EXHIBIT 10.1
FORM OF
TAX DISAFFILIATION AGREEMENT
between
The LIMITED, INC.,
on behalf of itself
and the members
of The LIMITED GROUP
and
ABERCROMBIE & FITCH CO.
on behalf of itself
and the members
of THE ABERCROMBIE & FITCH GROUP
TAX DISAFFILIATION AGREEMENT
This Agreement is entered into as of the [ ] day of [ ], 1998 between The
Limited Inc. ("The Limited"), a Delaware corporation, on behalf of itself and
the members of The Limited Group, and Abercrombie & Fitch Co. ("Abercrombie &
Fitch"), a Delaware corporation, on behalf of itself and the members of the
Abercrombie & Fitch Group.
W I T N E S S E T H:
WHEREAS, pursuant to the tax laws of various jurisdictions, certain
members of the Abercrombie & Fitch Group, as defined below, presently file
certain tax returns on an affiliated, consolidated, combined, unitary, fiscal
unit or other group basis (including as permitted by Section 1501 of the
Internal Revenue Code of 1986, as amended (the "Code")) with certain members of
The Limited Group, as defined below (each such group, a "Consolidated Group");
WHEREAS, The Limited and Abercrombie & Fitch intend to distribute to its
shareholders all of the Abercrombie & Fitch common stock held by The Limited
(the "Distribution");
WHEREAS, The Limited and Abercrombie & Fitch desire to set forth their
agreement on the rights and obligations of The Limited, Abercrombie & Fitch and
the members of The Limited Group and the Abercrombie & Fitch Group,
respectively, with respect to the handling and allocation of federal, state and
local taxes incurred in taxable periods beginning prior to the Distribution
Date, as defined below, and various other tax matters;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties agree as follows:
1. Definitions
(a) As used in this Agreement:
"Abercrombie & Fitch Combined State Tax Liability" shall mean, with
respect to any taxable year and any jurisdiction, an amount of Combined State
Taxes determined in accordance with the principles set forth in the definition
of Abercrombie & Fitch Federal Tax Liability; provided, however, that (i) such
amount shall also include any actual income, franchise or similar state or local
tax liability (a "State Liability") owed in a jurisdiction (a "Combined
Jurisdiction") in which a member of the Abercrombie & Fitch Group files tax
returns with a member of The Limited Group, on a consolidated, combined or
unitary basis, to the extent such liability exceeds the liability that would
have been owed had no member of the Abercrombie & Fitch Group been included in
such returns, except to the extent attributable to the recognition of The
Limited's excess loss account with respect to the stock of Abercrombie & Fitch
as a result of the Distribution, and (ii) such amount shall be reduced to the
extent that, in any Combined Jurisdiction, the State Liability of The Limited
Consolidated Group is less than the liability that would have been owed had no
member of the Abercrombie & Fitch Group been included in the returns of such
Combined Jurisdiction.
"Abercrombie & Fitch Federal Tax Liability" shall mean, with respect to
any taxable year, the sum of the Abercrombie & Fitch Group's Federal Tax
liability and any interest, penalties and other additions to such taxes for such
taxable year, computed as if the Abercrombie & Fitch Group were not and never
were part of The Limited Consolidated Group, but rather were a separate
affiliated group of corporations filing a consolidated federal income tax return
pursuant to Section 1501 of the Code, provided, however, that transactions with
members of The Limited Group shall be reflected according to the provisions of
the consolidated return regulations promulgated under the Code governing
intercompany transactions, and that the Distribution will trigger any deferred
amounts, excess loss accounts or similar items. Such computation shall be made
(A) without regard to the income, deductions (including net operating loss and
capital loss deductions) and credits in any year of any member of The Limited
Consolidated Group that is not a member of the Abercrombie & Fitch Group, (B) by
taking account of any Tax Asset of the Abercrombie & Fitch Group in accordance
with Section 3(c)(iii) hereof, (C) with regard to net operating loss and capital
loss carryforwards and carrybacks and minimum tax credits from earlier years of
the Abercrombie & Fitch Group, but without regard to any such carryforward from
a tax period (or portion thereof) ending on or before September 27, 1996, date
of the initial public offering of Abercrombie & Fitch, and arising solely due to
treating the Abercrombie & Fitch Group as if it were never part of The Limited
Consolidated Group, (D) as though the highest rate of tax specified in
subsection (b) of Section 11 of the Code (or any other similar rates applicable
to specific types of income) were the only rates set forth in that subsection,
and with other similar adjustments as described in Section 1561 of the Code, (E)
reflecting the positions, elections and accounting methods used by The Limited
in preparing the consolidated federal income tax return for The Limited
Consolidated Group, (F) by not permitting the Abercrombie & Fitch Group any
compensation deductions arising in respect of any exercise of options on The
Limited stock by, or the issuance or vesting of The Limited restricted stock to,
any employee of the Abercrombie & Fitch Group prior to the Distribution Date,
and (G) without regard to gain attributable to the recognition of The Limited's
excess loss account with respect to the stock of Abercrombie & Fitch and
Abercrombie & Fitch's excess loss account with respect to stock of its
subsidiaries as a result of the Distribution.
"Abercrombie & Fitch Group" shall mean, at any time, Abercrombie & Fitch
and any direct or indirect corporate subsidiaries of Abercrombie & Fitch that
would be eligible to join with Abercrombie & Fitch, with respect to Federal
Taxes, in the filing of a consolidated federal income tax return and, with
respect to Combined State Taxes, in the filing of a consolidated, combined or
unitary income or franchise tax return, including any predecessors thereto.
"Abercrombie & Fitch Tax Liability" shall mean, with respect to any
taxable year, the sum of Abercrombie & Fitch Combined State Tax Liability and
Abercrombie & Fitch Federal Tax Liability.
