 1996 1,011,538 915,000 -- 200,000(5) 151,629
100,000(6)
1995 1,150,000 768,315 -- 100,000(5) 148,436
Kenneth B. Gilman 1997 900,000 1,228,630 $6,220,313(5) 500,000(5) 195,094
Vice Chairman 1996 903,846 603,900 -- 50,000(5) 187,192
50,000(6)
1995 941,935 449,820 25,000(5) 190,772
Michael S. Jeffries 1997 596,154 1,200,000 8,000,000(7) 1,000,000(7) 190,184
President and Chief 1996 546,154 990,275 1,060,478(7) 130,000(7) 140,380
Executive Officer 93,366(5)
1995 491,700 426,300 159,393(5) 12,000(5) 104,772
Michele S. Donnan-Martin 1997 320,000 390,000 311,250(7) 225,000(7) 66,453
Vice President--General 1996 256,923 234,065 203,203(7) 28,000(7) 46,657
Merchandising Manager-- 15,561(5)
Women's 1995 217,510 107,184 26,566(5) 5,000(5) 36,051
Seth R. Johnson 1997 261,923 265,000 186,750(7) 175,000(7) 55,010
Vice President--Chief 1996 223,077 202,556 43,203(7) 6,500(7) 45,873
Financial
Officer 15,561(5)
1995 198,340 97,440 26,566(5) 5,000(5) 39,854
</TABLE>
- --------
(1) Executive officers Wexner and Gilman are also employed by The Limited and
received no direct compensation from A&F. The annual base salary and annual
bonus opportunity for executive officers Wexner and Gilman in respect of
their service with The Limited and its affiliates were determined by The
Limited's Compensation Committee and were paid by The Limited.
(2) Represents for each fiscal year, the aggregate of the performance-based
incentive compensation for the Spring and Fall selling seasons.
(3) Represents for each executive officer, the restricted stock awards for the
specified fiscal year under A&F's 1996 Stock Option and Performance
Incentive Plan for awards of A&F Common Stock and under The Limited, Inc.
1993 Stock Option and Performance Incentive Plan for awards of Limited
Common Stock. Information set forth above is based on the closing price of
the stated common stock on the date on which the awards were made.
81
<PAGE>
On February 1, 1998, 10,000 and 6,000 restricted shares of A&F Common Stock
were granted to executive officers Donnan-Martin and Johnson, respectively,
based on business performance for the fiscal 1997 year. The per share value
of A&F Common Stock on the then most recent prior date on which there were
sales (January 30, 1998) was $31.125. This award vests 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 the holder's continued employment with
A&F.
On May 20, 1997, 300,000 restricted shares of Limited Common Stock were
granted to Mr. Gilman. The per share value of Limited Common Stock on such
date was $19.50. This award is earned subject to established financial
performance measures and once earned, vests 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.
On May 13, 1997, 500,000 restricted shares of A&F Common Stock were granted
to Mr. Jeffries. The per share value of A&F Common Stock on such date was
$16.00. This award is earned subject to established financial performance
measures and once earned, vests over six years, subject to continued
employment with A&F.
On March 25, 1997, 19,750 restricted shares of Limited Common Stock were
granted to Mr. Gilman. The per share value of Limited Common Stock on such
date was $18.75. This award vests 100% one year from the grant date,
subject to continued employment with The Limited.
On February 1, 1997, 24,762, 3,142 and 3,142 restricted stock performance
awards of A&F Common Stock were granted to executive officers Jeffries,
Donnan-Martin and Johnson, respectively. The per share value of A&F Common
Stock on Friday, January 31, 1997 was $13.75. On August 1, 1996, 4,788, 798
and 798 restricted stock performance awards of Limited Common Stock were
granted to executive officers Jeffries, Donnan-Martin and Johnson,
respectively. The per share value of Limited Common Stock on such date was
$19.50. These awards, which are in respect of 1996 performance, generally
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 the holder's
continued employment with A&F.
On September 25, 1996, 45,000 and 4,500 restricted shares of A&F Common
Stock were awarded to executive officers Jeffries and Donnan-Martin,
respectively, in consideration of the cancellation of Mr. Jeffries' March
1, 1994 and Ms. Donnan-Martin's February 2, 1996 grant of restricted shares
of Limited Common Stock. These awards to Mr. Jeffries and Ms. Donnan-Martin
vest 100% on March 1, 1999 and February 2, 2001, respectively, subject to
continued employment. Also, on September 25, 1996, 5,500 restricted shares
of A&F Common Stock were awarded to Ms. Donnan-Martin. Such shares vest
100% five years from the grant date, subject to continued employment with
A&F. The per share value of A&F Common Stock on such date was the A&F IPO
price of $16.00 per share.
On February 1, 1996, 9,516, 1,586 and 1,586 restricted stock performance
awards of Limited Common Stock were granted to executive officers Jeffries,
Donnan-Martin and Johnson, respectively, in respect of 1995 performance.
The per share value of Limited Common Stock on such date was $16.75. These
awards generally 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 the holder's continued employment with A&F.
As of January 31, 1998, the aggregate holdings of restricted shares of A&F
Common Stock and the market value of such holdings for such named executive
officers were: Mr. Jeffries, 567,286 shares, $17,656,777; Ms. Donnan-
Martin, 22,828 shares, $710,522; and Mr. Johnson, 8,828 shares, $274,772
(based on the $31.125 fair market value of A&F Common Stock as of Friday,
January 30, 1998). The holdings of executive officers Donnan-Martin and
Johnson include the 10,000 and 6,000 restricted shares, respectively, noted
in the second paragraph of this footnote.
82
<PAGE>
As of January 31, 1998, the aggregate holdings of restricted shares of
Limited Common Stock and the market value of such holdings for each of the
named executive officers were: Mr. Wexner, 13,000 shares, $344,500; Mr.
Gilman, 326,250 shares, $8,645,625; Mr. Jeffries, 14,814 shares, $392,571;
Ms. Donnan-Martin, 2,470 shares, $65,455; and Mr. Johnson, 2,470 shares
$65,455 (based on the $26.50 fair market value of a share of Limited Common
Stock as of Friday, January 30, 1998).
Dividends will not be paid or accrue with respect to shares of restricted
stock until such shares vest.
(4) Represents for each executive officer, the amount of employer matching and
supplemental contributions allocated to his or her account under certain of
The Limited's qualified and non-qualified defined contribution plans during
1997.
(5) Denominated in shares of Limited Common Stock.
(6) Denominated in shares of Intimate Brands' Class A Common Stock.
(7) Denominated in shares of A&F Common Stock.
LONG-TERM INCENTIVE PLAN AWARDS
No Awards were granted in respect of the 1997 fiscal year to the named
executive officers other than the restricted stock performance awards as
disclosed in the Summary Compensation Table.
STOCK OPTIONS
The following table sets forth certain information regarding stock options
granted to the executive officers named in the Summary Compensation Table
during A&F's 1997 fiscal year.
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS EXERCISE ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE PRICE APPRECIATION FOR
OPTIONS ASSOCIATES PER OPTION TERM(4)($)
GRANTED IN FISCAL SHARE EXPIRATION -----------------------
NAME (#)(1) YEAR ($) DATE 5% 10%
---- ---------- ---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Leslie H. Wexner........ 1,600,000(2) 22.01% $22.1375(5) 07/02/07 $22,275,448 $56,450,358
Kenneth B. Gilman....... 500,000(2) 6.88% 19.5000 05/21/07 6,131,723 15,538,989
Michael S. Jeffries..... 1,000,000(3) 60.13% 16.0000 05/14/07 10,062,314 25,499,879
Michele S. Donnan-
Martin................. 150,000(3) 9.02% 16.0000 02/21/07 1,509,347 3,824,982
75,000(3) 4.51% 30.6250 12/06/07 1,444,492 3,660,627
Seth R. Johnson......... 100,000(3) 6.01% 16.0000 02/21/07 1,006,231 2,549,988
75,000(3) 4.51% 30.6250 12/06/07 1,444,492 3,660,627
</TABLE>
- --------
(1) On July 1, 1997, options were granted to Mr. Wexner and on May 20, 1997,
options were granted to Mr. Gilman pursuant to The Limited's 1993 Stock
Option and Performance Incentive Plan (1997 Restatement). On February 20,
1997 and December 5, 1997, options were granted to executive officers
Donnan-Martin and Johnson pursuant to A&F's 1996 Stock Option and
Performance Incentive Plan (1997 Restatement). Such options vest 10%, 10%,
10%, 15%, 20% and 35% on the first through sixth anniversaries of the
grant date, respectively, in each case, subject to the holder's continued
employment with the executive's employer.
On May 13, 1997, options were granted to Mr. Jeffries pursuant to A&F's
1996 Stock Option and Performance Incentive Plan (1997 Restatement). Such
options vest over nine years, subject to earnings per share performance
targets and continued employment with A&F.
(2) Denominated in shares of Limited Common Stock.
83
<PAGE>
(3)Denominated in shares of A&F Common Stock.
(4) The assumed rates of growth were selected by the Commission for
illustrative purposes only and are not intended to predict or forecast
future stock prices.
(5) The per share exercise price of all such options to Mr. Wexner is set at
110% of the fair market value of the stock on the date of grant.
The following table sets forth certain information relating to stock options
exercised and the number and value of shares of Limited Common Stock and A&F
Common Stock subject to the stock options held by the executive officers named
in the Summary Compensation Table during A&F's 1997 fiscal year and the year-
end value of unexercised options held by such executive officers.
AGGREGATED OPTION EXERCISES IN 1997 FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END (#) AT FISCAL YEAR-END ($)
ACQUIRED ON VALUE ------------------------------------ ----------------------------
NAME EXERCISE (#)(1) REALIZED ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- --------------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leslie H. Wexner........ 137,500(3) 1,812,500(3) $1,113,750(3) $8,471,250(3)
-- -- 25,000(4) 75,000(4) 93,125(4) 279,375(4)
Kenneth B. Gilman....... 31,250 $384,766 222,917(3) 564,583(3) 1,629,430(3) 4,124,476(3)
4,167(4) 45,833(4) 46,618(4) 512,757(4)
Michael S. Jeffries..... 52,000(3) 9,000(3) 302,625(3) 82,500(3)
-- -- 10,833(5) 1,119,167(5) 163,849(5) 16,927,401(5)
Michele S. Donnan-
Martin................. 19,500 72,125 -- 3,500(3) -- 32,000(3)
7,000(5) 246,000(5) 105,875(5) 2,623,875(5)
Seth R. Johnson......... 31,250(3) 3,750(3) 233,250(3) 34,375(3)
-- -- 1,625(5) 179,875(5) 24,578(5) 1,623,734(5)
</TABLE>
- --------
(1) All such shares acquired on exercise represent shares of Limited Common
Stock.
(2) Calculated on the basis of the number of shares exercised, multiplied by
the excess of the fair market value of a share of Limited Common Stock on
the date of exercise over the exercise price of such option.
(3) Denominated in shares of Limited Common Stock. Value is calculated on the
basis of the number of shares subject to each such option, multiplied by
the excess of the fair market value of a share of Limited Common Stock on
the last trading day prior to fiscal year-end ($26.50) over the exercise
price of such option.
(4) Denominated in shares of Intimate Brands' Class A Common Stock. Value is
calculated on the basis of the number of shares subject to such option,
multiplied by the excess of the fair market value of a share of Intimate
Brands' Class A Common Stock on the last trading day prior to fiscal year-
end ($25.3125) over the exercise price of such option.
(5) Denominated in shares of A&F Common Stock. Value is calculated on the
basis of the number of shares subject to such option, multiplied by the
excess of the fair market value of a share of A&F Common Stock on the last
trading day prior to fiscal year-end ($31.125) over the exercise price of
such option.
COMPENSATION OF DIRECTORS
Directors who are not associates of A&F receive an annual retainer of
$10,000 per year (increased by $1,500 for each committee chair held), plus a
fee of $800 for each Board meeting attended ($400 for a telephonic meeting)
and, as committee members, receive $600 per committee meeting attended ($200
for a telephonic meeting). Each action in writing taken by the Board or any
committee entitles each such director to be paid $200. Associates and officers
who are directors receive no additional
84
<PAGE>
compensation for services rendered as directors. Under A&F's 1996 Stock Plan
for Non-Associate Directors, each director who is not an associate of A&F
receives (i) annual grants of options to purchase 2,000 shares of A&F Common
Stock at a price equal to the fair market value of such shares at the date of
grant and (ii) 50% of the annual retainer in shares of A&F Common Stock.
EMPLOYMENT AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS
In 1997 A&F entered into individual employment agreements with Executive
Officers Jeffries, Donnan-Martin and Johnson. Pursuant to these agreements,
Mr. Jeffries serves as A&F's President and Chief Executive Officer, Ms.
Donnan-Martin serves as A&F's Vice President-General Merchandising Manager,
Women's and Mr. Johnson serves as A&F's Vice President and Chief Financial
Officer. The initial term of each agreement is six years, with automatic one-
year extensions thereafter unless either party gives written notice to the
contrary. Mr. Jeffries' agreement provides for an initial base salary of
$600,000, Ms. Donnan-Martin's agreement provides for an initial base salary of
$325,000 and Mr. Johnson's agreement provides for an initial base salary of
$265,000. Option grants and the value of performance-based stock awards made
in 1997 pursuant to the agreements are included in the Summary Compensation
Table, Mr. Jeffries' agreement also provides for life insurance coverage of
$10 million. Each agreement also provides for incentive plan participation as
determined by the Board. Under each agreement, upon the failure of A&F to
extend the agreement or the termination of the executive's employment either
by A&F other than for cause or by the executive for good reason, the executive
will continue to receive the executive's base salary for one year after the
termination date. Under the agreements, each executive agrees not to compete
with A&F or solicit its employees or customers during the employment term and
for one year thereafter. Each executive's agreement provides for disability
benefits in addition to the benefits available under A&F's disability plans.
In the event any "parachute" excise tax is imposed on any of Executive
Officers Jeffries, Donnan-Martin or Johnson, the executive will be entitled to
tax reimbursement payments.
85
<PAGE>
MANAGEMENT OF THE LIMITED
BOARD OF DIRECTORS
NAME AGE BUSINESS EXPERIENCE
Mr. Freedman has been Managing Director
EUGENE M. FREEDMAN........... 66 of Monitor Clipper Partners, a private
equity merchant bank, since 1997 and
Senior Advisor to and a director of
Monitor Company, Inc., an international
business strategy and consulting firm,
since January 1995. Until October 1994
and for more than five years prior
thereto, Mr. Freedman was a partner of
Coopers & Lybrand, where he served as
Chairman and Chief Executive Officer of
Coopers & Lybrand LLP, U.S. ("C & L,
U.S.") since October 1991 and as Chairman
of Coopers & Lybrand, International since
1992. During the Company's 1997 fiscal
year, C & L, U.S. served as the Company's
independent public accountants. The
amount of compensation paid by the
Company to C & L, U.S. for such services
was less than 1% of the Company's and C &
L, U.S.'s consolidated gross revenues for
their 1997 fiscal years. Mr. Freedman is
also a director of Bernard Technologies,
Inc.
E. GORDON GEE................ 54 Dr. Gee has been President of Brown
University since January 1998. Dr. Gee
was President of The Ohio State
University from 1990 to 1997. Dr. Gee is
also a director of A&F, ASARCO, Inc.,
Glimcher Realty Trust and Intimate
Brands.
KENNETH B. GILMAN............ 51 Mr. Gilman has been Vice Chairman and
Chief Administrative Officer of The
Limited since June 1997. He was also Vice
Chairman and Chief Financial Officer of
The Limited from June 1993 to June 1997.
For more than five years prior thereto,
Mr. Gilman was Executive Vice President
and Chief Financial Officer of The
Limited. Mr. Gilman has also been the
Vice Chairman of the Board of Intimate
Brands since 1995 and Vice Chairman of
the Board of A&F since 1996.
DAVID T. KOLLAT.............. 59 Dr. Kollat has been Chairman of 22, Inc.,
a management consulting firm, for more
than five years. He is also a director of
Audio Environments, Inc., Cheryl & Co.,
Inc., Christy Partners, Consolidated
Stores Corporation, Cooker Restaurant
Corporation, Pipeliner Systems, Inc.,
Resource Marketing, Inc., SBC
Advertising, Select Comfort, Inc.,
Starpower Inc. and Wolverine World Wide,
Inc.
86
<PAGE>
NAME AGE BUSINESS EXPERIENCE
CLAUDINE B. MALONE........... 61 Ms. Malone has been President and Chief
Executive Officer of Financial &
Management Consulting, Inc. since 1982.
She is also Chairman of the Federal
Reserve Bank of Richmond and a director
of Dell Computer Corporation, Hannaford
Brothers, Inc., Hasbro, Inc., Houghton
Mifflin Co., Lafarge Corporation, Lowe's
Companies, Mallinckrodt Group, Inc.,
Science Applications International
Corporation and Union Pacific Resources
Corp.
LEONARD A. SCHLESINGER....... 45 Dr. Schlesinger has been a member of the
faculty of Harvard Business School
("Harvard") since 1988 and currently is
the George F. Baker Jr. Professor of
Business Administration. He also served
as the Senior Associate Dean and Director
of External Relations at Harvard from
July 1994 until October 1995. Dr.
Schlesinger currently is a director of
Borders Group, Inc., GC Companies, Inc.
and Pegasystems, Inc.
DONALD B. SHACKELFORD........ 65 Mr. Shackelford has been Chairman of the
Board and Chief Executive Officer of
State Savings Bank, a banking business,
for more than five years and has been the
Chief Executive Officer of State Savings
Co. since 1995. Mr. Shackelford is also a
director of A&F, Intimate Brands,
Progressive Corporation and Worthington
Foods, Inc.
ALLAN R. TESSLER............. 61 Mr. Tessler has been Chairman of the
Board and Chief Executive Officer of
International Financial Group, Inc., a
merchant banking concern, for more than
five years and Co-Chairman and Chief
Executive Officer of Data Broadcasting
Corporation, a data broadcasting network,
since 1992. Mr. Tessler was Chairman of
the Board and Chief Executive Officer of
Ameriscribe Corporation, a provider of
reprographic and related facilities
management services, from 1988 through
1993. Mr. Tessler is also the Chairman of
the Boards of Directors of Enhance
Financial Services Group, Inc. and
Jackpot Enterprises, Inc. Mr. Tessler is
a director of Allis-Chalmers Corporation.
MARTIN TRUST................. 63 Mr. Trust has been President and Chief
Executive Officer of Mast Industries,
Inc., a wholly-owned subsidiary of The
Limited, for more than five years. He is
also a director of Staples, Inc.
ABIGAIL S. WEXNER............ 36 Mrs. Wexner was an attorney with the law
firm of Davis Polk & Wardwell from 1987
until 1992, where she specialized in
mergers and acquisitions. She is a
director of the Children's Defense Fund
and is a
87
<PAGE>
NAME AGE BUSINESS EXPERIENCE
member of the Board of Trustees of the
Wexner Center Foundation, the Governing
Committee of The Columbus Foundation and
the Board of Trustees of the Children's
Hospital, Inc. in Columbus, Ohio and was
appointed by the President of the United
States as a member of the United States
Holocaust Memorial Council. Mrs. Wexner
is the wife of Leslie H. Wexner.
LESLIE H. WEXNER............. 60 Mr. Wexner has been President and Chief
Executive Officer of The Limited since he
founded The Limited in 1963, and Chairman
of the Board for more than five years.
Mr. Wexner has also been the Chairman of
the Board and Chief Executive Officer of
Intimate Brands since 1995, and Chairman
of the Board of A&F since 1996. Intimate
Brands and A&F are subsidiaries of The
Limited. Mr. Wexner is also a director of
Hollinger International and Hollinger
International Publishing, Inc. Mr. Wexner
is the husband of Abigail S. Wexner.
RAYMOND ZIMMERMAN............ 64 Mr. Zimmerman was Chairman of the Board
of Service Merchandise, a retail
merchandising business, from 1981 to
1998. He was also Chief Executive Officer
of Service Merchandise from 1984 until
April 1997. Mr. Zimmerman currently is a
director of Service Merchandise.
EXECUTIVE OFFICERS
In addition to Executive Officers Wexner, Gilman and Trust, Arnold F.
Kanarick and V. Ann Hailey also serve as Executive Officers of The Limited.
Mr. Kanarick, age 57, has served as Executive Vice President and Chief Human
Resources Officer of The Limited since November, 1992. Ms. Hailey, age 47, has
served as Executive Vice President and Chief Financial Officer of The Limited
since August, 1997. From 1994 to August, 1997, Ms. Hailey was Senior Vice
President and Chief Financial Officer of The Pillsbury Company, a division of
GrandMet. From 1992 to 1994 Ms. Hailey was Vice President, Finance and
Planning, for the Specialty Products Division of RJR Nabisco Foods, Inc.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 26, 1996, The Limited, Leslie H. Wexner, The Limited's Chairman,
Chief Executive Officer and President, and The Wexner Children's Trust (the
"Trust") entered into a Contingent Stock Redemption Agreement, which Agreement
was amended as of July 19, 1996 (as so amended, the "Agreement"). The
following summary of the material terms of the Agreement does not purport to
be complete and is qualified in its entirety by reference to the Agreement, a
copy of which has been filed with the SEC as an exhibit to The Limited's
Annual Report on Form 10-K for the fiscal year ended February 1, 1997. Such
exhibits are available for inspection at the SEC. See "Where You Can Find More
Information" on page 102.
A new, wholly-owned subsidiary (the "Subsidiary") of The Limited has
guaranteed The Limited's obligations under the Agreement, has been capitalized
by The Limited with $351.6 million (representing the amount required to pay
the Redemption Price in the event of an exercise in full of the Redemption
Right (each, as defined below)) and will not engage in any actions or
undertake any
88
<PAGE>
operations other than as contemplated by the Agreement. Pursuant to the terms
of the Agreement, the Trust deposited 18,750,000 shares of Limited Common
Stock (the "Subject Shares") in a custody account established with Morgan
Guaranty Trust Company of New York. For the purposes of the Agreement, a
"Subject Share" will include, in the event of any spinoff or other
distribution by The Limited to its stockholders of any business controlled by
The Limited, in addition to a share of Limited Common Stock, such security (or
portion thereof) as the Trust may receive in the spinoff or other distribution
in respect of each share of Limited Common Stock.
Pursuant to the terms of the Agreement, the Trust will have the opportunity
(the "Redemption Right"), commencing on January 31, 1998 and ending on January
30, 2006 (the "Exercise Period"), to require The Limited to redeem the Subject
Shares, from time to time, in whole or in part (subject to specified minimum
amounts), at a price per share equal to $18.75, subject to certain adjustments
(the "Redemption Price"). The Trust will have the right to transfer the
Redemption Right, from time to time, in whole or in part, to (i) Mr. Wexner,
(ii) any member of Mr. Wexner's immediate family, (iii) any corporation,
partnership, trust or other entity, of which all of the owners or
beneficiaries are Mr. Wexner or any member of Mr. Wexner's immediate family or
any charitable trust, (iv) any estate or personal representative of Mr. Wexner
or any member of Mr. Wexner's immediate family and (v) subject to certain
conditions, third parties, in each case, provided that such transferee agrees
to be bound by the terms of the Agreement. The Trust will have the right to
pledge the Redemption Right to a financial institution reasonably satisfactory
to The Limited to secure the Trust's obligations in respect of borrowed money
under any credit or similar agreement. The Trust will be permitted to withdraw
Subject Shares from the custody account provided such withdrawn shares are
replaced by an amount in cash equal to 120% of the market value of the
withdrawn shares. The Trust will be permitted to sell all the withdrawn
shares.
The Limited will have the opportunity (the "Company Redemption Right"),
beginning on July 31, 2006 and ending on January 30, 2007, to redeem the
Subject Shares, from time to time, in whole or in part (subject to specified
minimum amounts), at a price per share equal to $25.07, subject to certain
adjustments (also referred to as the "Redemption Price"). The Limited will
have the right to transfer the Company Redemption Right, from time to time, in
whole or in part, to any affiliate. The Limited Redemption Right will be
reduced on a share-for-share basis for any Subject Shares redeemed by The
Limited pursuant to the Redemption Right.
Subject to the terms of the Agreement, certain adjustments will be made to
the number of shares of Limited Common Stock subject to the Redemption Right
and the Company Redemption Right or to the Redemption Price, as the case may
be, upon the following events: (i) the payment of a dividend in shares, or any
subdivision, split or reclassification of shares of Limited Common Stock; (ii)
the issuance of shares of Limited Common Stock (or rights, warrants or other
securities convertible into or exchangeable or exercisable for shares of
Limited Common Stock) to all holders of shares of Limited Common Stock at a
price less than its market price; (iii) the repurchase of shares of Limited
Common Stock at a price in excess of its market price; or (iv) any change,
reclassification, conversion or other similar transaction involving shares of
Limited Common Stock.
During fiscal year 1997, Leonard A. Schlesinger, a member of The Limited's
Board of Directors, provided consulting services to The Limited and Mast
Industries, Inc., a wholly-owned subsidiary of The Limited. The fees for such
services were approximately $81,250 and $12,500, respectively.
89
<PAGE>
EXECUTIVE COMPENSATION FOR THE LIMITED
Summary Compensation Table
The following table provides information concerning compensation paid by The
Limited to each of the named executive officers of The Limited for each of The
Limited's last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------- -------------------------------------
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS(1) COMPENSATION(2) AWARDS(3) AWARDED COMPENSATION
POSITION YEAR $ $ ($) $ # $
------------------ ------ ---------- ---------- --------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leslie H. Wexner........ 1997 $1,000,000 $1,861,560 -- -- 1,600,000(4) $135,296(5)
Chairman of the Board, 1996 1,011,538 915,000 -- -- 200,000(4) 151,629(5)
Chief Executive Officer 100,000(6)
and President 1995 1,150,000 768,315 -- -- 100,000(4) 148,436(5)
Kenneth B. Gilman(7).... 1997 900,000 1,228,630 -- $6,220,313 500,000(4) 195,094(5)
Vice Chairman and 1996 903,846 603,900 -- -- 50,000(4) 187,192(5)
Chief Administrative 50,000(6)
Officer 1995 941,935 449,820 -- -- 25,000(4) 190,772(5)
Martin Trust............ 1997 700,000 868,980 -- 3,900,000 300,000(4) 216,212(5)
President and Chief 1996 703,846 1,155,700 -- 518,809 60,000(4) 203,807(5)
Executive Officer of 1995 741,650 679,455 -- 197,985 20,000(4) 154,278(5)
Mast Industries, Inc.
Arnold F. Kanarick...... 1997 546,154 477,800 $19,538 2,925,000 250,000(4) 99,089(5)(8)
Executive Vice
President 30,000(4)
and Chief Human 1996 497,308 255,500 -- 120,218 20,000(6) 79,833(5)
Resources Officer 1995 462,692 121,249 -- -- 15,000(4) 75,305(5)
V. Ann Hailey(9)........ 1997 204,327 258,825 32,984 990,625 25,000(4) 276,099(8)(10)
Executive Vice
President and Chief
Financial Officer
</TABLE>
- --------
(1) Represents for each fiscal year the aggregate of the performance-based
incentive compensation for the Spring and Fall selling seasons.
(2)Represents amounts reimbursed for tax on relocation expenses.
(3) Represents for each executive officer the restricted stock awards for the
specified fiscal year under The Limited's 1993 Stock Option and
Performance Incentive Plan. Information set forth above is based on the
closing price of Limited Common Stock on the date on which the awards were
made.
On February 1, 1998, 7,500 restricted shares of Limited Common Stock were
granted to Ms. Hailey based on business performance for the fiscal 1997
year. The per share value of the Limited Common Stock on the then most
recent prior date on which there were sales (January 30, 1998) was $26.50.
This award vests 10% on the grant date and 20%, 30%, and 40% on the first
through third anniversaries of the grant date, respectively, subject to
continued employment with The Limited.
On August 11, 1997, 35,000 restricted shares of Limited Common Stock were
granted to Ms. Hailey. The per share value of Limited Common Stock on such
date was $22.625. This award is earned subject to established financial
performance measures and, once earned, vests 100% on the fifth anniversary
of the grant date, subject to continued employment with The Limited.
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On May 20, 1997, 300,000, 200,000 and 150,000 restricted shares of Limited
Common Stock were granted to executive officers Gilman, Trust and Kanarick,
respectively. The per share value of Limited Common Stock on such date was
$19.50. These awards are earned subject to established financial
performance measures and once earned, vest 10%, 10%, 10%, 15%, 20% and 35%
on the first through sixth anniversaries of the grant date, respectively,
in each case subject to the holder's continued employment with The Limited.
On March 25, 1997, 19,750 restricted shares of Limited Common Stock were
granted to Mr. Gilman. The per share value of Limited Common Stock on such
date was $18.75. This award vests 100% one year from the grant date,
subject to continued employment with The Limited.
On February 1, 1997, 21,712 and 7,020 restricted shares of Limited Common
Stock were awarded for business performance to executive officers Trust and
Kanarick, respectively. The per share value of Limited Common Stock on such
date was $17.125. On August 1, 1996 and on February 1, 1996, 7,538 and
11,820 , respectively, restricted shares of Limited Common Stock were
awarded for business performance to Mr. Trust. The per share value of
Limited Common Stock on such dates were $19.50 and $16.75, respectively.
The February 1, 1997 and August 1, 1996 awards are for fiscal 1996 business
performance and the February 1, 1996 award is for fiscal 1995 business
performance. 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 the holder's 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 31, 1998, the aggregate restricted Limited Common Stock
holdings and the value of such holdings for each of the named executive
officers were: Mr. Wexner, 13,000 shares, $344,500; Mr. Gilman, 326,250
shares, $8,645,625; Mr. Trust, 233,092 shares, $6,176,938; Mr. Kanarick,
185,218 shares, $4,908,277; and Ms. Hailey, 42,500 shares, $1,126,250
(includes the 7,500 restricted shares noted in the second paragraph of this
footnote) (based on the $26.50 fair market value of a share of Limited
Common Stock as of Friday, January 30, 1998).
(4) Denominated in shares of Limited Common Stock.
(5) Represents for each executive officer, the amount of employer matching
and supplemental contributions allocated to his or her account under
certain of The Limited's qualified and non-qualified defined contribution
plans during 1997.
(6)Denominated in shares of Intimate Brands' Class A Common Stock.
(7) Mr. Gilman became Vice Chairman and Chief Administrative Officer on June
25, 1997. Previously, he was Vice Chairman and Chief Financial Officer.
(8) Includes reimbursement of relocation expenses above The Limited's normal
relocation policy of $7,500 for Mr. Kanarick and $26,099 for Ms. Hailey.
(9) Ms. Hailey joined The Limited on August 11, 1997 as Executive Vice
President and Chief Financial Officer; therefore, reporting numbers are
for partial year.
(10) Includes $250,000 incentive bonus paid in connection with Ms. Hailey's
commencement of employment with The Limited.
LONG-TERM INCENTIVE PLAN AWARDS
No awards were granted in respect of the 1997 fiscal year to the named
executive officers other than the restricted stock performance awards as
disclosed in the Summary Compensation Table.
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STOCK OPTIONS
The following table sets forth certain information regarding stock options
granted to the executive officers named in the Summary Compensation Table
during The Limited's 1997 fiscal year.
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
INDIVIDUAL PRICE APPRECIATION FOR
GRANTS OPTION TERM (2)($)
---------- -----------------------
PERCENT OF
TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE
OPTIONS ASSOCIATES PER
GRANTED IN FISCAL SHARE EXPIRATION
NAME (#)(1) YEAR ($) DATE 5% 10%
---- ---------- ---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Leslie H. Wexner........ 1,600,000 22.01% $22.1375(3) 07/02/07 $22,275,448 $56,450,358
Kenneth B. Gilman....... 500,000 6.88% 19.5000 05/21/07 6,131,723 15,538,989
Martin Trust............ 300,000 4.13% 19.5000 05/21/07 3,679,034 9,323,393
Arnold F. Kanarick...... 250,000 3.44% 19.5000 05/21/07 3,065,861 7,769,494
V. Ann Hailey........... 25,000 0.34% 22.6250 08/12/07 355,719 901,461
</TABLE>
- --------
(1) On July 1, 1997, options were granted to Mr. Wexner, and, on May 20, 1997,
options were granted to executive officers Gilman, Trust and Kanarick
pursuant to The Limited's 1993 Stock Option and Performance Incentive Plan
(1997 Restatement). Such options vest 10%, 10%, 10%, 15%, 20% and 35% on
the first through sixth anniversaries of the grant date, respectively, in
each case subject to the holder's continued employment with The Limited.
On August 11, 1997, options were granted to Ms. Hailey pursuant to The
Limited's 1993 Stock Option and Performance Incentive Plan (1997
Restatement). Such options become exercisable in four equal annual
installments commencing on the first anniversary of the grant date, subject
to continued employment with The Limited.
(2) The assumed rates of growth were selected by the Commission for
illustrative purposes only and are not intended to predict or forecast
future stock prices.
(3) The per share exercise price of all such options to Mr. Wexner is set at
110% of the fair market value of the stock on the date of grant.
The following table sets forth certain information regarding stock options
exercised by the executive officers named in the Summary Compensation Table
during The Limited's 1997 fiscal year and the year-end values of unexercised
options held by such executive officers.
