Abercrombie & Fitch 2005 Annual Report Download - page 40

Abercrombie &Fitch
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record at the close of business on May 25, 1999. In connection with
the Stock Split, the number of Rights associated with each share of
Common Stock outstanding as of the close of business on May 25,
1999, or issued or delivered after May 25, 1999 and prior to the
“Distribution Date” (as defined below), was proportionately adjust-
ed from one Right to 0.50 Right. Each share of Common Stock
issued after May 25, 1999 and prior to the Distribution Date has been
and will be issued with 0.50 Right attached so that all shares of
Common Stock outstanding prior to the Distribution Date will have
0.50 Right attached.
The Rights initially will be attached to the shares of Common
Stock. The Rights will separate from the Common Stock after a
Distribution Date occurs. The “Distribution Date” generally means
the earlier of (i) the close of business on the 10th day after the date
(the “Share Acquisition Date”) of the first public announcement that
a person or group (other than A&F or any of A&F’s subsidiaries or any
employee benefit plan of A&F or any of A&F’s subsidiaries) has
acquired beneficial ownership of 20% or more of A&F’s outstanding
shares of Common Stock (an “Acquiring Person”) or (ii) the close of
business on the 10th business day (or such later date as A&F’s Board
of Directors may designate before any person has become an
Acquiring Person) after the date of the commencement of a tender or
exchange offer by any person which would, if consummated, result in
such person becoming an Acquiring Person. The Rights are not exer-
cisable until the Distribution Date. After the Distribution Date, each
whole Right may be exercised to purchase, at an initial exercise price
of $250, one one-thousandth of a share of Series A Participating
Cumulative Preferred Stock.
At any time after any person becomes an Acquiring Person (but
before the occurrence of any of the events described in the immediate-
ly following paragraph), each holder of a Right (other than the
Acquiring Person and certain affiliated persons) will be entitled to
purchase, upon exercise of the Right, shares of Common Stock having
a market value of twice the exercise price of the Right. At any time
after any person becomes an Acquiring Person (but before any person
becomes the beneficial owner of 50% or more of the outstanding
shares of Common Stock or the occurrence of any of the events
described in the immediately following paragraph), A&F’s Board of
Directors may exchange all or part of the Rights (other than Rights
beneficially owned by an Acquiring Person and certain affiliated per-
sons) for shares of Common Stock at an exchange ratio of one share
of Common Stock per 0.50 Right.
If, after any person has become an Acquiring Person, (i) A&F is
involved in a merger or other business combination transaction in
which A&F is not the surviving corporation or A&F’s Common Stock
is exchanged for other securities or assets or (ii) A&F and/or one or
more of A&F’s subsidiaries sell or otherwise transfer 50% or more of
the assets or earning power of A&F and its subsidiaries, taken as a
whole, each holder of a Right (other than the Acquiring Person and
certain affiliated persons) will be entitled to buy, for the exercise price
of the Rights, the number of shares of common stock of the other party
nominal defendant in each of the four later derivative actions. On
November 4, 2005, a motion to consolidate all of the federal court
derivative actions with the purported securities law, and seek unspec-
ified monetary damages, class actions described in the preceding
paragraph was filed. On March 22, 2006, the motion to consolidate
was granted, and the federal court derivative actions have been con-
solidated with the aforesaid purported securities law class actions for
purposes of motion practice, discovery and pretrial proceedings.
In December 2005, the SEC issued a formal order of investigation
concerning trading in shares of A&F’s Class A Common Stock. The
SEC has requested information from A&F and certain of its current
and former officers and directors. The Company and its personnel are
cooperating fully with the SEC.
On December 9, 2005, a purported class action, styled Rankin, et al.
v. Abercrombie & Fitch Stores, Inc., was filed by plaintiff Will Rankin
in the Circuit Court of the State of Oregon for the County of
Multnomah. By a First Amended Complaint dated January 9, 2006,
two additional plaintiffs were named – Chris Masagatani and Kayti
Kersten. The plaintiffs allege, on behalf of themselves and a purport-
ed class of in-store managers and hourly employees, that they were
required to purchase clothing and that the costs of purchases reduced
actual wages earned in violation of Oregon’s minimum wage laws.
The First Amended Complaint seeks payment of alleged wages due to
plaintiffs and the purported class, civil penalties under Oregon statutes,
a permanent injunction, attorneys’ fees and prejudgment interest. The
defendant filed an answer to the First Amended Complaint on
February 8, 2006.
Management intends to vigorously defend the aforesaid matters, as
appropriate, and believes that the outcome of its pending litigation and
administrative investigation will not have a material adverse effect
upon the financial condition or results of operations of the Company.
However, management’s assessment of the Company’s current expo-
sure could change in the event of the discovery of additional facts with
respect to legal matters pending against the Company or determina-
tions by judges, juries or other finders of fact that are not in accord with
management’s evaluation of the claims. Should management’s evalu-
ation prove incorrect, particularly in regard to the overtime compensa-
tion claims and the Securities Matters, the Company’s exposure could
have a material adverse effect upon the financial condition or results of
operations of the Company
14. PREFERRED STOCK PURCHASE RIGHTS On July 16,
1998, A&F’s Board of Directors declared a dividend of one Series A
Participating Cumulative Preferred Stock Purchase Right (the
“Rights”) for each outstanding share of Class A Common Stock, par
value $.01 per share (the “Common Stock”), of A&F. The dividend
was paid on July 28, 1998 to shareholders of record on that date.
Shares of Common Stock issued after July 28, 1998 and prior to May
25, 1999 were issued with one Right attached. A&F’s Board of
Directors declared a two-for-one stock split (the “Stock Split”) on
A&F’s Common Stock, payable on June 15, 1999 to the holders of