"After-Tax Amount" shall mean an additional amount necessary to reflect
the hypothetical tax consequences of the receipt or accrual of any payment,
using the maximum statutory rate (or rates, in the case of an item that affects
more than one tax) applicable to the recipient of such payment for the relevant
year, reflecting for example, the effect of the deductions available for
interest paid or accrued and for taxes such as state and local income taxes.
"Combined State Tax" means, with respect to each state or local taxing
jurisdiction, any income, franchise or similar tax payable to such state or
local taxing jurisdiction in which a member of the Abercrombie & Fitch Group
files tax returns with a member of The Limited Group, on a consolidated,
combined or unitary basis for purposes of such income or franchise tax.
"Contingent Redemption Agreement" means the contingent stock redemption
agreement, dated January 26, 1996, entered into among The Limited, Xxxxxx X.
Xxxxxx and The Wexner Children's Trust.
"Distribution" shall mean the Exchange Offer and the Spin-Off as
described in the Offering Circular-Prospectus dated ___, 1998.
"Distribution Date" shall mean the date on which the Distribution
shall be effected.
"Federal Tax" shall mean any tax imposed under Subtitle A of the Code and
any related interest or penalty imposed under Subtitle F of the Code.
"Final Determination" shall mean (i) with respect to Federal Taxes, a
"determination" as defined in Section 1313 (a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to taxes other than
Federal Taxes, any final determination of liability in respect of a tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise, (ii) any final disposition of a tax issue by
reason of the expiration of a statute of limitations or (iii) the payment of tax
by The Limited with respect to any item disallowed or adjusted by any taxing
authority where The Limited determines in good faith that no action should be
taken to recoup such payment.
"IRS" shall mean the Internal Revenue Service.
"Post-Distribution Tax Period" means (i) any tax period beginning and
ending after the Distribution Date and (ii) with respect to a tax period that
begins before and ends after the Distribution Date, such portion of the tax
period that commences on the day immediately after the Distribution Date.
"Pre-Distribution Tax Period" means (i) any tax period beginning and
ending before or on the Distribution Date and (ii) with respect to a period that
begins before and ends after the Distribution Date, such portion of the tax
period ending on and including the Distribution Date.
"Prime" shall mean, the rate announced from time to time as "prime" by
BankOne, Columbus, Ohio, as its prime rate with respect to the applicable
currency.
"Referee" is defined in Section 16.
"Return" shall mean any tax return, statement, report or form (including
estimated tax returns and reports, extension requests and forms, and information
returns and reports) required to be filed with any taxing authority.
"Tax Asset" shall mean any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or any other
credit or tax attribute that could be carried forward or back to reduce taxes
(including without limitation deductions and credits related to alternative
minimum taxes).
"Tax Packages" shall mean one or more packages of information, that are
(i) reasonably necessary for the purpose of preparing tax Returns of The Limited
Consolidated Group with respect to any Pre-Distribution Tax Period, or of the
Abercrombie & Fitch Group with respect to any Post-Distribution Tax Period and
(ii) completed in all material respects in accordance with the standards that
The Limited has established for its subsidiaries.
"Tax Proceeding" shall mean any tax audit, dispute or proceeding (whether
administrative or judicial).
"The Limited Consolidated Group" shall mean The Limited and each direct
and indirect corporate subsidiary, including the Abercrombie & Fitch Group that
is eligible to join with The Limited in the filing of (i) for Federal Tax
purposes, a consolidated federal income tax return, and (ii) for Combined State
Tax Purposes, a Combined State Tax Return.
"The Limited Group" shall mean, at any time, The Limited and each of its
direct and indirect corporate subsidiaries other than those subsidiaries that
are members of the Abercrombie & Fitch Group.
(b) Any term used in this Agreement which is not defined in this
Agreement shall, to the extent the context requires, have the meaning assigned
to it in the Code or the applicable Treasury regulations thereunder or in
comparable provisions of applicable law.
2. Administrative and Compliance Matters.
(a) Sole Tax Sharing Agreement. Any and all existing Tax sharing
agreements or arrangements, written or unwritten, between any member of The
Limited Group and any member of the Abercrombie & Fitch Group shall be
terminated as of the effective date of this Agreement. As of the date of this
Agreement, neither the members of the Abercrombie & Fitch Group nor the members
of The Limited Group shall have any further rights or liabilities thereunder,
and this Agreement shall be the sole tax sharing agreement between the members
of the Abercrombie & Fitch Group and the members of The Limited Group.
Notwithstanding the foregoing, if any such termination is not binding on any
taxing authority, the Abercrombie & Fitch Group shall hold the affected member
of The Limited Group harmless against any adverse effect which would have been
avoided if such termination had been given effect by such taxing authority.
(b) Designation of Agent. Each member of the Abercrombie & Fitch Group
hereby irrevocably authorizes and designates The Limited, as its agent,
coordinator, and administrator, for the purpose of taking any and all actions
(including the execution of waivers of applicable statutes of limitation)
necessary or incidental to the filing of any Return, any amended Return, or any
claim for refund (even where an item or Tax Asset giving rise to an amended
Return or refund claim arises in a Post-Distribution Tax Period), credit or
offset of tax or any other proceedings, and for the purpose of making payments
to, or collecting refunds from, any taxing authority, in each case relating only
to any Pre-Distribution Tax Period. The Limited Group covenants to Abercrombie &
Fitch that it shall be responsible to see that all such administrative matters
relating thereto shall be handled promptly and appropriately.