AGGREGATED OPTION EXERCISES IN 1997 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE OPTIONS AT FISCAL YEAR-END (#) FISCAL YEAR-END ($)
ON EXERCISE REALIZED ------------------------------------ ----------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leslie H. Wexner........ -- -- 137,500(2) 1,812,500(2) $1,113,750(2) $8,471,250(2)
25,000(3) 75,000(3) 93,125(3) 279,375(3)
Kenneth B. Gilman....... 31,250(4) $384,766 222,917(2) 564,583(2) 1,629,430(2) 4,124,476(2)
4,167(3) 45,833(3) 46,618(3) 512,757(3)
Martin Trust............ -- -- 91,750(2) 371,250(2) 482,500(2) 2,792,500(2)
Arnold F. Kanarick...... -- -- 76,250(2) 288,750(2) 389,063(2) 2,124,688(2)
1,667(3) 18,333(3) 18,650(3) 205,100(3)
V. Ann Hailey........... -- -- -- 25,000(2) -- 96,875(2)
</TABLE>
- --------
(1) Calculated on the basis of the number of shares exercised, multiplied by
the excess of the fair market value of a share of Limited Common Stock on
the date of exercise over the exercise price of such option.
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(2) Denominated in shares of Limited Common Stock. Value is calculated on the
basis of the number of shares subject to each such option, multiplied by
the excess of the fair market value of a share of Limited Common Stock on
the last trading day prior to fiscal year-end ($26.50) over the exercise
price of such option.
(3) Denominated in shares of Intimate Brands' Class A Common Stock. Value is
calculated on the basis of the number of shares subject to each such
option, multiplied by the excess of the fair market value of a share of
Intimate Brands Class A Common Stock on the last trading day prior to
fiscal year-end ($25.3125) over the exercise price of such option.
(4) Denominated in shares of Limited Common Stock.
COMPENSATION OF DIRECTORS
Directors who are not associates of The Limited receive an annual retainer
of $20,000 per year (increased by $4,000 for each committee chair held), plus
a fee of $3,500 for each Board meeting attended ($1,000 for a telephonic
meeting) and, as committee members, receive $1,500 per committee meeting
attended ($500 for a telephonic meeting). Each action in writing taken by the
Board or any committee entitles each such director to be paid $500. Associates
and officers who are directors receive no additional compensation for services
rendered as directors. Under The Limited's 1996 Stock Plan for Non-Associate
Directors, each director who is not an associate of The Limited receives (i)
annual grants of options to purchase 1,000 shares of Limited Common Stock at a
price equal to the fair market value of such shares at the date of grant and
(ii) 50% of the annual retainer in shares of Limited Common Stock.
EMPLOYMENT AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS
In 1997 The Limited entered into individual employment agreements with
Messrs. Gilman, Trust and Kanarick. Pursuant to these agreements, Mr. Gilman
serves as The Limited's Vice Chairman and Chief Administrative Officer, Mr.
Trust serves as President and Chief Executive Officer of Mast Industries, Inc.
and Mr. Kanarick serves as The Limited's Executive Vice President and Chief
Human Resources Officer. The initial term of each agreement is six years, with
automatic one-year extensions thereafter unless either party gives written
notice to the contrary. Mr. Gilman's agreement provides for an initial base
salary of $900,000, Mr. Trust's agreement provides for an initial base salary
of $700,000 and Mr. Kanarick's agreement provides for an initial base salary
of $550,000. Option grants and the value of performance-based stock awards
made in 1997 pursuant to the agreements are disclosed in the Summary
Compensation Table. Each agreement also provides for incentive plan
participation as determined by the Board and life insurance coverage of $5
million. Under each agreement, upon the failure of The Limited to extend the
agreement or the termination of the executive's employment either by The
Limited other than for cause or by the executive for good reason, the
executive will continue to receive his base salary for one year after the
termination date. Under the agreements, each executive agrees not to compete
with The Limited or solicit its employees or customers during the employment
term and for one year thereafter. Each executive's agreement provides for
disability benefits in addition to the benefits available under The Limited's
disability plans. In the event any "parachute" excise tax is imposed on an
executive, he will be entitled to tax reimbursement payments.
CERTAIN TRANSACTIONS
Neither The Limited, nor any subsidiary of The Limited, nor, to The
Limited's knowledge, any of The Limited's executive officers or directors or
associates of any of the foregoing, has engaged in any transaction involving
shares of Limited Common Stock during the period of forty business days prior
to the date hereof except for the transactions effected by trusts created by
Mr. Wexner referred to on page 22 and described in more detail in Schedule A
hereto.
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SHARES ELIGIBLE FOR FUTURE SALE
Shares of A&F Common Stock distributed to stockholders of The Limited will
be freely transferable, except for shares received by persons who may be
deemed to be "affiliates" of A&F under the Securities Act of 1933, as amended
(the "Securities Act"). Persons who may be deemed to be affiliates of A&F
after the expiration of the Exchange Offer generally include individuals or
entities that control, are controlled by, or are under common control with,
A&F, and will include the directors and principal executive officers of A&F
and also could include certain significant stockholders of A&F. Persons who
are affiliates of A&F will be permitted to sell their shares of A&F Common
Stock only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemption afforded by Rule 144 under the
Securities Act.
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COMPARISON OF RIGHTS OF HOLDERS OF LIMITED COMMON STOCK
AND A&F COMMON STOCK
The following is a summary of material differences between the rights of
holders of Limited Common Stock and the rights of holders of A&F Common Stock.
Because each of The Limited and A&F is organized under the laws of Delaware,
such differences arise principally from provisions of the Certificate of
Incorporation and Bylaws of each of The Limited and A&F.
The following summary does not purport to be a complete statement of the
rights of stockholders of The Limited under the Restated Certificate of
Incorporation and Restated Bylaws of The Limited as compared with the rights
of A&F stockholders under the Amended and Restated Certificate of
Incorporation and the Bylaws of A&F or a complete description of the specific
provisions referred to herein. The identification of specific differences is
not meant to indicate that other equal or more significant differences do not
exist. The summary is qualified in its entirety by reference to the governing
corporate instruments of The Limited and A&F, to which stockholders are
referred. Copies of the governing corporate instruments of The Limited and A&F
have been filed with the SEC. See "Where You Can Find More Information" on
page 102.
NUMBER OF DIRECTORS
A&F's Bylaws provide that the number of directors on 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 not be less
than four nor more than nine, the exact number to be set by the Board from
time to time.
The Bylaws of The Limited provide that the number of directors on 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 not be less than nine nor more than 13, the exact number to be set by
the Board from time to time.
BUSINESS COMBINATIONS
A&F's Certificate of Incorporation states that the affirmative vote of not
less than 75 percent of the outstanding shares entitled to vote thereon held
by stockholders other than the Interested Person seeking to effect a Business
Combination shall be required for the approval or any Business Combination
with any Interested Person, unless such transaction has been approved by a
majority of the Continuing Directors. A "Business Combination" means: (a) any
merger or consolidation of A&F or a subsidiary of A&F with or into an
Interested Person, (b) any sale, lease, exchange, transfer or other
disposition, including without limitation, a mortgage or any other security
device, of all or any Substantial Part of the assets of A&F or a subsidiary of
A&F to an Interested Person, (c) any merger or consolidation of an Interested
Person with or into A&F or a subsidiary of A&F, (d) any sale, lease, exchange,
transfer or other disposition, including without limitation, a mortgage or
other security device, of all or any Substantial Part of the assets of an
Interested Person to A&F or a subsidiary of A&F, (e) the issuance or transfer
by A&F or any subsidiary of A&F of any securities of A&F or a subsidiary of
A&F to an Interested Person, (f) any reclassification of securities,
recapitalization or other comparable transaction involving A&F that would have
the effect of increasing the voting power of any Interested Person with
respect to the voting stock of A&F, and (g) any agreement, contract or other
arrangement providing for any of the foregoing transactions. "Interested
Person" means any individual, corporation, partnership or other person or
entity which, together with its affiliates and associate beneficially owns in
the aggregate five percent or more of the outstanding voting stock of A&F, and
any affiliate or associates, of any such person or entity. "Substantial Part"
means more than 20 percent of the fair market value as determined by two-
thirds of the Continuing Directors of the total consolidated assets of A&F and
its subsidiaries as of the end of its most recent fiscal year ended prior
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<PAGE>
to the time the determination is being made. "Continuing Director" means a
director who was a member of the Board of Directors of A&F immediately prior
to the time that the Interested Person involved in a Business Combination
became an Interested Person, or a director who was elected or appointed to
fill a vacancy after the date the Interested Person became an Interested
Person by a majority of the then-current Continuing Directors.
The Certificate of Incorporation of The Limited contains a substantially
similar business combination provision with respect to The Limited and its
subsidiaries, except that (i) the definition of an "Interested Person"
requires the beneficial ownership of 20 percent of the voting stock of The
Limited, instead of five percent in the case of A&F, and (ii) the 75 percent
voting requirement does not apply to any Business Combination if (a) the
Continuing Directors have, by at least a two-thirds vote, (1) expressly
approved in advance the acquisition of the shares of voting stock that caused
such person or entity to become an Interested Person or (2) expressly approved
such Business Combination, or (b) the cash or fair market value of the
consideration to be received per share by the stockholders of The Limited in
the Business Combination is not less than the Fair Price paid by the
Interested Person in acquiring its holdings of voting stock of The Limited.
"Fair Price" with respect to a class of stock means, subject to certain
adjustments set forth in the Certificate of Incorporation of The Limited, the
highest price that can be determined by a majority of the Continuing Directors
to have been paid at any time by the Interested Person for any share or shares
of that class of capital stock.
AUTHORIZED SHARES OF STOCK
A&F's Certificate of Incorporation provides that the total number of shares
of stock which A&F shall have authority to issue is 315,000,000, consisting of
300,000,000 shares of common stock, par value $.01 per share, and 15,000,000
shares of preferred stock, par value $.01 per share. The common stock of A&F
is divided into two classes, Class A Common Stock and Class B Common Stock.
The Class A Common Stock and Class B Common Stock are identical, except that
Class A Common Stock has one vote per share while Class B Common Stock has
three votes per share. All outstanding shares of the A&F Class B Common Stock
will be converted into A&F Class A Common Stock immediately prior to the
consummation of the Exchange Offer.
The Certificate of Incorporation of The Limited provides that the total
number of shares of stock which The Limited has authority to issue is
510,000,000, consisting of 500,000,000 shares of common stock, par value $.50
per share, and 10,000,000 shares of preferred stock, par value $1.00 per
share. The common stock of The Limited is currently not divided into any
classes.
TRANSACTIONS WITH INTERESTED PARTIES
A&F's Certificate of Incorporation currently includes certain provisions
addressing (i) potential conflicts of interest between A&F and The Limited,
(ii) corporate opportunities and the treatment of those opportunities by the
directors of A&F and (iii) limitation of liability of the directors of The
Limited and its subsidiaries (other than the directors of A&F) for certain
breaches of their fiduciary duties in connection with the intercompany
agreements. By the terms of A&F's Certificate of Incorporation, such
provisions will no longer be in effect upon the consummation of the
Transactions.
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RELATIONSHIP BETWEEN THE LIMITED AND A&F
SERVICES AGREEMENTS
On September 27, 1996, A&F and The Limited entered into an intercompany
services and operating agreement (the "Old Services Agreement") with respect
to services to be provided by The Limited to A&F. Pursuant to the Old Services
Agreement, The Limited provided services in exchange for fees which (based on
current costs for such services) management believes did not exceed fees that
would be paid if such services were provided by an independent third party and
which were consistent in all material respects with the allocation of the
costs of such services set forth in the historical consolidated financial
statements of A&F. The services provided to A&F by The Limited pursuant to the
Old Services Agreement included, among other things, certain accounting,
associate benefit plan administration, audit, cash management, corporate
development, corporate secretary, governmental affairs, human resources and
compensation, investor and public relations, legal, risk management,
transportation, tax and treasury, store design/planning, real estate and
import and shipping services. The net charge for services that were paid by
A&F in 1997 was approximately $8.3 million.
The Old Services Agreement will be amended upon the consummation of the
Exchange Offer (as amended, the "New Services Agreement"). The services to be
provided by The Limited to A&F under the New Services Agreement include, among
other things, certain associate benefit plan administration, information
technology services, human resources and compensation, tax, store
design/planning, transportation, real estate and import and shipping services.
The cost of such services to be charged to A&F generally will equal The
Limited's costs in providing the relevant services plus 5% of such costs. The
aggregate amounts to be charged to A&F under the New Services Agreement are
not expected to be materially different than the amounts charged to A&F under
the Old Services Agreement. In addition to the foregoing, the New Services
Agreement will include provisions binding on both The Limited and A&F imposing
confidentiality obligations with respect to confidential information of the
other and prohibiting the hiring of certain of the other's employees.
Pursuant to the New Services Agreement, each party will indemnify the other,
except in certain limited circumstances, against liabilities that the other
may incur that are caused by or arise in connection with such party's failure
to fulfill its material obligations under the New Services Agreement. The New
Services Agreement also provides that (i) A&F will reimburse The Limited for
any amounts paid by The Limited under guarantees or arrangements supporting
A&F's obligations and (ii) A&F will not take certain actions that could
materially and adversely affect A&F's ability to pay any obligations
guaranteed or 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 New Services Agreement will have a three-year term, although The Limited
will cease to provide a substantial majority of the services thereunder upon
the first anniversary of the consummation of the Exchange Offer. Human
resources and benefits services will terminate three months after the Exchange
Offer is complete. The New Services Agreement will also provide for early
termination of the agreement and of individual services by A&F.
SUBLEASE AGREEMENTS
On June 11, 1995, A&F entered into a sublease agreement with an affiliate of
The Limited (the "Sublease Agreement") pursuant to which such affiliate
subleases to A&F the distribution center and headquarters office space
currently used by A&F. The Sublease Agreement provides that the lessee will
lease space at an average annual rental rate equal to $11.00 per square foot
in the case of office space and $2.85 per square foot in the case of the
distribution center. The Sublease Agreement will be amended upon the
consummation of the Exchange Offer to provide for a total term of six years
(expiring June 11, 2001), so that A&F may continue to occupy such space for
approximately three years after the consummation of the Exchange Offer,
instead of the original fifteen year term.
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SHARED FACILITIES AGREEMENTS
On September 27, 1996, A&F and the relevant businesses operated by The
Limited entered into shared facilities agreements (collectively, the "Shared
Facilities Agreements") pursuant to which A&F subleases such facilities from
the relevant subsidiary of The Limited. Under the Shared Facilities
Agreements, A&F is responsible for its pro rata share (based on square feet
occupied) of all costs and expenses (principally fixed rent) under the
relevant lease plus the portion of any performance based rent attributable to
A&F. This method of allocating such costs and expenses is consistent in all
material respects with the allocation of such costs and expenses set forth in
the historical consolidated financial statements of A&F. The store lease and
other occupancy costs charge paid by A&F in 1997 is approximately $1.3
million. At February 10, 1998, two of A&F's stores were located in space
leased by other businesses controlled by The Limited. The Shared Facilities
Agreements will not be affected by the Transactions and shall continue in
their current form.
TAX-SEPARATION AGREEMENT
A&F is currently included in The Limited's federal consolidated income tax
group and A&F's tax liability will be included in the consolidated federal
income tax liability of The Limited for 1997 and part of 1998. In certain
circumstances, certain A&F subsidiaries may be included with certain
subsidiaries of The Limited in combined, consolidated or unitary income tax
groups for state and local tax purposes. Currently, A&F and The Limited are
parties to a tax-sharing agreement (the "Tax-Sharing Agreement") entered into
on September 27, 1996. Pursuant to the Tax-Sharing Agreement, A&F and The
Limited make payments between them such that, with respect to any period, the
amount of taxes to be paid by A&F, subject to certain adjustments, will be
determined as though A&F were to file separate federal, state and local income
tax returns (including, except as provided below, any amounts determined to be
due as a result of a redetermination of the tax liability of The Limited
arising from an audit or otherwise) as the common parent of an affiliated
group of corporations filing combined, consolidated or unitary (as applicable)
federal, state and local returns rather than a consolidated subsidiary of The
Limited with respect to federal, state and local income taxes. A&F is
reimbursed, however, for tax attributes that it generates, such as net
operating losses, if and when they are used on a consolidated basis.
After the Transactions, A&F will no longer be included in The Limited's
consolidated group for federal income tax purposes. Accordingly, The Limited
and A&F will amend their existing Tax Sharing Agreement (the "Tax
Disaffiliation Agreement") to reflect the separation of A&F from The Limited
pursuant to the Transactions with respect to tax matters. The Tax
Disaffiliation Agreement will reflect each party's rights and obligations with
respect to payments and refunds of taxes that are attributable to periods
beginning prior to and including the date of the Transactions and taxes
resulting from transactions effected in connection with the Transactions. With
respect to any period prior to the Transactions, The Limited will, as provided
in the Tax Sharing Agreement, continue to be the sole and exclusive agent for
A&F in any and all matters relating to the income, franchise and similar tax
liabilities of A&F, will continue to have the sole and exclusive
responsibility for the preparation and filing of consolidated federal and
consolidated or combined state income tax returns and will have the power, in
its sole discretion, to contest or compromise any claim for refund on behalf
of A&F. The Tax Disaffiliation Agreement will also express each party's
intention with respect to certain tax attributes of A&F after the
Transactions. The Tax Disaffiliation Agreement will provide for payments
between the two companies for certain tax adjustments made after the
Transactions that cover pre-Transactions tax liabilities. Other provisions
will 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.
If following the Transactions and pursuant to a plan in existence at the
time of the Transactions, one or more persons were to acquire a 50 percent or
greater interest in either The Limited or A&F, The Limited would recognize
gain on the A&F Common Stock it distributes in the Transactions. To
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minimize the risk of this gain recognition, under the Tax Disaffiliation
Agreement, A&F will agree to refrain from engaging in certain transactions for
two years following the date of the Transactions without first (i) obtaining a
ruling from the IRS to the effect that such actions will not result in the
Transactions being taxable to The Limited or its stockholders, or (ii)
obtaining an opinion of counsel recognized as an expert in federal income tax
matters and acceptable to the other party to the same effect as in (i).
Transactions that may be subject to this restriction include, among other
things, liquidation, merger or consolidation with, or acquisition by, another
company, certain issuances and redemptions of A&F Common Stock, the granting
of stock options, the sale, distribution or other disposition of assets in a
manner that would adversely affect the tax consequences of the Transactions or
any transactions effected in connection with the Transactions and the
discontinuation of certain businesses.
99
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences relating to the Transactions. The discussion contained in this
Offering Circular-Prospectus is based on the private letter ruling (the
"Ruling Letter") received from the Internal Revenue Service (the "IRS") with
respect to the Transactions and on the law in effect as of the date of this
Offering Circular-Prospectus. A copy of the Ruling Letter has been filed with
the SEC as an exhibit to the Registration Statement of which this Offering
Circular-Prospectus is a part. The following summary is qualified in its
entirety by reference to the Ruling Letter. Stockholders of The Limited are
urged to consult their tax advisors as to the particular tax consequences to
them of the Transactions.
The Ruling Letter provides that, for federal income tax purposes, the
Transactions will qualify as a tax-free distribution to The Limited's
stockholders under Section 355 of the Internal Revenue Code of 1986, as
amended (the "Code"), (except with respect to cash received in lieu of
fractional shares) and, in general, will be tax-free to The Limited. Although
private letter rulings are generally binding on the IRS, The Limited will not
be able to rely on the Ruling Letter if any factual representations or
assumptions made in connection with the ruling request are incorrect or untrue
in any material respect. The Limited is not aware of any facts or
circumstances that would cause any such representations or assumptions to be
incorrect or untrue in any material respect. Nevertheless, if the Transactions
are subsequently held to be taxable, both The Limited and its stockholders who
receive A&F shares in the Exchange Offer or the Spin-Off, if any, would be
subject to tax.
The Ruling Letter provides, in all material respects, that (i) no gain or
loss will be recognized by (and no amount will be included in the income of)
Limited stockholders upon their receipt of A&F Common Stock in the
Transactions, (ii) Limited stockholders that surrender all of their Limited
Common Stock in the Exchange Offer will have an aggregate basis in the shares
of A&F Common Stock received in the Exchange Offer equal to such stockholders'
aggregate basis in Limited Common Stock surrendered, (iii) Limited
stockholders that receive A&F Common Stock in the Transactions and continue to
hold some Limited Common Stock will have a basis in the A&F Common Stock
received in the Transactions determined by allocating such stockholder's
aggregate tax basis in Limited Common Stock held before the Transactions
between the A&F Common Stock received in the Transactions and the Limited
Common Stock retained in proportion to their relative fair market values, (iv)
the holding period of A&F Common Stock received by a Limited stockholder in
the Transactions will include the period during which the stockholder held its
shares of Limited Common Stock, whether or not such Limited Common Stock was
surrendered in the Exchange Offer, provided that such shares of Limited Common
Stock are held as a capital asset on the date of the Transactions, and (v)
cash received in lieu of fractional share interests in A&F will give rise to
gain or loss equal to the difference between the amount of cash received and
the tax basis allocable to such fractional share interests. Such gain or loss
will be capital gain or loss if the shares of Limited Common Stock are held as
a capital asset on the date of the Transactions.
The Ruling Letter does not specifically address tax basis issues with
respect to holders of Limited Common Stock who have blocks of stock with
different per share tax bases. Such holders are encouraged to consult their
tax advisors regarding the possible tax basis consequences of the
Transactions.
U.S. Treasury regulations require each Limited stockholder that receives
shares of A&F Common Stock in the Transactions to attach to the holder's U.S.
federal income tax return for the year in which such stock is received a
detailed statement setting forth such data as may be appropriate in order to
show the applicability of Section 355 of the Code to the Transactions. Within
a reasonable time after the Transactions, The Limited will provide Limited
stockholders who participate in the Exchange Offer and Limited stockholders
who will receive A&F Common Stock in the Spin-Off, if any, with the
information necessary to comply with that requirement, and will provide
information regarding the allocation of basis described in clause (iii) above.
100
<PAGE>
THIS SUMMARY DOES NOT DISCUSS ALL TAX CONSIDERATIONS THAT MAY BE RELEVANT TO
STOCKHOLDERS OF THE LIMITED IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, NOR
DOES IT ADDRESS THE CONSEQUENCES TO CERTAIN STOCKHOLDERS OF THE LIMITED
SUBJECT TO SPECIAL TREATMENT UNDER THE U.S. FEDERAL INCOME TAX LAWS (SUCH AS
TAX-EXEMPT ENTITIES, NON-RESIDENT ALIEN INDIVIDUALS AND FOREIGN CORPORATIONS).
IN ADDITION, THIS SUMMARY DOES NOT ADDRESS THE U.S. FEDERAL INCOME TAX
CONSEQUENCES TO STOCKHOLDERS OF THE LIMITED WHO DO NOT HOLD THEIR LIMITED
COMMON STOCK AS A CAPITAL ASSET. THIS SUMMARY DOES NOT ADDRESS ANY STATE,
LOCAL OR FOREIGN TAX CONSEQUENCES. STOCKHOLDERS OF THE LIMITED ARE URGED TO
CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
THE TRANSACTION AND THE OWNERSHIP AND DISPOSITION OF A&F COMMON STOCK,
INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS AND ANY CHANGES
IN FEDERAL TAX LAWS THAT OCCUR AFTER THE DATE OF THIS OFFERING CIRCULAR-
PROSPECTUS.
For a description of an agreement pursuant to which The Limited and A&F have
provided for certain tax sharing and other tax-related matters, see
"Relationship between The Limited and A&F--Tax-Separation Agreement" on page
98.
LEGAL MATTERS
Certain legal matters with respect to the Transactions will be passed upon
by Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017.
EXPERTS
The (i) audited consolidated financial statements of The Limited for the
year ended January 31, 1998 included in this Offering Circular-Prospectus and
(ii) audited consolidated financial statements of A&F for the year ended
January 31, 1998 included in this Offering Circular-Prospectus have been
included in reliance on the reports of Coopers & Lybrand LLP, independent
accountants of The Limited and A&F, given on the authority of said firm as
experts in auditing and accounting.
101
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The Limited and A&F file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by either company at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. The companies' SEC filings are also available to the
public from commercial document retrieval services and at the web site
maintained by the SEC at "http://www.sec.gov."
A&F filed a Registration Statement (together with any amendments thereto,
the "Registration Statement") on Form S-4 to register with the SEC the A&F
Common Stock to be issued to Limited stockholders who tender their shares in
the Exchange Offer and whose shares of Limited Common Stock are accepted for
exchange. The Limited has filed a Schedule 13E-4 Issuer Tender Offer Statement
with the SEC with respect to the Exchange Offer (together with any amendments
thereto, the "Schedule 13E-4"). This Offering Circular-Prospectus is a part of
that Registration Statement and constitutes a Offering Circular of The Limited
in addition to being a Prospectus of A&F. As allowed by SEC rules, this
Offering Circular-Prospectus does not contain all the information you can find
in the Registration Statement, the Schedule 13E-4 or the exhibits to the
Registration Statement and the Schedule 13E-4.
The SEC allows The Limited and A&F to "incorporate by reference" information
into this Offering Circular-Prospectus, which means important information may
be disclosed to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of
this Offering Circular-Prospectus, except for any information superseded by
information in (or incorporated by reference in) this Offering Circular-
Prospectus. The Offering Circular-Prospectus incorporates by reference the
documents set forth below that have been previously filed with the SEC. These
documents contain important information about our companies and their
finances.
<TABLE>
<CAPTION>
THE LIMITED SEC FILINGS
(FILE NO. 1-8344) PERIOD
----------------------- ------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended February 1, 1997
Current Reports on Form 8-K Filed February 18, 1998 and April 10, 1998
Proxy Statement Filed April 14, 1997
<CAPTION>
A&F SEC FILINGS (FILE NO.
1-12107) PERIOD
------------------------- ------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended February 1, 1997
Current Reports on Form 8-K Filed February 18, 1998 and April 10, 1998
Proxy Statement Filed April 14, 1997
</TABLE>
The Limited and A&F are also incorporating by reference additional documents
that either company may file with the SEC between the date of this Offering
Circular-Prospectus and the Expiration Date.
A&F has agreed to indemnify The Limited against certain liabilities,
including civil liabilities under the federal securities act, and to
contribute to payments which The Limited may be required to make in respect
thereof, but solely with respect to information relating to A&F in this
Offering Circular-Prospectus. The Limited has agreed to indemnify A&F against
certain liabilities, including civil liabilities under the federal securities,
and to contribute to payments which A&F may be required to make in respect
thereof, but solely with respect to information relating to The Limited in
this Offering Circular-Prospectus.
The Limited may have already sent you some of the documents incorporated by
reference, but you can obtain any of them through the SEC or through The
Limited or A&F, the Dealer Managers or the Information Agent, without charge,
excluding all exhibits unless we have specifically incorporated
102
<PAGE>
by reference an exhibit in this Offering Circular-Prospectus. Stockholders may
obtain documents incorporated by reference in this Offering Circular-
Prospectus by requesting in writing or by telephone from the Information Agent
or the Dealer Managers at their respective addresses, the appropriate party at
the following address:
The Limited, Inc. Abercrombie & Fitch Co.
Three Limited Parkway Four Limited Parkway East
P.O. Box 16000 P.O. Box 182168
Columbus, Ohio 43230 Reynoldsburg, Ohio 43608
Attention: Investor Relations Attention: Investor Relations
(614) 415-7000 (614) 577-6500
If you would like to request documents from either company, please do so
five business days before the Expiration Date to receive them in time.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS OFFERING CIRCULAR-PROSPECTUS IN CONNECTION WITH THE EXCHANGE
OFFER OR IN THE LETTER OF TRANSMITTAL. NEITHER THE LIMITED NOR A&F HAS
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT
IS CONTAINED IN THIS OFFERING CIRCULAR-PROSPECTUS. THIS OFFERING CIRCULAR-
PROSPECTUS IS DATED APRIL 15, 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS OFFERING CIRCULAR-PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THIS OFFERING CIRCULAR-
PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF A&F COMMON STOCK SHALL CREATE
ANY IMPLICATION TO THE CONTRARY.
THIS OFFERING CIRCULAR-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE A&F COMMON STOCK IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. THE LIMITED IS NOT AWARE OF ANY
JURISDICTION WHERE THE MAKING OF THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF
WOULD NOT BE IN COMPLIANCE WITH APPLICABLE LAW. IF THE LIMITED BECOMES AWARE
OF ANY JURISDICTION WHERE THE MAKING OF THE EXCHANGE OFFER OR ACCEPTANCE
THEREOF WOULD NOT BE IN COMPLIANCE WITH ANY VALID APPLICABLE LAW, THE LIMITED
WILL MAKE A GOOD FAITH EFFORT TO COMPLY WITH SUCH LAW. IF, AFTER SUCH GOOD
FAITH EFFORT, THE LIMITED CANNOT COMPLY WITH SUCH LAW, THE EXCHANGE OFFER WILL
NOT BE MADE TO, NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF
SHARES OF LIMITED COMMON STOCK IN ANY SUCH JURISDICTION.
103
<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
"A&F Common Stock"......................................................... 21
"A&F IPO".................................................................. 21
"Agent's Message".......................................................... 32
"Agreement"................................................................ 88
"Anticipated Premium"...................................................... 28
"Book-Entry Transfer Facility"............................................. 31
"Business Combination"..................................................... 95
"business day"............................................................. 35
"C&L, US".................................................................. 86
"Code"..................................................................... 100
"Company Redemption Right.................................................. 89
"Continuing Director"...................................................... 96
"Dealer Manager"........................................................... 9
"DGCL"..................................................................... 23
"DRP"...................................................................... 30
"Dutch auction"............................................................ 25
"EITF"..................................................................... 51
"Eligible Institution"..................................................... 32
"Exchange Act"............................................................. 27
"Exchange Agent"........................................................... 38
"Exchange Date"............................................................ 27
"Exchange Ratio Range"..................................................... 25
"Exchange Ratio"........................................................... 25
"Exchange Time"............................................................ 27
"Exercise Period".......................................................... 89
"Expiration Date".......................................................... 25
"Fair Price"............................................................... 96
"Final Exchange Ratio"..................................................... 25
"GATT"..................................................................... 73
"Goldman Sachs"............................................................ 22
"Harvard".................................................................. 87
"HSR Act".................................................................. 23
"IMU"...................................................................... 55
"Information Agent"........................................................ 38
"Interested Person"........................................................ 95
"Intimate Brands IPO"...................................................... 21
"Intimate Brands".......................................................... 21
"IRS"...................................................................... 100
"LDS"...................................................................... 74
</TABLE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
"Limited Common Stock"..................................................... 25
"Limited Self Tender"...................................................... 21
"Limited Store Planning"................................................... 73
"Mast"..................................................................... 73
"Maximum Exchange Ratio"................................................... 25
"Merchandise Marks"........................................................ 75
"Minimum Exchange Ratio"................................................... 25
"Name Mark"................................................................ 75
"New Services Agreement"................................................... 97
"NMSI"..................................................................... 22
"NYSE"..................................................................... 28
"Old Services Agreement"................................................... 97
"POS"...................................................................... 75
"Receivables Securitization"............................................... 21
"Redemption Price"......................................................... 89
"Redemption Right"......................................................... 89
"Registration Statement"................................................... 102
"Ruling Letter"............................................................ 100
"Schedule 13E-4"........................................................... 102
"Securities Act"........................................................... 94
"SEC"...................................................................... 10
"Shared Facilities Agreements"............................................. 97
"Soliciting Dealer"........................................................ 38
"Special Delivery Instructions"............................................ 32
"Special Issuance Instructions"............................................ 32
"Spin-Off"................................................................. 39
"Subject Shares"........................................................... 89
"Sublease Agreement"....................................................... 97
"Subsidiary"............................................................... 86
"Substantial Part"......................................................... 95
"Tax Disaffiliation Agreement"............................................. 98
"Tax-Sharing Agreement".................................................... 98
"Transactions"............................................................. 18
"Trigger Amount"........................................................... 26
"Trust".................................................................... 88
"WCAS"..................................................................... 21
"WFN Sale"................................................................. 21
"WFN"...................................................................... 21
</TABLE>
104
<PAGE>
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE LIMITED
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Independent Accountants........................................ F(L)-2
Consolidated Statements of Income........................................ F(L)-3
Consolidated Balance Sheets.............................................. F(L)-4
Consolidated Statements of Shareholders' Equity.......................... F(L)-5
Consolidated Statements of Cash Flows.................................... F(L)-6
Notes to Consolidated Financial Statements............................... F(L)-7
</TABLE>
F(L)-1
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The Limited, Inc.
