Abercrombie & Fitch 2008 Annual Report Download - page 11

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Table of Contents
The Loss of the Services of Skilled Senior Executive Officers Could Have a Material Adverse Effect
on the Company’s Business.
The Company’s senior executive officers closely supervise all aspects of its business — in particular,
the design of its merchandise and the operation of its stores. The Company’s senior executive officers
have substantial experience and expertise in the retail business and have made significant contributions to
the growth and success of the Company’s brands. If the Company were to lose the benefit of their
involvement, in particular the services of any one or more of Michael S. Jeffries, Chairman and Chief
Executive Officer, Diane Chang, Executive Vice President — Sourcing, Leslee K. Herro, Executive Vice
President — Planning and Allocation, Jonathan E. Ramsden, Executive Vice President and Chief
Financial Officer, David S. Cupps, Senior Vice President, General Counsel and Secretary and Charles
“Chad” Kessler, Executive Vice President — Female Merchandising, its business could be adversely
affected. Competition for such senior executive officers is intense, and the Company cannot be sure it will
be able to attract and retain a sufficient number of qualified senior executive officers in future periods.
Equity-Based Compensation Awarded Under the Employment Agreement with the Company’s Chief
Executive Officer Could Adversely Impact the Company’s Cash Flows, Financial Position or Results of
Operations and Could Have a Dilutive Effect on the Company’s Outstanding Common Stock.
Under the Employment Agreement, entered into as of December 19, 2008, between the Company and
Michael S. Jeffries, the Company’s Chairman and Chief Executive Officer (the “Jeffries Employment
Agreement”), Mr. Jeffries is entitled to receive a grant (the “Retention Grant”) of stock options or stock
appreciation rights (in the Company’s discretion) covering an aggregate of 4,000,000 shares of Common
Stock. In addition to the Retention Grant, Mr. Jeffries is also eligible to receive two equity-based grants in
respect of each fiscal year of the term of the Jeffries Employment Agreement starting with Fiscal 2009
(the “Semi-Annual Grants”). If a Semi-Annual Grant is earned, it will be awarded within 75 days
following the end of the Company’s second quarter or fiscal year, as applicable, subject to Mr. Jeffries’
continuous employment with the Company (and, with respect to the final Semi-Annual Grant, continued
service on the Company’s Board of Directors) through the applicable grant date. The value of the
Semi-Annual Grants are uncertain and dependent on future market price of the Company’s Common
Stock and the financial performance of the Company.
In connection with the Retention Grant and the Semi-Annual Grants contemplated by the Jeffries
Employment Agreement, the related compensation expense could significantly impact the Company’s
results of operations. Further, the significant number of shares of Common Stock which could be issued
upon exercise and/or vesting of the Retention Grant and the Semi-Annual Grants is uncertain and
dependent on the future market price of the Company’s Common Stock and the financial performance of
the Company and would, if issued, have a dilutive effect with respect to the Company’s outstanding
shares of Common Stock, which may adversely affect the market price of the Company’s Common Stock.
Depending on the number of shares of Common Stock which could be issued under the Retention Grant
and Semi-Annual Grants, the Company may deem it necessary or appropriate to seek shareholder
approval of additional long-term incentive compensation plans in order to be able to settle the awards in
Common Stock.
In the event that there are not sufficient shares of Common Stock available to be issued under the
Company’s 2007 Long-Term Incentive Compensation Plan (the “2007 LTIP”) or under a successor or
replacement plan at the time these equity-based awards are ultimately settled, the Company will be
required to settle some portion of the awards in cash, which could have an adverse impact on the
Company’s cash flow from operations, financial position and results of operations. In addition, under
applicable accounting rules, if
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Source: ABERCROMBIE & FITCH CO /DE/, 10-K, March 27, 2009 Powered by Morningstar® Document Research℠