(c) Pre-Distribution Tax Period Returns. The Limited will prepare,
consistently with past practice and applicable law and with the assistance of
the Abercrombie & Fitch Group, the consolidated Federal Tax Returns and Combined
State Tax Returns of The Limited Consolidated Group for all Pre-Distribution Tax
Periods. The Limited shall have the right with respect to such Returns to
determine (i) the manner in which such returns, documents or statements shall be
prepared and filed, including, without limitation, the manner in which any item
of income, gain, loss, deduction or credit shall be reported, (ii) whether any
extensions should be requested, and (iii) the elections that will be made by any
member of The Limited Group or the Abercrombie & Fitch Group. In addition, with
respect to all Pre-Distribution Tax Periods, The Limited shall have the right to
(i) contest, compromise or settle any adjustment or deficiency proposed,
asserted or assessed as a result of any audit of any Return filed by The Limited
Consolidated Group, (ii) file, prosecute, compromise or settle any claim for
refund, and (iii) determine whether any refunds to which The Limited
Consolidated Group may be entitled shall be received by way of refund or credit
against the tax liability of The Limited Consolidated Group. No later than 60
days after the Distribution Date, Abercrombie & Fitch shall prepare and deliver
to The Limited Tax Packages that include information of Abercrombie & Fitch
Group for the Pre-Distribution Tax Period that includes the Distribution Date.
In addition, if The Limited decides to make the election referred to in section
(d) below, Abercrombie & Fitch shall prepare and deliver to The Limited Tax
Packages that include information of Abercrombie & Fitch Group for the tax
period beginning immediately after the Distribution Date no later than 60 days
after the end of such tax period.
(d) Allocation. The Limited may, at its option, elect and Abercrombie &
Fitch shall join The Limited in electing (if necessary) to ratably allocate
items (other than extraordinary items) of the Abercrombie & Fitch Group in
accordance with relevant provisions of the Treasury Regulations Section
1.1502-76. If The Limited exercises its option to make the election, each member
of the Abercrombie & Fitch Group will provide a statement stating its consent to
such election as required under the regulations.
(e) Separate State Tax Returns and Post-Distribution Tax Period Returns of
Abercrombie & Fitch Group. Abercrombie & Fitch shall be solely responsible for
the preparation and filing of its separate state and local tax Returns and its
Returns for all Post-Distribution Tax Periods.
3. Tax Sharing.
(a) General. For each taxable year of The Limited Consolidated Group
during which income, loss or credit against tax of the Abercrombie & Fitch Group
are includible in the consolidated Federal Tax return of The Limited
Consolidated Group, Abercrombie & Fitch shall pay to The Limited an amount equal
to the Abercrombie & Fitch Federal Tax Liability, and for each taxable period
during which income, loss or credit against tax of any member of the Abercrombie
& Fitch Group are includible in a return relating to a Combined State Tax,
Abercrombie & Fitch shall pay The Limited an amount equal to the Abercrombie &
Fitch Combined State Tax Liability for such taxable period, each as shown on the
Pro Forma Returns (as defined in paragraph (c) below).
(b) Estimated Payments. The Limited shall determine the amount of the
estimated tax installment of the Abercrombie & Fitch Federal Tax Liability
(corresponding to The Limited's estimated Federal Tax installment) with respect
to a taxable year in which the Abercrombie & Fitch Group is part of The Limited
Consolidated Group (whether or not such payment is made prior to the
Distribution), as determined under the principles of Section 3(a) of this
Agreement. The Limited shall provide Abercrombie & Fitch with notice of such
estimated tax determination for Federal Tax no later than 10 days before the
date such corresponding installment payment is due. Abercrombie & Fitch shall,
within 5 days of receipt of such determination (but in no event earlier than 5
days prior to the due date of The Limited's corresponding estimated tax
payment), review the notice of determination and pay to The Limited the amount
so determined. The Limited shall determine under provisions of applicable law
the amount of the estimated tax installment of the Abercrombie & Fitch Combined
State Tax Liability (corresponding to the relevant estimated Combined State Tax
installment) with respect to a taxable year in which the Abercrombie & Fitch
Group is part of The Limited Consolidated Group (whether or not such payment is
made prior to the Distribution), as determined under the principles of Section
3(a) of this Agreement. The Limited shall provide Abercrombie & Fitch with
notice of such estimated tax determination for Combined State Tax no later than
10 days before the date such corresponding installment payment is due.
Abercrombie & Fitch shall, within 5 days of receipt of such determination (but
in no event earlier than 5 days prior to the due date of The Limited's
corresponding estimated tax payment), review the notice and pay to The Limited
or The Limited shall pay to the Abercrombie & Fitch, as appropriate, the amount
so determined in accordance with Section 9 hereof.
(c) Payment of Taxes at Year-End.
(i) Not later than 5 days after the due date (including all applicable
and valid extensions) for The Limited Consolidated Group's consolidated Federal
Tax return, The Limited shall deliver to Abercrombie & Fitch a pro forma Federal
Tax return (a "Pro Forma Federal Return") of the Abercrombie & Fitch Group
reflecting the Abercrombie & Fitch Federal Tax Liability. Not later than 30 days
after the due date for each Combined State Tax return, The Limited shall deliver
to Abercrombie & Fitch the relevant pro forma Combined State Tax return (each a
"Pro Forma Combined State Return" and together with the Pro Forma Federal
Return, the "Pro Forma Returns") of the Abercrombie & Fitch Group reflecting the
relevant Abercrombie & Fitch Combined State Tax Liability. The Pro Forma Returns
shall be prepared in good faith in a manner generally consistent with past
practice. Each Pro Forma Return shall be delivered together with a statement
showing a calculation of the amount to be paid pursuant to section (3)(c)(ii)
below.
(ii) Not later than 15 days after the receipt of each Pro Forma Return,
Abercrombie & Fitch shall pay to The Limited, or The Limited shall pay to
Abercrombie & Fitch, as appropriate, an amount equal to the difference, if any,
between the Abercrombie & Fitch Federal Tax Liability or the Abercrombie & Fitch
Combined State Tax Liability, as the case may be, reflected on such Pro Forma
Return for such period and the aggregate amount of the estimated installments
paid with respect thereto pursuant to Section 3(b).