We have audited the accompanying consolidated balance sheets of The Limited,
Inc. and subsidiaries as of January 31, 1998 and February 1, 1997, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three fiscal years in the period ended January 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Limited, Inc.
and subsidiaries as of January 31, 1998 and February 1, 1997 and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Columbus, Ohio
February 20, 1998
F(L)-2
<PAGE>
THE LIMITED, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
NET SALES............................... $ 9,188,804 $ 8,644,791 $ 7,881,437
Costs of Goods Sold, Occupancy and
Buying Costs......................... (6,370,827) (6,148,212) (5,793,905)
----------- ----------- -----------
GROSS INCOME............................ 2,817,977 2,496,579 2,087,532
General, Administrative and Store
Operating Expenses................... (2,124,663) (1,848,512) (1,475,497)
Special and Nonrecurring Items, Net... (213,215) (12,000) 1,314
----------- ----------- -----------
OPERATING INCOME........................ 480,099 636,067 613,349
Interest Expense...................... (68,728) (75,363) (77,537)
Other Income, Net..................... 36,886 41,972 21,606
Minority Interest..................... (56,473) (45,646) (22,374)
Gain in Connection with Initial Public
Offerings............................ 8,606 118,178 649,467
----------- ----------- -----------
INCOME BEFORE INCOME TAXES.............. 400,390 675,208 1,184,511
----------- ----------- -----------
Provision for Income Taxes............ 183,000 241,000 223,000
----------- ----------- -----------
NET INCOME.............................. $ 217,390 $ 434,208 $ 961,511
=========== =========== ===========
NET INCOME PER SHARE:
BASIC................................. $ .80 $ 1.55 $ 2.69
=========== =========== ===========
DILUTED............................... $ .79 $ 1.54 $ 2.68
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F(L)-3
<PAGE>
THE LIMITED, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Equivalents.................................. $ 746,395 $ 312,796
Accounts Receivable................................... 83,370 69,337
Inventories........................................... 1,002,710 1,007,303
Store Supplies........................................ 99,167 90,400
Other................................................. 99,509 65,261
---------- ----------
TOTAL CURRENT ASSETS................................ 2,031,151 1,545,097
PROPERTY AND EQUIPMENT, NET............................. 1,519,908 1,828,869
RESTRICTED CASH......................................... 351,600 351,600
DEFERRED INCOME TAXES 56,586 --
OTHER ASSETS............................................ 341,516 394,436
---------- ----------
TOTAL ASSETS........................................ $4,300,761 $4,120,002
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable...................................... $ 300,703 $ 307,841
Accrued Expenses...................................... 676,715 481,744
Income Taxes.......................................... 115,994 117,308
---------- ----------
TOTAL CURRENT LIABILITIES........................... 1,093,412 906,893
LONG-TERM DEBT.......................................... 650,000 650,000
DEFERRED INCOME TAXES -- 169,932
OTHER LONG-TERM LIABILITIES............................. 58,720 51,659
MINORITY INTEREST....................................... 102,072 67,336
CONTINGENT STOCK REDEMPTION AGREEMENT................... 351,600 351,600
Shareholders' Equity:
Common Stock.......................................... 180,352 180,352
Paid-In Capital....................................... 148,018 142,860
Retained Earnings..................................... 3,613,174 3,526,256
---------- ----------
3,941,544 3,849,468
Less: Treasury Stock, at Cost......................... (1,896,587) (1,926,886)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY.......................... 2,044,957 1,922,582
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......... $4,300,761 $4,120,002
========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F(L)-4
<PAGE>
THE LIMITED, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
TOTAL
SHARES PAR PAID-IN RETAINED TREASURY STOCK, SHAREHOLDERS'
OUTSTANDING VALUE CAPITAL EARNINGS AT COST EQUITY
----------- -------- -------- ---------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 28,
1995................... 357,604 $189,727 $132,938 $2,716,516 $ (278,225) $2,760,956
Net Income.............. -- -- -- 961,511 -- 961,511
Cash Dividends.......... -- -- -- (143,091) -- (143,091)
Purchase of Treasury
Stock.................. (3,361) -- -- -- (55,239) (55,239)
Common Shares Subject to
Contingent Stock
Redemption Agreement... -- (9,375) (7,639) (334,586) -- (351,600)
Stock Issued for
Acquisition............ 730 -- 7,769 -- 8,231 16,000
Exercise of Stock
Options and Other...... 393 -- 4,066 -- 8,438 12,504
------- -------- -------- ---------- ----------- ----------
Balance, February 3,
1996................... 355,366 $180,352 $137,134 $3,200,350 $ (316,795) $3,201,041
Net Income.............. -- -- -- 434,208 -- 434,208
Cash Dividends.......... -- -- -- (108,302) -- (108,302)
Purchase of Treasury
Stock.................. (85,000) -- -- -- (1,615,000) (1,615,000)
Exercise of Stock
Options and Other...... 705 -- 5,726 -- 4,909 10,635
------- -------- -------- ---------- ----------- ----------
Balance, February 1,
1997................... 271,071 $180,352 $142,860 $3,526,256 $(1,926,886) $1,922,582
Net Income.............. -- -- -- 217,390 -- 217,390
Cash Dividends.......... -- -- -- (130,472) -- (130,472)
Exercise of Stock
Options and Other...... 1,729 -- 5,158 -- 30,299 35,457
------- -------- -------- ---------- ----------- ----------
Balance, January 31,
1998................... 272,800 $180,352 $148,018 $3,613,174 $(1,896,587) $2,044,957
======= ======== ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F(L)-5
<PAGE>
THE LIMITED, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................... $ 217,390 $ 434,208 $ 961,511
Impact of Other Operating Activities on
Cash Flows:
Depreciation and Amortization.......... 313,292 289,643 285,889
Special and Nonrecurring Items, Net.... 128,215 7,200 (1,314)
Minority Interest, Net of Dividends
Paid.................................. 34,736 21,637 17,250
Gain in Connection with Initial Public
Offerings, Net........................ (5,606) (118,178) (649,467)
Change in Assets and Liabilities:
Accounts Receivable.................. (14,033) 8,179 (104,121)
Inventories.......................... (5,407) (48,350) (70,813)
Accounts Payable and Accrued
Expenses............................ 81,833 116,599 50,883
Income Taxes......................... (145,832) (5,915) (132,560)
Other Assets and Liabilities......... (14,607) 7,046 (16,526)
--------- ----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.. 589,981 712,069 340,732
--------- ----------- ----------
INVESTING ACTIVITIES:
Capital Expenditures..................... (404,602) (409,260) (374,374)
Proceeds from Sale of Property and
Related Interests....................... 234,976 -- --
Net Proceeds from Partial Sale of
Interest in Investee.................... 108,259 -- --
Businesses Acquired...................... -- (41,255) (2,000)
Increase in Restricted Cash.............. -- -- (351,600)
Proceeds from Credit Card Securitization. -- -- 1,212,630
--------- ----------- ----------
NET CASH PROVIDED BY (USED FOR) INVESTING
ACTIVITIES................................ (61,367) (450,515) 484,656
--------- ----------- ----------
FINANCING ACTIVITIES:
Net Repayments of Commercial Paper
Borrowings and Certificates of Deposit.. -- -- (25,200)
Proceeds from Short-Term Borrowings...... -- 150,000 250,000
Repayment of Short-Term Borrowings....... -- (150,000) (250,000)
Net Proceeds from Issuance and Sale of
Subsidiary Stock........................ -- 118,178 788,589
Dividends Paid........................... (130,472) (108,302) (143,091)
Purchase of Treasury Stock............... -- (1,615,000) (55,239)
Stock Options and Other.................. 35,457 10,635 12,504
--------- ----------- ----------
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES................................ (95,015) (1,594,489) 577,563
--------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS............................... 433,599 (1,332,935) 1,402,951
Cash and Equivalents, Beginning of Year.... 312,796 1,645,731 242,780
--------- ----------- ----------
CASH AND EQUIVALENTS, END OF YEAR.......... $ 746,395 $ 312,796 $1,645,731
========= =========== ==========
</TABLE>
Noncash investing activities included $2.2 million in 1997 and $16 million
in 1995 for stock issued in connection with the acquisition of Galyan's.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F(L)-6
<PAGE>
THE LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of The Limited,
Inc. (the "Company") and all significant subsidiaries that are more than 50%
owned and controlled. All significant intercompany balances and transactions
have been eliminated in consolidation.
Investments in other entities (including joint ventures) where the Company
has the ability to significantly influence operating and financial policies
are accounted for on the equity method.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
years are designated in the financial statements and notes by the calendar
year in which the fiscal year commences. The results for fiscal years 1997 and
1996 represent the 52-week periods ended January 31, 1998 and February 1,
1997. The results for fiscal year 1995 represent the 53-week period ended
February 3, 1996.
Cash and Equivalents
Cash and equivalents include amounts on deposit with financial institutions
and money-market investments with maturities of less than 90 days.
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 and point-of-sale supplies are capitalized
at the store opening date. Subsequent shipments are expensed, except for new
merchandise presentation programs, which are capitalized.
Property and Equipment
Depreciation and amortization of property and equipment are computed for
financial reporting purposes on a straight-line basis, using service lives
ranging principally from 10-30 years for buildings and improvements and 3-10
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, brand initiatives,
recent operating results and projected cash flows.
Goodwill Amortization
Goodwill represents the excess of the purchase price over the fair value of
the net assets of acquired companies and is amortized on a straight-line
basis, principally over 30 years.
F(L)-7
<PAGE>
THE LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Catalogue Costs and Advertising
Catalogue costs, primarily consisting of catalogue production and mailing
costs, are amortized over the expected future revenue stream, which is
principally from three to six months from the date catalogues are mailed. All
other advertising costs are expensed at the time the promotion first appears
in media or in the store. Catalogue and advertising costs amounted to $275
million, $242 million and $237 million in 1997, 1996 and 1995.
Interest Rate Swap Agreements
The difference between the amount of interest to be paid and the amount of
interest to be received under interest rate swap agreements due to changing
interest rates is charged or credited to interest expense over the life of the
swap agreement. Gains and losses from the disposition of swap agreements are
deferred and amortized over the term of the related agreements.
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.
Shareholders' Equity
Five hundred million shares of $.50 par value common stock are authorized,
of which 272.8 million shares and 271.1 million shares were outstanding, net
of 106.7 million shares and 108.4 million shares held in treasury at January
31, 1998 and February 1, 1997. Ten million shares of $1.00 par value preferred
stock are authorized, none of which have been issued.
On March 17, 1996, the Company completed the repurchase of 85 million shares
of its common stock under a self-tender offer at $19.00 per share.
Approximately $1.615 billion was paid in exchange for the outstanding shares
which was funded with funds made available from a series of transactions that
included: 1) the initial public offering of a 16.9% interest in Intimate
Brands, Inc. ("IBI"); 2) the securitization of World Financial Network
National Bank ("WFNNB") credit card receivables; and 3) the sale of a 60%
interest in WFNNB.
Revenue Recognition
Sales are recorded upon purchase by customers. A reserve is provided equal
to the gross profit on projected catalogue merchandise returns, based on prior
experience.
Earnings per Share
Net income per share is computed in accordance with SFAS No. 128, "Earnings
Per Share," which the Company adopted in the fourth quarter of 1997. Earnings
per basic share are computed based on the weighted average number of
outstanding common shares. Earnings per diluted share include the weighted
average effect of dilutive options and restricted stock.
F(L)-8
<PAGE>
THE LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Weighted Average Common Shares Outstanding:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Shares Issued.......................... 379,454 379,454 379,454
Treasury Shares............................... (107,556) (98,755) (21,862)
Basic Shares.................................. 271,898 280,699 357,592
Dilutive Effect of Options and Restricted
Shares....................................... 2,585 1,354 779
-------- ------- -------
Diluted Shares................................ 274,483 282,053 358,371
======== ======= =======
</TABLE>
Options to purchase .7 million, 5.9 million and 7.9 million shares of common
stock were outstanding at year-end 1997, 1996 and 1995, but were not included
in the computation of earnings per diluted share because the options' exercise
price was greater than the average market price of the common shares. Exercise
of the 18.75 million shares subject to the Contingent Stock Redemption
Agreement (see Notes 6 and 10) was determined not to dilute earnings per
share.
Subsequent to January 31, 1998, the Company announced an exchange offer for
Abercrombie & Fitch Co. ("A&F") shares that, if consummated, would result in a
substantial decrease in total common shares outstanding (see Note 14).
Gains in Connection with Initial Public Offerings
Gains in connection with initial public offerings are recognized in the
current year's income. During the first quarter of 1997, the Company
recognized a pretax gain of $8.6 million in connection with the initial public
offering ("IPO") of Brylane, Inc., a 26% owned (post-IPO) catalogue retailer.
In 1996, the Company recognized a $118.2 million gain in connection with the
IPO of a 15.8% interest (8.05 million shares) of A&F. In 1995, the Company
recognized a $649.5 million gain in connection with the IPO of a 16.9%
interest (42.7 million shares) of IBI. IBI consists of the Victoria's Secret
Stores, Victoria's Secret Catalogue, Bath & Body Works and Gryphon businesses.
The IPO gains recorded by the Company in 1996 and 1995 were not subject to
income tax.
Minority interest of $102.1 million at January 31, 1998 represents a 16.9%
interest in the net equity of IBI and a 15.8% interest in the net equity of
A&F.
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.
Reclassifications
Certain amounts on previously reported financial statement captions have
been reclassified to conform with current year presentation.
F(L)-9
<PAGE>
THE LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
2. SPECIAL AND NONRECURRING ITEMS
As a result of an ongoing review of the Company's retail businesses and
investments as well as implementation of initiatives intended to promote and
strengthen The Limited's various retail brands (including closing businesses,
identification and disposal of non-core assets and identification of store
locations not consistent with a particular brand), the Company recognized
special and nonrecurring charges of $276 million during the fourth quarter of
1997 comprised of: 1) a $68 million charge for the closing of the 118 store
Cacique lingerie business effective January 31, 1998. The amount includes
noncash charges of $30 million comprised principally of write-offs and
liquidations of store assets and accruals of $38 million related to
cancellations of merchandise on order and other exit costs such as severance,
service contract termination fees and lease termination costs. Other than
contractual obligations of $5 million, the accrued costs are expected to be
paid in fiscal year 1998; 2) an $82 million charge related to streamlining the
Henri Bendel business from six stores to one store by September 1, 1998. The
amount includes $26 million of noncash charges related primarily to write-offs
of store assets and accruals of $56 million related primarily to contract
cancellations and lease termination costs. Other than contractual obligations
of $18 million, the accrued costs are expected to be paid in 1998. Termination
costs related to Henri Bendel closings will be recognized in first quarter
1998 when the associates are notified; 3) $86 million of impaired asset
charges, related principally to the women's businesses, covering certain store
locations where the carrying values are permanently impaired; and 4) a $28
million provision for closing and downsizing approximately 80 oversized
stores, primarily within the Limited, Lerner New York, Lane Bryant and Express
women's businesses and a $12 million write-down to net realizable value of a
real estate investment previously acquired in connection with closing and
downsizing certain stores. The $28 million charge includes $13 million of
noncash charges related to write-offs of store assets and accruals of $15
million related to lease termination costs. Other than contractual obligations
of $7 million, the accrued costs are expected to be paid within 18 months.
Additionally, the Company recognized a $13 million cost of sales charge in the
fourth quarter for inventory liquidation at Henri Bendel. The after-tax cash
impact of these charges is estimated to be approximately $30 million. The
Company will recognize charges for severance and other associate termination
costs for Henri Bendel in the first quarter of 1998 (at the time the
associates are notified).
Additionally, the Company recognized a $75.3 million pretax gain during the
third quarter of 1997 in connection with the sale of 2.4 million shares of
Brylane, which is carried on the equity method, for $46 per share generating
cash proceeds of $108 million. This sale represented approximately one-half of
its investment in Brylane. This gain was partially offset by valuation
adjustments of $12.5 million on certain assets where the carrying values were
permanently impaired. On February 20, 1998, The Limited entered into an
agreement with Pinault Printemps-Radoute to sell its remaining 2.6 million
shares of Brylane for $51 per share or cash proceeds of $131 million. The
transaction is expected to close in April 1998.
The $86 million impaired asset charge was in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." As a result of the Company's strategic review process,
including the implementation of brand initiatives within individual
businesses, updated analyses were prepared to determine if there was
impairment of any long-lived assets. The revised carrying values of these
assets were calculated on the basis of discounted cash flows. The impaired
asset charge had no impact on the Company's 1997 or future cash flows. As a
result of this charge, depreciation and amortization expense related to these
assets will decrease in future periods.
F(L)-10
<PAGE>
THE LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
In 1996, the Company recorded a $12 million pretax, special and nonrecurring
charge in connection with the April 1997 sale of Penhaligon's, a U.K.-based
subsidiary of IBI.
In the fourth quarter of 1995, the Company recognized a $73.2 million pretax
gain in connection with the sale of a 60% interest in the Company's wholly-
owned credit card bank, WFNNB. In addition, the Company recognized a special
and nonrecurring charge during the fourth quarter of 1995 of approximately
$71.9 million. Of this amount, $25.8 million was provided for the closing of
26 stores and $19.8 million was provided for the downsizing of 33 stores,
primarily at Limited and Lerner New York. The remaining charge of
approximately $26.3 million represented the write-down to market or net
realizable value of certain assets arising from nonoperating activities. The
net pretax gain from these special and nonrecurring items was $1.3 million.
3. ACCOUNTS RECEIVABLE
As discussed in Note 2, the sale of a 60% interest in WFNNB was completed in
the fourth quarter of 1995 and WFNNB's outstanding debt to the Company of
approximately $1.2 billion was repaid. Finance charge revenue on the deferred
payment accounts amounted to $235.6 million in 1995 and the provision for
uncollectible accounts amounted to $91.4 million in 1995. These amounts are
classified as components of the cost to administer the deferred payment
program and are included in the Company's general, administrative and store
operating expenses for that year.
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(THOUSANDS)
<S> <C> <C>
Land, Buildings and Improvements..................... $ 394,885 $ 530,259
Furniture, Fixtures and Equipment.................... 1,951,172 1,929,951
Leaseholds and Improvements.......................... 539,047 641,200
Construction in Progress............................. 219,508 188,834
---------- ----------
Total.............................................. 3,104,612 3,290,244
Less: Accumulated Depreciation and Amortization...... 1,584,704 1,461,375
---------- ----------
Property and Equipment, Net.......................... $1,519,908 $1,828,869
========== ==========
</TABLE>
5. 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 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Fixed Minimum................................... $721,283 $689,319 $643,200
Contingent...................................... 26,630 23,117 18,812
-------- -------- --------
Total Store Rent................................ 747,913 712,436 662,012
Equipment and Other............................. 23,492 25,163 26,101
-------- -------- --------
Total Rent Expense............................ $771,405 $737,599 $688,113
======== ======== ========
</TABLE>
F(L)-11
<PAGE>
THE LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
At January 31, 1998, the Company was committed to noncancelable leases with
remaining terms generally from one to twenty years. A substantial portion of
these commitments are store leases with initial terms ranging from ten to
twenty years, with options to renew at varying terms.
A summary of minimum rent commitments under noncancelable leases follows
(thousands):
<TABLE>
<S> <C>
1998................................... $ 731,233
1999................................... 712,804
2000................................... 688,317
2001................................... 645,229
2002................................... 595,377
Thereafter............................. 2,062,453
</TABLE>
6. RESTRICTED CASH
At January 31, 1998, Special Funding, Inc., a wholly-owned subsidiary of the
Company, had $351.6 million of restricted cash invested in short-term, highly
liquid securities. This amount is classified as a noncurrent asset, since it
has been reserved for use in the event that The Wexner Children's Trust,
established by Leslie H. Wexner, the Company's principal shareholder,
exercises its opportunity to require the Company to redeem, or the Company
exercises its opportunity to redeem from the Trust, shares of The Limited,
Inc. common stock in accordance with the terms of the Contingent Stock
Redemption Agreement (see Note 10). Interest earnings of $18.6 million and
$17.9 million in 1997 and 1996 on the segregated cash accrued to the Company.
7. ACCRUED EXPENSES
Accrued expenses consisted of:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(THOUSANDS)
<S> <C> <C>
Compensation, Payroll Taxes and Benefits................ $135,701 $100,526
Rent.................................................... 152,850 123,421
Taxes, Other than Income................................ 42,321 47,297
Interest................................................ 21,129 21,510
Store Closings.......................................... 86,803 3,509
Other................................................... 237,911 185,481
-------- --------
Total................................................. $676,715 $481,744
======== ========
</TABLE>
8. LONG-TERM DEBT
Unsecured long-term debt consisted of:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(THOUSANDS)
<S> <C> <C>
7 1/2% Debentures due March 2023........................ $250,000 $250,000
7 4/5% Notes due May 2002............................... 150,000 150,000
9 1/8% Notes due February 2001.......................... 150,000 150,000
8 7/8% Notes due August 1999............................ 100,000 100,000
-------- --------
Total................................................. $650,000 $650,000
======== ========
</TABLE>
F(L)-12
<PAGE>
THE LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The Company maintains a $1 billion unsecured credit agreement (the
"Agreement"), established on September 29, 1997 (the "Effective Date").
Borrowings outstanding under the Agreement are due September 28, 2002.
However, the revolving term of the Agreement may be extended an additional two
years upon notification by the Company on the second and fourth anniversaries
of the Effective Date, subject to the approval of the lending banks. The
Agreement has several borrowing options, including interest rates which are
based on either the lender's "Base Rate," as defined, LIBOR, CD-based options
or at a rate submitted under a bidding process. Facilities fees payable under
the Agreement are based on the Company's long-term credit ratings, and
currently approximate .1% of the committed amount per annum. The Agreement
contains covenants relating to the Company's working capital, debt and net
worth. No amounts were outstanding under the Agreement at January 31, 1998.
The Agreement supports the Company's commercial paper program which is used
from time to time to fund working capital and other general corporate
requirements. No commercial paper was outstanding at January 31, 1998.
Up to $250 million of debt securities and warrants to purchase debt
securities may be issued under the Company's shelf registration statement.
The Company periodically enters into interest rate swap agreements with the
intent to manage interest rate exposure. At January 31, 1998, the Company had
an interest rate swap position of $100 million notional principal amount
outstanding. This contract effectively changed the Company's interest rate
exposure on $100 million of variable rate debt to a fixed rate of 8.09%
through July 2000.
Long-term debt maturities within the next five years consist of $100 million
which matures August 15, 1999, $150 million which matures February 1, 2001 and
$150 million which matures May 15, 2002. Interest paid approximated $69.1
million, $65.5 million and $88.4 million in 1997, 1996 and 1995.
9. INCOME TAXES
The provisions for income taxes consisted of:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Currently Payable
Federal.................................... $304,300 $210,400 $190,900
State...................................... 33,800 34,000 24,700
Foreign.................................... 3,700 2,400 4,500
-------- -------- --------
Total.................................... 341,800 246,800 220,100
-------- -------- --------
Deferred
Federal.................................... (156,600) (13,800) (9,400)
State...................................... (2,200) 8,000 12,300
-------- -------- --------
Total.................................... (158,800) (5,800) 2,900
-------- -------- --------
Total Provision.......................... $183,000 $241,000 $223,000
======== ======== ========
</TABLE>
The foreign component of pretax income, arising principally from overseas
sourcing operations, was $62.3 million, $45.9 million and $60.8 million in
1997, 1996 and 1995.
F(L)-13
<PAGE>
THE LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
A reconciliation between the statutory Federal income tax rate and the
effective income tax rate on pretax earnings excluding the nontaxable gains
from sales of subsidiary stock in 1996 and 1995 and minority interest follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal Income Tax Rate.................................. 35.0% 35.0% 35.0%
State Income Tax, Net of Federal Income Tax Effect....... 4.5% 4.5% 4.5%
Other Items, Net......................................... .6% .5% .7%
---- ---- ----
Total.................................................... 40.1% 40.0% 40.2%
==== ==== ====
</TABLE>
Income taxes payable included net current deferred tax assets of $63.1
million and $.3 million at January 31, 1998 and February 1, 1997.
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
-------- ----------- -------- ------- ----------- ---------
(THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Excess of Tax Over Book
Depreciation........... -- $ (1,400) $ (1,400) -- $ (20,000) $ (20,000)
Undistributed Earnings
of Foreign Affiliates.. -- (102,400) (102,400) -- (116,600) (116,600)
Special and Nonrecurring
Items.................. $ 99,200 -- 99,200 $24,100 -- 24,100
Rent.................... 62,100 -- 62,100 -- (17,500) (17,500)
Inventory............... 43,700 -- 43,700 40,000 -- 40,000
Investments in
Affiliates............. -- (24,900) (24,900) -- (54,000) (54,000)
State Income Taxes...... 24,900 -- 24,900 9,600 -- 9,600
Other................... 18,500 -- 18,500 -- (35,300) (35,300)
-------- --------- -------- ------- --------- ---------
Total Deferred Income
Taxes................ $248,400 $(128,700) $119,700 $73,700 $(243,400) $(169,700)
======== ========= ======== ======= ========= =========
</TABLE>
Income tax payments approximated $410.8 million, $233.8 million and $306.1
million for 1997, 1996 and 1995.
The Internal Revenue Service has assessed the Company for additional taxes
and interest for the years 1992-1994 relating to the treatment of transactions
involving the Company's foreign operations for which the Company has provided
deferred taxes on the undistributed earnings of foreign affiliates. The
Company strongly disagrees with the assessment and is vigorously contesting
the matter. Management believes resolution of this matter will not have a
material adverse effect on the Company's results of operations or financial
condition.
10. CONTINGENT STOCK REDEMPTION AGREEMENT
In connection with the reconfiguration of its business, the Company
purchased from shareholders via a self-tender offer, 85 million shares of The
Limited, Inc. common stock for approximately $1.615 billion on March 17, 1996.
Leslie H. Wexner, Chairman and CEO of the Company, as well as the Company's
founder and principal shareholder, did not participate in the self-tender.
However, the Company entered into an agreement, as amended in 1996, which
provides The Wexner Children's Trust the opportunity, commencing on February
1, 1998, and for a period of eight years thereafter (the exercise period), to
require the Company to redeem up to 18.75 million shares for a price per share
equal to $18.75 (a price equal to the price per share paid in the self-tender
less $.25 per share). Under certain circumstances, lenders to the Trust, if
any, may exercise this opportunity, beginning February 1, 1997. The Company
received the opportunity to redeem an equivalent number of shares from the
Trust
F(L)-14
<PAGE>
THE LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
at $25.07 per share for a period beginning on July 31, 2006, and for six
months thereafter. As a result of these events, the Company has transferred
$351.6 million to temporary equity identified as Contingent Stock Redemption
Agreement in the Consolidated Balance Sheets. In addition, approximately
$351.6 million has been designated as restricted cash to consummate either of
the above rights (see Note 6). The terms of this agreement were approved by
the Company's Board of Directors.
11. STOCK OPTIONS AND RESTRICTED STOCK
Under the Company's stock plans, associates may be granted up to a total of
17.3 million restricted shares and options to purchase the Company's common
stock at the market price on the date of grant. In 1997, the Company granted
approximately 5.6 million options with a graduated vesting schedule over six
years. The remaining options generally vest 25% per year over the first four
years of the grant. Virtually all options have a maximum term of ten years.
Under separate stock plans, up to 17.5 million IBI shares and 3.5 million
A&F shares are available to grant restricted shares and options to IBI and A&F
associates. As of January 31, 1998, options to purchase 4.3 million IBI shares
and 1.9 million A&F shares were outstanding, of which 418,000 IBI options and
35,000 A&F options were exercisable. Under these plans, options generally vest
over periods from four to six years.
The Company 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 stock options has been recognized. If compensation
expense had been determined based on the estimated fair value of options
granted since 1995, consistent with the methodology in SFAS No. 123, the pro
forma effect on net income and earnings per diluted share, including the
impact of options issued by IBI and A&F, would have been a reduction of
approximately $11.4 million or $.04 per share in 1997 and $4.0 million or $.01
per share in 1996. The weighted-average per share fair value of options
granted ($5.79, $4.72 and $5.48 during 1997, 1996 and 1995) was estimated
using the Black-Scholes option-pricing model with the following weighted-
average assumptions for 1997, 1996 and 1995: dividend yields of 2.8%;
volatility of 27%, 31% and 31%; risk-free interest rates of 6%, 5.25% and 7%;
assumed forfeiture rates of 15%, 20% and 20%; and expected lives of 6.5 years,
5 years and 5 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 prior to 1995.
Approximately 2,120,000, 468,000 and 569,000 restricted Limited shares were
granted in 1997, 1996 and 1995, with market values at date of grant of $43.9
million, $8.3 million and $10.0 million. Included in the 1997 grants were 1.7
million restricted shares, of which 685,000 had performance requirements, with
a graduated vesting schedule over six years. The remaining restricted shares
generally vest either on a graduated scale over four years or 100% at the end
of a fixed vesting period, principally five years. Additionally, IBI granted
1,442,000, 169,000 and 357,000 restricted shares in 1997, 1996 and 1995 and
A&F granted 540,000 and 50,000 restricted shares in 1997 and 1996. Vesting
terms for the IBI and A&F restricted shares are similar to those of The
Limited. The market value of restricted shares, subject to adjustment at
measurement date for the performance awards, is being amortized as
compensation expense over the vesting period, generally four to six years.
Compensation expense related to restricted stock awards, including expense
related to awards granted at IBI and A&F, amounted to $29.0 million in 1997
and $9.1 million in both 1996 and 1995.
F(L)-15
<PAGE>
THE LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The following table summarizes information about stock options outstanding
at January 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------- ----------------------------
RANGE OF NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISABLE EXERCISABLE
PRICES AT 1/31/98 CONTRACTUAL LIFE EXERCISE PRICE AT 1/31/98 PRICE
- -------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$15-$16 1,350,000 6.1 $16 618,000 $16
$17-$18 2,827,000 7.3 $17 1,227,000 $17
$19-$21 5,658,000 7.9 $20 1,651,000 $21
$22-$27 2,646,000 7.9 $23 773,000 $24
$9 -$31 1,589,000 7.5 $20 638,000 $20
- ------- ---------- --- --- --------- ---
$9 -$31 14,070,000 7.5 $20 4,907,000 $20
======= ========== === === ========= ===
</TABLE>
A summary of option activity for 1995, 1996 and 1997 follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF OPTIONPRICE
SHARES PER SHARE
---------- -----------
<S> <C> <C>
1995
Outstanding at Beginning of Year................... 8,414,000 $19.56
Granted............................................ 2,196,000 17.81
Exercised.......................................... (280,000) 12.43
Canceled........................................... (1,188,000) 19.90
---------- ------
Outstanding at End of Year......................... 9,142,000 $19.32
========== ======
Options Exercisable at Year-End.................... 4,800,000 $19.62
========== ======
1996
Outstanding at Beginning of Year................... 9,142,000 $19.32
Granted............................................ 1,899,000 17.30
Exercised.......................................... (531,000) 14.89
Canceled........................................... (1,311,000) 19.45
---------- ------
Outstanding at End of Year......................... 9,199,000 $19.14
========== ======
Options Exercisable at Year-End.................... 5,249,000 $20.24
========== ======
1997
Outstanding at Beginning of Year................... 9,199,000 $19.14
Granted............................................ 7,331,000 20.02
Exercised.......................................... (1,377,000) 17.70
Canceled........................................... (1,083,000) 19.64
---------- ------
Outstanding at End of Year......................... 14,070,000 $19.70
========== ======
Options Exercisable at Year-End.................... 4,907,000 $19.89
========== ======
</TABLE>
12. RETIREMENT BENEFITS
The Company sponsors a qualified defined contribution retirement plan and a
nonqualified supplemental retirement plan. Participation in the qualified plan
is available to all associates who have
F(L)-16
<PAGE>
THE LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
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. Company
contributions to these plans are based on a percentage of associates' eligible
annual compensation. The cost of these plans was $36.4 million in 1997, $36.2
million in 1996 and $33.3 million in 1995.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Current Assets, Current Liabilities and Restricted Cash
The carrying value of cash equivalents, restricted cash, accounts payable
and accrued expenses approximates fair value because of their short maturity.
Long-Term Debt
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
Interest Rate Swap Agreement
The fair value of the interest rate swap is the estimated amount that the
Company would receive or pay to terminate the swap agreement at the reporting
date, taking into account current interest rates and the current
creditworthiness of the swap counterparty.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(THOUSANDS)
<S> <C> <C> <C> <C>
Long-Term Debt................. $(650,000) $(667,391) $(650,000) $(638,798)
Interest Rate Swaps............ $ (328) $ (5,345) $ (351) $ (5,267)
</TABLE>
14. SUBSEQUENT EVENT--REGISTRATION STATEMENT FOR A&F EXCHANGE OFFER
On February 17, 1998, a registration statement was filed with the
Securities and Exchange Commission in connection with a plan to establish A&F
as a fully independent company via a tax-free exchange offer pursuant to which
The Limited shareholders will be given an opportunity to tender some or all of
their shares of The Limited in return for shares of A&F. The transaction is
subject to certain customary conditions.
