Express 2010 Annual Report Download - page 41

We restated our financial statements for the July 7, 2007 to February 2, 2008 period and 2008 after certain
accounting errors were identified that we determined to be material. Management identified the following
material weaknesses in its internal controls: (1) we did not have the appropriate resources and controls to
properly account for our deferred taxes and (2) we did not have adequate oversight and controls related to the
accounting for complex agreements arising from transactions unrelated to our core business operations, which
resulted in accounting errors.
While we believe that the material weaknesses have been remediated, if we fail to maintain effective internal
controls in the future, it could result in a material misstatement of our financial statements that would not be
prevented or detected on a timely basis, which could cause investors to lose confidence in our financial
information or cause our stock price to decline.
We are a “controlled company” under the rules of the New York Stock Exchange Listed Company Manual,
controlled by Golden Gate and Limited Brands, whose interests in our business may be different from yours.
Golden Gate, our largest stockholder, beneficially owned approximately 43% of our common stock as of
March 11, 2011. As a result of this ownership, Golden Gate will have a substantial influence on our affairs and
its voting power will constitute a large percentage of any quorum of our stockholders voting on any matter
requiring the approval of our stockholders. Such matters include the election of directors, the adoption of
amendments to our certificate of incorporation and bylaws, and approval of mergers or sales of substantially all
of our assets. This concentration of ownership may also have the effect of delaying or preventing a change in
control of our company or discouraging others from making tender offers for our shares, which could prevent
stockholders from receiving a premium for their shares. In addition, one of our five directors is a Managing
Director of Golden Gate. Golden Gate may cause corporate actions to be taken even if the interests of Golden
Gate conflict with the interests of our other stockholders.
In connection with the IPO, Golden Gate entered into a Stockholders Agreement (“Stockholders Agreement”)
with Limited Brands, pursuant to which Golden Gate has the right to nominate (1) three directors to our board of
directors, so long as Golden Gate holds at least 50% of the number of shares of our common stock held by
Golden Gate immediately prior to the completion of the IPO, and (2) two directors, so long as Golden Gate holds
at least 25% of the number of shares of our common stock held by Golden Gate immediately prior to the IPO.
Limited Brands has the right to nominate (1) two directors to our board of directors, so long as Limited Brands
holds at least 50% of the number of shares of our common stock held by Limited Brands immediately prior to the
IPO, and (2) one director, so long as Limited Brands holds at least 25% of the number of shares of our common
stock held by Limited Brands immediately prior to the IPO. The Stockholders Agreement requires Golden Gate
and Limited Brands to vote their shares of common stock in favor of those persons nominated pursuant to rights
under the Stockholders Agreement.
As of March 11, 2011 Golden Gate beneficially owned approximately 38.0 million shares, or 43%, of our
common stock and 75% of the number of shares that Golden Gate owned immediately prior to the completion of
the IPO, and therefore has the right to nominate three directors to our board of directors. As of March 11, 2011
Limited Brands owned approximately 12.7 million shares, or 14%, of our common stock and 75% of the number
of shares that Limited Brands owned immediately prior to the completion of the IPO, and therefore has the right
to nominate two directors to our board of directors. As a result, Golden Gate and Limited Brands together are
able to nominate and elect a majority of the members of our board of directors. The directors so elected will have
the authority, subject to the terms of our indebtedness and the rules and regulations of the New York Stock
Exchange (“NYSE”), to issue additional stock, implement stock repurchase programs, declare dividends, and
make other decisions, including determining what matters are submitted to a vote of our stockholders. In
addition, Golden Gate and Limited Brands, acting together, are able to control virtually all matters requiring
stockholder approval, including amendments to our certificate of incorporation and bylaws and approval of
significant corporate transactions, including mergers and sales of substantially all of our assets.
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