(iii) If a Pro Forma Return reflects a Tax Asset that may under
applicable law be used to reduce a Federal Tax or Combined State Tax liability
of any member of The Limited Group for any taxable period, The Limited shall pay
to Abercrombie & Fitch an amount equal to the actual tax saving (which would
include refunds actually received) produced by such Tax Asset at the time such
Tax saving is realized and the future Pro Forma Returns of the Abercrombie &
Fitch Group shall be adjusted to reflect such use. The amount of any such tax
saving for any taxable period shall be the amount of the reduction in taxes
payable to a taxing authority with respect to such tax period as compared to the
taxes that would have been payable to a taxing authority with respect to such
tax period in the absence of such Tax Asset.
(iv) In the event that The Limited makes a cash deposit with a taxing
authority in order to stop the running of interest or makes a payment of tax and
correspondingly takes action to recoup such payment (such as suing for a
refund), Abercrombie & Fitch shall pay to The Limited an amount equal to
Abercrombie & Fitch's share of the amount so deposited or paid (calculated in a
manner consistent with the determinations provided in this Section 3). Upon
receipt by The Limited of a refund of any amounts paid by it in respect of which
Abercrombie & Fitch shall have advanced an amount hereunder, The Limited shall
pay to Abercrombie & Fitch the amount of such refund, together with any interest
received by it on such refund. If and to the extent that any claim for refund or
contest based thereupon shall be unsuccessful, the payment by Abercrombie &
Fitch under Section 3(c)(iv) shall be credited toward Abercrombie & Fitch's
obligations under this Section 3(c)(iv) and any other payment obligation of
Abercrombie & Fitch under Section 3(d) below.
(d) Treatment of Adjustments. If any adjustment is made in a Federal Tax
return of The Limited Group or in a return relating to a Combined State Tax,
after the filing thereof, in which income or loss of the Abercrombie & Fitch
Group (or any member thereof) is included, then at the time of a Final
Determination of the adjustment, Abercrombie & Fitch shall pay to The Limited or
The Limited shall pay to Abercrombie & Fitch, as the case may be, the difference
between all payments actually made under Section 3 with respect to the taxable
year or period covered by such tax return and all payments that would have been
made under Section 3 taking such adjustment into account, together with any
penalties actually paid and interest for each day until the date of Final
Determination calculated at a rate equal to Prime rate.
(e) Carrybacks From Post-Distribution Years.
(i) The Limited agrees to pay to Abercrombie & Fitch the actual tax
benefit received by The Limited Consolidated Group from the use in any
Pre-Distribution Tax Period of a carryback of any Tax Asset of the Abercrombie &
Fitch Group from a Post-Distribution Tax Period. Such benefit shall be equal to
the excess of (i) the amount of Federal Taxes, or Combined State Taxes, as the
case may be, that would have been payable (or of the tax refund that would have
been receivable) by The Limited Consolidated Group in the absence of such
carryback over (ii) the amount of Federal Taxes or Combined State Taxes, as the
case may be, actually payable (or of the Tax refund actually receivable) by The
Limited Consolidated Group.
(ii) If, subsequent to the payment by The Limited Group to Abercrombie &
Fitch Group of any amount, there shall be (A) a Final Determination which
results in a disallowance or a reduction of the Tax Asset so carried back or (B)
a reduction in the amount of the benefit realized by The Limited Consolidated
Group from such Tax Asset as a result of a Final Determination or the use by The
Limited Consolidated Group of a Tax Asset of The Limited Group, the Abercrombie
& Fitch Group shall repay to The Limited, within 90 days of such event described
in (A) or (B) (an "Event" or, collectively the Events") any amount which would
not have been payable to the Abercrombie & Fitch Group pursuant to this Section
3(e) had the amount of the benefit been determined in light of the Events. In
addition, the Abercrombie & Fitch Group shall hold each member of The Limited
Group harmless for any penalty or interest payable by any member of The Limited
Group as a result of any such Event. Any such amount shall be paid by The
Abercrombie & Fitch Group within 90 days of the payment by The Limited Group of
any such interest or penalty. Nothing in this Section 3(e) shall require The
Limited to file a claim for refund of Federal Taxes or Combined States Taxes
which The Limited, in its sole discretion, determined lacks substantial
authority, as defined in the Code and the regulations thereunder.
(iii) Any refunds or credits of tax received by a member of The Limited
Group or the Abercrombie & Fitch Group, as the case may be, relating to a
Pre-Distribution Tax Period, to the extent attributable to any item of income,
loss, credit, deduction or other tax attribute of any member of the Abercrombie
& Fitch Group or The Limited Group, respectively, shall be paid by such member
of The Limited Group or the Abercrombie & Fitch Group, respectively, to
Abercrombie & Fitch or The Limited, respectively, within 90 days of receipt;
provided that no such payment shall be required to the extent such refund or
credit is attributable to (x) a Tax Asset of the Abercrombie & Fitch Group or
The Limited Group, respectively, for which payment has previously been made by
The Limited Group or the Abercrombie & Fitch Group, respectively, pursuant to
Section 3(c)(iii), 3(e)(1) or 3(e)(iii), or (y) an adjustment for which payment
in respect thereof has previously been made pursuant to Section 3(d).
4. Certain Representations and Covenants.
(a)(i) Abercrombie & Fitch Representations. Abercrombie & Fitch and each
member of the Abercrombie & Fitch Group represent that, as of the date hereof,
and covenant that on the Distribution Date there is no plan or intention (A) to
liquidate Abercrombie & Fitch or to merge or consolidate Abercrombie & Fitch, or
any member of the Abercrombie & Fitch Group conducting an active trade or
business relied upon in connection with the Distribution, with any other person
subsequent to the Distribution, (B) to sell or otherwise dispose of any asset
(or close any store) of Abercrombie & Fitch or any member of the Abercrombie &
Fitch Group subsequent to the Distribution, except in the ordinary course of
business, (C) to take any action inconsistent with the information and
representations furnished to the IRS in connection with the request for a
private letter ruling with respect to the Distribution, (D) to repurchase stock
of Abercrombie & Fitch in a manner contrary to the requirements of Revenue
Procedure 96-30 or in a manner contrary to the representations made in
connection with the request for a private letter ruling with respect to the
Distribution, or (E) to enter into any negotiations, agreements, or arrangements
with respect to transactions or events (including stock issuances, pursuant to
the exercise of options or otherwise, option grants, capital contributions, or
acquisitions, but not including the Distribution) which may cause the
Distribution to be treated as part of a plan pursuant to which one or more
persons acquire directly or indirectly Abercrombie & Fitch stock representing a
"50-percent or greater interest" within the meaning of Section 355(d)(4) of the
Code.