F(L)-17
<PAGE>
THE LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial results for 1997 and 1996 follow:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997 QUARTER
Net Sales........................... $1,829,780 $2,020,084 $2,070,559 $3,268,381
Gross Income........................ 501,471 538,907 620,982 1,156,617
Net Income.......................... 24,873 27,574 79,682 85,261
Net Income Per Basic Share.......... .09 .10 .29 .31
Net Income Per Diluted Share........ *.09 .10 *.29 *.31
1996 QUARTER
Net Sales........................... $1,787,943 $1,895,601 $1,994,986 $2,966,261
Gross Income........................ 469,541 491,909 555,374 979,755
Net Income.......................... 28,152 33,150 159,513 213,393
Net Income Per Basic Share.......... .09 .12 .59 .79
Net Income Per Diluted Share........ .09 .12 *.59 *.78
</TABLE>
- --------
* Gains in connection with initial public offerings included an $8.6 million
($.02 per diluted share) pretax gain in the first quarter of 1997 in
connection with the Company's ownership portion of Brylane, a 26% owned
(post-IPO) catalogue retailer and a $118.2 million ($.44 per diluted share)
gain in the third quarter of 1996 in connection with the IPO of a 15.8%
interest of A&F (see Note 1). Special charges included $276 million ($.57
per diluted share) in special and nonrecurring items and an additional $13
million ($.03 per diluted share) in inventory liquidation charges during the
fourth quarter of 1997, a net $62.8 million ($.14 per diluted share) pretax
gain during the third quarter of 1997 relating to the sale of approximately
one-half of its investment in Brylane and $12 million ($.02 per diluted
share) in special and nonrecurring charges during the fourth quarter of 1996
in connection with the sale of the Penhaligon's business (see Note 2).
F(L)-18
<PAGE>
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF A&F
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Independent Accountants........................................ F(A)-2
Consolidated Statements of Income........................................ F(A)-3
Consolidated Balance Sheets.............................................. F(A)-4
Consolidated Statements of Shareholders' Equity (Deficit)................ F(A)-5
Consolidated Statements of Cash Flows.................................... F(A)-6
Notes to Consolidated Financial Statements............................... F(A)-7
</TABLE>
F(A)-1
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Abercrombie & Fitch Co.
We have audited the accompanying consolidated balance sheets of Abercrombie &
Fitch Co. and subsidiaries as of January 31, 1998 and February 1, 1997, and the
related consolidated statements of income, shareholders' equity (deficit) and
cash flows for each of the three fiscal years in the period ended January 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Abercrombie &
Fitch Co. and subsidiaries as of January 31, 1998 and February 1, 1997 and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand, L.L.P.
Coopers & Lybrand L.L.P.
Columbus, Ohio
February 20, 1998
F(A)-2
<PAGE>
ABERCROMBIE & FITCH CO.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
NET SALES........................................... $521,617 $335,372 $235,659
Costs of Goods Sold, Occupancy and Buying Costs... 320,537 211,606 155,865
-------- -------- --------
GROSS INCOME........................................ 201,080 123,766 79,794
General, Administrative and Store Operating Ex-
penses........................................... 116,955 77,773 55,996
-------- -------- --------
OPERATING INCOME.................................... 84,125 45,993 23,798
Interest Expense, Net 3,583 4,919 --
-------- -------- --------
INCOME BEFORE INCOME TAXES.......................... 80,542 41,074 23,798
Provision for Income Taxes........................ 32,220 16,400 9,500
-------- -------- --------
NET INCOME.......................................... $ 48,322 $ 24,674 $ 14,298
======== ======== ========
NET INCOME PER SHARE:
Basic............................................. $ .95 $ .54 $ .33
======== ======== ========
Diluted........................................... $ .94 $ .54 $ .33
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F(A)-3
<PAGE>
ABERCROMBIE & FITCH CO.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Equivalents.................................. $ 42,667 $ 1,945
Accounts Receivable................................... 1,695 2,102
Inventories........................................... 33,927 34,943
Store Supplies........................................ 5,592 5,300
Intercompany Receivable............................... 23,785 --
Other................................................. 1,296 588
-------- --------
TOTAL CURRENT ASSETS.................................... 108,962 44,878
PROPERTY AND EQUIPMENT, NET............................. 70,517 58,992
DEFERRED INCOME TAXES................................... 3,759 1,885
OTHER ASSETS............................................ -- 6
-------- --------
TOTAL ASSETS........................................ $183,238 $105,761
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable...................................... $ 15,968 $ 6,414
Accrued Expenses...................................... 35,143 22,388
Income Taxes Payable.................................. 15,851 9,371
Intercompany Payable -- 5,417
-------- --------
TOTAL CURRENT LIABILITIES............................... 66,962 43,590
LONG-TERM DEBT.......................................... 50,000 50,000
OTHER LONG-TERM LIABILITIES............................. 7,501 933
SHAREHOLDERS' EQUITY:
Common Stock.......................................... 511 511
Paid-In Capital....................................... 117,972 117,980
Retained Earnings (Deficit)........................... (58,931) (107,253)
-------- --------
59,552 11,238
Less: Treasury Stock, at Cost (777) --
-------- --------
TOTAL SHAREHOLDERS' EQUITY.......................... 58,775 11,238
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......... $183,238 $105,761
======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F(A)-4
<PAGE>
ABERCROMBIE & FITCH CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
RETAINED TREASURY TOTAL
SHARES PAR PAID-IN EARNINGS STOCK, SHAREHOLDERS'
OUTSTANDING VALUE CAPITAL (DEFICIT) AT COST EQUITY (DEFICIT)
----------- ----- -------- --------- -------- ----------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 28,
1995................... 43,000 -- $ 155 $ (37,225) -- $(37,070)
Net Income.............. -- -- -- 14,298 -- 14,298
Other................... -- -- 150 -- -- 150
------ ---- -------- --------- ----- --------
Balance, February 3,
1996................... 43,000 -- $ 305 $ (22,927) -- $(22,622)
Transfer of Equity to
Debt ($50,000 Long-Term
Debt and $32,000 Short-
Term Borrowings)....... -- -- -- (82,000) -- (82,000)
Cash Dividend to Parent
Prior to Initial Public
Offering............... -- -- -- (27,000) -- (27,000)
Sale of Common Stock in
Initial Public
Offering............... 8,050 $511 $117,667 -- -- 118,178
Net Income.............. -- -- -- 24,674 -- 24,674
Other................... -- -- 8 -- -- 8
------ ---- -------- --------- ----- --------
Balance, February 1,
1997................... 51,050 $511 $117,980 $(107,253) -- $ 11,238
Purchase of Treasury
Stock.................. (50) -- -- -- $(929) (929)
Net Income.............. -- -- -- 48,322 -- 48,322
Exercise of Stock
Options and Other...... 9 -- (8) -- 152 144
------ ---- -------- --------- ----- --------
Balance, January 31,
1998................... 51,009 $511 $117,972 $ (58,931) $(777) $ 58,775
====== ==== ======== ========= ===== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F(A)-5
<PAGE>
ABERCROMBIE & FITCH CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- -------
<S> <C> <C> <C>
(THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................... $ 48,322 $ 24,674 $14,298
Impact of Other Operating Activities on Cash
Flows
Depreciation and Amortization................ 16,342 11,759 9,104
Noncash Charge for Deferred Compensation..... 6,219 -- --
Change in Assets and Liabilities:
Inventories................................ 1,016 (4,555) (13,837)
Accounts Payable and Accrued Expenses...... 22,309 9,943 4,069
Income Taxes............................... 4,606 4,218 (2,525)
Other Assets and Liabilities............... 1,381 797 1,605
-------- --------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES........ 100,195 46,836 12,714
-------- --------- -------
CASH USED FOR INVESTING ACTIVITIES
Capital Expenditures........................... (29,486) (24,323) (24,526)
-------- --------- -------
FINANCING ACTIVITIES
Increase (Decrease) in Intercompany Balance.... (29,202) 18,988 11,944
Dividend Paid to Parent........................ -- (27,000) --
Net Proceeds from Issuance of Common Stock..... -- 118,178 --
Proceeds from Credit Agreement................. -- 150,000 --
Repayment of Credit Agreement.................. -- (150,000) --
Repayment of Trademark Obligations............. -- (32,000) --
Repayment of Intercompany Debt................. -- (91,000) --
Repayment of Working Capital Note.............. -- (8,616) --
Purchase of Treasury Stock..................... (929) -- --
Other Changes in Shareholders' Equity.......... 144 8 150
-------- --------- -------
NET CASH PROVIDED BY (USED FOR) FINANCING (29,987) (21,442) 12,094
ACTIVITIES...................................... -------- --------- -------
NET INCREASE IN CASH AND EQUIVALENTS............. 40,722 1,071 282
Cash and Equivalents, Beginning of Year.......... 1,945 874 592
-------- --------- -------
CASH AND EQUIVALENTS, END OF YEAR................ $ 42,667 $ 1,945 $ 874
======== ========= =======
</TABLE>
In 1996, noncash financing activities included the distribution of a note
representing preexisting obligations of the Company's operating subsidiary in
respect of certain trademarks in the amount of $32 million by the Company's
trademark subsidiary to The Limited, Inc., distribution of the $50 million in
long-term debt and the conversion of $8.6 million of intercompany debt into a
working capital note.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F(A)-6
<PAGE>
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Abercrombie & Fitch Co. (the "Company") was incorporated on June 26, 1996,
and on July 15, 1996 acquired the stock of Abercrombie & Fitch Holdings, the
parent company of the Abercrombie & Fitch business, and A&F Trademark, Inc.,
in exchange for 43 million shares of Class B common stock issued to The
Limited, Inc. ("The Limited"). The Company is a specialty retailer of high
quality, casual apparel for men and women with an active, youthful lifestyle.
The business was established in 1892 and subsequently acquired by The Limited
in 1988.
An initial public offering (the "Offering") of 8.05 million shares of the
Company's Class A common stock, including the sale of 1.05 million shares
pursuant to the exercise by the underwriters of their options to purchase
additional shares, was consummated on October 1, 1996. As a result of the
Offering, 84.2% of the outstanding common stock of the Company is owned by The
Limited.
The net proceeds received by the Company from the Offering, approximating
$118.2 million, and cash from operations were used to repay the borrowings
under a $150 million credit agreement.
The accompanying consolidated financial statements include the historical
financial statements of, and transactions applicable to the Company and its
subsidiaries and reflect the assets, liabilities, results of operations and
cash flows on a historical cost basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all significant subsidiaries that are more than 50% owned and controlled.
All significant intercompany balances and transactions have been eliminated in
consolidation.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
years are designated in the financial statements and notes by the calendar
year in which the fiscal year commences. The results for fiscal years 1997 and
1996 represent the fifty-two week periods ended January 31, 1998 and February
1, 1997. The results for fiscal year 1995 represent the fifty-three week
period ended February 3, 1996.
Cash and Equivalents
Cash and equivalents include amounts on deposit with financial institutions
and investments with maturities of less than 90 days.
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 and point-of-sale supplies are capitalized
at the store opening date. Subsequent shipments are expensed except for new
merchandise presentation programs which are capitalized.
F(A)-7
<PAGE>
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Property and Equipment
Depreciation and amortization of property and equipment are computed for
financial reporting purposes on a straight-line basis, using service lives
ranging principally from 10-15 years for building improvements and 3-10 years
for other property and equipment. Beneficial leaseholds represent the present
value of the excess of fair market rent over contractual rent of existing
stores at the 1988 purchase of the Company by The Limited and are being
amortized over the lives of the related leases. The cost of assets sold or
retired and the related accumulated depreciation or amortization are removed
from the accounts with any resulting gain or loss included in net income.
Maintenance and repairs are charged to expense as incurred. Major renewals and
betterments that extend service lives are capitalized. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate
that full recoverability is questionable. Factors used in the valuation
include, but are not limited to, management's plans for future operations,
recent operating results and projected cash flows.
Income Taxes
Income taxes are calculated in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires the use of the liability method. Deferred tax assets and liabilities
are recognized based on the difference between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect in the years in which those temporary differences are expected to
reverse. 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.
Shareholders' Equity
At January 31, 1998, there were 150 million of $.01 par value Class A shares
authorized, of which 8.01 million and 8.05 million shares were outstanding at
January 31, 1998 and February 1, 1997 and 150 million of $.01 par value Class
B shares authorized, of which 43 million shares were issued and outstanding.
In addition there were 15 million of $.01 par value preferred shares
authorized, none of which have been issued.
Holders of Class A common stock generally have identical rights to holders
of Class B common stock, except that holders of Class A common stock are
entitled to one vote per share while holders of Class B common stock are
entitled to three votes per share on all matters submitted to a vote of
shareholders. Each share of Class B common stock is convertible while held by
The Limited or any of its subsidiaries into one share of Class A common stock
(see Note 11).
Revenue Recognition
Sales are recorded upon purchase by customers.
Catalogue and Advertising Costs
Costs related to the A&F Quarterly, which premiered in 1997, primarily
consist of catalogue production and mailing costs and are expensed as
incurred. Advertising costs consist of in-store
F(A)-8
<PAGE>
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
photographs and advertising in selected national publications and are expensed
when the photographs or publications first appear. Catalogue and advertising
costs amounted to $13.7 million in 1997, $4.1 million in 1996 and $3.1 million
in 1995.
Store Preopening Expenses
Preopening expenses related to new store openings are charged to operations
as incurred.
Fair Value of Financial Instruments
The recorded values of current assets and current liabilities, including
accounts receivable and accounts payable, approximate fair value due to the
short maturity and because the average interest rate approximates current
market origination rates.
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturity. The estimated
fair value of the Company's long-term debt was $52.2 million at January 31,
1998 and $50.6 million at February 1, 1997.
Earnings per Share
Net income per share is computed in accordance with SFAS No. 128, "Earnings
Per Share," which the Company adopted in the fourth quarter of 1997. Basic
earnings per share are computed based on the weighted average number of
outstanding common shares. Diluted earnings per share include the weighted
average effect of dilutive stock options and restricted stock. The common
stock issued to The Limited (43 million Class B shares) in connection with the
incorporation of the Company is assumed to have been outstanding for all
periods.
Weighted Average Common Shares Outstanding (thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Common shares issued................................. 51,050 45,749 43,000
Treasury shares...................................... (39) -- --
------ ------ ------
Basic shares......................................... 51,011 45,749 43,000
Dilutive effect of options and restricted shares..... 467 11 --
------ ------ ------
Diluted shares....................................... 51,478 45,760 43,000
====== ====== ======
</TABLE>
Options to purchase 228,000 and 240,000 shares of common stock were
outstanding at year-end 1997 and 1996 but were not included in the computation
of diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Since actual results may differ from
those estimates, the Company revises its estimates and assumptions as new
information becomes available.
Reclassifications
Certain amounts in previously reported financial statement captions have
been reclassified to conform with current year presentation.
F(A)-9
<PAGE>
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of (thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Furniture, fixtures and equipment....................... $104,671 $ 88,248
Beneficial leaseholds................................... 7,349 7,925
Leasehold improvements.................................. 11,615 5,565
Construction in progress................................ 365 181
-------- --------
Total................................................. $124,000 $101,919
Less: accumulated depreciation and amortization......... 53,483 42,927
-------- --------
Property and equipment, net............................. $ 70,517 $ 58,992
======== ========
</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. Rent expense also includes charges from The
Limited and its subsidiaries for space under formal agreements which
approximate market rates (see Note 8).
A summary of rent expense for 1997, 1996 and 1995 follows (thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Store rent:
Fixed minimum................................... $34,402 $24,599 $17,465
Contingent...................................... 2,138 1,620 1,322
------- ------- -------
Total store rent.............................. $36,540 $26,219 $18,787
Buildings, equipment and other.................... 1,400 1,229 1,058
------- ------- -------
Total rent expense............................ $37,940 $27,448 $19,845
======= ======= =======
</TABLE>
At January 31, 1998, the Company was committed to noncancelable leases with
remaining terms of one to fifteen years. These commitments include store
leases with initial terms ranging primarily from ten to fifteen years and
offices and a distribution center leased from an affiliate of The Limited with
an initial term of fifteen years. A majority of the Company's store leases are
guaranteed by The Limited. A summary of minimum rent commitments under
noncancelable leases follows (thousands):
<TABLE>
<S> <C>
1998...................................... $40,775
1999...................................... 41,747
2000...................................... 41,866
2001...................................... 42,170
2002...................................... 42,254
Thereafter................................ 181,769
</TABLE>
F(A)-10
<PAGE>
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
5. ACCRUED EXPENSES
Accrued expenses consisted of the following (thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Rent and landlord charges................................ $ 8,105 $ 5,624
Compensation and benefits................................ 8,357 4,638
Catalogue and advertising costs.......................... 4,012 1,449
Interest................................................. 986 2,162
Taxes, other than income................................. 1,827 1,761
Other.................................................... 11,856 6,754
------- -------
Total.................................................. $35,143 $22,388
======= =======
</TABLE>
6. INCOME TAXES
The provision for income taxes consisted of (thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Currently Payable:
Federal........................................ $29,620 $13,800 $6,900
State.......................................... 3,470 1,300 1,700
------- ------- ------
$33,090 $15,100 $8,600
------- ------- ------
Deferred:
Federal........................................ (3,200) (400) 700
State.......................................... 2,330 1,700 200
------- ------- ------
$ (870) $ 1,300 $ 900
------- ------- ------
Total provision................................ $32,220 $16,400 $9,500
======= ======= ======
</TABLE>
A reconciliation between the statutory Federal income tax rate and the
effective income tax rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate................................ 35.0% 35.0% 35.0%
State income tax, net of federal income tax effect..... 4.7% 4.7% 5.2%
Other items, net....................................... 0.3% 0.2% (0.3)%
---- ---- ----
Total................................................ 40.0% 39.9% 39.9%
==== ==== ====
</TABLE>
Income taxes payable included net current deferred tax assets of $2.3
million and $1.2 million at January 31, 1998 and February 1, 1997.
Current income tax obligations are treated as having been settled through
the intercompany accounts as if the Company were filing its income tax returns
on a separate company basis. Such amounts were $27.6 million, $10.6 million
and $7.5 million in 1997, 1996 and 1995.
F(A)-11
<PAGE>
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The effect of temporary differences which give rise to net deferred income
tax assets was as follows (thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Depreciation and amortization............................. $1,540 $1,480
Rent...................................................... 1,510 (413)
Accrued expenses.......................................... 3,450 1,343
Other, net................................................ (450) 683
------ ------
Total deferred income taxes............................. $6,050 $3,093
====== ======
</TABLE>
No valuation allowance has been provided for deferred tax assets because
management believes that it is more likely than not that the full amount of
the net deferred tax assets will be realized in the future.
7. LONG-TERM DEBT
Long-term debt consists of a 7.80% unsecured note in the amount of $50
million that matures May 15, 2002, and represents the Company's proportionate
share of certain long-term debt of The Limited. The interest rate and maturity
of the note parallels that of corresponding debt of The Limited. The note is
to be automatically prepaid concurrently with any prepayment of the
corresponding debt of The Limited.
8. RELATED PARTY TRANSACTIONS
Transactions between the Company, The Limited, and its subsidiaries and
affiliates commonly occur in the normal course of business and principally
consist of the following:
Merchandise purchases
Real estate management and leasing
Capital expenditures
Inbound and outbound transportation
Corporate services
Information with regard to these transactions is as follows:
Significant purchases are made from Mast, a wholly-owned subsidiary of The
Limited. Purchases are also made from Gryphon, an indirect subsidiary of The
Limited. Mast is a contract manufacturer and apparel importer, while Gryphon
is a developer of fragrance and personal care products and also a contract
manufacturer. Prices are negotiated on a competitive basis by merchants of the
Company with Mast, Gryphon and the manufacturers.
The Company'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 the Company based on a
combination of new and remodeled store construction projects and open selling
square feet.
The Company'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 the
Company at actual cost. Store Planning Division expenses are charged to the
Company based on a combination of new and remodeled store construction
projects and open selling square feet.
F(A)-12
<PAGE>
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The Company's inbound and outbound transportation expenses are managed
centrally by Limited Distribution Services ("LDS"), a wholly-owned subsidiary
of The Limited. Inbound freight is charged to the Company based on actual
receipts, while outbound freight is charged on a percentage of cartons shipped
basis.
The Limited provides certain services to the Company including, among other
things, aircraft, tax, treasury, legal, corporate secretary, accounting,
auditing, corporate development, risk management, associate benefit plan
administration, human resource and compensation, government affairs and public
relation services. Identifiable costs are charged directly to the Company. All
other services-related costs not specifically attributable to the business
have been allocated to the Company based upon a percentage of sales.
The Company participates in The Limited's centralized cash management system
whereby cash received from operations is transferred to The Limited's
centralized cash accounts and cash disbursements are funded from the
centralized cash accounts on a daily basis. Prior to the initial
capitalization of the Company, the intercompany cash management account was
noninterest bearing. After the initial capitalization of the Company on July
11, 1996, the intercompany cash management account became an interest earning
asset or interest bearing liability of the Company depending upon the level of
cash receipts and disbursements. Interest on the intercompany cash management
account is calculated based on 30-day commercial paper rates for "AA" rated
companies as reported in the Federal Reserve's H.15 statistical release. The
average outstanding balance of the noninterest bearing intercompany payable to
The Limited in the twenty-six weeks ended August 3, 1996 and fifty-three weeks
ended February 3, 1996 approximated $64.5 million and $89.8 million. A summary
of the intercompany payment activity during the noninterest bearing periods
follows:
<TABLE>
<CAPTION>
TWENTY-SIX FIFTY-THREE
WEEKS ENDED WEEKS ENDED
AUGUST 3, 1996 FEBRUARY 3, 1996
-------------- ----------------
<S> <C> <C>
Balance at beginning of
period................. $86,045 $74,101
Mast and Gryphon
purchases.............. 23,178 35,167
Other transactions with
related parties........ 9,667 33,546
Centralized cash
management............. (16,417) (64,269)
Settlement of current
period income taxes.... 5,700 7,500
Payment to The Limited.. (91,000) --
Conversion to Working
Capital Note........... (8,616) --
------- -------
Balance at end of
period................. $ 8,557 $86,045
======= =======
</TABLE>
The Company is charged rent expense, common area maintenance charges and
utilities for stores shared with other consolidated subsidiaries of The
Limited. The charges are based on square footage and represent the
proportionate share of the underlying leases with third parties.
The Company is also charged rent expense and utilities for the distribution
and home office space occupied (which approximates fair market value).
The Company and The Limited have entered into intercompany agreements that
establish the provision of services in accordance with the terms described
above. The prices charged to the Company for services provided under these
agreements may be higher or lower than prices that may be charged by third
parties. It is not practicable, therefore, to estimate what these costs would
be if The Limited were not providing these services and the Company was
required to purchase these services from outsiders or develop internal
expertise. Management believes the charges and allocations described above are
fair and reasonable.
F(A)-13
<PAGE>
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The following table summarizes the related party transactions between the
Company and The Limited and its subsidiaries, for the years indicated
(thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Mast and Gryphon purchases....................... $ 89,892 $61,776 $35,167
Capital expenditures............................. 27,012 20,839 20,280
Inbound and outbound transportation.............. 5,524 3,326 2,869
Corporate charges................................ 6,857 3,989 4,019
Store leases and other occupancy, net............ 1,184 1,509 1,397
Distribution center, MIS and home office
expenses........................................ 3,102 2,696 2,564
Centrally managed benefits....................... 3,596 3,136 2,417
Interest charges................................. 3,583 2,190 --
-------- ------- -------
$140,750 $99,461 $68,713
======== ======= =======
</TABLE>
The Company and The Limited are parties to a corporate agreement under which
the Company granted to The Limited a continuing option to purchase, under
certain circumstances, additional shares of Class B Common Stock or shares of
nonvoting capital stock of the Company.
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.
The Company's proprietary credit card processing is performed by Alliance
Data Systems which is approximately 40% owned by The Limited.
9. STOCK OPTIONS AND RESTRICTED STOCK
Under the Company's stock plan, associates may be granted up to a total of
3.5 million restricted shares and options to purchase the Company's common
stock at the market price on the date of grant. In 1997, associates of the
Company were granted approximately 1.7 million options, most of which are
expected to vest on a graduated basis over six years, subject to certain
performance goals. The remaining options generally vest 25% per year over the
first four years of the grant. A total of 12,000 shares have been issued to
nonassociate directors, all of which vest over four years. All options have a
maximum term of ten years.
The Company 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 stock options has been recognized. If compensation
expense had been determined based on the estimated fair value of options
granted in 1997 and 1996, consistent with the methodology in SFAS No. 123, the
pro forma effect on net income and diluted earnings per share would have been
a reduction of approximately $1.7 million, or $.03 per share in 1997. In 1996,
the pro forma effect would have had no impact on net income and diluted
earnings per share. The weighted-average fair value of options granted during
fiscal 1997 and 1996 was $8.50 and $6.67. The fair value of each option was
estimated using the Black-Scholes option-pricing model with the following
weighted-average assumptions for 1997 and 1996: no expected dividends, price
volatility of 35%, risk-free interest rates of 6.0% and 6.25%, assumed
forfeiture rates of 10% and expected lives of 6.5 and 5 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 takes into
consideration pro forma compensation expense related only to those grants made
subsequent to the Company's initial public offering.
F(A)-14
<PAGE>
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
A summary of option activity for 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES OPTION PRICE SHARES OPTION PRICE
--------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year.................. 240,000 $16.00 -- --
Granted................... 1,669,000 $18.03 240,000 $16.00
Exercised................. (4,000) $16.00 -- --
Canceled.................. (21,000) $16.00 -- --
--------- ------ ------- ------
Outstanding at end of
year..................... 1,884,000 $17.81 240,000 $16.00
========= ====== ======= ======
Options exercisable at
year-end................. 35,000 $16.00 -- --
========= ====== ======= ======
</TABLE>
Approximately 88% of the options outstanding at year-end are at $16 per
share. Most of the remaining options outstanding are at $31 per share.
A total of 547,000 restricted shares were granted in 1997, with a total
market value at grant date of $8.7 million. Of this total, 500,000 shares were
subject to performance requirements and a defined vesting schedule over six
years. The remaining restricted stock grants generally vest either on a
graduated scale over four years or 100% at the end of a fixed vesting period,
principally five years. The market value of restricted stock, subject to
adjustment at the measurement date for shares with performance requirements,
is being amortized as compensation expense over the vesting period, generally
four to six years. Compensation expenses related to restricted stock awards
amounted to $6.2 million, $.5 million and $.4 million in 1997, 1996 and 1995.
10. 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 associates' eligible
annual compensation. The cost of these plans was $1.6 million in 1997, $753
thousand in 1996 and $564 thousand in 1995.
11. REGISTRATION STATEMENT FOR EXCHANGE OFFER
On February 17, 1998, a registration statement was filed with the Securities
and Exchange Commission in connection with a plan to establish the Company as
a fully independent company via a tax-free exchange offer pursuant to which
The Limited shareholders will be given an opportunity to exchange shares of
The Limited for shares of the Company. At year end, The Limited owned 43
million of the Company's shares.
F(A)-15
<PAGE>
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial results for 1997 and 1996 follow (thousands
except per share amounts):
<TABLE>
<CAPTION>
QUARTER FIRST SECOND THIRD FOURTH
------- ------- ------- -------- --------
<S> <C> <C> <C> <C>
1997
Net sales............................... $74,316 $86,640 $148,516 $212,145
Gross income............................ 23,941 27,786 52,990 96,363
Net income.............................. 565 2,053 10,403 35,301
Net income per basic share.............. $ .01 $ .04 $ .20 $ .69
Net income per diluted share............ $ .01 $ .04 $ .20 $ .68
1996
Net sales............................... $51,020 $57,431 $ 87,688 $139,233
Gross income............................ 14,894 18,052 30,957 59,863
Net income (loss)....................... (199) 374 3,982 20,517
Net income (loss) per basic share....... $ .00 $ .01 $ .09 $ .40
Net income (loss) per diluted share..... $ .00 $ .01 $ .09 $ .40
</TABLE>
F(A)-16
<PAGE>
SCHEDULE A
TRANSACTIONS CONCERNING
LIMITED COMMON STOCK INC.
The following transactions were effected during the 40 business-day period
preceding April 15, 1998. Except for the transactions by Mr. Wexner and Mr.
Gilman (which were a contribution to a trust and a gift, respectively) and the
sale by Health & Science Interests (which was a privately negotiated
transaction), all of these transactions were effected as open-market
purchases.
<TABLE>
<CAPTION>
PRICE AGGREGATE
PERSON DATE OF NUMBER OF SHARES PER PURCHASE
EFFECTING TRANSACTION TRANSACTION TRANSFERRED SHARE PRICE
--------------------- ----------- ---------------- ------- -----------
<S> <C> <C> <C> <C>
Leslie H. Wexner.............. 02/25/98 2,500,000 shares N/A N/A
The Wexner Children's Trust
II........................... 03/02/98 2,000,000 shares $29.125 $58,250,000
The Wexner Children's Trust
II........................... 03/05/98 500,000 shares $29.000 $14,500,000
Harry and Hannah Wexner Trust. 03/05/98 1,500,000 shares $29.000 $43,500,000
Harry, Hannah and David Wexner
Trust........................ 03/05/98 500,000 shares $29.000 $14,500,000
Harry, Hannah and David Wexner
Trust........................ 03/17/98 800,000 shares $29.875 $23,900,000
Harry and Hannah Wexner Trust. 03/17/98 144,600 shares $29.875 $ 4,319,925
Kenneth B. Gilman............. 03/25/98 3,000 shares N/A N/A
Health and Science Interests.. 04/09/98 2,500,000 shares $ 28.62 $71,550,000
</TABLE>
<PAGE>
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for shares of Limited Common
Stock and any other required documents should be sent or delivered by each
stockholder of The Limited or his or her broker, dealer, commercial bank,
trust company or other nominee to the Exchange Agent at one of the addresses
set forth below:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
If by mail: If by hand: If by overnight
delivery:
First Chicago Trust First Chicago Trust First Chicago Trust
Company of New York Company of New York Company of New York
Tenders & Exchanges Tenders & Exchanges Tenders & Exchanges
Suite 4660 c/o The Depository Trust Suite 4680
P.O. Box 2569 Company 14 Wall Street, 8th
Jersey City, New 55 Water Street, DTC TAD Floor
Jersey Vietnam Veterans New York, New York
07303-2569 Memorial Plaza 10005
New York, New York
10041
If by facsimile transmission:
(For Eligible Institutions only)
(201) 222-4720
or
(201) 222-4721
Facsimile confirmation number:
(201) 222-4707
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective addresses and telephone
numbers set forth below. Additional copies of this Offering Circular-
Prospectus, the Letter of Transmittal and other Exchange Offer material may be
obtained from the Information Agent or the Dealer Managers as set forth below.
You may also contact your broker, dealer, commercial bank, trust company or
other nominee for assistance concerning the Exchange Offer.
The Information Agent for the Exchange Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Call Collect (212) 269-5550
or
Call Toll-Free (800) 549-6864
The Dealer Managers for the Exchange Offer are:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
Call Toll-Free (800) 323-5678
<PAGE>
EXHIBIT (A)(2)
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES OF
COMMON STOCK OF
THE LIMITED, INC.
TENDERED PURSUANT TO THE OFFERING CIRCULAR-PROSPECTUS DATED APRIL 15, 1998
THE EXCHANGE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MAY 13, 1998, UNLESS THE
EXCHANGE OFFER IS EXTENDED.
TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK, EXCHANGE AGENT
IF BY MAIL: IF BY HAND: IF BY OVERNIGHT
First Chicago Trust First Chicago Trust Company DELIVERY:
Company of New York First Chicago Trust
of New York Tenders & Exchanges Company
Tenders & Exchanges c/o The Depository Trust Company of New York
Suite 4660 55 Water Street, DTC TAD Tenders & Exchanges
P.O. Box 2569 Vietnam Veterans Memorial Plaza Suite 4680
Jersey City, New Jersey New York, New York 10041 14 Wall Street, 8th
07303-2569 Floor
IF BY FACSIMILE TRANSMISSION: New York, New York
(FOR ELIGIBLE INSTITUTIONS ONLY) 10005
(201) 222-4720
or
(201) 222-4721
FACSIMILE CONFIRMATION NUMBER:
(201) 222-4707
BY COMPLETING THE BOX BELOW AND SIGNING THIS LETTER OF TRANSMITTAL, YOU WILL
HAVE TENDERED SHARES OF LIMITED COMMON STOCK REPRESENTED BY THE CERTIFICATE(S)
DESCRIBED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BEFORE
COMPLETING THIS LETTER OF TRANSMITTAL.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE
TRANSMISSIONOTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
BOX #1
DESCRIPTION OF CERTIFICATE(S)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND
ADDRESS(ES) OF
REGISTERED
HOLDER(S)
(PLEASE FILL
IN, IF BLANK,
EXACTLY AS
NAME(S)
APPEAR(S) ON NUMBER OF SHARES NUMBER
STOCK CERTIFICATE REPRESENTED BY OF SHARES
CERTIFICATE(S)) NUMBER(S)(*) CERTIFICATE(S)(*) TENDERED(**)
- -------------------------------------------------------------------
----------------------------
----------------------------
----------------------------
----------------------------
----------------------------
<S> <C> <C> <C>
TOTAL
</TABLE>
- -------------------------------------------------------------------------------
* Need not be completed by Book-Entry Holders (see below).
** Unless otherwise indicated in this column, you will be deemed to have
tendered all of the shares of Limited Common Stock represented by the
certificate(s) indicated in the first column. See Instruction 2 below.
<PAGE>
---------------
LIMITED STOCKHOLDERS SHOULD READ THE ENTIRE LETTER OF TRANSMITTAL CAREFULLY.
HOWEVER, YOUR ATTENTION IS INVITED IN PARTICULAR TO THE FOLLOWING:
1. If you want to retain your Limited Common Stock, you do not need to take
any action.
