Abercrombie & Fitch 2006 Annual Report Download - page 20

Abercrombie &Fitch
were filed (three in the United States District Court for the Southern
District of Ohio and one in the Court of Common Pleas for Franklin
County, Ohio) against present and former directors of A&F alleging
various breaches of the directors’ fiduciary duty and seeking equitable
and monetary relief. A&F is also a nominal defendant in each of the
four later derivative actions. On November 4, 2005, a motion to con-
solidate all of the federal court derivative actions with the purported
securities law 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 consolidated with the
aforesaid purported securities law class actions for purposes of
motion practice, discovery and pretrial proceedings. A consolidated
amended derivative complaint was filed in the federal proceeding on
July 10, 2006. A&F has filed a motion to stay the consolidated feder-
al derivative case and that motion has been granted. The state court
action has also been stayed. On February 16, 2007, A&F announced
its Board of Directors received a report of its Special Litigation
Committee established by the Board to investigate and act with
respect to claims asserted in certain previously disclosed derivative
lawsuits brought against current and former directors and manage-
ment, including Chairman and Chief Executive Officer Michael S.
Jeffries. The Special Litigation Committee has concluded that there
is no evidence to support the asserted claims and directed the
Company to seek dismissal of the derivative actions. A&F has advised
both the federal and state courts in which the derivative actions are
pending, that it believes the derivative cases should be stayed until the
pending motion to dismiss the related consolidated securities cases
has been finally decided, as described in the preceding paragraph.
In December 2005, the Company received a formal order of investi-
gation from the SEC concerning trading in shares of A&F’s Common
Stock. The SEC has requested information from A&F and certain of its
current and former officers and directors. The Company and its per-
sonnel are cooperating fully with the SEC.
Management intends to defend the aforesaid matters vigorously, as
appropriate. Management is unable to assess the potential exposure
of the aforesaid matters. However, management’s assessment of the
Company’s current exposure could change in the event of the discovery
of additional facts with respect to legal matters pending against the
Company or determinations by judges, juries or other finders of fact that
are not in accord with management’s evaluation of the claims.
15. 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
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value $0.01 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
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 of any of A&F’s subsidiaries) has acquired bene-
ficial 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 per-
son which would, if consummated, result in such person becoming an
Acquiring Person. The Rights are not exercisable 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-
Abercrombie &Fitch
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Mitchell Green, et al. v. Abercrombie & Fitch Co., Abercrombie &
Fitch Stores, Inc. and Abercrombie & Fitch Trading Co., was filed in
the United States District Court for the Southern District of New York
on November 2, 2006. Five plaintiffs allege, on behalf of a putative
class of nation-wide loss prevention agents employed by the Company,
that they were entitled to receive overtime pay as “non-exempt” employ-
ees under the FLSA and New York wage and hour laws. The complaint
seeks injunctive relief, unpaid overtime compensation, liquidated
damages, interest, and attorneys’ fees and costs. The parties have ten-
tatively agreed to a settlement which will not have a material effect on
the financial statements.
Edrik Diaz v. Abercrombie & Fitch Stores, Inc. was filed in the
United States District Court for the Southern District of Florida on
February 8, 2007. Diaz alleges, on behalf of a putative class of managers
in training and assistant managers, that the Company did not properly
pay overtime compensation. The complaint seeks liquidated damages,
interest, and attorneys’ fees and costs.
On September 2, 2005, a purported class action, styled Robert Ross v.
Abercrombie & Fitch Company, et al., was filed against A&F and certain
of its officers in the United States District Court for the Southern
District of Ohio on behalf of a purported class of all persons who pur-
chased or acquired shares of A&F’s Common Stock between June 2,
2005 and August 16, 2005. In September and October of 2005, five other
purported class actions were subsequently filed against A&F and other
defendants in the same Court. All six securities cases allege claims
under the federal securities laws, and seek unspecified monetary dam-
ages, as a result of a decline in the price of A&F’s Common Stock dur-
ing the summer of 2005. On November 1, 2005, a motion to consoli-
date all of these purported class actions into the first-filed case was filed
by some of the plaintiffs. A&F joined in that motion. On March 22,
2006, the motions to consolidate were granted, and these actions
(together with the federal court derivative cases described in the follow-
ing paragraph) were consolidated for purposes of motion practice, dis-
covery and pretrial proceedings. A consolidated amended securities
class action complaint was filed on August 14, 2006. On October 13,
2006, all defendants moved to dismiss that complaint. The motion has
been fully briefed and is pending.
On September 16, 2005, a derivative action, styled The Booth
Family Trust v. Michael S. Jeffries, et al., was filed in the United
States District Court for the Southern District of Ohio, naming A&F
as a nominal defendant and seeking to assert claims for unspecified
damages against nine of A&F’s present and former directors, alleging
various breaches of the directors’ fiduciary duty and seeking equitable
and monetary relief. In the following three months (October,
November and December of 2005), four similar derivative actions
cessfully appealed, the parties have tentatively agreed to a settlement of
a third and a fourth remains pending. In addition, a fifth class action
has been filed against the Company involving overtime compensation.
In each overtime compensation action, the plaintiffs, on behalf of their
respective purported class, seek injunctive relief and unspecified
amounts of economic and liquidated damages.
In Melissa Mitchell, et al. v. Abercrombie & Fitch Co. and Abercrombie
& Fitch Stores, Inc., which was filed on June 13, 2003 in the United
States District Court for the Southern District of Ohio, the plaintiffs
allege that assistant managers and store managers were not paid over-
time compensation in violation of the Fair Labor Standards Act
(“FLSA”) and Ohio law. On March 31, 2006, the Court issued an order
granting defendants’ motions for summary judgment on all of the
claims of each of the three plaintiffs. All three plaintiffs filed a Notice
of Appeal to the Sixth Circuit Court of Appeals on April 28, 2006. The
matter was fully briefed on October 26, 2006. Oral arguments before
the Sixth Circuit Court of Appeals were held on March 15, 2007, and
on March 29, 2007, that court affirmed the summary judgement in
favor of the Company.
In Eltrich v. Abercrombie & Fitch Stores, Inc., which was filed on
November 22, 2005 in the Washington Superior Court of King County,
the plaintiff alleges that store managers, assistant managers and man-
agers in training were misclassified as exempt from the overtime com-
pensation requirements of the State of Washington, and improperly
denied overtime compensation. The complaint seeks relief on a class-
wide basis for unpaid overtime compensation, liquidated damages,
attorneys’ fees and costs and injunctive relief. The defendant filed an
answer to the complaint on or about January 27, 2006. The defendant
filed a motion for summary judgment as to all of Eltrich’s claims on July
5, 2006. The court granted the motion for summary judgment to
Eltrich’s individual claims on October 6, 2006, dismissing Eltrich’s indi-
vidual claims with prejudice. On October 31, 2006, the court dismissed
the claims of putative class members without prejudice. Eltrich did not
appeal and, accordingly, this case is terminated.
Lisa Hashimoto, et al. v. Abercrombie & Fitch Co. and Abercrombie
& Fitch Stores, Inc., was filed in the Superior Court of the State of
California for the County of Los Angeles on June 23, 2006. Three
plaintiffs allege, on behalf of a putative class of California store man-
agers employed in Hollister and abercrombie stores, that they were
entitled to receive overtime pay as “non-exempt” employees under
California wage and hour laws. The complaint seeks injunctive relief,
equitable relief, unpaid overtime compensation, unpaid benefits,
penalties, interest and attorneys’ fees and costs. The defendants filed
an answer to the complaint on August 21, 2006. The parties are
engaging in discovery.