(ii) The Limited Representations. The Limited and each member of The
Limited Group represent that, as of the date hereof, and covenant on the
Distribution Date there is no plan or intention to take any action inconsistent
with the information and representations furnished to the IRS and Xxxxx Xxxx &
Xxxxxxxx in connection with the request for a private letter ruling with respect
to the Distribution, regardless of whether such information and representations
were included in the ruling or pronouncement issued by the IRS.
(iii) Abercrombie & Fitch and The Limited Representations. Except
pursuant to the terms of the Contingent Redemption Agreement, each of
Abercrombie & Fitch, The Limited and the members of the Abercrombie & Fitch
Group and The Limited Group, respectively, represent that, as of the date
hereof, and covenant that on the Distribution Date, neither Abercrombie & Fitch,
The Limited nor the members of the Abercrombie & Fitch Group or The Limited
Group, respectively (as applicable), is aware of any present plan or intention
by the current shareholders of The Limited to sell, exchange, transfer by gift,
or otherwise dispose of any of their stock in, or securities of, The Limited or
Abercrombie & Fitch subsequent to the Distribution.
(b) Abercrombie & Fitch Covenants. Abercrombie & Fitch covenants to The
Limited that (i) during the two-year period following the Distribution Date,
neither Abercrombie & Fitch nor any member of the Abercrombie & Fitch Group
conducting an active trade or business relied upon in connection with the
Distribution, will liquidate, merge or consolidate with any other person, (ii)
during the two-year period following the Distribution Date, Abercrombie & Fitch
will not sell, exchange, distribute or otherwise dispose of its assets or those
of any member of the Abercrombie & Fitch Group, or close any of its stores or
those of any member of the Abercrombie & Fitch Group, except in the ordinary
course of business, (iii) following the Distribution, Abercrombie & Fitch will,
for a minimum of two years, continue the active conduct of the historic business
conducted by Abercrombie & Fitch throughout the five year period prior to the
Distribution, (iv) Abercrombie & Fitch will not, nor will it permit any member
of the Abercrombie & Fitch Group to, take any action inconsistent with the
information and representations furnished to the IRS in connection with the
request for a private letter ruling with respect to the Distribution, (v)
Abercrombie & Fitch will not repurchase stock of Abercrombie & Fitch in a manner
contrary to the requirements of Revenue Procedure 96-30 or in a manner contrary
to the representations made in connection with the request for a private letter
ruling with respect to the Distribution, (vi) on or after the Distribution Date,
it will not, nor will it permit any member of the Abercrombie & Fitch Group to
make or change any accounting method, change its taxable year, amend any tax
Return or take any tax position on any tax Return, take any other action, omit
to take any action or enter into any transaction that results in any increased
tax liability or reduction of any Tax Asset of The Limited Consolidated Group or
any member thereof in respect of any Pre-Distribution Tax Period, (vii) during
the tax period of the Abercrombie & Fitch Group that begins immediately after
the Distribution Date, it will not, nor will it permit any member of the
Abercrombie & Fitch Group to, enter into any transaction or take any other
action that is motivated, in whole or in part, by tax considerations, (viii)
during the applicable period provided in Section 355(e)(2)(B) of the Code with
respect to the Distribution, it will not enter into any transaction or make any
change in equity structure (including stock issuances, pursuant to the exercise
of options, option grants or otherwise, capital contributions, or acquisitions,
but not including the Distribution) which may cause the Distribution to be
treated as part of a plan pursuant to which one or more Persons acquire directly
or indirectly Abercrombie & Fitch stock representing a "50-percent or greater
interest" within the meaning of Section 355(d)(4) of the Code, and (ix) it will
file federal consolidated returns with its subsidiaries for the tax period
immediately after the Distribution Date.
(c) Exceptions. Notwithstanding the foregoing, Abercrombie & Fitch and
the members of the Abercrombie & Fitch Group may take actions inconsistent with
the covenants contained in Section 4(b)(i) through (vii) above, if:
(i) Abercrombie & Fitch obtains a ruling from the IRS to the effect that
such actions will not result in the Distribution being taxable to The Limited or
its shareholders; or
(ii) Abercrombie & Fitch obtains an opinion of counsel recognized as an
expert in federal income tax matters and acceptable to The Limited to the same
effect as in Section 4(c)(i), provided such opinion is reasonably acceptable to
The Limited.
(d) Deductions and Certain Taxes Related to Options.
(i) The Limited shall file Returns claiming (x) the tax deductions
attributable to the exercise of options to purchase stock of The Limited or the
vesting of The Limited restricted stock which are held by employees or former
employees of the Abercrombie & Fitch Group or (y) any other similar compensation
related tax deductions. The Returns of the Limited Group and the Abercrombie &
Fitch Group shall reflect the entitlement of The Limited Group to such
deductions. To the extent such deductions are disallowed because a taxing
authority determines that the Abercrombie & Fitch Group should have claimed such
deductions, as consideration for The Limited's issuance of shares of its stock
as a result of an event described in clause (x) of the preceding sentence, the
Abercrombie & Fitch Group shall pay to The Limited Group an amount equal to the
tax paid by The Limited Group as a result of such disallowance. Upon the
exercise of any option or the vesting of any restricted stock described in
clause (x), or the occurrence of any other event that would result in a
compensation related tax deduction, as the case may be, the Abercrombie & Fitch
Group (as agent for the Limited Group) shall prepare and file all applicable tax
returns and pay the applicable tax liability under the Federal Insurance
Contributions Act, the Federal Unemployment Tax Act or any state employment tax
law in connection with such event.