2. If you want to participate in the Exchange Offer and wish to maximize the
chance of having The Limited accept for exchange all the shares of Limited
Common Stock you are tendering hereby, you should check the box marked "SHARES
TENDERED AT EXCHANGE RATIO DETERMINED BY DUTCH AUCTION" in Box #2 below and
complete the other portions of this Letter of Transmittal as appropriate.
3. If you wish to select a specific Exchange Ratio at which you will be
tendering your shares of Limited Common Stock, you should select one of the
boxes in the section captioned "SHARES TENDERED AT EXCHANGE RATIO DETERMINED
BY STOCKHOLDER" in Box #2 below and complete the other portions of this Letter
of Transmittal as appropriate.
IN ANY EVENT, YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE OFFERING
CIRCULAR-PROSPECTUS OR THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE
INFORMATION AGENT AT THE ADDRESS OR TOLL-FREE NUMBER INDICATED ON THE BACK
COVER.
---------------
2
<PAGE>
LADIES AND GENTLEMEN:
Reference is made to the Offering Circular-Prospectus dated April 15, 1998
(the "Offering Circular-Prospectus"), of The Limited, Inc. ("The Limited"),
and this Letter of Transmittal which together constitute The Limited's offer
(the "Exchange Offer") to exchange up to 43,600,000 shares of Class A common
stock, par value $.01 per share (the "A&F Common Stock"), of Abercrombie &
Fitch Co. ("A&F"), for shares of common stock, par value $.50 per share (the
"Limited Common Stock"), of The Limited that are validly tendered by the
Expiration Date and not withdrawn or deemed withdrawn, at an Exchange Ratio
not greater than .86 nor less than .73 of a share of A&F Common Stock for each
share of Limited Common Stock tendered, upon the terms and subject to the
conditions set forth herein and in the Offering Circular-Prospectus. See
"Summary", "The Transactions" and "The Exchange Offer" in the Offering
Circular-Prospectus. Capitalized terms used herein have the same meanings as
in the Offering Circular-Prospectus.
The Exchange Offer, proration period and withdrawal rights will expire at
12:00 Midnight, New York City time, on Wednesday, May 13, 1998 (the
"Expiration Date"), unless extended in accordance with applicable law and the
terms of the Exchange Offer, in which event the term "Expiration Date" shall
mean the latest time and date at which the Exchange Offer, as extended, shall
expire.
Upon the terms and subject to the conditions of the Exchange Offer, I hereby
tender to you the shares of Limited Common Stock represented by the
certificate(s) described in Box #1 above. Subject to, and effective upon, the
acceptance for exchange of such tendered shares of Limited Common Stock, I
hereby sell, assign and transfer to you, or upon your order, all right, title
and interest in and to such shares. I hereby irrevocably constitute and
appoint the Exchange Agent as my true and lawful agent and attorney-in-fact
(with full knowledge that the Exchange Agent also acts as your agent) with
respect to such tendered shares of Limited Common Stock, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) (i) to deliver stock certificates representing such
tendered shares of Limited Common Stock or transfer ownership of such shares
on the account books maintained by The Depository Trust Company (the "Book-
Entry Transfer Facility"), together, in any such case, with all accompanying
evidences of transfer and authenticity, to you or upon your order, upon
receipt by the Exchange Agent, as my agent, of shares of A&F Common Stock, to
which I am entitled upon the acceptance for exchange by you of such tendered
shares of Limited Common Stock; (ii) to present certificate(s) representing
such tendered shares of Limited Common Stock for transfer on your books; and
(iii) to receive all benefits and otherwise exercise all rights of beneficial
ownership of such shares, all in accordance with the terms of the Exchange
Offer. If my tendered shares of Limited Common Stock are accepted for
exchange, I will be entitled to receive certificates representing shares of
A&F Common Stock ("A&F Certificates").
I hereby represent and warrant to you that I have full power and authority
to tender, sell, assign and transfer the shares of Limited Common Stock that I
have tendered and that when such shares are accepted by you for exchange
pursuant to the Exchange Offer, you will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances, and that none of such shares of Limited Common Stock will be
subject to any adverse claim when you accept such shares for exchange. I will,
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or you to be necessary or desirable to complete the sale,
assignment and transfer of the shares of Limited Common Stock that I have
tendered. All authority conferred or agreed to be conferred in this Letter of
Transmittal and all of my obligations hereunder shall be binding upon my
successors, assigns, heirs, executors, administrators, trustees in bankruptcy
and legal representatives and shall not be affected by, and shall survive, my
death or incapacity. This tender may be withdrawn only in accordance with the
procedures set forth in the Offering Circular-Prospectus and the Instructions
contained in this Letter of Transmittal.
I understand that the maximum number of shares of Limited Common Stock which
will be accepted for exchange will be that number of shares which, when
multiplied by the Final Exchange Ratio, equals 43,600,000 shares of A&F Common
Stock. I understand that if more than such maximum number of shares of Limited
Common Stock are tendered at Exchange Ratios at or below the Final Exchange
Ratio, the Exchange Offer will
3
<PAGE>
be oversubscribed, and shares of Limited Common Stock tendered at or below the
Final Exchange Ratio will be subject to proration in accordance with the terms
set forth in the Offering Circular-Prospectus under "The Exchange Offer--Terms
of the Exchange Offer". I understand that, upon acceptance by you of the
shares of Limited Common Stock that I have tendered, I will be deemed to have
accepted the shares of A&F Common Stock exchange therefor and will be deemed
to have relinquished all rights with respect to the accepted shares of Limited
Common Stock.
I recognize that, under certain circumstances and subject to certain
conditions to the Exchange Offer (which you may waive) set forth in the
Offering Circular-Prospectus, you may not be required to accept for exchange
any of the shares of Limited Common Stock that I have tendered (including any
shares of Limited Common Stock tendered after the Expiration Date). Shares of
Limited Common Stock delivered to the Exchange Agent and not accepted for
exchange will be returned to me as promptly as practicable following
expiration or termination of the Exchange Offer at the address set forth on
the cover page of this Letter of Transmittal under "Description of
Certificate(s)" (Box #1) unless otherwise indicated under "Special Delivery
Instructions" (Box #6) below.
I understand that you will, upon the terms and subject to the conditions of
the Exchange Offer, conduct the Exchange Offer as a modified "Dutch auction"
in which each Limited stockholder has the opportunity to pick an Exchange
Ratio within the Exchange Ratio Range (in increments of .005) at which he or
she is willing to exchange some or all of his or her Limited Common Stock for
shares of A&F Common Stock. I understand that a "Dutch auction" is a
competitive bid between me and other Limited stockholders where the Final
Exchange Ratio is the lowest bid which would permit the maximum number of
shares of A&F Common Stock owned by The Limited to be exchanged in the
Exchange Offer. I also understand that if I wish to maximize the chance of
having The Limited accept for exchange all of the shares of Limited Common
Stock I am tendering (subject to the possibility of proration), I am entitled
to indicate that I am willing to accept the Exchange Ratio determined by the
"Dutch auction" process. See "Box #2". I understand that all shares of Limited
Common Stock properly tendered at Exchange Ratios at or below the Final
Exchange Ratio and not withdrawn prior to the Expiration Date will be
exchanged at the Final Exchange Ratio, upon the terms and subject to the
conditions of the Exchange Offer, including its proration provisions, and that
you will return all shares not exchanged pursuant to the Exchange Offer,
including shares tendered and not withdrawn prior to the Expiration Date at
Exchange Ratios greater than the Final Exchange Ratio and shares not exchanged
because of proration. If proration of tendered shares of Limited Common Stock
is required, I understand that you do not expect to be able to announce the
final proration factor or to commence delivery of any shares of A&F Common
Stock pursuant to the Exchange Offer until approximately seven business days
after the Expiration Date.
Unless otherwise indicated under "Special Issuance Instructions" (Box #5)
below, please issue (i) the A&F Certificate(s) to which I am entitled, (ii) if
applicable, a check in lieu of a fractional share equal to such fraction
multiplied by the average gross selling price per share, net of commissions,
of A&F Common Stock obtained by the Exchange Agent upon the sale of all
fractional shares on behalf of those tendering stockholders of The Limited
otherwise entitled to receive fractional shares (a "Fractional Share Check"),
and (iii) if applicable, the certificate(s) representing any shares of Limited
Common Stock not tendered by me or any tendered shares that are not accepted
for exchange, in each case in the name(s) of the registered holder(s) shown on
the cover page of this Letter of Transmittal under "Description of
Certificate(s)" (Box #1). Unless otherwise indicated in the box entitled
"Special Delivery Instructions" (Box #6) below, please send (i) the A&F
Certificate(s) to which I am entitled, (ii) if applicable, a Fractional Share
Check, in each case issued in the name(s) of the registered holder(s) shown on
the cover page of this Letter of Transmittal under "Description of
Certificate(s)" (Box #1), and (iii) if applicable, the certificate(s)
representing any shares of Limited Common Stock not tendered by me or any
shares tendered herewith and not accepted for exchange by you (and
accompanying documents, as appropriate), in each case to the address(es) of
the registered holder(s) shown on the cover page of this Letter of Transmittal
under "Description of Certificate(s)" (Box #1). Any shares of Limited Common
Stock delivered by book-entry transfer that are not tendered or any shares
tendered herewith delivered by book-entry transfer that are not accepted for
exchange will be credited to the account at the Book-Entry Transfer Facility.
I recognize that you have no obligation pursuant to the "Special Issuance
Instructions" to transfer any shares of Limited Common
4
<PAGE>
Stock from the name of the registered holder(s) hereof if you do not accept
for exchange such shares. If Boxes #5 and #6 entitled "Special Issuance
Instructions" and "Special Delivery Instructions" are both completed, please
issue (i) the A&F Certificate(s) to which I am entitled, (ii) if applicable, a
Fractional Share Check, and (iii) if applicable, the certificate(s)
representing any shares of Limited Common Stock not tendered by me or any
tendered shares that are not accepted for exchange, in each case in the
name(s) of, and mail such certificate(s) and check (and accompanying
documents, as appropriate) to, the person(s) so indicated.
I understand that the delivery and surrender of the shares of Limited Common
Stock that I have tendered is not effective, and the risk of loss of the
shares of Limited Common Stock (including shares of Limited Common Stock
tendered herewith) does not pass to the Exchange Agent, until receipt by the
Exchange Agent of this Letter of Transmittal, or a manually signed facsimile
hereof, duly completed and signed, or an Agent's Message (as defined in the
Offering Circular-Prospectus under "The Exchange Offer--Procedures for
Tendering Shares of Limited Common Stock") in connection with a book-entry
transfer of shares, together with all accompanying evidences of authority in
form satisfactory to you and any other required documents. All questions as to
the form of documents (including notices of withdrawal) and the validity,
form, eligibility (including time of receipt) and acceptance for exchange of
any tender of shares of Limited Common Stock will be determined by you in your
sole discretion and such determination shall be final and binding upon all
tendering stockholders.
I understand that a tender of shares of Limited Common Stock made pursuant
to any method of delivery set forth in the Offering Circular-Prospectus and
your acceptance for exchange of such shares pursuant to the procedures
described in the Offering Circular-Prospectus under "The Exchange Offer--
Procedures for Tendering Shares of Limited Common Stock" and in the
Instructions hereto will constitute a binding agreement between us upon the
terms and subject to the conditions of the Exchange Offer, including my
representation that (i) I own the shares of Limited Common Stock being
tendered within the meaning of Rule 14e-4 promulgated under the Exchange Act,
and (ii) the tender of such shares of Limited Common Stock complies with Rule
14e-4.
5
<PAGE>
---------------
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE CHECKING ANY BOX
BELOW
This Letter of Transmittal is to be used by tendering stockholders if either
(i) the certificate(s) representing shares of Limited Common Stock are to be
forwarded herewith or, unless an Agent's Message is utilized, if tenders are
to be made by book-entry transfer to the account maintained by the Exchange
Agent at the Book-Entry Transfer Facility or (ii) guaranteed delivery
procedures are being used, according to the procedures set forth in the
Offering Circular-Prospectus under "The Exchange Offer--Guaranteed Delivery
Procedure". Delivery of documents to the Book-Entry Transfer Facility in
accordance with its procedures does not constitute delivery to the Exchange
Agent as required by the Offering Circular-Prospectus.
Holders of Limited Common Stock will receive that portion of a share of A&F
Common Stock represented by the Final Exchange Ratio for each share of Limited
Common Stock accepted for exchange. A holder of shares of Limited Common Stock
wishing to tender portions of his or her holdings of Limited Common Stock at
different Exchange Ratios must complete a separate Letter of Transmittal for
each Exchange Ratio at which he or she wishes to tender such portion of his or
her shares of Limited Common Stock.
Participants in The Limited's Stock Purchase Plan or Savings and Retirement
Plan may not use this Letter of Transmittal to tender shares of Limited Common
Stock held in either Plan. Instead, participants in these Plans must use the
separate election forms which will be sent separately.
---------------
6
<PAGE>
BOX #2
THE FOLLOWING MUST BE COMPLETED BY ALL TENDERING STOCKHOLDERS.
CHECK ONLY ONE BOX.
IF MORE THAN ONE BOX IS CHECKED OR IF NO BOX IS CHECKED, THERE IS NO PROPER
TENDER OF SHARES OF LIMITED COMMON STOCK.
- --------------------------------------------------------------------------------
SHARES TENDERED AT EXCHANGE RATIO DETERMINED BY DUTCH AUCTION
[_]I WANT TO MAXIMIZE THE CHANCE OF HAVING THE LIMITED ACCEPT FOR EXCHANGE
ALL THE SHARES OF LIMITED COMMON STOCK I AM TENDERING (SUBJECT TO THE
POSSIBILITY OF PRORATION). ACCORDINGLY, BY CHECKING THIS ONE BOX INSTEAD
OF ONE OF THE EXCHANGE RATIO BOXES BELOW, I HEREBY TENDER SHARES OF
LIMITED COMMON STOCK AT, AND AM WILLING TO ACCEPT, THE EXCHANGE RATIO
RESULTING FROM THE DUTCH AUCTION TENDER PROCESS. THIS ACTION COULD
RESULT IN RECEIVING AN EXCHANGE RATIO AS LOW AS .73 OF A SHARE OF A&F
COMMON STOCK PER SHARE OF LIMITED COMMON STOCK.
____________________________________ OR ____________________________________
SHARES TENDERED AT EXCHANGE RATIO DETERMINED BY STOCKHOLDER
<TABLE>
<S> <C> <C> <C> <C> <C>
[_] .730 [_] .755 [_] .780 [_] .805 [_] .830 [_] .855
[_] .735 [_] .760 [_] .785 [_] .810 [_] .835 [_] .860
[_] .740 [_] .765 [_] .790 [_] .815 [_] .840
[_] .745 [_] .770 [_] .795 [_] .820 [_] .845
[_] .750 [_] .775 [_] .800 [_] .825 [_] .850
</TABLE>
BOX #3
THE FOLLOWING MUST BE COMPLETED ONLY IF SHARES OF LIMITED COMMON STOCK HELD IN
THE LIMITED'S DIVIDEND REINVESTMENT PLAN ARE TO BE TENDERED. SEE INSTRUCTION 6.
[_]By checking this box, I represent that I am a participant in The
Limited's Dividend Reinvestment Plan and hereby instruct the Plan
Administrator to tender on my behalf the following number of shares of
Limited Common Stock credited to my Dividend Reinvestment Plan
account(s) at the Exchange Ratio indicated in Box #2 of this Letter of
Transmittal:
shares
* I understand and agree that all shares of Limited Common Stock held in my
Dividend Reinvestment Plan account(s) will be tendered if the above box
is checked and the space above is left blank.
7
<PAGE>
BOX #4
THE FOLLOWING MUST BE COMPLETED BY ALL TENDERING STOCKHOLDERS.
[_]CHECK HERE IF THE CERTIFICATE(S) REPRESENTING TENDERED SHARES OF LIMITED
COMMON STOCK ARE ENCLOSED HEREWITH.
[_]CHECK HERE IF TENDERED SHARES OF LIMITED COMMON STOCK ARE BEING
DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE
EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution: __________________________________________
Account Number at Book-Entry Transfer Facility: _________________________
Transaction Code Number: ________________________________________________
[_]CHECK HERE IF THE CERTIFICATE(S) REPRESENTING TENDERED SHARES OF LIMITED
COMMON STOCK ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING (See Instruction 1):
Name(s) of Registered Holder(s): ________________________________________
Date of Execution of Notice of Guaranteed Delivery: _____________________
Window Ticket No. (if any): _____________________________________________
Name of Institution that Guaranteed Delivery: ___________________________
If delivered by Book-Entry Transfer,
Account Number at Book-Entry Transfer Facility: _________________________
Transaction Code Number: ________________________________________________
8
<PAGE>
THE FOLLOWING MUST BE COMPLETED BY TENDERING STOCKHOLDERS WHO HAVE SPECIAL
ISSUANCE OR DELIVERY INSTRUCTIONS.
BOX #5 BOX #6
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4 and 5) (See Instructions 4 and 5)
To be completed ONLY if shares of To be completed ONLY if shares of
Limited Common Stock not tendered Limited Common Stock not tendered
or any shares of Limited Common or any shares of Limited Common
Stock not accepted for exchange, Stock not accepted for exchange,
A&F Certificate(s) and/or any A&F Certificate(s) and/or any
Fractional Share Check issued in Fractional Share Check issued in
connection therewith are to be connection therewith are to be
issued in the name of someone sent to someone other than the
other than the undersigned. undersigned, or to the
undersigned at an address other
than that shown in the box
entitled "Description of
Certificate(s)" on the cover page
of this Letter of Transmittal.
ISSUE:
(check appropriate box(es)):
[_] A&F Certificate(s) to:
[_] Fractional Share Check to:
[_] Limited Common Stock certifi-
cate(s) to: MAIL:
(check appropriate box(es)):
Name(s): _________________________
[_] A&F Certificate(s) to:
(PLEASE PRINT)
[_] Fractional Share Check to:
__________________________________
(PLEASE PRINT) [_] Limited Common Stock certifi-
cate(s) to:
Address: _________________________
__________________________________ Name(s): _________________________
__________________________________ (PLEASE PRINT)
ZIP CODE __________________________________
(PLEASE PRINT)
__________________________________
EMPLOYER IDENTIFICATION OR SOCIAL Address: _________________________
SECURITY NUMBER __________________________________
__________________________________
ZIP CODE
9
<PAGE>
BOX #7
THE FOLLOWING MUST BE COMPLETED BY ALL TENDERING STOCKHOLDERS.
IMPORTANT--PLEASE SIGN HERE
(Please Complete Substitute Form W-9 on Reverse)
(See Instructions 1 and 4)
X __________________________________________________________________________
X __________________________________________________________________________
SIGNATURE(S) OF OWNER(S)
In the case of tendering stockholders, this Letter of Transmittal must be
signed by the registered holder(s) as the name(s) appear(s) on the Limited
Common Stock certificate(s) or on a security position listing or by
person(s) authorized to become registered holder(s) by endorsements and
documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting
in a fiduciary or representative capacity, please set forth full title. See
Instruction 4.
Name(s):
--------------------------------------------------------------------
--------------------------------------------------------------------
(PLEASE PRINT)
Capacity:
--------------------------------------------------------------------
Address:
--------------------------------------------------------------------
--------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone No.: _______________________________________________
Date: __________________________, 1998
10
<PAGE>
BOX #8
THE FOLLOWING MUST BE COMPLETED BY TENDERING STOCKHOLDERS WHO AREREQUIRED TO
PROVIDE SIGNATURE GUARANTEES. SEE INSTRUCTIONS 1 AND 4.
SIGNATURE GUARANTEE
FOR USE BY ELIGIBLE INSTITUTIONS ONLY.
PLACE MEDALLION GUARANTEE IN SPACE BELOW.
Signature(s) Guaranteed by an Eligible Institution: ________________________
(AUTHORIZED SIGNATURE)
Name: ______________________________________________________________________
(PLEASE PRINT)
Title: _____________________________________________________________________
Name of Firm: ______________________________________________________________
Address: ___________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone No.: _______________________________________________
Date: __________________________, 1998
BOX #9
THE FOLLOWING MUST BE COMPLETED ONLY IF A SOLICITING DEALER FEE IS TO BE PAID
IN CONNECTION WITH THIS TENDER. SEE INSTRUCTION 10.
NOTICE OF SOLICITED TENDERS
[_]By checking this box, I represent that my tender was affirmatively
solicited by the Soliciting Dealer listed below:
Name of Firm: ______________________________________________________________
(PLEASE PRINT)
Name of Individual Broker or Financial Consultant: _________________________
Identification Number (if known): __________________________________________
Address: ___________________________________________________________________
(INCLUDE ZIP CODE)
11
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND LIMITED COMMON STOCK
CERTIFICATE(S)
This Letter of Transmittal is to be completed by stockholders if either (i)
the certifcate(s) representing shares of Limited Common Stock tendered
herewith are to be forwarded herewith or, unless an Agent's Message is
utilized, if tenders are to be made pursuant to the procedures for book-entry
transfer set forth in the Offering Circular-Prospectus under "The Exchange
Offer--Procedures for Tendering Shares of Limited Common Stock" or (ii) the
shares Limited Common Stock will be tendered pursuant to the guaranteed
delivery procedures set forth in the Offering Circular-Prospectus under "The
Exchange Offer--Guaranteed Delivery Procedure". The certificate(s)
representing shares of Limited Common Stock tendered herewith, or confirmation
of any book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility of shares of Limited Common Stock tendered electronically,
as well as a property completed and duly executed copy of this Letter of
Transmittal or a manually signed facsimile hereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at one of its addresses set forth herein prior to the Expiration Date. THE
METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE CERTIFICATE(S)
REPRESENTING SHARES OF LIMITED COMMON STOCK TENDERED HEREWITH AND ANY OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER,
BUT, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF CERTIFICATE(S)
REPRESENTING SHARES OF LIMITED COMMON STOCK TENDERED HEREWITH ARE SENT BY MAIL
IT IS RECOMMENDED THAT TENDERING STOCKHOLDERS USE REGISTERED MAIL, RETURN
RECEIPT REQUESTED AND ALLOW SUFFICIENT TIME TO ENSURE TIMELY RECEIPT.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH
ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
No alternative, conditional or contingent tenders will be accepted for
exchange in the Exchange Offer. All tendering stockholders, by execution of
this Letter of Transmittal or a manually signed facsimile hereof, waive any
right to receive any notice of the acceptance of their shares of Limited
common Stock for exchange.
Holders whose stock certificate(s) representing shares of Limited Common
Stock are not immediately available or who cannot complete the procedure for
delivery by book-entry transfer on a timely basis or who cannot deliver their
certificate(s) and all other required documents to the Exchange Agent prior to
the Expiration Date may tender their shares of Limited Common Stock pursuant
to the guaranteed delivery procedure set forth in the Offering Circular-
Prospectus under "The Exchange Offer--Guaranteed Delivery Procedure". Pursuant
to such procedure: (i) such tender must be made by or through a participant in
the Security Transfer Agents Medallion Program or the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(an "Eligible Institution"); (ii) prior to the Expiration Date, the Exchange
Agent must have received from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery substantially in the form
provided by The Limited setting forth the name and address of the holder and
the number of shares of Limited Common Stock tendered, stating that the tender
is being made thereby and guaranteeing that, within three business days after
the date of the Notice of Guaranteed Delivery, the certificate(s) representing
the shares of Limited Common Stock accompanied by all other documents required
by this Letter of Transmittal will be deposited by the Eligible Institution
with the Exchange Agent; and (iii) the certificate(s) representing the shares
of Limited Common Stock tendered herewith (or a confirmation of a book-entry
transfer of such shares of Limited Common Stock into the Exchange Agent's
account at the Book-Entry Transfer Facility as described above), together with
a properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile hereof) and any required signature guarantees, or an Agent's
Message in connection with a book-entry transfer, and any other documents
required hereby, must be received by the Exchange Agent within three business
days after the date of the Notice of Guaranteed Delivery, all as provided in
the Offering Circular-Prospectus under "The Exchange Offer--Guaranteed
Delivery Procedure".
12
<PAGE>
2. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER); WITHDRAWALS
If less than all the shares of Limited Common Stock evidence by any
certificate(s) are to be tendered, the tendering holder should fill in the
number of shares to be tendered in the part of Box #1 entitled "Number of
Shares Tendered". A reissued certificate representing the number of shares of
Limited Common Stock not tendered will be issued in the name of, and sent to,
such registered holder, unless otherwise indicated under "Special Issuance
Instructions" (Box #5) or "Special Delivery Instructions" (Box #6) above, as
soon as practicable after the Expiration Date. THE ENTIRE NUMBER OF SHARES OF
LIMITED COMMON STOCK REPRESENTED BY ANY CERTIFICATE(S) DELIVERED TO THE
EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE
INDICATED.
Any tendering holder of shares of Limited Common Stock may withdraw the
tender at any time prior to the Expiration Date, and may also withdraw such
tender after the expiration of 40 business days from the commencement of the
Exchange Offer, unless theretofore accepted for exchange as provided in the
Offering Circular-Prospectus.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Exchange Agent at one of its
addresses set forth above and must comply with the requirements set forth in
the Offering Circular-Prospectus under "The Exchange Offer--Withdrawal
Rights". Withdrawals may not be rescinded, and shares of Limited Common Stock
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer. However, withdrawn shares of Limited Common Stock may be
retendered by again following one of the procedures described in the Offering
Circular-Prospectus under the caption "The Exchange Offer--Procedures for
Tendering Shares of Limited Common Stock" at any time prior to the Expiration
Date.
3. INDICATION OF EXCHANGE RATIO AT WHICH SHARES OF LIMITED COMMON STOCK ARE
BEING TENDERED
For shares of Limited Common Stock to be properly tendered, the holder of
shares of Limited Common Stock MUST check either (i) the box within Box #2
indicating his or her willingness to accept the Exchange Ratio determined by
Dutch auction in the box entitled "Shares Tendered at Exchange Ratio
Determined by Dutch Auction" or (ii) the box within Box #2 indicating the
portion of a share of A&F Common Stock that he or she is willing to receive in
exchange for a share of Limited Common Stock in the box entitled "Shares
Tendered at Exchange Ratio Determined by Stockholder". Tenders at an Exchange
Ratio selected by the tendering stockholder may only be made in increments of
.005. ONLY ONE BOX MAY BE CHECKED. IF MORE THAN ONE BOX IS CHECKED OR IF NO
BOX IS CHECKED, THERE IS NO PROPER TENDER OF SHARES OF LIMITED COMMON STOCK. A
holder of shares of Limited Common Stock wishing to tender portions of his or
her Limited Common Stock at different Exchange Ratios must complete a separate
Letter of Transmittal for each Exchange Ratio at which he or she wishes to
tender such portion of his or her Limited Common Stock. The same shares of
Limited Common Stock cannot be tendered (unless previously properly withdrawn
as provided in the Offering Circular-Prospectus under the caption "The
Exchange Offer--Withdrawal Rights") at more than one Exchange Ratio. Holders
of shares of Limited Common Stock who wish to maximize the chance that their
shares will be exchanged at the relevant Final Exchange Ratio may check the
box within Box #2 marked "Shares Tendered at Exchange Ratio Determined by
Dutch Auction". Checking this box may result in an Exchange Ratio equal to the
Minimum Exchange Ratio of .73 of a share of A&F Common Stock per share of
Limited Common Stock.
4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES
If this Letter of Transmittal is signed by the registered holder(s) of the
shares of Limited Common Stock tendered hereby, the signature(s) must
correspond exactly with the name(s) as written on the face of the
certificate(s) representing the shares of Limited Common Stock without
alteration, enlargement or any other change whatsoever.
If any of the shares of Limited Common Stock tendered hereby are registered
in the name of two or more joint owners, all such owners must sign this Letter
of Transmittal.
13
<PAGE>
If any tendered shares of Limited Common Stock are registered in the names
of different holders, it will be necessary to complete, sign and submit as
many separate copies of this Letter of Transmittal as there are different
registrations of certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
shares of Limited Common Stock listed and tendered hereby, no endorsements of
certificates or separate stock powers are required, unless A&F Certificate(s)
are to be issued, or certificate(s) for any untendered shares of Limited
Common Stock or for any shares of Limited Common Stock not accepted for
exchange are to be reissued, in the name of a person other than the registered
holder(s), in which case, the stock certificate(s) evidencing the shares of
Limited Common Stock tendered hereby must be endorsed or accompanied by
appropriate stock power(s), in either case, signed exactly as the name(s) of
the registered holder(s) appear(s) on such stock certificate(s). Signatures on
such stock certificate(s) and stock power(s) must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the shares of Limited Common Stock listed and tendered
hereby, the certificate(s) representing such shares of Limited Common Stock
must be endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name(s) of the registered holder(s) appear(s) on such
certificate(s), and such signatures must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any certificates or stock powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of a corporation or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and proper evidence satisfactory
to The Limited of their authority so to act must be submitted.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the shares of Limited Common Stock are tendered: (i) by a
registered holder of such shares of Limited Common Stock (which term, for
purposes of this Letter of Transmittal, shall include any participant in the
Book-Entry Transfer Facility whose name appears on a security position listing
as the owner of shares of Limited Common Stock) who has not completed the box
entitled "Special Issuance Instructions" (Box #5) or "Special Delivery
Instructions" (Box #6) of this Letter of Transmittal; or (ii) for the account
of an Eligible Institution.
5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
Tendering holders should indicate in the box entitled "Special Issuance
Instructions" (Box #5) or "Special Delivery Instructions" (Box #6), as
applicable, the name and address to which A&F Certificate(s), a Fractional
Share Check, if any, and/or substitute certificate(s) for shares of Limited
Common Stock not tendered or any shares of Limited Common Stock not accepted
for exchange are to be issued or sent, if different from the name and address
of the person signing this Letter of Transmittal. In the case of issuance in a
different name, the employer identification or social security number of the
person named must also be indicated.
6. PARTICIPANTS IN THE DIVIDEND REINVESTMENT PLAN OF THE LIMITED
If a tendering stockholder desires to have tendered pursuant to the Exchange
Offer shares of Limited Common Stock credited to the stockholder's account
under The Limited's Dividend Reinvestment Plan, Box #3 should be completed. A
participant in the Dividend Reinvestment Plan wishing to tender portions of
such participant's shares of Limited Common Stock in the Dividend Reinvestment
Plan at different prices must complete a separate Letter of Transmittal for
each price at which such participant wishes to tender each such portion of
such participant's shares.
If a stockholder authorizes a tender of shares of Limited Common Stock held
in the Dividend Reinvestment Plan, all such shares credited to such
stockholder's account(s), including fractional shares, will be tendered,
unless otherwise specified in the appropriate space in Box #3. In the event
that Box #3 is not completed, no shares of Limited Common Stock held in the
tendering stockholder's account will be tendered.
PARTICIPANTS IN THE STOCK PURCHASE PLAN OR THE SAVINGS AND RETIREMENT PLAN
OF THE LIMITED MAY NOT USE THIS LETTER OF TRANSMITTAL TO DIRECT THE TENDER OF
SHARES OF LIMITED COMMON STOCK, BUT MUST USE THE SEPARATE ELECTION FORM SENT
TO THEM.
14
<PAGE>
7. STOCK TRANSFER TAXES
The Limited will pay all stock transfer taxes, if any, payable on the
transfer to it of shares of Limited Common Stock and the transfer to tendering
stockholders of shares of A&F Common Stock pursuant to the Exchange Offer. If,
however, the exchange of shares is to be made to, or (in the circumstances
permitted by the Exchange Offer) if shares of Limited Common Stock that are
not tendered or not accepted for exchange are to be registered in the name of
or delivered to any person other than the registered owner, or if tendered
certificates are registered in the name of any person other than the person
signing this Letter of Transmittal, the amount of all stock transfer taxes, if
any (whether imposed on the registered owner or such other person), payable on
account of the transfer to such person must be paid by the tendering
stockholder unless evidence satisfactory to The Limited of the payment of such
taxes or exemption therefrom is submitted.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the certificate(s) representing shares of
Limited Common Stock listed in this Letter of Transmittal.
8. MUTILATED, LOST, STOLEN OR DESTROYED LIMITED COMMON STOCK CERTIFICATES
If any certificate representing shares of Limited Common Stock has been
mutilated, destroyed, lost or stolen, the stockholder must (i) furnish to the
Exchange Agent evidence, satisfactory to it in its discretion, of the
ownership of and the destruction, loss or theft of such certificate, (ii)
furnish to the Exchange Agent indemnity, satisfactory to it in its discretion,
and (iii) comply with such other reasonable requirements as the Exchange Agent
may prescribe. Any holder whose stock certificate representing shares of
Limited Common Stock has been mutilated, destroyed, lost or stolen should
promptly contact the Exchange Agent at the address indicated above for further
instructions.
9. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES
Questions relating to the procedure for tendering, as well as requests for
assistance or additional copies of the Offering Circular-Prospectus, this
Letter of Transmittal or the Notice of Guaranteed Delivery, may be directed to
the Information Agent at the address indicated below. Additional copies of the
Offering Circular-Prospectus, this Letter of Transmittal or the Notice of
Guaranteed Delivery may also be obtained from the Information Agent or the
Dealer Managers.