(ii) Abercrombie & Fitch shall file Returns claiming (x) the tax
deductions attributable to the exercise of options to purchase stock of
Abercrombie & Fitch which are held by employees or former employees of The
Limited Group or (y) any other similar compensation related tax deductions. The
Returns of The Limited Group and the Abercrombie & Fitch Group shall reflect the
entitlement of The Abercrombie & Fitch Group to such deductions. To the extent
such deductions are disallowed because a taxing authority determines that The
Limited Group should have claimed such deductions, as consideration for
Abercrombie & Fitch's issuance of shares of its stock as a result of an event
described in clause (x) of the preceding sentence, The Limited Group shall pay
to The Abercrombie & Fitch Group an amount equal to the tax paid by Abercrombie
& Fitch Group as a result of such disallowance. Upon the exercise of any option
described in the immediately preceding clause (x), or the occurrence of any
other event that would result in a compensation related tax deduction, as the
case may be, The Limited Group (as agent for Abercrombie & Fitch Group) shall
prepare and file all applicable tax return and pay the applicable tax liability
under the Federal Insurance Contributions Act, the Federal Unemployment Tax Act
or any state employment tax law in connection with the exercise of such an
option.
5. Indemnities.
(a) Abercrombie & Fitch Indemnity. Abercrombie & Fitch and each member of
the Abercrombie & Fitch Group will jointly and severally indemnify The Limited
and the members of The Limited Group that were members of The Limited
Consolidated Group (that included a member of the Abercrombie & Fitch Group)
against and hold them harmless from:
(i) any Abercrombie & Fitch Group Tax Liability;
(ii) any liability or damage resulting from a breach by Abercrombie &
Fitch or any member of the Abercrombie & Fitch Group of any representation or
covenant made by Abercrombie & Fitch herein; and
(iii) all liabilities, costs, expenses (including, without limitation,
reasonable expenses of investigation and attorneys' fees and expenses), losses,
damages, assessments, settlements or judgments arising out of or incident to the
imposition, assessment or assertion of any tax liability or damage described in
(i) or (ii) including those incurred in the contest in good faith in appropriate
proceedings relating to the imposition, assessment or assertion of any such tax,
liability or damage.
(b) The Limited Indemnity. The Limited and each member of The Limited
Group will jointly and severally indemnify Abercrombie & Fitch and the members
of the Abercrombie & Fitch Group that were members of The Limited Consolidated
Group (that included a member of The Limited Group) against and hold them
harmless from:
(i) any The Limited Group Tax Liability and any tax liability resulting
from the Distribution, other than any such liabilities described in Section
5(a);
(ii) any liability or damage resulting from a breach by The Limited or
any member of The Limited Group of any representation or covenant made by The
Limited herein; and
(iii) all liabilities, costs, expenses (including, without limitation,
reasonable expenses of investigation and attorneys' fees and expenses), losses,
damages, assessments, settlements or judgments arising out of or incident to the
imposition, assessment or assertion of any tax liability or damage described in
(i) or (ii) including those incurred in the contest in good faith in appropriate
proceedings relating to the imposition, assessment or assertion of any such tax,
liability or damage.
If a member of The Limited Group ceases to be a member of The Limited as a
result of a sale of its stock to a third party (whether or not treated as a sale
of stock for tax purposes), such member of The Limited Group shall be released
from its obligations under this Agreement upon such sale and neither The Limited
nor any member of The Limited Group shall have any obligation to indemnify
Abercrombie & Fitch or any member of the Abercrombie & Fitch Group under Section
5(b)(iii) for any liability or damage attributable to actions taken by such
member after such sale.
(c) Discharge of Indemnity. Abercrombie & Fitch, The Limited and the
members of the Abercrombie & Fitch Group and The Limited Group, respectively,
shall discharge their obligations under Section 5(a) and 5(b) hereof,
respectively, by paying the relevant amount within 30 days of demand therefor.
After a Final Determination of an obligation of Abercrombie & Fitch or any
member of the Abercrombie & Fitch Group under Section 5(a), The Limited shall
send a statement to Abercrombie & Fitch showing the amount due thereunder. After
a Final Determination of an obligation of The Limited or any member of The
Limited Group under Section 5(b), Abercrombie & Fitch shall send a statement to
The Limited showing the amount due thereunder. Calculation mechanics relating to
items described in Section 5(a)(i) are set forth in Section 3(c).
Notwithstanding the foregoing, if either Abercrombie & Fitch, The Limited or any
member of the Abercrombie & Fitch Group or The Limited Group disputes in good
faith the fact or the amount of its obligation under Section 5(a) or Section
5(b), then no payment of the amount in dispute shall be required until any such
good faith dispute is resolved in accordance with Section 16 hereof; provided,
however, that any amount not paid within 30 days of demand therefor shall bear
interest as provided in Section 9.
(d) Tax Benefits. If an indemnification obligation of any member of The
Limited Group or any member of the Abercrombie & Fitch Group, as the case may
be, under this Section 5 with respect to The Limited Consolidated Group arises
in respect of an adjustment that makes allowable to a member of the Abercrombie
& Fitch Group or a member of The Limited Group, respectively, any deduction,
amortization, exclusion from income or other allowance (a "Tax Benefit") which
would not, but for such adjustment, be allowable, then any payment by any member
of The Limited Group or any member of the Abercrombie & Fitch Group,
respectively, pursuant to this Section 5 shall be an amount equal to (X) the
amount otherwise due but for this subsection (d), minus (Y) the present value of
the product of the Tax Benefit multiplied (i) by the maximum federal, foreign or
state, as the case may be, corporate tax rate in effect at the time such Tax
Benefit becomes allowable to a member of the Abercrombie & Fitch Group or a
member of The Limited Group (as the case may be) or (ii) in the case of a
credit, by 100 percent. The present value of such product shall be determined by
discounting such product from the time the Tax Benefit becomes allowable at a
rate equal to Prime.
6. Subsidiaries.
(a) Performance. The Limited agrees and acknowledges that The Limited
shall be responsible for the performance of the obligations of each member of
The Limited Group hereunder applicable to such subsidiary. Abercrombie & Fitch
agrees and acknowledges that Abercrombie & Fitch shall be responsible for the
performance by each member of the Abercrombie & Fitch Group of the obligations
hereunder applicable to such member.
(b) Application to Present and Future Subsidiaries. This Agreement is
being entered into by The Limited and Abercrombie & Fitch on behalf of
themselves and each member of The Limited Group and Abercrombie & Fitch Group,
respectively. This Agreement shall constitute a direct obligation of each such
member and shall be deemed to have been readopted and affirmed on behalf of any
corporation which becomes a member of The Limited Group or Abercrombie & Fitch
Group in the future.
7. Communication and Cooperation.
(a) Consult and Cooperate. Abercrombie & Fitch and The Limited shall
consult and cooperate (and shall cause each member of the Abercrombie & Fitch
Group or The Limited Group, respectively, to cooperate) fully at such time and
to the extent reasonably requested by the other party in connection with all
matters subject to this Agreement. Such cooperation shall include, without
limitation,
(i) the retention and provision on reasonable request of any
and all information including all books, records, documentation or
other information pertaining to tax matters relating to The Limited
Group and the Abercrombie & Fitch Group, any necessary explanations
of information, and access to personnel, until two years after the
expiration of the applicable statute of limitation (giving effect to
any extension, waiver, or mitigation thereof);
(ii) the execution of any document that may be necessary or
helpful in connection with any required Return or in connection with
any audit, proceeding, suit or action; and
(iii) the use of the parties' best efforts to obtain any
documentation from a governmental authority or a third party that
may be necessary or helpful in connection with the foregoing.
(b) Provide Information. The Limited and Abercrombie & Fitch shall keep
each other fully informed with respect to any material development relating to
the matters subject to this Agreement.
(c) Tax Attribute Matters. The Limited and Abercrombie & Fitch shall
advise each other with respect to any proposed tax adjustments relating to a
Pre-Distribution Tax Period, which are the subject of an audit or investigation,
or are the subject of any proceeding or litigation, and which may affect any tax
liability or any tax attribute of The Limited, Abercrombie & Fitch, The Limited
Group, the Abercrombie & Fitch Group or any member of the Abercrombie & Fitch
Group or The Limited Group (including, but not limited to, basis in an asset or
the amount of earnings and profits). Except as otherwise provided herein, The
Limited shall determine the apportionment of tax attributes between The Limited
Group and the Abercrombie & Fitch Group in accordance with applicable laws.
8. Audits and Contest.
(a) Notwithstanding anything in this Agreement to the contrary, The
Limited shall have full control over all matters relating to any tax return or
any tax Proceeding relating to any tax matters of at least one member of The
Limited Consolidated Group. Except as provided in Section 8(b), The Limited
shall have absolute discretion with respect to any decisions to be made, or the
nature of any action to be taken, with respect to any matter described in the
preceding sentence.
(b) No settlement of any Tax Proceeding relating to any matter that would
cause a payment obligation under Sections 5(a) or 5(b) shall be accepted or
entered into by or on behalf of the party entitled to receive a payment under
either Section 5(a) or 5(b), whichever is applicable, unless the party
ultimately responsible for such payment under either Section 5(a) or 5(b),
whichever is applicable (the "Indemnitor"), consents thereto in writing (which
consent shall not be unreasonably withheld). If such consent is unreasonably
withheld, all expenses relating to the contest of such matter shall be borne by
the Indemnitor, and otherwise they shall be borne equally by the Indemnitor and
the indemnified party. If the Indemnitor does not respond to the indemnified
party's request for consent within 30 days, the Indemnitor will be deemed to
have consented to the settlement.
(c) The indemnified party agrees to give prompt notice to the Indemnitor
of the assertion of any claim, or the commencement of any suit, action or
proceeding in respect of which indemnity may be sought hereunder.
(d) With respect to Returns relating to taxes solely attributable to the
Abercrombie & Fitch Group, Abercrombie & Fitch and the members of the
Abercrombie & Fitch Group shall have full control over all matters relating to
any Tax Proceeding in connection therewith. Abercrombie & Fitch and the members
of the Abercrombie & Fitch Group shall have absolute discretion with respect to
any decisions to be made, or the nature of any action to be taken, with respect
to any matter described in the preceding sentence.
9. Payments.
All payments to be made hereunder shall be made in immediately available
funds. Except as otherwise provided, all payments required to be made pursuant
to this Agreement will be due 90 days after the receipt of notice of such
payment or, where no notice is required, 90 days after the fixing of liability
or the resolution of a dispute. Payments shall be deemed made when received. Any
payment that is not made when due shall bear interest at a rate equal to Prime
rate for each day until paid. If, pursuant to a Final Determination, any amount
paid by The Limited or the members of The Limited Group or Abercrombie & Fitch
or the members of the Abercrombie & Fitch Group, as the case may be, pursuant to
this Agreement results in any increased tax liability or reduction of any Tax
Asset of Abercrombie & Fitch or any member of the Abercrombie & Fitch Group or
The Limited or any member of The Limited Group, respectively, then The Limited
or Abercrombie & Fitch, as appropriate, shall indemnify the other party and hold
it harmless from any interest or penalty attributable to such increased tax
liability or the reduction of such Tax Asset and shall pay to the other party,
in addition to amounts otherwise owed, the After-Tax Amount.