10. SOLICITED TENDERS
The Limited will pay a solicitation fee of $1.00 per share, up to a maximum
of 1,000 shares per tendering stockholder, for each share of Limited Common
Stock tendered and accepted for exchange pursuant to the Exchange Offer,
covered by the Letter of Transmittal which designates, in the box captioned
"Notice of Solicited Tenders," as having solicited and obtained the tender,
the name of (i) any broker of dealer in securities which is a member of any
national securities exchange in the United States or of the National
Association of Securities Dealers, Inc. or (ii) any bank or trust company
located in the United States (each, a "Soliciting Dealer"), except that no
solicitation fee shall be payable (i) in connection with a tender of Limited
Common Stock by a stockholder (x) tendering more than 10,000 shares of Limited
Common Stock or (y) tendering from a country outside of the United States or
(ii) to the Dealer Managers. In addition, Soliciting Dealers are not entitled
to a fee with respect to shares of Limited Common Stock beneficially owned by
such Soliciting Dealer or with respect to any shares that are registered in
the name of a Soliciting Dealer unless such shares are held by such Soliciting
Dealer as nominee and are tendered for the benefit of beneficial holders
identified in this Letter of Transmittal. No such fee shall be payable to a
Soliciting Dealer is such Soliciting Dealer is required for any reason to
transfer the amount of such fee to a tendering holder (other than itself). No
broker, dealer, bank, trust company of fiduciary shall be deemed to be the
agent of The Limited, the Exchange Agent, the Information Agent or the Dealer
Managers for purposes of the Exchange Offer.
In order for a Soliciting Dealer to receive a solicitation fee with respect
to the tender of shares of Limited Common Stock, the Exchange Agent must have
received a properly completed and duly executed Letter of Transmittal
(including a completed box entitled "Notice of Solicited Tenders" (Box #9)).
15
<PAGE>
The acceptance of compensation by the Soliciting Dealer listed in "Notice of
Solicited Tenders" (Box #9) will constitute a representation by such
Soliciting Dealer that: (i) it has complied with the applicable requirements
of the Securities Exchange Act of 1934, as amended, and the applicable rules
and regulations thereunder, in connection with such solicitation; (ii) it is
entitled to such compensation for such solicitation under the terms and
conditions of the Offering Circular-Prospectus and this Letter of Transmittal,
and (iii) in soliciting tenders of shares of Limited Common Stock, it has used
no soliciting materials other than those furnished by The Limited.
11. IMPORTANT TAX INFORMATION; SUBSTITUTE FORM W-9
Federal income tax law requires that a holder whose tendered shares of
Limited Common Stock are accepted for exchange must provide the Exchange Agent
(as payor) with his or her correct taxpayer identification number ("TIN") on
Substitute Form W-9 below, which, in the case of a holder who is an
individual, is his or her social security number. If the Exchange Agent is not
provided with the correct TIN or an adequate basis for exemption, the holder
may be subject to a $50 penalty imposed by the Internal Revenue Service (the
"IRS") in addition to backup withholding in an amount equal to 31% of the cash
proceeds received in lieu of fractional shares of A&F Common Stock resulting
from the Exchange Offer if such amount equals or exceeds $20.
Exempt holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
To prevent backup withholding, each tendering holder must provide his or her
correct TIN by completing the "Substitute Form W-9" set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the
holder has not been notified by the IRS that he or she is subject to backup
withholding as a result of the failure to report all interest or dividends or
(iii) the IRS has notified the holder that he or she is no longer subject to
backup withholding. In order to satisfy the Exchange Agent that a foreign
individual qualifies as an exempt recipient, such holders must submit a
statement signed under penalty of perjury attesting to such exempt status.
Such statements may be obtained from the Exchange Agent. If the certificate(s)
representing shares of Limited Common Stock are in more than one name or are
not in the name of the actual owner, consult the enclosed guidelines for
information on which TIN to report. If you do not have a TIN, consult the
enclosed guidelines for instructions of applying for a TIN, check the box in
Part 2 of the Substitute Form W-9 (Box #10), and complete the Certification of
Awaiting Taxpayer Identification Number (Box #11) in order to avoid backup
withholding. Notwithstanding that the box in Part 2 of Box #10 is checked and
the Certification of Awaiting Taxpayer Identification Number is completed, the
Exchange Agent will withhold 31% of all reportable payments made prior to the
time a properly certified TIN is provided to the Exchange Agent, and if the
TIN is provided within 60 days, such amount will be refunded.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any such cash payments made in lieu of fractional shares of A&F Common
Stock to the stockholder or other payee if such amount equals or exceeds $20.
Backup withholding is not an additional tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If backup withholding results in an overpayment of
taxes, a refund may be obtained from the IRS.
Holders of shares of Limited Common Stock who acquired their shares at
different times may have different tax bases in their shares of Limited Common
Stock, and should consult with their tax advisors as to the possibility of
identifying the specific shares of Limited Common Stock surrendered in the
Exchange Offer in order to establish the basis of the shares of A&F Common
Stock issued in exchange for shares of Limited Common Stock surrendered.
16
<PAGE>
THE FOLLOWING BOXES MUST BE COMPLETED BY ALL TENDERING STOCKHOLDERS
(See Instruction 11)
PAYOR'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK
BOX #10
PART 1--PLEASE PROVIDE YOUR Social security number
TIN IN THE BOX AT RIGHT AND or employer
CERTIFY BY SIGNING AND identification number
DATING BELOW.
SUBSTITUTE
FORM W-9 ----------------------
DEPARTMENT OF THE --------------------------------------------------------
TREASURY INTERNAL
REVENUE SERVICE
PART 2--Awaiting TIN [_]
--------------------------------------------------------
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT (1) the number shown on this form is my
correct taxpayer identification number (or I am
waiting for a number to be issued to me) and (2) I am
not subject to backup withholding either because (a)
I am exempt from backup withholding, (b) I have not
been notified by the Internal Revenue Service that I
am subject to backup withholding as a result of the
failure to report all interest or dividends or (c)
the Internal Revenue Service has notified me that I
am no longer subject to backup withholding.
PAYOR'S REQUEST FOR
TAXPAYER
IDENTIFICATION
NUMBER (TIN)
--------------------------------------------------------
Signature ___________________________ Date __________
You must cross out item (2) above if you have been
notified by the Internal Revenue Service that you are
currently subject to backup withholding because of
under reporting interest or dividends on your tax
return. However, if after being notified by the IRS
that you were subject to backup withholding, you
received another notification from the IRS that you
are no longer subject to backup withholding, do not
cross out such item (2).
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF
ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2
OF THE SUBSTITUTE FORM W-9.
BOX #11
CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalty of perjury that a taxpayer identification number
has not been issued to me, and either that (i) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (ii) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of all reportable
payments made to me will be withheld, but that such amounts will be
refunded to me if I then provide a taxpayer identification number within
sixty (60) days.
Signature ___________________________________________ Date _______________
17
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYOR--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
- -------------------------------------- --------------------------------------
<TABLE>
<CAPTION>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ----------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account or,
if combined funds,
the first
individual on the
account(1)
3. Husband and wife (joint The actual owner
account) of the account or,
if joint funds,
either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only contributor,
the minor(1)
6. Account in the name of The ward, minor,
guardian or committee or incompetent
for a designated ward, person(3)
minor, or incompetent
person
7. a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b. So-called trust The actual
account that is not a owner(1)
legal or valid trust
under State law
8. Sole proprietorship The owner(4)
account
</TABLE>
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
-----
<S> <C>
9. A valid trust, estate, The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative or
trustee unless the
legal entity
itself is not
designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
held in the name of
the business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public entity
Department of
Agriculture in the
name of a public
entity (such as a
State or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
- -------------------------------------- --------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
18
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number
(for businesses and all other entities), at the local office of the Social
Security Administration or the Internal Revenue Service.
To complete Substitute Form W-9 if you do not have a taxpayer identification
number, write "Applied For" in the space for the taxpayer identification
number in Part 1, sign and date the Form, and give it to the requester.
Generally, you will then have 60 days to obtain a taxpayer identification
number and furnish it to the requester. If the requester does not receive your
taxpayer identification number within 60 days, backup withholding, if
applicable, will begin and continue until you furnish your taxpayer
identification number to the requester.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(b)(7).
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any political subdivision or instrumentality thereof.
. A foreign government or, a political subdivision, agency or instrumentality
thereof.
. An international organization or any agency or instrumentality thereof.
. A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
. An exempt charitable remainder trust, or a non-exempt trust described in
Section 4947(a)(1).
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An entity registered at all times during the tax year under the Investment
Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payor's trade or business and you have not provided
your correct taxpayer identification number to the payor.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file a Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYOR, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYOR.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE
Section 6109 requires most recipients of dividends, interest, or other
payments to give taxpayer identification numbers to payors who must report the
payments to IRS. IRS uses the numbers for identification purposes. Payors must
be given the numbers whether or not recipients are required to file tax
returns. Payors must generally withhold 31% of taxable interest, dividends,
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payor. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you
fail to furnish your taxpayer identification number to a payor, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) CRIMINAL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) CIVIL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
19
<PAGE>
THE INFORMATION AGENT FOR THE EXCHANGE OFFER IS:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
Call Collect: (212) 269-5550
or
Call Toll-Free: (800) 549-6864
THE DEALER MANAGERS FOR THE EXCHANGE OFFER ARE:
GOLDMAN SACHS & CO.
85 Broad Street
New York, NY 10004
Call Toll-Free: (800) 323-5678
<PAGE>
EXHIBIT (A)(3)
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
THE LIMITED, INC.
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery or one substantially like it must be used
to accept the Exchange Offer (as defined herein) of The Limited, Inc., a
Delaware corporation ("The Limited"), made pursuant to the Offering Circular-
Prospectus dated April 15, 1998 (the "Offering Circular-Prospectus") and the
related Letter of Transmittal, if (i) your stock certificate(s) representing
shares of common stock, par value $.50 per share (the "Limited Common Stock"),
of The Limited are not immediately available, (ii) you cannot complete the
procedure for book-entry transfer on a timely basis or (iii) you cannot
deliver the certificate(s) and all other required documents to First Chicago
Trust Company of New York (the "Exchange Agent") prior to the Expiration Date
(as defined in the Offering Circular-Prospectus). You may deliver this Notice
of Guaranteed Delivery by hand, telegram, facsimile transmission or mail to
the Exchange Agent. See "The Exchange Offer--Guaranteed Delivery Procedure" in
the Offering Circular-Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
IF BY MAIL: IF BY HAND: IF BY OVERNIGHT
First Chicago Trust Company DELIVERY:
First Chicago Trust
First Chicago Trust of New York Company
Company Tenders & Exchanges of New York
of New York c/o The Depository Trust Company Tenders & Exchanges
Tenders & Exchanges 55 Water Street, DTC TAD Suite 4680
Suite 4660 Vietnam Veterans Memorial Plaza 14 Wall Street, 8th
P.O. Box 2569 New York, New York 10041 Floor
Jersey City, New Jersey New York, New York
07303-2569 10005
IF BY FACSIMILE TRANSMISSION:
(FOR ELIGIBLE INSTITUTIONS ONLY)
(201) 222-4720
or
(201) 222-4721
FACSIMILE CONFIRMATION NUMBER:
(201) 222-4707
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO THE EXCHANGE AGENT OTHER
THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE
TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the Instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions set forth in the Offering
Circular-Prospectus, and the related Letter of Transmittal (which constitute
the "Exchange Offer"), the receipt of which is hereby acknowledged, I hereby
tender to you the number of shares of common stock, par value $.50 per share
(the "Limited Common Stock"), of The Limited, set forth below, at the Exchange
Ratio (as defined in the Offering Circular-Prospectus) indicated in this
Notice of Guaranteed Delivery, pursuant to the guaranteed delivery procedure
set forth in "The Exchange Offer--Guaranteed Delivery Procedure" in the
Offering Circular-Prospectus.
Holders of Limited Common Stock will receive that portion of a share of A&F
Common Stock represented by the Final Exchange Ratio for each share of Limited
Common Stock accepted for exchange. A holder of shares of Limited Common Stock
wishing to tender portions of his or her holdings of Limited Common Stock at
different Exchange Ratios must complete a separate Letter of Transmittal for
each Exchange Ratio at which he or she wishes to tender such portion of his or
her shares of Limited Common Stock.
CHECK ONLY ONE BOX.
IF MORE THAN ONE BOX IS CHECKED OR IF NO BOX IS CHECKED,
THERE IS NO PROPER TENDER OF SHARES OF LIMITED COMMON STOCK.
- -------------------------------------------------------------------------------
SHARES TENDERED AT EXCHANGE RATIO
DETERMINED BY DUTCH AUCTION
[_]I WANT TO MAXIMIZE THE CHANCE OF HAVING THE LIMITED ACCEPT FOR EXCHANGE
ALL THE SHARES OF LIMITED COMMON STOCK I AM TENDERING (SUBJECT TO THE
POSSIBILITY OF PRORATION). ACCORDINGLY, BY CHECKING THIS ONE BOX INSTEAD
OF ONE OF THE EXCHANGE RATIO BOXES BELOW, I HEREBY TENDER SHARES OF
LIMITED COMMON STOCK AT, AND AM WILLING TO ACCEPT, THE EXCHANGE RATIO
RESULTING FROM THE DUTCH AUCTION TENDER PROCESS. THIS ACTION COULD RESULT
IN RECEIVING AN EXCHANGE RATIO AS LOW AS .73 OF A SHARE OF A&F COMMON
STOCK PER SHARE OF LIMITED COMMON STOCK.
___________________________________ OR ____________________________________
SHARES TENDERED AT EXCHANGE RATIO DETERMINED BY STOCKHOLDER
<TABLE>
<S> <C> <C> <C> <C>
[_] .730 [_] .760 [_] .790 [_] .820 [_] .850
[_] .735 [_] .765 [_] .795 [_] .825 [_] .855
[_] .740 [_] .770 [_] .800 [_] .830 [_] .860
[_] .745 [_] .775 [_] .805 [_] .835
[_] .750 [_] .780 [_] .810 [_] .840
[_] .755 [_] .785 [_] .815 [_] .845
</TABLE>
2
<PAGE>
(PLEASE TYPE OR PRINT, EXCEPT FOR SIGNATURE)
Name(s) of Registered Holders: ______ Number of Shares of Limited Common
_____________________________________ Stock Tendered:
_____________________________________
Address(es): ________________________
_____________________________________ Certificate No(s). (if applicable):
_____________________________________ _____________________________________
__________________ (Include Zip Code) _____________________________________
Area Code and Tel. No(s).: Total Number of Shares Represented
_____________________________________ by Limited Common Stock
Certificate(s)
Dated: ______________________________ _____________________________________
Window Ticket No. (if any): _________
Signature(s): _______________________
_____________________________________
IF SHARES OF LIMITED COMMON STOCK
WILL BE TENDERED BY BOOK-ENTRY
TRANSFER, PLEASE PROVIDE THE
FOLLOWING INFORMATION:
Account Number: _____________________
Transaction Code Number: ____________
3
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
The undersigned, a participant in the Security Transfer Agents Medallion
Program or the New York Stock Exchange Medallion Signature Guarantee Program
or the Stock Exchange Medallion Program, hereby (i) guarantees that either the
certificates representing the shares of Limited Common Stock tendered hereby
in proper form for transfer or a confirmation of a book-entry transfer of such
shares of Limited Common Stock into the Exchange Agent's account at the Book-
Entry Transfer Facility, in each case together with a properly completed and
duly executed Letter of Transmittal (or a manually signed facsimile thereof)
and any required signature guarantees, or an Agent's Message (as defined in
the Offering Circular-Prospectus) in connection with a book-entry transfer,
and any other documents required by the Letter of Transmittal will be received
by the Exchange Agent at one of its addresses set forth above, within three
business days after the date hereof, (ii) represents that the holder on whose
behalf this tender is being made owns the shares of Limited Common Stock being
tendered within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 14e-4"), and (iii) represents that the
tender of such shares of Limited Common Stock complies with Rule 14e-4.
(PLEASE TYPE OR PRINT, EXCEPT FOR SIGNATURE)
_____________________________________ _____________________________________
Name of Firm Authorized Signature
_____________________________________ Name: _______________________________
Address
_____________________________________
_____________________________________ Title
(Include Zip Code)
Date: _______________________________
_____________________________________
Area Code and Tel. No.
NOTE: DO NOT SEND CERTIFICATES FOR SHARES OF LIMITED COMMON STOCK WITH THIS
NOTICE. STOCK CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF
TRANSMITTAL TO THE EXCHANGE AGENT.
4
<PAGE>
EXHIBIT (A)(4)
OFFER TO EXCHANGE
NOT MORE THAN .86 NOR LESS THAN .73 OF A SHARE OF CLASS A COMMON STOCK OF
ABERCROMBIE & FITCH CO. FOR EACH SHARE OF COMMON STOCK OF THE LIMITED, INC.
THE EXCHANGE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MAY 13, 1998, UNLESS THE
EXCHANGE OFFER IS EXTENDED.
April 15, 1998
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We refer to the enclosed Offering Circular-Prospectus dated April 15, 1998
(the "Offering Circular-Prospectus"), of The Limited, Inc. ("The Limited"),
and the related Letter of Transmittal (the "Letter of Transmittal"), which
together constitute The Limited's offer (the "Exchange Offer") to exchange up
to 43,600,000 shares of Class A common stock, par value $.01 per share ("A&F
Common Stock"), of Abercrombie & Fitch Co. ("A&F"), for shares of common
stock, par value $.50 per share (the "Limited Common Stock"), of The Limited
that are validly tendered by the Expiration Date and not withdrawn or deemed
withdrawn, at an Exchange Ratio not greater than .86 nor less than .73 of a
share of A&F Common Stock for each share of Limited Common Stock tendered,
upon the terms and subject to the conditions set forth in the Offering
Circular-Prospectus and in the related Letter of Transmittal. See "Summary",
"The Transactions" and "The Exchange Offer" in the Offering Circular-
Prospectus. Capitalized terms used herein have the same meanings as in the
Offering Circular-Prospectus.
We have been appointed by The Limited to act as the Dealer Managers in
connection with the Exchange Offer. Your attention is directed to the Offering
Circular-Prospectus, which should be read by you in its entirety.
The Exchange Offer, proration period and withdrawal rights will expire at
12:00 Midnight, New York City time, on Wednesday, May 13, 1998 (the
"Expiration Date"), unless extended in accordance with applicable law and the
terms of the Exchange Offer, in which event the term "Expiration Date" shall
mean the latest time and date to which the Exchange Offer, as extended, shall
expire. The maximum number of shares of Limited Common Stock which will be
accepted for exchange will be that number of shares which, when multiplied by
the Final Exchange Ratio, equals 43,600,000 shares of A&F Common Stock. If
more than such maximum number of shares of Limited Common Stock are tendered
at Exchange Ratios at or below the Final Exchange Ratio, the Exchange Offer
will be oversubscribed, and shares of Limited Common Stock tendered at or
below the Final Exchange Ratio will be subject to proration in accordance with
the terms set forth in the Offering Circular-Prospectus under "The Exchange
Offer-Terms of the Exchange Offer".
The Limited will pay to a Soliciting Dealer (as defined below) a
solicitation fee of $1.00 per share, up to a maximum of 1,000 shares per
tendering stockholder, for each share of Limited Common Stock tendered and
accepted for exchange pursuant to the Exchange Offer if such Soliciting Dealer
has affirmatively solicited and obtained such tender, except that no
solicitation fee shall be payable (i) in connection with a tender of Limited
Common Stock by a stockholder (A) tendering more than 10,000 shares of Limited
Common Stock or (B) tendering from a country outside of the United States; or
(ii) to the Dealer Managers. "Soliciting Dealer" includes (i) any broker or
dealer in securities which is a member of any national securities exchange in
the United States or of the National Association of Securities Dealers, Inc.
or (ii) any bank or trust company located in the United States. In order for a
Soliciting Dealer to receive a solicitation fee with respect to the tender of
shares of Limited Common Stock, the Exchange Agent must have received a
properly completed and duly executed Letter of Transmittal (including a
completed box entitled "Notice of Solicited Tenders" (Box #9)).
1
<PAGE>
No solicitation fee shall be payable to a Soliciting Dealer if such
Soliciting Dealer is required for any reason to transfer the amount of such
fee to a tendering holder (other than itself). Soliciting Dealers are not
entitled to a solicitation fee with respect to shares of Limited Common Stock
beneficially owned by such Soliciting Dealer or with respect to any shares
that are registered in the name of a Soliciting Dealer unless the shares are
held by such Soliciting Dealer as nominee and are tendered for the benefit of
beneficial holders identified in the Letter of Transmittal. No broker, dealer,
bank, trust company or fiduciary shall be deemed to be the agent of The
Limited, A&F, the Exchange Agent, the Dealer Managers or the Information Agent
for purpose of the Exchange Offer.
The acceptance of compensation by a Soliciting Dealer will constitute a
representation by such Soliciting Dealer that: (i) it has complied with the
applicable requirements of the Securities Exchange Act of 1934, as amended,
and the applicable rules and regulations thereunder, in connection with such
solicitation; (ii) it is entitled to such compensation for such solicitation
under the terms and conditions of the Offering Circular-Prospectus and the
related Letter of Transmittal and (ii) in soliciting tenders of shares of
Limited Common Stock, it has used no soliciting materials other than those
furnished by The Limited.
For your information and for forwarding to your clients for whom you hold
shares of Limited Common Stock registered in your name or in the name of your
nominee or who hold shares of Limited Common Stock registered in their own
names, we are enclosing the following documents:
1. The Offering Circular-Prospectus;
2. The Letter of Transmittal, including the Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9, for your use and
for the information of your clients;
3. A letter that may be sent to your clients for whose account you hold
shares of Limited Common Stock registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer;
4. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if the certificates for shares of Limited Common Stock are not
immediately available, the procedure for book-entry transfer cannot be
completed on a timely basis or time will not permit all required documents
to reach First Chicago Trust Company of New York, the Exchange Agent, prior
to the Expiration Date; and
5. A return envelope addressed to the Exchange Agent.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE EXCHANGE OFFER, PRORATION PERIOD AND WITHDRAWAL
RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, MAY
13, 1998, UNLESS EXTENDED BY THE LIMITED AS PROVIDED IN THE OFFERING CIRCULAR-
PROSPECTUS. Except as otherwise provided in the Offering Circular-Prospectus
and the related Letter of Transmittal, tenders are irrevocable.
The Limited will not pay any fees or commissions to any broker or dealer or
any other person (other than the Dealer Managers, the Soliciting Dealers, the
Information Agent and the Exchange Agent as described in "The Exchange Offer--
Fees and Expenses" in the Offering Circular-Prospectus) for soliciting tenders
of shares of Limited Common Stock pursuant to the Exchange Offer. The Limited
will, however, upon request, reimburse you for reasonable and necessary costs
and expenses incurred by you in forwarding any of the enclosed materials to
your customers. The Limited will pay all stock transfer taxes, if any, payable
on the transfer to it of shares of Limited Common Stock and the transfer to
tendering stockholders of shares of A&F Common Stock pursuant to the Exchange
Offer, except as otherwise provided in Instruction 7 of the Letter of
Transmittal.
2
<PAGE>
To participate in the Exchange Offer, certificate(s) for shares of Limited
Common Stock or a confirmation of any book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility of shares of Limited
Common Stock tendered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) and any
required signature guarantees, or an Agent's Message in connection with a
Book-Entry transfer of shares, and any other documents required by the Letter
of Transmittal must be received by the Exchange Agent as indicated in the
Letter of Transmittal and the Offering-Circular Prospectus prior to the
Expiration Date.
Holders whose stock certificate(s) representing shares of Limited Common
Stock are not immediately available or who cannot deliver the certificate(s)
and all other required documents to the Exchange Agent prior to the Expiration
Date may tender their shares of Limited Common Stock pursuant to the
guaranteed delivery procedure set forth in the Offering Circular-Prospectus
under "The Exchange Offer--Guaranteed Delivery Procedure".
Any inquiries you may have with respect to the Exchange Offer should be
addressed to the Dealer Managers of the Information Agent at their respective
addresses and telephone numbers set forth on the back cover of the Offering
Circular-Prospectus. Additional copies of the enclosed material may also be
obtained from the undersigned, telephone (800) 323-5678 (call toll-free), or
the Information Agent, D.F. King & Co., Inc., telephone (212) 269-5550
(collect) or (800) 549-6864 (toll-free).
Very truly yours,
GOLDMAN, SACHS & CO.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON AS AN AGENT OF THE LIMITED, A&F, THE EXCHANGE AGENT, THE
INFORMATION AGENT, THE DEALER MANAGERS, THE SOLICITING DEALERS, OR ANY
AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE
ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH
THE EXCHANGE OFFER, OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS
CONTAINED THEREIN.
3
<PAGE>
EXHIBIT (A)(5)
OFFER TO EXCHANGE
NOT MORE THAN .86 NOR LESS THAN .73 OF A SHARE OF CLASS A COMMON STOCK OF
ABERCROMBIE & FITCH CO. FOR EACH SHARE OF COMMON STOCK OF THE LIMITED,
INC.
THE EXCHANGE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY,
MAY 13, 1998, UNLESS THE EXCHANGE OFFER IS
EXTENDED.
April 15, 1998
To Our Clients:
Enclosed for your consideration is the Offering Circular-Prospectus dated
April 15, 1998 (the "Offering Circular-Prospectus"), of The Limited, Inc.
("The Limited"), and the related Letter of Transmittal (the "Letter of
Transmittal"), which together constitute The Limited's offer (the "Exchange
Offer") to exchange up to 43,600,000 shares of Class A common stock, par value
$.01 per share ("A&F Common Stock"), of Abercrombie & Fitch Co. ("A&F"), for
shares of common stock, par value $.50 per share (the "Limited Common Stock"),
of The Limited that are validly tendered by the Expiration Date and not
withdrawn or deemed withdrawn, at an Exchange Ratio not greater than .86 nor
less than .73 of a share of A&F Common Stock for each share of Limited Common
Stock tendered, upon the terms and subject to the conditions set forth in the
Offering Circular-Prospectus and in the related Letter of Transmittal. See
"Summary", "The Transactions" and "The Exchange Offer" in the Offering
Circular-Prospectus. Capitalized terms used herein have the same meanings as
in the Offering Circular-Prospectus.
The Exchange Offer, proration period and withdrawal rights will expire at
12:00 Midnight, New York City time, on Wednesday, May 13, 1998 (the
"Expiration Date"), unless extended in accordance with applicable law and the
terms of the Exchange Offer, in which event the term "Expiration Date" shall
mean the latest time and date to which the Exchange Offer, as extended, shall
expire.
THIS MATERIAL IS BEING FORWARDED TO YOU AS THE BENEFICIAL OWNER OF SHARES OF
LIMITED COMMON STOCK HELD BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR
NAME. A TENDER OF SUCH SHARES OF LIMITED COMMON STOCK MAY ONLY BE MADE BY US
AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF
TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED
BY YOU TO TENDER SHARES OF LIMITED COMMON STOCK HELD BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish us to tender any
or all such shares of Limited Common Stock held by us for your account,
pursuant to the terms and conditions set forth in the Exchange Offer.
Your attention is invited to the following:
1. The Exchange Ratio Range within which you may tender for exchange is not
more than .86 nor less than .73 of a share of A&F Common Stock for each share
of Limited Common Stock tendered and exchanged.
2. The Limited currently holds up to 43,600,000 of the shares of the A&F
Common Stock, at least 90% of which will be distributed pursuant to the
Exchange Offer, subject to the terms and conditions thereof.
3. The Exchange Offer is subject to the satisfaction of certain conditions,
as described in the Offering Circular-Prospectus, and is also subject to
proration in certain circumstances, as described below.
<PAGE>
4. The Exchange Offer, proration period and withdrawal rights will expire at
12:00 Midnight, New York City time, on Wednesday, May 13, 1998, unless
extended.
5. You have the right to tender all, or a portion, of your shares of Limited
Common Stock. You may choose the Exchange Ratio at which you tender such
shares by either (a) checking the box in the Section of Box #2 on the Letter
of Transmittal captioned "SHARES TENDERED AT EXCHANGE RATIO DETERMINED BY
DUTCH AUCTION" or (b) checking one of the boxes in the section of Box #2 on
the Letter of Transmittal captioned "SHARES TENDERED AT EXCHANGE RATIO
DETERMINED BY STOCKHOLDER". If you wish to maximize the chance of having The
Limited accept for exchange all of the shares of Limited Common Stock you are
tendering (subject to the possibility of proration), you should check the box
in the Section of Box #2 on the Letter of Transmittal captioned "SHARES
TENDERED AT EXCHANGE RATIO DETERMINED BY DUTCH AUCTION" below.
6. You will receive that portion of a share of A&F Common Stock represented
by the Final Exchange Ratio for each share of Limited Common Stock accepted
for exchange.
7. Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 7 of the Letter of
Transmittal, stock transfer taxes with respect to the exchange of shares in
the Exchange Offer.
8. Please instruct us clearly if you wish to tender some shares of Limited
Common Stock at one Exchange Ratio and other shares of Limited Common Stock at
one Exchange Ratio. We must submit separate Letters of Transmittal on your
behalf for each Exchange Ratio, although the same shares of Limited Common
Stock cannot be tendered for exchange at more than one Exchange Ratio.
The maximum number of shares of Limited Common Stock which will be accepted
for exchange will be that number of shares which, when multiplied by the Final
Exchange Ratio, equals 43,600,000 shares of A&F Common Stock. If more than
such maximum number of shares of Limited Common Stock are tendered at Exchange
Ratios at or below the Final Exchange Ratio, the Exchange Offer will be
oversubscribed, and shares of Limited Common Stock tendered at or below the
Final Exchange Ratio will be subject to proration in accordance with the terms
set forth in the Offering Circular-Prospectus under "The Exchange Offer--Terms
of the Exchange Offer". If proration of tendered shares of Limited Common
Stock is required, the undersigned understands that The Limited does not
expect that it would be able to announce the final proration factor or to
commence delivery of any shares of A&F Common Stock pursuant to the exchange
Offer until approximately seven business days after the Expiration Date. Upon
acceptance by The Limited of the shares of Limited Common Stock tendered
herewith, stockholders will be deemed to have accepted the shares of A&F
Common Stock exchanged therefor and will be deemed to have relinquished all
rights with respect to the shares of Limited Common Stock so accepted.
The Exchange Offer is made solely by the Offering Circular-Prospectus and
the related Letter of Transmittal and is being made to all Limited
stockholders. The Limited is not aware of any jurisdiction where the making of
the Exchange Offer or the acceptance thereof would not be in compliance with
applicable law. If The Limited becomes aware of any jurisdiction where the
making of the Exchange Offer or acceptance thereof would not be in compliance
with any valid applicable law, The Limited will make a good faith effort to
comply with such law. If, after such good faith effort, The Limited cannot
comply with such law, the Exchange Offer will not be made to, nor will tenders
be accepted from or on behalf of, Limited stockholders in any such
jurisdiction.
If you wish to have us tender any or all of your shares of Limited Common
Stock, please so instruct us by completing, executing and returning to us the
attached instruction form. An envelope to return your instructions is
enclosed. Please forward your instructions to us in ample time to permit us to
submit a tender on your behalf prior to the Expiration Date. IF YOU AUTHORIZE
THE TENDER OF YOUR SHARES OF LIMITED COMMON STOCK, ALL SUCH SHARES WILL BE
TENDERED UNLESS OTHERWISE SPECIFIED ON THE ATTACHED INSTRUCTION FORM.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER TO EXCHANGE NOT MORE THAN .86 NOR
LESS THAN .73 OF A SHARE OF A&F COMMON STOCK FOR EACH SHARE OF LIMITED COMMON
STOCK.
I acknowledge receipt of your letter and the enclosed Offering Circular-
Prospectus dated April 15, 1998 (the "Offering Circular-Prospectus") of The
Limited, Inc. and the related Letter of Transmittal (the "Letter of
Transmittal"), which together constitute The Limited's offer (the "Exchange
Offer") to exchange up to 43,600,000 shares of Class A common stock, par value
$.01 per share (the "A&F Common Stock"), of Abercrombie & Fitch Co. ("A&F"),
for shares of common stock, par value $.50 per share (the "Limited Common
Stock"), of The Limited that are validly tendered by the Expiration Date and
not withdrawn or deemed withdrawn, at an Exchange Ratio not greater than .86
nor less than .73 of a share of A&F Common Stock for each share of Limited
Common Stock tendered, upon the terms and subject to the conditions set forth
in the Offering Circular-Prospectus and the related Letter of Transmittal. See
"Summary", "The Transactions" and "The Exchange Offer" in the Offering
Circular-Prospectus. Capitalized terms used herein shall have the same
meanings as in the Offering Circular-Prospectus.
This will instruct you to tender the number of shares of Limited Common
Stock indicated below (or, if no number is indicated below, all shares) at the
Exchange Ratio indicated in the following box held by your for my account,
upon the terms and subject to the conditions set forth in the Offering
Circular-Prospectus and the related Letter of Transmittal.
CHECK ONLY ONE BOX.
IF MORE THAN ONE BOX IS CHECKED OR IF NO BOX IS CHECKED,
THERE IS NO PROPER TENDER OF SHARES OF LIMITED COMMON STOCK.
- -------------------------------------------------------------------------------
SHARES TENDERED AT EXCHANGE RATIO
DETERMINED BY DUTCH AUCTION
[_] I WANT TO MAXIMIZE THE CHANCE OF HAVING THE LIMITED ACCEPT FOR
EXCHANGE ALL THE SHARES OF LIMITED COMMON STOCK I AM TENDERING
(SUBJECT TO THE POSSIBILITY OF PRORATION). ACCORDINGLY, BY CHECKING
THIS ONE BOX INSTEAD OF ONE OF THE EXCHANGE RATIO BOXES BELOW, I
HEREBY TENDER SHARES OF LIMITED COMMON STOCK AT, AND AM WILLING TO
ACCEPT, THE EXCHANGE RATIO RESULTING FROM THE DUTCH AUCTION TENDER
PROCESS. THIS ACTION COULD RESULT IN RECEIVING AN EXCHANGE RATIO AS
LOW AS .73 OF A SHARE OF A&F COMMON STOCK PER SHARE OF LIMITED COMMON
STOCK.
- -----------------------------------
OR
-----------------------------------------
SHARES TENDERED AT EXCHANGE RATIO
DETERMINED BY STOCKHOLDER
<TABLE>
<S> <C> <C> <C> <C>
[_] .730 [_] .760 [_] .790 [_] .820 [_] .850
[_] .735 [_] .765 [_] .795 [_] .825 [_] .855
[_] .740 [_] .770 [_] .800 [_] .830 [_] .860
[_] .745 [_] .775 [_] .805 [_] .835
[_] .750 [_] .780 [_] .810 [_] .840
[_] .755 [_] .785 [_] .815 [_] .845
</TABLE>
3
<PAGE>
NOTICE OF SOLICITED TENDERS
The Limited will pay to a Soliciting Dealer (as defined in the Offering
Circular-Prospectus) a solicitation fee of $1.00 per share per tendering
stockholder, up to a maximum of 1,000 shares, for each share of Limited Common
Stock tendered and accepted for exchange pursuant to the Exchange Offer if
such Soliciting Dealer has affirmatively solicited and obtained such tender,
except that no solicitation fee shall be payable (i) in connection with a
tender of Limited Common Stock by a stockholder (a) tendering more than 10,000
shares of Limited Common Stock or (B) tendering from a country outside of the
United States; or (ii) to the Dealer Managers. In addition, no such fee shall
be payable to a Soliciting Dealer if such Soliciting Dealer is required for
any reason to transfer the amount of such fee to a tendering holder (other
than itself). No broker, dealer, bank, trust company or fiduciary shall be
deemed to be the agent of The Limited, A&F, the Exchange Agent, the Dealer
Managers or the Information Agent for purposes of the Exchange Offer.
[_] By checking his box, I represent that my tender was affirmatively
solicited by the Soliciting Dealer listed below:
Name of Firm:
----------------------------------------------------------------
(PLEASE PRINT)
Name of Individual Broker or Financial Consultant:
-----------------------------------
Identification Number (if known):
-------------------------------------------------
Address:
--------------------------------------------------------------------
(INCLUDE ZIP CODE)
4
<PAGE>
NUMBER OF SHARES OF LIMITED SIGN HERE:
COMMON STOCK TO BE TENDERED:*
----------------------------------------
SHARES
- ------------------------------ ----------------------------------------
SIGNATURE(S)
Account Numbers:
--------------------
PLEASE TYPE OR PRINT NAME(S) HERE:
Dated: , 1998
------------------------ ----------------------------------------
PLEASE TYPE OR PRINT ADDRESS(ES) HERE:
----------------------------------------
----------------------------------------
----------------------------------------
AREA CODE AND TELEPHONE NUMBER
----------------------------------------
TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER(S)
- --------
* Unless otherwise indicated, it will be assumed that all shares of Limited
Common Stock held by us for your account are to be tendered.
5
<PAGE>
EXHIBIT (A)(7)
LETTER FROM SAVINGS AND RETIREMENT PLAN
ADMINISTRATIVE COMMITTEE
April 15, 1998
OFFER TO EXCHANGE
NOT MORE THAN .86 NOR LESS THAN .73 OF A SHARE
OF CLASS A COMMON STOCK OF ABERCROMBIE & FITCH CO. FOR
EACH SHARE OF COMMON STOCK OF THE LIMITED, INC.
NAME/ADDRESS
Dear ___________:
We are enclosing the Offering Circular-Prospectus dated April 15, 1998
(the "Offering Circular-Prospectus") of The Limited, Inc. ("The Limited"), and
the related Letter of Transmittal (the "Letter of Transmittal"), which together
constitute The Limited's offer to its stockholders (the "Exchange Offer") to
exchange up to 43,600,000 shares of Class A common stock, par value $.01 per
share ("A&F Common Stock"), of Abercrombie & Fitch Co. ("A&F"), for shares of
common stock, par value $.50 per share (the "Limited Common Stock"), of The
Limited that are validly tendered by the Expiration Date (as defined below) and
not withdrawn or deemed withdrawn, at an Exchange Ratio not greater than .86 nor
less than .73 of a share of A&F Common Stock for each share of Limited Common
Stock tendered, upon the terms and subject to the conditions set forth in the
Offering Circular-Prospectus and in the related Letter of Transmittal. See
"Summary", "The Transactions" and "The Exchange Offer" in the Offering Circular-
Prospectus. Capitalized terms used herein shall have the meanings ascribed to
them in the Offering Circular-Prospectus. Also enclosed is a brief description
of the Exchange Offer in connection with The Limited's Savings and Retirement
Plan ("Savings and Retirement Plan"), questions and answers describing how the
process works and a Tender Instruction Form for the tender of Limited Common
Stock held in the Savings and Retirement Plan.
Our records indicate that you hold ____ whole shares of Limited Common Stock
("Plan Shares") allocated to your account under the Savings and Retirement Plan
("Account") as of February 28, 1998. As a participant in the Savings and
Retirement Plan you may elect to "tender" (exchange) some or all of the shares
of Limited Common Stock (excluding fractional shares) currently allocated to
your Account by following the procedures described in the attachments to this
letter. PLEASE NOTE THAT, ALTHOUGH THE DEADLINE FOR THE TRUSTEE OF THE SAVINGS
AND RETIREMENT PLAN ("TRUSTEE") TO TENDER YOUR SHARES IS WEDNESDAY, MAY 13,
1998, YOU MUST SEND YOUR TENDER INSTRUCTION FORM TO THE ADMINISTRATIVE COMMITTEE
FOR RECEIPT BY MAY 11, 1998. You also may withdraw any tender you have made
under the Exchange Offer provided you do so prior to the May 11, 1998 deadline.
THIS MATERIAL IS BEING FORWARDED TO YOU AS THE BENEFICIAL OWNER OF SHARES OF
LIMITED COMMON STOCK HELD ON YOUR BEHALF UNDER THE SAVINGS AND RETIREMENT PLAN
BUT NOT REGISTERED IN YOUR NAME. A TENDER OF SUCH SHARES OF LIMITED COMMON STOCK
MAY ONLY BE MADE BY THE TRUSTEE OF THE SAVINGS AND RETIREMENT PLAN AS THE HOLDER
OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS
<PAGE>
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER
SHARES OF LIMITED COMMON STOCK HELD IN YOUR ACCOUNT UNDER THE SAVINGS AND
RETIREMENT PLAN.
Accordingly, we request instructions as to whether you wish the Trustee to
tender any or all such shares of Limited Common Stock held in your Account under
the Savings and Retirement Plan, pursuant to the terms and conditions set forth
in the Exchange Offer.
Your attention is invited to the following:
1. The Exchange Ratio Range within which you may direct the Trustee to
tender for exchange is not more than .86 nor less than .73 of a share of A&F
Common Stock for each share of Limited Common Stock tendered and exchanged.
2. The Limited currently holds up to 43,600,000 of the shares of A&F
Common Stock, at least 90% of which will be distributed pursuant to the Exchange
Offer, subject to the terms and conditions thereof.
3. The Exchange Offer is subject to the satisfaction of certain
conditions, as described in the Offering Circular-Prospectus, and is also
subject to proration in certain circumstances, as described below.
4. A holder of Limited Common Stock has the right to tender all, or a
portion, of such holder's shares of Limited Common Stock (excluding fractional
shares). You may choose the Exchange Ratio at which you tender such shares by
either (a) checking the box marked "SHARES TENDERED AT EXCHANGE RATIO DETERMINED
BY DUTCH AUCTION" or (b) checking one of the boxes in the section marked "SHARES
TENDERED AT EXCHANGE RATIO DETERMINED BY STOCKHOLDER". If you wish to maximize
the chance of having The Limited accept for exchange all of the shares of
Limited Common Stock you are tendering (subject to the possibility of
proration), you should check the box marked "SHARES TENDERED AT EXCHANGE RATIO
DETERMINED BY DUTCH AUCTION" below.
5. Holders of Limited Common Stock will receive that fraction of a
share of A&F Common Stock represented by the Final Exchange Ratio for each share
of Limited Common Stock accepted for exchange.
6. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as otherwise provided in Instruction 7 of the Letter
of Transmittal, stock transfer taxes with respect to the exchange of shares in
the Exchange Offer.
7. You must submit separate Tender Instruction Forms if you wish to
tender some shares of Limited Common Stock in your Account at one Exchange Ratio
and other shares of Limited Common Stock in your Account at another Exchange
Ratio. Please note that the same shares of Limited Common Stock cannot be
tendered for exchange at more than one Exchange Ratio.
The Exchange Offer, proration period and withdrawal rights will expire at
12:00 Midnight, New York City time, on Wednesday, May 13, 1998 (the "Expiration
Date"), unless extended in accordance with applicable law and the terms of the
Exchange Offer, in which event the term "Expiration Date" shall mean the latest
time and date to which the Exchange Offer, as extended, shall expire.
The maximum number of shares of Limited Common Stock which will be accepted
for exchange will be that number of shares which, when multiplied by the Final
Exchange Ratio, equals 43,600,000 shares of A&F Common Stock. If more than such
maximum number of shares of Limited Common Stock are tendered at Exchange Ratios
at or below the Final Exchange Ratio, the Exchange Offer will be oversubscribed,
and shares of Limited Common Stock tendered at or below the Final Exchange Ratio
will be subject to proration
2
<PAGE>
in accordance with the terms set forth in the Offering Circular-Prospectus under
"The Exchange Offer--Terms of the Exchange Offer". If proration of tendered
shares of Limited Common Stock is required, The Limited does not expect that it
would be able to announce the final proration factor or to commence delivery of
any shares of A&F Common Stock pursuant to the Exchange Offer until
approximately seven business days after the Expiration Date. Upon acceptance by
The Limited of the shares of Limited Common Stock tendered pursuant hereto, you
will be deemed to have accepted the shares of A&F Common Stock exchanged
therefor and will be deemed to have relinquished all rights with respect to the
shares of Limited Common Stock so accepted.
The Exchange Offer is made solely by the Offering Circular-Prospectus and the
related Letter of Transmittal and is being made to all holders of Limited Common
Stock. The Limited is not aware of any jurisdiction where the making of the
Exchange Offer or the acceptance thereof would not be in compliance with
applicable law. If The Limited becomes aware of any jurisdiction where the
making of the Exchange Offer or acceptance thereof would not be in compliance
with any valid applicable law, The Limited will make a good faith effort to
comply with such law. If, after such good faith effort, The Limited cannot
comply with such law, the Exchange Offer will not be made to, nor will tenders
be accepted from or on behalf of, holders of shares of Limited Common Stock in
any such jurisdiction.
IF YOU WISH TO AUTHORIZE THE TENDER OF SHARES OF LIMITED COMMON STOCK HELD IN
YOUR ACCOUNT IN THE SAVINGS AND RETIREMENT PLAN. PLEASE COMPLETE THE TENDER
INSTRUCTION FORM, INDICATING THE NUMBER OF SHARES TENDERED AND THE EXCHANGE
RATIO, AND RETURN THE SIGNED FORM TO US IN THE ENVELOPE PROVIDED. IF YOU
INDICATE AN EXCHANGE RATIO AND DO NOT SPECIFY A SPECIFIC NUMBER OF SHARES, ALL
SHARES IN YOUR ACCOUNT WILL BE TENDERED. IF YOU FAIL TO SIGN THE TENDER
INSTRUCTION FORM OR FAIL TO INDICATE AN EXCHANGE RATIO, YOUR INSTRUCTION WILL BE
INVALID AND NO SHARES IN YOUR ACCOUNT WILL BE TENDERED. PLEASE FORWARD YOUR
INSTRUCTIONS TO THE ADMINISTRATIVE COMMITTEE BY MAY 11, 1998 TO PERMIT US TO
SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION DATE.
Before making a decision, you should read carefully the materials in the
enclosed Offering Circular-Prospectus, the Notice to Savings and Retirement Plan
Participants and the Tender Instruction Form. If you take no action, no shares
in your Account will be tendered by the Trustee. The Administrative Committee
and the Trustee will treat confidentially your decision whether or not to tender
these shares.
NONE OF THE LIMITED, A&F, THE TRUSTEE, THE ADMINISTRATIVE COMMITTEE, THE BOARD
OF DIRECTORS OF THE LIMITED OR THE BOARD OF DIRECTORS OF A&F MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER OF THE LIMITED AS TO WHETHER TO TENDER OR
REFRAIN FROM TENDERING SHARES OF LIMITED COMMON STOCK PURSUANT TO THE EXCHANGE
OFFER. STOCKHOLDERS OF THE LIMITED MUST MAKE THEIR OWN DECISIONS WHETHER TO
TENDER SHARES OF LIMITED COMMON STOCK PURSUANT TO THE EXCHANGE OFFER AND, IF SO,
HOW MANY SHARES TO TENDER AND AT WHAT EXCHANGE RATIO TO TENDER SUCH SHARES AFTER
READING THE OFFERING CIRCULAR-PROSPECTUS AND CONSULTING WITH THEIR ADVISORS
BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
If you direct the Trustee to tender shares of Limited Common Stock and such
shares are exchanged for shares of A&F Common Stock, the A&F Common Stock will
be held in a separate investment fund under the Savings and Retirement Plan.
PLEASE NOTE THAT TO THE EXTENT SUCH SHARES OF A&F COMMON STOCK ARE NOT RETAINED
BY YOU AS AN INVESTMENT UNDER THE SAVINGS AND RETIREMENT PLAN, YOU MAY NOT
QUALIFY FOR CERTAIN FAVORABLE TAX TREATMENT UPON SUBSEQUENT DISTRIBUTIONS TO YOU
FROM THE SAVINGS AND RETIREMENT PLAN. SEE "CERTAIN TAX
3
<PAGE>
INFORMATION" FOLLOWING THE ATTACHED QUESTIONS AND ANSWERS ("Q&As") ON THE
SAVINGS AND RETIREMENT PLAN.
For any Savings and Retirement Plan participant, during the period the
Exchange Offer is open (and thereafter for so long as legal restrictions apply),
the Trustee will not purchase any shares of Limited Common Stock for the Savings
and Retirement Plan. Instead, the Trustee will accumulate any of your
contributions and employer matching contributions that you have directed into
the Account. The Trustee will invest these amounts in a short-term fund and
will resume purchases of shares of Limited Common Stock once the Exchange Offer
period is concluded.
ANY DISTRIBUTIONS OR INVESTMENT FUND TRANSFERS THAT MAY BE REQUESTED DURING
THE EXCHANGE OFFER PERIOD MAY BE DELAYED UNTIL AFTER THE EXPIRATION OF THE
EXCHANGE OFFER.
IF YOU ELECT TO INSTRUCT THE TRUSTEE TO TENDER SHARES FROM YOUR ACCOUNT, THE
ENCLOSED YELLOW TENDER INSTRUCTION FORM MUST BE RECEIVED BY THE ADMINISTRATIVE
COMMITTEE BY MAY 11, 1998. PLEASE USE THE ENCLOSED REPLY ENVELOPE TO RETURN
YOUR TENDER INSTRUCTION FORM.
TENDER INSTRUCTION FORMS RECEIVED AFTER THE ABOVE DATE WILL NOT BE ACCEPTED.
YOU MUST COMPLETE AND SIGN YOUR TENDER INSTRUCTION FORM. IF YOU DO NOT SIGN
THE FORM, YOUR DIRECTIONS WILL NOT BE ACCEPTED AND THE INSTRUCTION FORM, AS WELL
AS YOUR DIRECTIONS, WILL BE VOID.
IF YOU DO NOT WISH TO TENDER YOUR SHARES, TAKE NO ACTION.
ADMINISTRATIVE COMMITTEE
The Limited, Inc. Savings and Retirement Plan
THE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF
OF, HOLDERS OF SHARES IN ANY JURISDICTION IN WHICH THE MAKING OF THE OFFER OR
ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES, BLUE SKY OR
OTHER LAWS OF SUCH JURISDICTION. IN THOSE JURISDICTIONS WHERE THE SECURITIES,
BLUE SKY OR OTHER LAWS REQUIRE THAT THE OFFER BE MADE BY A LICENSED BROKER OR
DEALER, THE OFFER SHALL BE DEEMED TO BE MADE ON BEHALF OF THE COMPANY BY
GOLDMAN, SACHS & CO. OR ONE OR MORE REGISTERED BROKERS OR DEALERS LICENSED UNDER
THE LAWS OF SUCH JURISDICTION.
4
<PAGE>
TENDER INSTRUCTION FORM
FOR SHARES IN THE LIMITED, INC.
SAVINGS AND RETIREMENT PLAN
(NOTE: Before completing this Tender Instruction Form, you should refer to the
attached Letter (the "SARP Committee Letter") from the Administrative Committee
of The Limited, Inc. Savings and Retirement Plan ("Savings and Retirement Plan")
and the attached Notice to Savings and Retirement Plan Participants ("Notice").
Capitalized terms used herein shall have the meanings ascribed to them in the
SARP Committee Letter or the Offering Circular-Prospectus, as the case may be.)
TO THE TRUSTEE OF THE SAVINGS AND RETIREMENT PLAN:
I am a participant in the above-referenced Savings and Retirement Plan who has
shares of Limited Common Stock credited to my Account and, as such, acknowledge
receipt of your letter and the enclosed Offering Circular-Prospectus and the
related Letter of Transmittal, which together constitute The Limited's offer to
its stockholders to exchange up to 43,600,000 shares of A&F Common Stock for
shares of Limited Common Stock that are validly tendered by the Expiration Date
and not withdrawn or deemed withdrawn, at an Exchange Ratio not greater than .86
nor less than .73 of a share of A&F Common Stock for each share of Limited
Common Stock tendered and exchanged, upon the terms and subject to the
conditions set forth in the Offering Circular-Prospectus and in the related
Letter of Transmittal.
This form instructs you to tender the number of shares of Limited Common Stock
indicated below (or, if no number is indicated below, all shares) at the
Exchange Ratio indicated in the following box held by you for the account of the
undersigned, upon the terms and subject to the conditions set forth in the
Offering Circular-Prospectus and the related Letter of Transmittal. I
acknowledge that if I instruct you to tender more shares of Limited Common Stock
than are held in my account, my instruction will be invalid and you will not
tender any shares of Limited Common Stock held in my Account.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
BEFORE COMPLETING THIS TENDER INSTRUCTION FORM.
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOXES BELOW AND SIGNING THIS TENDER
INSTRUCTION FORM, WILL BE DEEMED TO HAVE INSTRUCTED THE TRUSTEE TO TENDER THE
INDICATED NUMBER OF SHARES OF LIMITED COMMON STOCK HELD IN THE UNDERSIGNED'S
ACCOUNT IN THE SAVINGS AND RETIREMENT PLAN
<TABLE>
<CAPTION>
SAVINGS AND RETIREMENT PLAN ACCOUNT
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF WHOLE NUMBER OF
SHARES HELD IN SHARES
PARTICIPANT'S TENDERED (*)
NAME OF SAVINGS AND RETIREMENT PLAN PARTICIPANT ACCOUNT
-----------------------------------------------------
<S> <C> <C>
-----------------------------------------------------
-----------------------------------------------------
* Unless otherwise indicated in this column, the participant will be deemed to have tendered all of the shares of
Limited Common Stock held in the participant's Savings and Retirement Plan Account.
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
CHECK ONLY ONE BOX BELOW TO INDICATE EXCHANGE RATIO SELECTED.
IF MORE THAN ONE BOX IS CHECKED OR IF NO BOX IS CHECKED,
THERE IS NO PROPER TENDER OF SHARES OF LIMITED COMMON STOCK.
- --------------------------------------------------------------------------------------------------------------------
SHARES TENDERED AT EXCHANGE RATIO
DETERMINED BY DUTCH AUCTION
<S> <C>
[ ] I WANT TO MAXIMIZE THE CHANCE OF HAVING THE LIMITED ACCEPT FOR EXCHANGE ALL THE SHARES OF LIMITED
COMMON STOCK I AM TENDERING (SUBJECT TO THE POSSIBILITY OF PRORATION). ACCORDINGLY, BY CHECKING THIS
ONE BOX INSTEAD OF ONE OF THE EXCHANGE RATIO BOXES BELOW, I HEREBY TENDER SHARES OF LIMITED
COMMON STOCK AT, AND AM WILLING TO ACCEPT, THE EXCHANGE RATIO RESULTING FROM THE DUTCH AUCTION TENDER
PROCESS. THIS ACTION COULD RESULT IN RECEIVING AN EXCHANGE RATIO AS LOW AS .73 OF A SHARE OF A&F
COMMON STOCK PER SHARE OF LIMITED COMMON STOCK.
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
OR
SHARES TENDERED AT EXCHANGE RATIO
DETERMINED BY STOCKHOLDER
<S> <C> <C> <C> <C>
[ ] .730 [ ] .760 [ ] .790 [ ] .820 [ ] .850
[ ] .735 [ ] .765 [ ] .795 [ ] .825 [ ] .855
[ ] .740 [ ] .770 [ ] .800 [ ] .830 [ ] .860
[ ] .745 [ ] .775 [ ] .805 [ ] .835
[ ] .750 [ ] .780 [ ] .810 [ ] .840
[ ] .755 [ ] .785 [ ] .815 [ ] .845
</TABLE>
2
<PAGE>
I have read and understand the Offering Circular-Prospectus, the SARP
Committee Letter and the Notice, and all attachments thereto, and I agree to be
bound by the terms of the Exchange Offer. I hereby direct the Trustee to tender
these shares of Limited Common Stock on my behalf and to hold shares of A&F
Common Stock, if any, received in the Exchange Offer in an investment fund under
the Savings and Retirement Plan. I understand and declare that if the tender of
my shares of Limited Common Stock is accepted, the payment therefor will be full
and adequate compensation for these shares of Limited Common Stock in my
judgment, notwithstanding any potential fluctuation in the price of such shares
between the last day I can withdraw my tender and the date the Trustee exchanges
such shares.
________________ ________________________________
DATE SIGNATURE OF PARTICIPANT
Home Telephone: ________________
Work Telephone: ________________ ________________________________
PLEASE PRINT NAME
________________________________ ________________________________
SOCIAL SECURITY NUMBER
________________________________
PLEASE PRINT ADDRESS
NOTE: THIS TENDER INSTRUCTION FORM MUST BE COMPLETED AND SIGNED IF SHARES OF
LIMITED COMMON STOCK HELD IN THE SAVINGS AND RETIREMENT PLAN ARE TO BE TENDERED.
IF THE FORM IS NOT COMPLETED AND SIGNED, THE DIRECTIONS INDICATED WILL NOT BE
ACCEPTED. PLEASE RETURN THIS TENDER INSTRUCTION FORM TO THE ADMINISTRATIVE
COMMITTEE FOR THE SAVINGS AND RETIREMENT PLAN, 82 SOUTH STREET, HOPKINTON, MA.
01748-9918 USING THE PREADDRESSED REPLY ENVELOPE PROVIDED WITH YOUR TENDER
MATERIALS. YOUR INSTRUCTION FORM MUST BE RECEIVED BY MAY 11, 1998. YOUR
DECISION WHETHER OR NOT TO HAVE YOUR PLAN SHARES TENDERED WILL BE KEPT
CONFIDENTIAL.
3
<PAGE>
EXHIBIT (A)(8)
NOTICE TO SAVINGS AND RETIREMENT PLAN PARTICIPANTS
April 15, 1998
TO: ALL PARTICIPANTS IN THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN (THE
"SAVINGS AND RETIREMENT PLAN") WITH LIMITED COMMON STOCK CREDITED TO THEIR
ACCOUNT
The Limited, Inc. ("The Limited") has announced an offer (the "Exchange
Offer") to exchange up to 43,600,000 shares of Class A common stock, par value
$.01 per share ("A&F Common Stock"), of Abercrombie & Fitch Co., a subsidiary of
The Limited ("A&F"), for shares of common stock, par value $.50 per share (the
"Limited Common Stock"), of The Limited that are validly tendered by the
Expiration Date and not withdrawn or deemed withdrawn, at an Exchange Ratio not
greater than .86 nor less than .73 of a share of A&F Common Stock for each share
of Limited Common Stock tendered, upon the terms and subject to the conditions
set forth in the Offering Circular-Prospectus and in the related Letter of
Transmittal. See "Summary", "The Transactions" and "The Exchange Offer" in the
Offering Circular-Prospectus. Capitalized terms used herein shall have the
meanings ascribed to them in the Offering Circular-Prospectus and the
accompanying Letter from the Savings and Retirement Plan Administrative
Committee. This Exchange Offer commenced on April 15, 1998, and will expire at
12:00 midnight, New York City time, on Wednesday, May 13, 1998, unless the
Exchange Offer is extended. You, as a Savings and Retirement Plan participant,
may participate in this Exchange Offer by instructing the Trustee of the Savings
and Retirement Plan (by May 11, 1998) to tender your shares of Limited Common
Stock held in the Savings and Retirement Plan ("Plan Shares") in exchange for
shares of A&F Common Stock.
YOUR DECISION WHETHER OR NOT TO HAVE YOUR PLAN SHARES TENDERED WILL BE KEPT
CONFIDENTIAL.
Enclosed with this notice is a copy of documents describing the Exchange Offer
which have been furnished to holders of Limited Common Stock. Please read these
materials so that you may properly make your decision regarding this Exchange
Offer.
A Tender Instruction Form (YELLOW form) is also enclosed for you to use to
direct the Trustee regarding the Exchange Offer. IF NO DIRECTION IS RECEIVED,
THE TRUSTEE WILL NOT TENDER ANY OF YOUR PLAN SHARES AND THEY WILL REMAIN IN YOUR
ACCOUNT IN THE SAVINGS AND RETIREMENT PLAN.
DO NOT CALL THE TRUSTEE, THE ADMINISTRATIVE COMMITTEE OR YOUR BENEFITS
ADMINISTRATOR TO GIVE YOUR DECISION REGARDING THE EXCHANGE OFFER. YOU MAY ONLY
RESPOND BY COMPLETING AND MAILING THE ENCLOSED TENDER INSTRUCTION FORM.
<PAGE>
EXHIBIT (A)(9)
QUESTIONS AND ANSWERS ON
SAVINGS AND RETIREMENT PLAN TENDER RIGHTS AND PROCEDURES
A0 DESCRIPTION OF THE EXCHANGE OFFER
1. WHICH DOCUMENTS DID I RECEIVE AND WHAT IS THEIR PURPOSE? You received the
following materials in this mailing:
-- Offering Circular-Prospectus. This document (WHITE, bound document)
describes the Exchange Offer. PLEASE READ IT CAREFULLY.
-- Letter of Transmittal. This document (BLUE document) is part of the
"Exchange Offer" and therefore is being provided to you. However, it
does not apply to, or provide detailed instructions for, tendering
Plan Shares. Do NOT use it to tender Plan Shares. If you hold shares
of Limited Common Stock outside of the Savings and Retirement Plan,
please refer to the Letter of Transmittal for instructions on how to
tender those shares.
-- Letter from the Savings and Retirement Plan Administrative Committee
(the "SARP Committee Letter"). This transmits information about the
Savings and Retirement Plan and the Exchange Offer.
-- Notice to Savings and Retirement Plan Participants (WHITE document you
are reading) which includes Questions and Answers on Savings and
Retirement Plan Tender Rights and Procedures.
-- Tender Instruction Form. (YELLOW form) YOU MUST COMPLETE, SIGN AND
MAIL THIS DOCUMENT TO THE ADMINISTRATIVE COMMITTEE IN THE ENCLOSED
ENVELOPE IF YOU WISH TO DIRECT THE TRUSTEE TO TENDER YOUR PLAN SHARES.
THIS DOCUMENT IS POSTED WITH YOUR NAME AND SOCIAL SECURITY NUMBER. USE
IT IF YOU WISH TO DIRECT A TENDER OF YOUR SHARES.
-- Reply Envelope. A preaddressed envelope for your reply.
2. WHAT IS THE EXCHANGE OFFER? On April 15, 1998, The Limited offered to
exchange in a modified "Dutch auction" up to 43,600,000 shares of A&F
Common Stock for shares of Limited Common Stock that are validly tendered
by the Expiration Date and not withdrawn or deemed withdrawn, at an
Exchange Ratio not greater than .86 nor less than .73 of a share of A&F
Common Stock for each share of Limited Common Stock tendered, upon the
terms and subject to the conditions set forth in the Offering Circular-
Prospectus and in the related Letter of Transmittal. This Exchange Offer
will be open from April 15, 1998 until it expires at 12:00 midnight, New
York City time, on Wednesday, May 13, 1998, unless it is extended by The
Limited. Savings and Retirement Plan participants who hold Plan Shares may
provide for the tender of Plan Shares pursuant to this Exchange Offer by
so indicating on the enclosed Tender Instruction Form and returning it as
directed by May 11, 1998.
The Exchange Offer is fully described in the Offering Circular-Prospectus
provided to you. PLEASE READ IT CAREFULLY.
3. WHAT IS A MODIFIED "DUTCH AUCTION?" A modified "Dutch auction" means that
you pick the exchange ratio at which you are willing to exchange some or
all of your shares of Limited Common Stock for shares of A&F Common Stock
from within the specified range of not more than .86 nor less than .73 of
a share of A&F for each share of The Limited. For information on a
procedure designed to ensure that you participate in the Exchange Offer,
see Question 14.
4. WHAT IS THE "EXCHANGE RATIO?" The exchange ratio represents the number of
A&F shares which stockholders of The Limited will receive for each share
of Limited Common Stock tendered in the Exchange Offer.
1
<PAGE>
5. HOW WILL THE LIMITED DECIDE ON THE FINAL EXCHANGE RATIO? The Limited will
select as the final exchange ratio the lowest exchange ratio within the
exchange ratio range that would permit the maximum number of the shares of
A&F Common Stock owned by The Limited to be exchanged in the Exchange
Offer. The final exchange ratio will apply to all tendering stockholders
whose shares of Limited Common Stock are accepted for exchange.
6. HOW DO I DECIDE WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER? Whether you
should participate in the Exchange Offer depends on many factors. You
should consider, among other things, (i) your view of the relative values
of a single share of Limited Common Stock and a single share of A&F Common
Stock, (ii) the opportunity to receive the Anticipated Premium (see
Question 9) and (iii) your investment strategy with regard to the two
stocks. In addition, you should consider all of the factors described
under "Risk Factors" in the Offering Circular-Prospectus. None of the
Trustee, the Administrative Committee, The Limited and A&F and any of
their respective directors makes any recommendation as to whether you
should tender your Limited shares. You must make your own decision after
reading the documents provided to you and consulting with your advisors
based on your own financial position and requirements.
7. HOW MANY PLAN SHARES MAY I TENDER AND HOW DO I LEARN THAT NUMBER? The
number of shares of Limited Common Stock that you held under the Savings
and Retirement Plan as of February 28, 1998, is set forth in the SARP
Committee Letter and on the Tender Instruction Form. You may tender all or
any number of such Plan Shares (excluding fractional Plan Shares, if any).
8. WHAT IF I HAVE SHARES IN MY SAVINGS AND RETIREMENT PLAN ACCOUNT AND ALSO
HOLD SHARES OUTSIDE OF THE SAVINGS AND RETIREMENT PLAN? If you have shares
of Limited Common Stock in the Savings and Retirement Plan and have other
shares of Limited Common Stock in your possession (or at a brokerage
firm), you will receive two or more sets of Exchange Offer materials. You
should be careful to follow the directions that apply to each kind of
shares.
9. WHAT IS THE ANTICIPATED PREMIUM? Based on the closing trading prices for
Limited (NYSE/LSE: LTD) and A&F shares (NYSE: ANF) on April 14, 1998, any
of the designated exchange ratios would result in a Limited stockholder
receiving shares of A&F Common Stock with a market value greater than the
market value of the shares of Limited Common Stock tendered for exchange.
This greater value is referred to as the "Anticipated Premium". We cannot,
however, predict what the amount of the Anticipated Premium, if any, will
be or the prices at which shares of A&F Common Stock or Limited Common
Stock will trade over time.
You can calculate the Anticipated Premium using the following formula:
Exchange Ratio x Price of one A&F share
---------------------------------------------------
Price of one Limited share
For example: Assume a price of $293/8 for a Limited share and a price of
$4313/16 for an A&F share (the closing trading prices of Limited and A&F
shares on April 14, 1998). At an exchange ratio of .795 of a share of A&F
for each Limited share (the midpoint of the range of exchange ratios), the
Anticipated Premium would be approximately 19%. At the minimum exchange
ratio of .73, the Anticipated Premium would be approximately 9%. At the
maximum exchange ratio of .86, the Anticipated Premium would be
approximately 28%.