10. Notices.
Any notice, demand, claim, or other communication under this Agreement
shall be in writing and shall be deemed to have been given upon the delivery or
mailing thereof, as the case may be, if delivered personally or sent by
certified mail, return receipt requested, postage prepaid, to the parties at the
following addresses (or at such other address as a party may specify by notice
to the other):
If to The Limited, to:
The Limited, Inc.
Three Limited Parkway
Xxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx
Fax: 000-000-0000
If to Abercrombie & Fitch, to:
Abercrombie & Fitch Co.
Four Limited Parkway Xxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxx
Fax: 000-000-0000
11. Costs and Expenses.
(a) Reimbursement for Certain Services. The Limited shall provide
services in connection with this Agreement, including but not limited to, those
services relating to the preparation of returns (including Pro Forma Returns)
and determination of Abercrombie & Fitch Tax Liability as described in sections
2 and 3. As compensation for these services, Abercrombie & Fitch shall pay The
Limited a fee. The Limited shall calculate the fee payable, invoice Abercrombie
& Fitch for the fee and Abercrombie & Fitch will pay the invoiced amount in a
manner consistent with the invoice and payment procedures provided for in the
Amended and Restated Services Agreement between Abercrombie & Fitch Co. and The
Limited, Inc. (the "Transitional Services Agreement").
(b) Additional Services. The Limited will provide the tax services
specified in the Transitional Services Agreement to the Abercrombie & Fitch
Group that do not relate to Federal Taxes or Combined State Taxes for any
Pre-Distribution Tax Period. The Limited will be compensated in the same manner
as described in Section 11(a).
(c) Others. Except as expressly set forth in this Agreement, each party
shall bear its own costs and expenses incurred pursuant to this Agreement. For
purposes of this Agreement, "out-of-pocket" expenses shall include reasonable
attorney fees, accountant fees and other related professional fees and
disbursements.
12. Effectiveness; Termination and Survival.
This Agreement shall become effective upon the consummation of the
Distribution. All rights and obligations arising hereunder with respect to a
Pre-Distribution Tax Period shall survive until they are fully effectuated or
performed and, provided, further, that notwithstanding anything in this
Agreement to the contrary, this Agreement shall remain in effect and its
provisions shall survive for the full period of all applicable statutes of
limitation (giving effect to any extension, waiver or mitigation thereof).
13. Section Headings.
The headings contained in this Agreement are inserted for convenience
only and shall not constitute a part hereof or in any way affect the meaning or
interpretation of this Agreement.
14. Entire Agreement; Amendments and Waivers; Severability.
(a) Entire Agreement. This Agreement and the exhibits hereto contains the
entire understanding of the parties hereto with respect to the subject matter
contained herein. No alteration, amendment, modification, or waiver of any of
the terms of this Agreement shall be valid unless made by an instrument signed
by an authorized officer of each of The Limited and Abercrombie & Fitch, or in
the case of a waiver, by the party against whom the waiver is to be effective.
(b) Amendments and Waivers. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
hereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege. This
Agreement shall not be waived, amended or otherwise modified except as in
writing, duly executed by all of the parties hereto.
(c) Severability. If any provision of this Agreement or the application
of any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid, illegal or unenforceable to any
extent, the remainder of this Agreement or such provision or the application of
such provision to such party or circumstances, other than those to which it is
so determined to be invalid, illegal or unenforceable, shall remain in full
force and effect to the fullest extent permitted by law and shall not be
affected thereby, unless such a construction would be unreasonable.
15. Governing Law and Interpretation.
This Agreement has been made in and shall be construed and enforced in
accordance with the laws of the state of New York without giving effect to laws
and principles relating to conflicts of law.
16. Dispute Resolution.
If the parties hereto are unable to resolve any disagreement or dispute
relating to this Agreement within 20 days, such disagreement or dispute shall be
resolved by a recognized law firm or accounting firm expert in tax matters in
the relevant jurisdiction or that is mutually acceptable to the parties hereto
(a "Referee"). A Referee so chosen shall resolve any such disagreement pursuant
to such procedures as it may deem advisable. Any such resolution shall be
binding on the parties hereto without further recourse. Except as otherwise
provided herein, the costs of any Referee shall be apportioned between The
Limited and Abercrombie & Fitch as determined by such Referee in such manner as
the Referee deems reasonable, taking into account the circumstances of the
dispute, the conduct of the parties and the result of the dispute.
17. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same Agreement.
18. Assignments; Third Party Beneficiaries.
Except as provided below, this Agreement shall be binding upon and shall
inure only to the benefit of the parties hereto and their respective successors
and assigns, by merger, acquisition of assets or otherwise (including but not
limited to any successor of a party hereto succeeding to the tax attributes of
such party under applicable law). This Agreement is not intended to benefit any
person other than the parties hereto and such successors and assigns, and no
such other person shall be a third party beneficiary hereof.
19. Further Assurances.
The Limited and Abercrombie & Fitch shall execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such instruments
and take such other action as may be necessary or advisable to carry out their
obligations under this Agreement and under any exhibit, document or other
instrument delivered pursuant hereto.
20. Authorization, etc.
Each of the parties hereto hereby represents and warrants that it has the
power and authority to execute, deliver and perform this Agreement, that this
Agreement has been duly authorized by all necessary corporate action on the part
of such party that this Agreement constitutes a legal, valid and binding
obligation of each such party and that the execution, delivery and performance
of this Agreement by such party does not contravene or conflict with any
provision or law or of its charter or bylaws or any agreement, instrument or
order binding on such party.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first written above.
The Limited on its own behalf and on behalf of
each member of The Limited Group.
By:__________________________
Title: Vice President, Taxes
Date:_______________________
Abercrombie & Fitch on its own behalf and on
behalf of each member of the Abercrombie & Fitch
Group.
By:__________________________
Title: Chief Financial Officer
Date:_______________________