10. DO I DO ANYTHING IF I WANT TO RETAIN MY PLAN SHARES? No. If you want to
retain your Plan Shares, you do not need to take any action.
11. IF I DECIDE TO PARTICIPATE IN THE EXCHANGE OFFER, HOW DO I SELECT AN
APPROPRIATE EXCHANGE RATIO? In selecting an exchange ratio, you should
consider your view of the value of one share of Limited Common Stock
compared to that of one share of A&F Common Stock, as well as the level of
certainty that you desire that your tender will be accepted in the
Exchange Offer. The higher your exchange ratio, the lower the likelihood
that your shares will be accepted for exchange. Conversely, the lower
your exchange ratio, the higher the likelihood that your shares will be
2
<PAGE>
accepted for exchange. A tender at an exchange ratio greater than the
final exchange ratio will not be accepted. See "The Exchange Offer--
Determining to Participate in the Exchange Offer--Selecting an Exchange
Ratio", in the Offering Circular-Prospectus.
12. WHAT HAPPENS IF I SELECT AN EXCHANGE RATIO HIGHER THAN THE FINAL EXCHANGE
RATIO? You will not participate in the Exchange Offer and Plan Shares
tendered on your behalf will be returned to the Savings and Retirement
Plan.
13. WHAT HAPPENS IF I SELECT EITHER THE EXCHANGE RATIO SELECTED BY THE DUTCH
AUCTION OR A SPECIFIC EXCHANGE RATIO WHICH IS EQUAL TO OR LOWER THAN THE
FINAL EXCHANGE RATIO? You will participate in the Exchange Offer at the
final exchange ratio, but the actual number of your Plan Shares accepted
for exchange will depend on whether the Exchange Offer is oversubscribed.
14. HOW CAN I MAKE SURE THAT I WILL PARTICIPATE IN THE EXCHANGE OFFER? To
ensure participation in the Exchange Offer, you should check the box
captioned "Shares Tendered at Exchange Ratio Determined by Dutch Auction"
indicating that you will accept whatever the final exchange ratio is
determined to be. In this case you will participate in the Exchange
Offer, but the actual number of your Plan Shares accepted for exchange
will depend on whether the Exchange Offer is oversubscribed. If the
Exchange Offer is oversubscribed, you will participate on a pro rata
basis.
15. CAN I SELECT MORE THAN ONE EXCHANGE RATIO? The same shares may not be
tendered at more than one exchange ratio. You may, however, tender
different portions of your Limited shares at different exchange ratios,
but you must complete separate Tender Instruction Forms for each exchange
ratio selected.
16. WHAT HAPPENS IF I INSTRUCT THE TRUSTEE TO TENDER MORE LIMITED SHARES THAN
ARE IN MY ACCOUNT? Your instructions will not be valid and no Plan Shares
will be tendered by the Trustee on your behalf.
17. WHAT IS PRORATION? Proration will occur if the Exchange Offer is
oversubscribed; that is, if the number of Limited shares tendered
multiplied by the final exchange ratio exceeds the number of A&F shares
available for exchange at the final exchange ratio. In this case, all
Limited shares that are tendered at or below the final exchange ratio will
be accepted for exchange on a pro rata basis at the final exchange ratio.
18. WHAT HAPPENS IF THE NUMBER OF LIMITED SHARES TENDERED IS SUCH THAT MORE
THAN 39,240,000 A&F SHARES, BUT FEWER THAN 43,600,000 A&F SHARES, WOULD BE
EXCHANGED? A&F shares held by The Limited after completion of the
Exchange Offer will be distributed to its stockholders on a pro rata
basis. This distribution is referred to in the Offering Circular-
Prospectus as the "Spin-Off".
19. WHAT HAPPENS IF THE NUMBER OF LIMITED SHARES TENDERED IS SUCH THAT MORE
THAN 43,600,000 SHARES OF A&F WOULD BE EXCHANGED, I.E., THE EXCHANGE OFFER
IS OVERSUBSCRIBED? All Limited shares which are tendered at or below the
final exchange ratio will be accepted for exchange on a pro rata basis at
the final exchange ratio. Any shares not accepted for exchange will be
returned to tendering stockholders.
20. WHEN DOES THE EXCHANGE OFFER EXPIRE? Although the Exchange Offer,
proration period and withdrawal rights will expire at 12:00 midnight, New
York City time, on Wednesday, May 13, 1998, unless extended. Your
instructions must be received by the Savings and Retirement Plan
Administrative Committee by May 11, 1998, unless extended, in order to
participate in the Exchange Offer.
21. WHEN WILL TENDERING STOCKHOLDERS KNOW THE OUTCOME OF THE EXCHANGE OFFER?
Preliminary results of the Exchange Offer, including any preliminary
proration factor, will be announced by press release promptly after the
expiration of the Exchange Offer. Announcement of any final proration
factor should occur approximately seven business days after the expiration
of the Exchange Offer.
22. ARE THERE ANY CONDITIONS TO THE LIMITED'S OBLIGATION TO COMPLETE THE
EXCHANGE OFFER? Yes, The Limited's obligation to complete the Exchange
Offer is subject to the conditions outlined in the Offering Circular-
Prospectus. Among other things, the Exchange Offer will not close unless
enough Limited shares are tendered so that at least
3
<PAGE>
39,240,000 shares of A&F stock can be distributed to Limited stockholders.
The number of Limited shares that must be tendered to produce this result
is referred to in the Offering Circular-Prospectus as the "Trigger
Amount".
23. WHAT ARE MY RIGHTS UNDER THE OFFER? The records of the Savings and
Retirement Plan indicate that shares of Limited Common Stock are allocated
to your Account. You may tender some or all of these Plan Shares.
Because all of these Shares are held in trust for your benefit, they are
registered in the name of the Trust. So, the Trust will actually tender
Plan Shares as you instruct the Trustee.
You must direct the Trustee if you want to tender your Plan Shares. The
Trustee will tender your Plan Shares only if directed. If you do not
respond, your Plan Shares will remain in your Account.
24. HOW DO I DIRECT THE PLAN TRUSTEE? The only way that you can tender your
Plan Shares is by completing the YELLOW Tender Instruction Form as
described, signing and returning it to the Administrative Committee for
the Savings and Retirement Plan, 82 South Street, Hopkinton, MA 01748-
9918, which will process your instructions. The address is on the return
envelope you should use to return the Tender Instruction form.
THE TENDER INSTRUCTION FORM MUST BE RECEIVED BY THE ADMINISTRATIVE
COMMITTEE BEFORE 5:00 P.M., NEW YORK CITY TIME, ON MAY 11, 1998. YOU MUST
SIGN AND COMPLETE THE FORM FOR YOUR DIRECTION TO BE VALID.
TO PROPERLY DIRECT THE TRUSTEE TO TENDER PLAN SHARES ON YOUR BEHALF YOU
MUST:
-- INSTRUCTIONS. Read carefully and follow exactly the instructions in
the SARP Committee Letter and the Tender Instruction Form. These will
tell you how to direct the Plan Trustee regarding your Plan Shares.
-- FORM. Complete the enclosed YELLOW Tender Instruction Form.
-- SHARES. Designate on the Tender Instruction Form the number of Plan
Shares (excluding fractional shares) you wish to be tendered.
-- EXCHANGE RATIO. Designate on the Tender Instruction Form the Exchange
Ratio at which you are tendering the Shares.
-- SIGNATURE. You must sign the Tender Instruction Form to complete your
instruction. Unless you sign the Tender Instruction Form, your
direction cannot be honored and the Tender Instruction Form will be
void.
-- MAILING. A preaddressed return envelope has been enclosed with your
Exchange Offer materials. Use this envelope to return your completed
Tender Instruction Form if you wish to have the Trustee tender your
Plan Shares.
Please be precise in providing your instruction and please act PROMPTLY.
IF YOU DO NOT WISH TO TENDER YOUR PLAN SHARES, TAKE NO ACTION.
25. HOW DO I SEND INSTRUCTIONS TO THE ADMINISTRATIVE COMMITTEE? Please
return your instructions PROMPTLY, recognizing the slow delivery time
inherent in the U.S. mail today. You may mail your Tender Instruction
Form to the Administrative Committee for the Savings and Retirement Plan,
82 South Street, Hopkinton, MA 01748-9918 in the preaddressed reply
envelope that has been provided for your reply or send it by an alternate
faster means (such as overnight courier). You may NOT fax your
instructions. DO NOT DELIVER YOUR INSTRUCTIONS TO YOUR HUMAN RESOURCES
DEPARTMENT OR TO YOUR BENEFITS ADMINISTRATOR.
26. MUST I PROVIDE DIRECTIONS TO THE ADMINISTRATIVE COMMITTEE? You must
respond IF you wish the Trustee to tender your Plan Shares. Do not respond
if you do not wish to tender your Plan Shares.
4
<PAGE>
27. WHO WILL KNOW WHETHER I TENDERED MY PLAN SHARES? Your directions to the
Trustee are CONFIDENTIAL. Individual instructions will only be disclosed
to the recordkeeper as necessary to complete the tender.
28. CAN I CHANGE MY MIND AND WITHDRAW MY PLAN SHARES THAT I DIRECTED TO BE
TENDERED? Yes, but only if you perform the following steps:
-- You must send a signed notice of withdrawal to the Administrative
Committee for the Savings and Retirement Plan, 82 South Street,
Hopkinton, MA 01748-9918. All withdrawals will be deemed to be a
withdrawal of all Plan Shares tendered to date.
-- The notice of withdrawal must be in writing. You may fax your notice
of withdrawal to the Administrative Committee for the Savings and
Retirement Plan at fax number (508) 787-2651.
-- The notice of withdrawal must state your name and social security
number.
-- The notice of withdrawal must be received by the Administrative
Committee before 5:00 p.m., New York City time, on May 11, 1998.
29. CAN I RE-TENDER MY PLAN SHARES? Yes. If you wish to re-tender your Plan
Shares you must complete another Tender Instruction Form and return it to
the Administrative Committee for receipt by May 11, 1998. You may obtain
another copy by faxing your request to (508) 787-2651.
30. WHO SHOULD I CALL IF I HAVE QUESTIONS ON THE EXCHANGE OFFER? For general
Exchange Offer-related questions please call D.F. KING at (800) 549-6864.
For Savings and Retirement Plan-related questions, please call (800) 637-
3766.
31. HOW CAN I OBTAIN COPIES OF ADDITIONAL SAVINGS AND RETIREMENT PLAN-RELATED
DOCUMENTS? You may request additional copies of the Tender Instruction
Form, Notice to Savings and Retirement Plan Participants, Letter from the
Savings and Retirement Plan Administrative Committee and Offering
Circular-Prospectus by fax at (508) 787-2651 or by mail to the
Administrative Committee for the Savings and Retirement Plan, 82 South
Street, Hopkinton, MA 01748-9918. Your request must include your name,
address and/or fax number, and the name of the item you are requesting.
B. OPERATION OF THE SAVINGS AND RETIREMENT PLAN DURING THE EXCHANGE OFFER
32. WHAT HAPPENS TO CONTRIBUTIONS ALLOCABLE TO ACCOUNTS MADE AFTER FEBRUARY
28, 1998? Beginning April 7, 1998, the Trustee stopped purchasing shares
of Limited Common Stock for allocation to Accounts. Employer and
participant contributions made to the Savings and Retirement Plan, and
dividends and other funds which are normally allocated to acquire shares
of Limited Common Stock, which are received by the Savings and Retirement
Plan during the period of the Exchange Offer and for 10 business days
thereafter (while the results are tabulated) will be accumulated and
invested in a short-term fund. Thereafter, upon the cessation of legal
restrictions, purchases by the Trustee will resume and the accumulated
funds will be invested pursuant to the investment elections then in
effect.
33. WHAT HAPPENS IF I REQUEST A DISTRIBUTION, WITHDRAWAL OR INVESTMENT FUND
TRANSFER FOLLOWING THE ANNOUNCEMENT OF THE EXCHANGE OFFER DURING THE OFFER
PERIOD? Distributions, withdrawals or investment fund transfers from the
Savings and Retirement Plan may be delayed until after the conclusion of
the Exchange Offer. Authorized distributions, withdrawals or investment
fund transfers before or during this period will be processed as soon as
reasonably feasible.
34. WHEN MAY I REQUEST A CHANGE IN MY INVESTMENT ELECTIONS? You may change
your investment election for future contributions or reallocate your
existing Account balances at the beginning of each month under the Savings
and Retirement Plan's normal rules. You must call the SARP Line by the
20th day of the month for your investment election change to be effective
the first day of the following month, subject to delays required in
connection with the Exchange Offer. SECTION 16 INSIDERS WHO HAVE
TRANSFERRED AMOUNTS INTO THEIR ACCOUNT FROM OTHER INVESTMENT FUNDS UNDER
THE SAVINGS AND RETIREMENT PLAN WITHIN THE PRECEDING SIX MONTHS SHOULD BE
AWARE
5
<PAGE>
THAT THE TENDER OF THEIR PLAN SHARES IN THE EXCHANGE OFFER WILL NOT BE
EXEMPT FROM THE SHORT-SWING PROFIT RECOVERY PROVISIONS OF SECTION 16(b) OF
THE EXCHANGE ACT. IN ANY EVENT, SECTION 16 INSIDERS WHO WISH TO
PARTICIPATE IN THE EXCHANGE OFFER SHOULD CONSULT WITH COUNSEL.
35. WILL I BE TAXED ON ANY PROCEEDS RECEIVED BY THE SAVINGS AND RETIREMENT
PLAN IN 1998 FROM THE PLAN SHARES THAT ARE TENDERED UNDER THE SAVINGS AND
RETIREMENT PLAN? No. Because tender proceeds received from Plan Shares
will be received by and held in the Savings and Retirement Plan, they will
not be subject to current income taxes.
C. REINVESTMENT OF EXCHANGE OFFER PROCEEDS
36. HOW WILL THE SAVINGS AND RETIREMENT PLAN INVEST THE SHARES OF A&F COMMON
STOCK RECEIVED UPON EXCHANGE OF THE PLAN SHARES THAT ARE TENDERED? Shares
of A&F Common Stock received from this Exchange Offer will be held by the
Trustee in a separate investment fund under the Savings and Retirement
Plan. You may reallocate amounts denominated in A&F Common Stock under
the Savings and Retirement Plan to other investment funds, mindful of the
possible tax consequences noted below. You may not make new
contributions to, or reallocate amounts from other investment funds to,
the A&F Common Stock Fund.
D. CERTAIN TAX INFORMATION
You should be aware that the disposition of any shares of A&F Common Stock
received pursuant to the exchange of Plan Shares in the Exchange Offer
may, in certain circumstances, result in certain tax consequences upon the
ultimate distributions of your account, pursuant to which, but for
participation in the Exchange Offer, you would otherwise receive shares of
Limited Common Stock.
Special tax rules apply to certain distributions from the Savings and
Retirement Plan that consist, in whole or in part, of shares of Limited
Common Stock. Generally, taxation of net unrealized appreciation ("NUA"),
an amount equal to the excess of the value of such shares at distribution
over the cost or other basis of such shares (which will vary depending on
whether the distribution qualifies for lump sum treatment) will be
deferred until the shares are sold following distribution. Moreover, if
prior to a distribution shares of Limited Common Stock are exchanged for
shares of A&F Common Stock in a tax-free exchange, as would be the case in
the Exchange Offer, the cost or other basis of such newly acquired shares
of A&F Common Stock for NUA purposes will be the cost or other basis of
the tendered shares of Limited Common Stock.
If the shares of A&F Common Stock received pursuant to the Exchange Offer
are disposed of within the Savings and Retirement Plan and the proceeds of
such disposition are directly reinvested in the Limited Stock Fund within
90 days, the cost or other basis of the shares of Limited Common Stock for
NUA purposes will be the same as the cost or other basis of the disposed
of shares of A&F Common Stock.
Conversely, if shares of A&F Common Stock received pursuant to the
Exchange Offer are disposed of within the Savings and Retirement Plan and
the proceeds of such disposition are not directly reinvested in The
Limited Stock Fund under the Savings and Retirement Plan, the opportunity
to retain for NUA purposes the cost or other basis of the Plan Shares
tendered, and the tax-deferral treatment of the NUA calculated in
reference to such basis, will be lost.
The foregoing is only a brief summary of complicated provisions of the
Internal Revenue Code. You are strongly urged to consult with your tax
advisor as to the issues described above.
6
<PAGE>
EXHIBIT (A)(10)
[MERRILL LYNCH LETTERHEAD]
NOTICE TO PARTICIPANTS IN STOCK PURCHASE PLAN
April 15, 1998
Dear Client:
Enclosed for your consideration is the Offering Circular-Prospectus dated April
15, 1998 (the "Offering Circular-Prospectus") of The Limited, Inc., a Delaware
corporation ("The Limited"), which describes The Limited's offer to its
stockholders (the "Exchange Offer") to exchange up to 43,600,000 shares of Class
A Common Stock, par value $0.01 per share, of Abercrombie & Fitch Co. ("A&F
Common Stock) for shares of Common Stock, par value $.50 per share, of The
Limited ("Limited Common Stock") that are validly tendered and not withdrawn (or
deemed withdrawn) by the Expiration Date (as defined below) at an exchange ratio
not greater than .86 nor less than .73 of a share of A&F Common Stock for each
share of Limited Common Stock tendered and exchanged, upon the terms and subject
to the conditions set forth in the Offering Circular-Prospectus. See "Summary",
"The Transactions" and "The Exchange Offer" in the Offering Circular-Prospectus.
If you wish to exchange all or any number of your shares of Limited Common Stock
in your account pursuant to the Exchange Offer you must contact a Customer
Service Representative at our toll-free Client Services number 1-800-637-3766
(U.S. Residents) or our Client Services number 1-732-563-7305 (Overseas
Residents) by 3:30 p.m. (New York City time), Wednesday, May 13, 1998. Our
representatives are available Monday through Friday 8:00 a.m. to 7:00 p.m. (New
York City time).
Please instruct the Merrill Lynch Customer Service Representative clearly if you
wish to tender some shares of Limited Common Stock in your account at one
exchange ratio and other shares of Limited Common Stock in your account at
another exchange ratio.
Fractional shares held in your account will not be entitled to participate in
the Exchange Offer.
Shares of A&F Common Stock received in respect of any shares of Limited Common
Stock tendered and accepted for exchange by The Limited will be held in your
account. Any shares of Limited Common Stock tendered but not accepted for
exchange by The Limited will be returned to your account.
If at any time you have instructed Merrill Lynch to tender your shares, you may
instruct Merrill Lynch to withdraw them from tender. To do so, you must contact
a Customer Service Representative as explained above. In the event that you
choose to withdraw your shares from tender, we must receive withdrawal
instructions by 3:30 p.m. (New York City time), on Wednesday, May 13, 1998.
Please note that Merrill Lynch will tender the specific number of shares that
you instruct us to tender, up to all of your shares in your account, at the time
of your call to our Merrill Lynch Customer Service Representative. If your
account acquires additional shares after you have given Merrill Lynch your
tender instructions, these shares will not be tendered unless you call again,
and instruct Merrill Lynch to also tender the additional shares in your account.
In the event that you instruct Merrill Lynch to tender your Limited Common
Stock, your shares will be frozen to prohibit you from transferring the stock
that has been tendered or from taking a distribution from your account. You may
have your account unfrozen at any time by withdrawing your shares from tender as
described above.
The Exchange Offer is conditioned upon the tender of a sufficient number of
shares of Limited Common Stock so that at least 39,240,000 shares of A&F Common
Stock are distributed in the Exchange Offer. The Exchange Offer is also subject
to certain other conditions, per the enclosed Offering Circular-Prospectus. The
shares are exchanged without any brokerage fees or commissions. Please note
that this exchange offer may be subject to proration.
<PAGE>
THE OFFERING CIRCULAR-PROSPECTUS IS BEING FORWARDED TO YOU AS THE BENEFICIAL
OWNER OF SHARES OF LIMITED COMMON STOCK HELD ON YOUR BEHALF UNDER THE PLAN, BUT
NOT REGISTERED IN YOUR NAME. A TENDER OF SUCH SHARES OF LIMITED COMMON STOCK
MAY ONLY BE MADE BY MERRILL LYNCH AS THE HOLDER OF RECORD AND PURSUANT TO YOUR
INSTRUCTIONS.
The maximum number of shares of Limited Common Stock which will be accepted for
exchange will be that number of shares which, when multiplied by the Final
Exchange Ratio, equals 43,600,000 shares of A&F Common Stock. If more than such
maximum number of shares of Limited Common Stock are tendered at Exchange Ratios
at or below the Final Exchange Ratio, the Exchange Offer will be oversubscribed,
and shares of Limited Common Stock tendered at or below the Final Exchange Ratio
will be subject to proration in accordance with the terms set forth in the
Offering Circular-Prospectus under "The Exchange Offer-Terms of the Exchange
Offer".
Before making a decision, you should read the enclosed Offering Circular-
Prospectus carefully. If you take no action, the shares in your account will
not be tendered by Merrill Lynch.
NONE OF THE LIMITED, A&F, MERRILL LYNCH, THE BOARD OF DIRECTORS OF THE LIMITED
OR THE BOARD OF DIRECTORS OF A&F MAKES ANY RECOMMENDATION TO ANY HOLDERS OF
LIMITED COMMON STOCK AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES OF
LIMITED COMMON STOCK PURSUANT TO THE EXCHANGE OFFER. EACH STOCKHOLDER OF THE
LIMITED MUST MAKE HIS OR HER OWN DECISION WHETHER TO TENDER SHARES OF LIMITED
COMMON STOCK PURSUANT TO THE EXCHANGE OFFER AND, IF SO, HOW MANY SHARES TO
TENDER AND AT WHAT EXCHANGE RATIO TO TENDER SUCH SHARES AFTER READING THE
OFFERING CIRCULAR-PROSPECTUS AND CONSULTING WITH HIS OR HER ADVISORS BASED ON
HIS OR HER OWN FINANCIAL POSITION AND REQUIREMENTS.
The above offer, proration period, and withdrawal rights will expire at 12:00
Midnight, (New York City time) on Wednesday, May 13, 1998, unless extended.
However, you must contact a Customer Service Representative at the above toll-
free number by 3:30 p.m. if you wish to tender all or any number of your shares
of Limited Common Stock.
Sincerely,
Merrill Lynch Group Employee Services
2
<PAGE>
EXHIBIT (A)(11)
FORM OF SUMMARY ADVERTISEMENT
This announcement is neither an offer to exchange nor a solicitation of an offer
to exchange any securities. The Exchange Offer is made solely by the Offering
Circular-Prospectus dated April 15, 1998 and the related Letter of Transmittal
and is not being made to (nor will tenders be accepted from or on behalf of)
stockholders of The Limited, Inc. in any jurisdiction in which the making of
the Exchange Offer or acceptance thereof would not be in compliance with the
securities, blue sky or other laws of such jurisdiction. In those jurisdictions
where the securities, blue sky or other laws require the Exchange Offer to be
made by a licensed broker or dealer, the Exchange Offer shall be deemed to be
made on behalf of The Limited, Inc. by Goldman, Sachs & Co. or one or more
registered brokers or dealers licensed under the laws of the relevant
jurisdiction.
NOTICE OF OFFER TO EXCHANGE
43,600,000 SHARES OF COMMON STOCK
OF
ABERCROMBIE & FITCH CO.
FOR SHARES OF COMMON STOCK
OF
THE LIMITED, INC.
AT AN EXCHANGE RATIO NOT GREATER THAN .86
NOR LESS THAN .73 OF A SHARE FOR EACH SHARE
OF COMMON STOCK OF THE LIMITED, INC.
-----------------------------------------------------------------
THE EXCHANGE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS
WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY,
MAY 13, 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED.
-----------------------------------------------------------------
The Limited, Inc., a Delaware corporation ("The Limited"), is offering to
exchange up to 43,600,000 shares of common stock, par value $.01 per share (the
"A&F Common Stock"), of Abercrombie & Fitch Co., a Delaware corporation and a
subsidiary of The Limited ("Abercrombie & Fitch"), which The Limited owns, for
shares of the common stock, par value
<PAGE>
$.50 per share (the """Limited Common Stock"), of The Limited at an exchange
ratio (the "Exchange Ratio") not greater than .86 (the """Maximum Exchange
Ratio") nor less than .73 (the """Minimum Exchange Ratio") of a share of A&F
Common Stock for each share of Limited Common Stock validly tendered and not
properly withdrawn or deemed withdrawn by 12:00 Midnight, New York City time, on
Wednesday, May 13, 1998, unless the Exchange Offer is extended (the "Expiration
Date"), upon the terms and subject to the conditions set forth in the Offering
Circular-Prospectus dated April 15, 1998 (the "Offering Circular-Prospectus")
and the related Letter of Transmittal (which together constitute the "Exchange
Offer"). The maximum number of shares of Limited Common Stock which will be
accepted for exchange will be that number of shares which, when multiplied by
the final exchange ratio (determined in the manner set forth below), equals
43,600,000 shares of A&F Common Stock.
The Exchange Offer is intended, among other things, to result in a complete
separation of Abercrombie & Fitch from The Limited and to allow holders of
Limited Common Stock to adjust their investment between The Limited and
Abercrombie & Fitch as they may choose on a tax-free basis.
The Exchange Offer is being conducted as a modified """Dutch auction" in which
each holder of Limited Common Stock will be able to specify the portion of a
share of A&F Common Stock (in increments of .005) that such holder is willing to
receive in exchange for a share of Limited Common Stock. The Exchange Ratio
specified by each tendering stockholder must be no greater than the Maximum
Exchange Ratio and no less than the Minimum Exchange Ratio (the "Exchange Ratio
Range"). The Limited will select as the final exchange ratio the lowest
Exchange Ratio that will permit the maximum number of the shares of A&F Common
Stock ""owned by The Limited to be exchanged in the Exchange Offer (the """Final
Exchange Ratio"). In addition, holders of Limited Common Stock wishing to
ensure their participation in the Exchange Offer will be able to indicate that
they are willing to accept the Final Exchange Ratio determined pursuant to the
"Dutch auction" process.
All shares of Limited Common Stock properly tendered and not withdrawn or
deemed withdrawn at Exchange Ratios at or below the Final Exchange Ratio will be
exchanged at the Final Exchange Ratio, on the terms and subject to the
conditions of the Exchange Offer, including the proration provisions thereof.
If the result of the Exchange Offer is such that more than 43,600,000 shares of
A&F Common Stock would need to be exchanged for shares of Limited Common Stock
which have been validly tendered for exchange at or below the Final Exchange
Ratio and are not properly withdrawn prior to the Expiration Date, The Limited
will exchange shares of A&F Common Stock for such tendered shares of Limited
Common Stock on a pro rata basis (with appropriate adjustments to avoid
acceptance for exchange of fractional shares of Limited Common Stock). If the
result of the Exchange Offer is such that fewer than 43,600,000 shares but more
than 39,240,000 shares of A&F Common Stock are exchanged pursuant to the
Exchange Offer, promptly after the consummation of the Exchange Offer, The
Limited will distribute its remaining shares of A&F Common Stock to the
remaining holders of Limited Common Stock pro rata based on their then
respective holdings of Limited Common Stock.
The Exchange Offer is subject to certain conditions, including that enough
shares of Limited Common Stock are validly tendered and not properly withdrawn
or deemed withdrawn on or prior to the Expiration Date so that at least 90% of
the shares of A&F Common Stock owned by
2
<PAGE>
the Limited (39,240,000 out of a total of 43,600,000 shares) can be exchanged
for shares of Limited Common Stock.
NONE OF THE LIMITED, ABERCROMBIE & FITCH, THE DEALER MANAGERS, THE SOLICITING
DEALERS, THE BOARD OF DIRECTORS OF THE LIMITED OR THE BOARD OF DIRECTORS OF
ABERCROMBIE & FITCH MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER WHETHER TO
TENDER SHARES OF LIMITED COMMON STOCK PURSUANT TO THE EXCHANGE OFFER.
STOCKHOLDERS MUST MAKE THEIR OWN DECISIONS WHETHER TO TENDER SHARES OF LIMITED
COMMON STOCK PURSUANT TO THE EXCHANGE OFFER AND, IF SO, HOW MANY SHARES TO
TENDER AND AT WHAT EXCHANGE RATIO.
For purposes of the Exchange Offer, The Limited shall be deemed, subject to
the proration provisions of the Exchange Offer, to have accepted for exchange
and exchanged shares of Limited Common Stock validly tendered for exchange when,
as and if The Limited gives oral or written notice thereof to the First Chicago
Trust Company of New York (the "Exchange Agent"). Exchange of shares of Limited
Common Stock accepted for exchange pursuant to the Exchange Offer will be made
by deposit of tendered shares of Limited Common Stock with the Exchange Agent,
which will act as agent for the tendering stockholders for the purpose of
receiving shares of A&F Common Stock from The Limited and transmitting such
shares to tendering stockholders. In all cases, exchange of shares of Limited
Common Stock will be made only after timely receipt by the Exchange Agent of (i)
certificates for such shares of Limited Common Stock (or timely confirmation of
a book-entry transfer of such shares of Limited Common Stock into the Exchange
Agent's account at the Book-Entry Transfer Facility (as defined in the Offering
Circular-Prospectus)) and (ii) a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof) or an Agent's Message (as
defined in the Offering Circular-Prospectus) in connection with a book-entry
transfer of shares, together with any other documents required by the Letter of
Transmittal. No fractional shares of A&F Common Stock will be issued pursuant
to the Exchange Offer, nor will interest be paid by The Limited in any
circumstances, regardless of any delay in making such exchange.
The Limited expressly reserves the right, at any time or from time to time, in
its sole discretion and regardless of whether any of the conditions specified in
the Offering Circular-Prospectus under the caption "The Exchange Offer--
Conditions to Consummation of the Exchange Offer" has been satisfied, (i) to
extend the period of time during which the Exchange Offer is open by giving oral
or written notice of such extension to the Exchange Agent and by making a public
announcement of such extension or (ii) to amend the Exchange Offer in any
respect by making a public announcement of such amendment.
Tenders of shares of Limited Common Stock made pursuant to the Exchange Offer
are irrevocable provided that tenders of shares may be withdrawn at any time on
or prior to the Expiration Date and may also be withdrawn after the expiration
of 40 business days from the commencement of the Exchange Offer, unless
theretofore accepted for exchange. To be effective, a written, telegraphic or
facsimile transmission notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth on the back cover page of the
Offering Circular-Prospectus and must specify the name of the person who
tendered the shares of Limited Common Stock to be withdrawn and the number of
shares of Limited Common Stock to be withdrawn precisely as they appear in the
Letter of Transmittal. If the shares of Limited
3
<PAGE>
Common Stock to be withdrawn have been delivered to the Exchange Agent, a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution (as
defined in the Offering Circular-Prospectus) must be submitted prior to the
release of such shares of Limited Common Stock (except that such signature
guarantee requirement is not applicable in the case of shares of Limited Common
Stock tendered by an Eligible Institution). In addition, such notice must
specify, in the case of shares of Limited Common Stock tendered by delivery of
certificates, the name of the registered holder (if different from that of the
tendering stockholder) and the serial numbers shown on the particular
certificates evidencing the shares of Limited Common Stock to be withdrawn or,
in the case of shares of Limited Common Stock tendered by book-entry transfer,
the name and number of the account at the Book-Entry Transfer Facility from
which the shares were transferred. All questions as to the form of documents
(including notices of withdrawal) and the validity, form, eligibility (including
time of receipt) and acceptance for exchange of any tender of shares of Limited
Common Stock will be determined by The Limited in its sole discretion, which
determination shall be final and binding on all tendering stockholders. None of
The Limited, Abercrombie & Fitch, the Dealer Managers, the Exchange Agent, the
Soliciting Dealers, the Information Agent or any other person will be under any
duty to give notification of any defect or irregularity in tenders or any notice
of withdrawal or incur any liability for failure to give any such notification.
The information required to be disclosed by Rule 13e-4(d)(1) of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended, is
incorporated herein by reference to the Offering Circular-Prospectus.
The Offering Circular-Prospectus, the Letter of Transmittal and other relevant
materials are being mailed to record holders of Limited Common Stock and
furnished to brokers, dealers, banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the stockholder list of The
Limited or, if applicable, who are listed as participants in a clearing agency's
security position listing for subsequent transmittal to beneficial owners of
Limited Common Stock. The Offering Circular-Prospectus, the Letter of
Transmittal and the related materials contain important information which should
be read before any decision is made with respect to the Exchange Offer.
Requests for additional copies of the Offering Circular-Prospectus, the Letter
of Transmittal and other Exchange Offer materials should be directed to the
Information Agent, at its address and telephone number as set forth below, and
copies will be furnished promptly at The Limited's expense. Questions and
requests for assistance may be directed to the Information Agent or the Dealer
Managers.
4
<PAGE>
The Information Agent for the Exchange Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Call Collect (212) 269-5550
or
CALL TOLL-FREE (800) 549-6864
The Dealer Managers for the Exchange Offer are:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
CALL TOLL-FREE (800) 323-5678
5
